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Exam 2: Cost Concepts, Behaviour and Estimation

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Question 31

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Assuming that a cost is mixed and linear, and that past cost behavior is expected to continue into the future, which of the following is mostly likely the best technique for estimating future costs?

A) Engineered estimate of cost
B) Two-point method
C) Scatter plot
D) Regression analysis

E) All of the above
F) C) and D)

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Question 32

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Which of the following statements is true?

A) Past costs are always relevant for decisions and are often useful in estimating future cost behavior
B) Past costs are always relevant for decisions, but are rarely useful in estimating future cost behavior
C) Past costs are never relevant for decisions, nor are they useful in estimating future cost behavior
D) Past costs are never relevant for decisions, but are often useful in estimating future cost behavior

E) C) and D)
F) B) and D)

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Question 33

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Cosby Company is attempting to develop the cost function for repair costs. The following past data are available:

Which of the follow is not an assumption when estimating a cost function over the relevant range of activity?

Consider the following cost data for the cost object, number of machine setups. Each set of costs (A, B, and C) is from a different type of manufacturing operation and represents the cost behavior for the cost of that company's machine setups. Cost C is best described as

When the cost object is a unit produced, straight-line depreciation on manufacturing equipment would be a

Cost functions are most useful for estimating costs over short periods such as one year.

This method of estimating future costs can be used when only one period of data is available.

Categorising costs by their behavior is one step in estimating relevant costs for a cost object.

The major disadvantage of the high-low method is that

A manager might use this method to create a graph of cost behavior without any statistical techniques

An organisation's accountant is estimating next period's total overhead costs. She performed two regression analyses, one based on direct labor hours and the other based upon machine hours. The results were: Total overhead = $150,000 + $4 x direct labor hours Adjusted R-square = 0.65 Total overhead = $130,000 + $5 x machine hours Adjusted R-square = 0.77 For the next period the accountant anticipates using 28,000 direct labor hours and 26,000 machine hours. Based upon this information, what is the best estimate for overhead for the next period?

It would be helpful for managers to have some training in engineering in calculating an engineered cost estimate.

When the cost object is a unit produced, lubricating oil for production machines would be a(n)

Simple regression analysis produces an equation of the form : Y= α + βX + ε

Which graph shows data that are more suitable for regression analysis?

If fixed costs are graphed against output fixed costs are represented by a straight line.

Which of the following are forms of regression analysis?

Simple regression analysis output produces a variety of statistics. Which of the following statistics provides information for variable costs?

Steel used in the production of automobiles would generally be classified as a direct cost.