Cost Accounting I Ashford ACC310 Week 2 Quiz

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Regression analysis does not assume a

constant variance for the independent error terms (e) from the predicting equation.

The Shapely Company uses the high-low method to determine its cost equation. The following information was gathered for 2008:

Machine Hours Direct Labor Costs
Busiest month (June) 14,000 $200,000
Slowest month (December) 6,000 $120,000

If Shapely expects to use 10,000 machine hours next month, what are the estimated direct labor costs?

ANS: $160,000

200,000 - 120,000 = $80,000
14,000 - 6,000 = 8,000
$80,000 / 8,000 = $10 per hour
$10 X 6,000 = $60,000 AND $120,000 - $60,000 = $60,000 in FC

$10 X 10,000 hours = $100,000 + $60,000 = $160,000

Determining the fixed and the variable components of a mixed cost can be accomplished by several methods. The cost of each method varies in direct relation to its degree of accuracy. Which of the following methods finds the fixed portion of a mixed cost before calculating the variable portion?

Account Analysis

The MNK Company has gathered the following information for a unit of its most popular product:

Direct materials $6
Direct labor 3
Overhead (40% variable) 5
Cost to manufacture 14
Desired markup (50%) 7
Target selling price 21

The above cost information is based on 4,000 units. A foreign distributor has offered to buy 1,000 units at a price of $16 per unit. This special order would not disturb regular sales. Variable shipping and other selling expenses would be $1 per unit for the special order. If the special order is accepted, MNK's operating profits will increase by:

ANS: $4,000

Price is $16
Cost is $14 + $1 for shipping & other
$16 - $15 = $1 X 4,000 units = $4,000

Which of the following statements regarding the two-stage cost allocation process is (are) false?
(A) If a company has three cost pools, then it will also have three different cost allocation bases.
(B) The selection of an appropriate cost allocation base is more important for single-stage cost allocation systems than for two-stage cost allocation systems.

Only B is false.

Which of the following costs are irrelevant for a special order that will allow an organization to utilize some of its present idle capacity?

Unavoidable fixed overhead

In a labor intensive company in which more overhead is used by the more highly skilled and paid employees, which activity base would be most appropriate for applying overhead to production?

Direct labor cost

The loan department of a financial corporation makes loans to businesses. The costs of processing these loans are often several thousand dollars. All loans are initially evaluated using the same financial analysis software, but some require outside services such as appraisals and legal services. Which is the most appropriate costing system for the loan department?

operation costing

Which of the following statements regarding differential costs is (are) false?
(A). The full cost fallacy occurs when a decision-maker fails to include fixed manufacturingoverhead in the product's cost.
(B). When deciding whether or not to accept a special order, a decision-maker should focus on differential costs instead of full costs.

only A.

Which of the following statements is (are) false regarding cost allocations and product costing?
(A) It is easier to determine the individual product cost for a manufacturer than it is for a wholesaler.
(B) In general, indirect costs are assigned, while direct costs are allocated.

Both A and B are false.

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