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Exam 8: Cost Estimation

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Question 61

Multiple Choice

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Data collected on the cost objects and cost drivers for cost estimation must be:

A) Brief and limited.
B) Exhaustive.
C) Concrete.
D) Consistent and accurate.
E) Varied.

F) B) and E)
G) A) and B)

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Question 62

Multiple Choice

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As a preliminary step in the selection of variables to use in a statistical-forecasting model,the management accountant has calculated the coefficient of correlation between the firm's sales and three economic indexes.The results were as follows: Which of the following statements indicates the best course of action for the auditor to take in the development of a forecasting model?

A) Drop all three indexes from further consideration because a coefficient of correlation of + 1.0 is necessary for a statistically significant relationship.
B) Include only indexes B and C in the model because they have the only negative coefficients of correlation.
C) Include only index C in the model because its coefficient of correlation is relatively high and therefore probably statistically significant,while the coefficients of indexes A and B are likely to be insignificant.
D) Include only index A in the model because it has the only positive coefficient of correlation.

E) B) and C)
F) A) and B)

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Question 63

Multiple Choice

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Home Remodeling Inc.recently obtained a short-term bank loan from City National Bank.The bank required that certain credit information and pro forma financial statements be maintained through the life of the loan.In order to prepare the pro forma statements,Home Remodeling must forecast total overhead cost.The actual machine hours and overhead cost are presented below for the past six months. Using the high-low method,total monthly fixed overhead cost is calculated to be:

The maintenance expenses of a company are to be analyzed for purposes of constructing a flexible budget.Examination of past records disclosed the following costs and volume measures: Highest and Lowest: Cost per month $20,000 and $14,000;Machine hours 55,000 and 35,000. Using the high-low-point method of analysis,the estimated variable cost per machine hour is:

Sterling Glass Company uses the high-low method to analyze mixed costs.The following information relates to the production data for the first six months of the year. What is the estimated total cost at an operating level of 150 hours?

For a simple regression analysis model that is used to allocate factory overhead,an internal auditor finds that the intersection of the line of best fit for the overhead allocation with the y-axis is $5,000.The slope of the line is.20.The independent variable,factory wages,amounts to $900,000 for the month.What is the estimated amount of factory overhead to be allocated for the month?

Burmer Co.has accumulated data to use in preparing its annual profit plan for the upcoming year.The cost behavior pattern of the maintenance costs must be determined.Data regarding the machine hours and maintenance costs for the last year and the results of the regression analysis are as follows: A staff assistant has run regression analyses on the data and obtained the following output using Excel: The F statistic is calculated by:

The maintenance expenses of a company are to be analyzed for purposes of constructing a flexible budget.Examination of past records disclosed the following costs and volume measures: Highest and Lowest: Cost per month $86,000 and $74,000;Machine hours 96,000 and 66,000. Using the high-low technique,estimate the annual fixed cost for maintenance expenditures.

A measure of the statistical reliability of each independent variable is:

Audio Zone Co.needs to prepare pro forma financial statements for the next fiscal year.To do so,the company must forecast its total overhead cost.The actual machine hours and total overhead cost are presented below for the past six months. Using the high-low method,total monthly fixed overhead cost is calculated to be: