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ACC 410 Study Guide - Midterm Guide: Coefficient Of Determination, Opportunity Cost, Layoff

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School
Ryerson University
Department
Accounting
Course
ACC 410
Professor
Vanessa Magness

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Document Summary

The relevant range is a span of activity for a given cost object, where total fixed costs remain constant and variable costs per unit of activity remain constant. Draw a line of best fit then pick two points and calculate. R square (coefficient of determination) is a statistical measure of how well a regression line or line of best fit approximates data points. It minimizes the sum of all squared distances from the regression line to data points. Tells how much variation in y is explained by x. High r squared means more accuracy of regression model. Extent to which the cost function is made up of fixed costs. Helps achieve strategic goal? (i. e. social responsibility, brand recognition, higher market presence) When asked for minimum price to pay for special order . When no constraints apply, the products with the highest contribution margins per unit (labour hour, per day, etc. ) are emphasized.

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Related Questions

The Ramon Company is a manufacturer that is interested in developing a cost formula to estimate the fixed and variable components of its monthly manufacturing overhead costs. The company wishes to use machine-hours as its measure of activity and has gathered the data below for this year and last year: Last Year Machine Overhead Hours Costs This Year Machine Overhead Hours Costs Month January ........ February ...... March ...... April .. May ...... June .... July ....... August ....... September ..... October ....... November ........ December ...... 21,000 25,000 22,000 23,000 20,500 19,000 14,000 10,000 12,000 17,000 16,000 19,000 $84,000 $99,000 $89,500 $90,000 $81,500 $75,500 $70,500 $64,500 $69,000 $75,000 $71,500 $78,000 21,000 24,000 23,000 22,000 20,000 18,000 12,000 13,000 15,000 17,000 15,000 18,000 $86,000 $93,000 $93,000 $87,000 $80,000 $76,500 $67,500 $71,000 $73,500 $72,500 $71,000 $75,000 The company leases all of its manufacturing equipment. The lease arrangement calls for a flat monthly fee up to 19,500 machine-hours. If the machine-hours used exceeds 19,500, then the fee becomes strictly variable with respect to the total number of machine-hours consumed during the month. Lease expense is a major element of overhead cost. Required: 1. Using the high-low method, estimate a manufacturing overhead cost formula. 2. Prepare a scattergraph using all of the data for the two-year period. Fit a straight line or lines to the plotted points using a ruler. Describe the cost behavior pattern revealed by your scat- tergraph plot. 3. Assume a least-squares regression analysis using all of the given data points estimated the total fixed costs to be $40,102 and the variable costs to be $2.13 per machine-hour. Do you have any concerns about the accuracy of the high-low estimates that you have computed or the least-squares regression estimates that have been provided? 4. Assume that the company consumes 22,500 machine-hours during a month. Using the high- low method, estimate the total overhead cost that would be incurred at this level of activity. Be sure to consider only the data points contained in the relevant range of activity when perform- ing your computations. 5. Comment on the accuracy of your high-low estimates assuming a least-squares regression analysis using only the data points in the relevant range of activity estimated the total fixed costs to be $10,090 and the variable costs to be $3.53 per machine-hour.

EXERCISE 2-11 High-Low Method; Scattergraph Analysis [LO2-4, LO2-5] The following data relating to units shipped and total shipping expense have been assembled by Archer Company, a wholesaler of large, custom-built air-conditioning units for commercial buildings: Month Units Shipped Total Shipping Expense January ... February March April May ...... June ....... July ........ Novo A6 $1,800 $2,300 $1,700 $2,000 $2,300 $2,700 $1,200 Required: 1. Prepare a scattergraph using the data given above. Plot cost on the vertical axis and activity on the horizontal axis. Is there an approximately linear relationship between shipping expense and the number of units shipped? 2. Using the high-low method, estimate the cost formula for shipping expense. Draw a straight line through the high and low data points shown in the scattergraph that you prepared in requirement 1. Make sure your line intersects the Y axis. 3. Comment on the accuracy of your high-low estimates assuming a least-squares regression analysis estimated the total fixed costs to be $910.71 per month and the variable cost to be $217.86 per unit. How would the straight line that you drew in requirement 2 differ from a straight line that minimizes the sum of the squared errors? What factors, other than the number of units shipped, are likely to affect the company's ship- ping expense? Explain. 4.

EXERCISE 2-14 High-Low Method; Predicting Cost [L02-4, LO2-5] The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the last seven months were: Guest-Days of Occupancy Custodial Supplies Expense Month March ....... April May June ...... July ........ August September ...... 4,000 6,500 8,000 10,500 12,000 9,000 7,500 $7,500 $8,250 $10,500 $12,000 $13,500 $10,750 $9,750 . . . . . . Guest-days is a measure of the overall activity at the hotel. For example, a guest who stays at the hotel for three days is counted as three guest-days. Required: 1. Using the high-low method, estimate a cost formula for custodial supplies expense. 2. Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days? 3. Prepare a scattergraph using the data given above. Plot custodial supplies expense on the ver- tical axis and the number of guest-days occupied on the horizontal axis. Draw a straight line 4. through the two data points that correspond to the high and low levels of activity. Make sure your line intersects the Y-axis. Comment on the accuracy of your high-low estimates assuming a least-squares regression analysis estimated the total fixed costs to be $3,973.10 per month and the variable cost to be $0.77 per guest-day. How would the straight line that you drew in requirement 3 differ from a straight line that minimizes the sum of the squared errors? Using the least-squares regression estimates given in requirement 4, what custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days? 5. Net operating income. $ 6,000 $ 18,000 $ 30,000 Required: 1. Identify each of the company's expenses (including cost of goods sold) as either variable, fixed, or mixed. 2. Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. 3. Redo the company's income statement at the 5,000-unit level of activity using the contribution format.