Draw a graph of the cost behavior for each of the following costs incurred by the Mountain Summit Hospital. The hospital measures monthly activity in patient days. Label both axes and the cost line in each graph.

$1.$ The cost of food varies in proportion to the number of patient days of activity. In January, the hospital provided $3,000$ patient days of care, and food costs amounted to $\$ 24,000$.

$2.$ The cost of salaries and fringe benefits for the administrative staff totals $\$ 12,000$ per month.

$3.$ The hospital's laboratory costs include two components: $(a) \$ 40,000$ per month for compensation of personnel and depreciation on equipment and $(b) \$ 10$ per patient day for chemicals and other materials used in performing the tests.

$4.$ The cost of utilities depends on how many wards the hospital needs to use during a particular month. During months with activity under $2,000$ patient days of care, two wards are used, resulting in utility costs of $\$ 10,000$. During months with greater than $2,000$ patient days of care, three wards are used, and utility costs total $\$ 15,000$.

$5.$ Many of the hospital's nurses are part-time employees. As a result, the hours of nursing care provided can be easily adjusted to the amount required at any particular time. The cost of wages and fringe benefits for nurses is approximately $\$ 2,500$ for each block of $200$ patient days of care provided during a month. For example, nursing costs total $\$ 2,500$ for $1$ to $200$ patient days, $\$ 5,000$ for 201 to 400 patient days, $\$ 7,500$ for $401$ to $600$ patient days, and so forth.

Urban Elite Cosmetics has used a traditional cost accounting system to apply quality-control costs uniformly to all products at a rate of 14.5 percent of direct-labor cost. Monthly direct-labor cost for Satin Sheen makeup is $27,500. In an attempt to more equitably distribute quality-control costs, management is considering activity-based costing. The monthly data shown in the following chart have been gathered for Satin Sheen makeup.

$$\begin{array}{llrr} &&& \textbf{Quantity of Driver}\\ \textbf{Activity Cost Pool} & \textbf{Cost Driver} & \textbf{Pool Rates} & \textbf{for Satin Sheen}\\ \\ \text{Incoming material inspection} & \text{Type of material } & \text{\$11.50 per type} & \text{12 types}\\ \text{In-process inspection } & \text{Number of units } & \text{.14 per unit} & \text{17,500 units}\\ \text{Product certification } & \text{Per order} & \text{77.00 per order} &\text{25 orders}\\ \end{array}$$

Required:

1. Calculate the monthly quality-control cost to be assigned to the Satin Sheen product line under each of the following product-costing systems. (Round to the nearest dollar.)

$\quad\quad$ a. Traditional system, which assigns overhead on the basis of direct-labor cost.

$\quad\quad$ b. Activity-based costing.

2. Does the traditional product-costing system over-cost or under-cost the Satin Sheen product line with respect to quality-control costs? By what amount?

Briefly describe two methods that can be used to evaluate a particular least-squares regression line.

Kentaro Corporation manufactures Digital Video Recorders (DVRs) in its Tokyo plant. The following costs are budgeted for January. (Yen is the Japanese monetary unit.)

$$\begin{array}{lrl} \text{Raw materials and components } &2,950,000 & \text{yen}\\ \text{Insurance, plant } & 600,000\\ \text{Electricity, machinery} &120,000\\ \text{Electricity, light } &60,000\\ \text{Engineering design } & 610,000\\ \text{Depreciation, plant } & 700,000\\ \text{Depreciation, machinery} &1,400,000\\ \text{Custodial wages, plant } &40,000\\ \text{Equipment maintenance, wages } &150,000\\ \text{Equipment maintenance, parts } &30,000\\ \text{Setup wages } &40,000\\ \text{Inspection of finished goods} & 30,000\\ \text{Property taxes } &120,000\\ \text{Natural gas, heating} &30,000\\ \end{array}$$

Required:

Divide these costs into activity cost pools, and identify a cost driver for assigning each pool of costs to products. Calculate the total cost in each activity cost pool.

Kentaro Corporation manufactures Digital Video Recorders (DVRs) in its Tokyo plant. The following costs are budgeted for January. (Yen is the Japanese monetary unit.)

$$\begin{array}{lrl} \text{Raw materials and components } &2,950,000 & \text{yen}\\ \text{Insurance, plant } & 600,000\\ \text{Electricity, machinery} &120,000\\ \text{Electricity, light } &60,000\\ \text{Engineering design } & 610,000\\ \text{Depreciation, plant } & 700,000\\ \text{Depreciation, machinery} &1,400,000\\ \text{Custodial wages, plant } &40,000\\ \text{Equipment maintenance, wages } &150,000\\ \text{Equipment maintenance, parts } &30,000\\ \text{Setup wages } &40,000\\ \text{Inspection of finished goods} & 30,000\\ \text{Property taxes } &120,000\\ \text{Natural gas, heating} &30,000\\ \end{array}$$

Required:

For each of the activity cost pools identified, indicate whether it represents a unit-level, batch-level, product-sustaining-level, or facility-level activity.

List several possible cost drivers that could be used by a cruise line such as Carnival.

Define the following terms, and explain the relationship between them: $(a)$ cost estimation, $(b)$ cost behavior, and $(c)$ cost prediction.

Tioga Company manufactures sophisticated lenses and mirrors used in large optical telescopes. The company is now preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the following information.

$$\begin{array}{lrr} & \textbf{ Lenses } & \textbf{ Mirrors } \\ \text{ Units produced } & 25 & 25 \\ \text{ Material moves per product line } & 5 & 15 \\ \text{ Direct-labor hours per unit } & 200 & 200 \end{array}$$

The total budgeted material-handling cost is $\$ 50,000$.

$1.$ Under a costing system that allocates overhead on the basis of direct labor hours, the material-handling costs allocated to one lens would be what amount?

$2.$ Answer the same question as in requirement $(1)$, but for mirrors.

$3.$ Under activity-based costing (ABC), the material-handling costs allocated to one lens would be what amount? The cost driver for the material-handling activity is the number of material moves.

$4.$ Answer the same question as in requirement $(3)$, but for mirrors.

Distinguish between simple regression and multiple regression.

Use an equation to express a least-squares regression line. Interpret each term in the equation.

Explain the meaning of the term least squares in the least-squares regression method of cost estimation.

A hotel pays the phone company $\$ 100$ per month plus $\$ .25$ for each call made. During January $6,000$ calls were made. In February $5,000$ calls were made.

1. Calculate the hotel's phone bills for January and February.

2. Calculate the cost per phone call in January and in February.

3. Separate the January phone bill into its fixed and variable components.

4. What is the marginal cost of one additional phone call in January?

5. What was the average cost of a phone call in January?

What is the chief drawback of the high-low method of cost estimation? What problem could an outlier cause if the high-low method were used?

The following data pertain to the Oneida Restaurant Supply Company for the year just ended.

$$\begin{array}{lr} \text{ Budgeted sales revenue } & \$ 205,000 \\ \text{ Actual manufacturing overhead } & 340,000 \\ \text{ Budgeted machine hours (based on practical capacity) } & 10,000 \\ \text{ Budgeted direct-labor hours (based on practical capacity) } & 20,000 \\ \text{ Budgeted direct-labor rate } & \$ \quad 14 \\ \text{ Budgeted manufacturing overhead } & \$ 364,000 \\ \text{ Actual machine hours } & 11,000 \\ \text{ Actual direct-labor hours } & 18,000 \\ \text{ Actual direct-labor rate } & \$ \quad 15 \end{array}$$

1. Compute the firm's predetermined overhead rate for the year using each of the following common cost drivers: $(a)$ machine hours, $(b)$ direct-labor hours, and $(c)$ direct-labor dollars.

2. Calculate the overapplied or underapplied overhead for the year using each of the cost drivers listed above.