The accounting department of a large limousine company is analyzing the costs of its services. The cost data and level of activity for the past 16 months are presented on the following page:

Month	Special Analyses	Customer Accpimts	Paychecks Processed	Accounting Service Costs
1	2	325	1,029	$63,800
2	4	310	993	68,900
3	2	302	1,268	64,000
4	1	213	1,028	61,300
5	2	222	984	61,600
6	0	214	712	50,800
7	1	131	762	51,020
8	1	123	739	54,300
9	0	115	708	50,500
10	2	296	1,232	64,800
11	2	213	978	58,000
12	1	222	929	57,500
13	2	217	1,059	62,200
14	2	132	942	54,900
15	4	300	1,299	71,530
16	4	315	1,283	64,800
Totals	30	3,650	15,945	$959,950

In addition to the above information, you learn that the accounting department had the following total costs for the past 16 months for each of the following:

Total cost of paychecks processed	$180,100
Total cost of maintaining customer accounts	109,600
Total cost of performing special analyses	120,000
Total fixed costs (total for 16 months)	550,250
Total costs	$959,950

Required
What is the cost per unit for (1) paychecks processed, (2) customer accounts maintained, and (3) special analyses performed?

Consider that Whee, Cheatham, and Howe is an auditing firm that has found that its summer interns are subject to a 90 percent learning curve for one of its important tasks, proofreading financial statements. For one of its interns, Kim Down, the firm has started to analyze the relation between time and financial statement proofreading.

Required
Complete the chart by filling in the time required to proofread 4, 8, and 16 financial statements.

Assume that General Dynamics, which manufactures high-technology instruments for spacecraft, is considering the sale of a navigational unit to a government agency in India that wishes to launch its own communications satellite. The government agency plans to purchase eight units, although it would also consider buying 16 units. General Dynamics has started a chart relating labor time required to units produced.

Required
Assume that labor time costs $125 per hour. Compare the cost of producing the first unit to the cost of producing the 16th unit. What is the percentage of the cost of the 16th unit to the cost of the first unit?

Assume that General Dynamics, which manufactures high-technology instruments for spacecraft, is considering the sale of a navigational unit to a government agency in India that wishes to launch its own communications satellite. The government agency plans to purchase eight units, although it would also consider buying 16 units. General Dynamics has started a chart relating labor time required to units produced.

Required
Complete the chart by filling in the labor time required to produce 8 and 16 units.

Why is it necessary to incorporate learning into cost estimates?

A local restaurant, Fred’s Fish Fry, is estimating nonfood kitchen costs (labor, supervision, utilities, etc.) based on food cost. Data were gathered for the past 24 months and analyzed applying a spreadsheet program. The following output was generated:

The company is planning to operate at a level of$15,000 of food costs per month for the coming year.

Required
Fred has asked you for advice on whether he should rely on the estimate. What will you say?

Morganton Company makes one product and it provided the following information to help prepare the master budget:

a. The budgeted selling price per unit is $70. Budgeted unit sales for June, July, August, and September are$8,400,10,000,12,000, and 13,000 units, respectively. All sales are on credit.

b. Forty percent of credit sales are collected in the month of the sale and $60 in the following month.

c. The ending finished goods inventory equals$20 of the following month's unit sales.

d. The ending raw materials inventory equals $10 of the following month's raw materials production needs. Each unit of finished goods requires 5 pounds of raw materials. The raw materials cost$2.00 per pound.

e. Thirty percent of raw materials purchases are paid for in the month of purchase and $70 in the following month.

f. The direct labor wage rate is$15 per hour. Each unit of finished goods requires two direct labor-hours.

g. The variable selling and administrative expense per unit sold is $1.80. The fixed selling and administrative expense per month is$60,000.

Required:

11. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated unit product cost?

A local restaurant, Fred’s Fish Fry, is estimating nonfood kitchen costs (labor, supervision, utilities, etc.) based on food cost. Data were gathered for the past 24 months and analyzed applying a spreadsheet program. The following output was generated:

The company is planning to operate at a level of$15,000 of food costs per month for the coming year.

Required
Based on the cost equation, compute the estimated nonfood kitchen costs (labor, supervision, utilities, etc.) per month for the coming year.

Ross Enterprises maintains a fleet of agricultural equipment for rental to local farmers. Ross maintains all its equipment in a company-owned facility. Data on maintenance costs and operating hours of the equipment have been collected for the past 24 months to help managers plan financial needs.

Managers at Ross were initially excited about having the data and the analysis available for planning, but the initial regression results revealed the following equation:

Maintenance costs = $10,564 -$67.13 x Operating hours

The coefficient on operating hours was highly significant and the adjusted $R^2$ was 0.89.

Required
How would you explain a negative coefficient; does it seem likely that the more the equipment is operated, the less the company spends on maintenance?

A local restaurant, Fred’s Fish Fry, is estimating nonfood kitchen costs (labor, supervision, utilities, etc.) based on food cost. Data were gathered for the past 24 months and analyzed applying a spreadsheet program. The following output was generated:

The company is planning to operate at a level of$15,000 of food costs per month for the coming year.

Required
Use the regression output to write the nonfood cost equation.

Brodie Company’s advertising manager wants to know whether the company’s advertising program is successful. The manager used a spreadsheet program to estimate the relation between advertising expenditures (the independent variable) and sales dollars. Monthly data for the past 2 years were entered into the program. The regression results indicated the following relation:

Sales dollars = $169,000 - ($200 x Advertising expenditures)
Correlation coefficient = .864

These results seemed to imply that advertising was reducing sales. The manager was about to conclude that statistical methods were so much nonsense when you walked into the room.

Required
Help the manager. What might cause the negative relationship between advertising expenditures and sales?

Cortez Company is planning to introduce a new product that will sell for $96 a unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year:

Manufacturing overhead costs have not yet been estimated for the new product, but monthly data on total production and overhead costs for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and provide the basis for overhead cost estimates for the new product:

Required
What is the manufacturing cost equation implied by these results?

1. Total cost =$640,000 + $5.00 x Number of units.
2. Total cost =$120,000 + $86.80 x Number of units.
3. Total cost =$120,000 + $72.00 x Number of units.
4. Some other equation.

If one wishes simply to prepare a cost estimate using regression analysis and enters data into a program to calculate regression estimates, what problems might be encountered?

Cortez Company is planning to introduce a new product that will sell for $96 a unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year:

Manufacturing overhead costs have not yet been estimated for the new product, but monthly data on total production and overhead costs for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and provide the basis for overhead cost estimates for the new product:

Required
What is the expected contribution margin per unit to be earned during the first year on 20,000 units of the new product? (Assume that all marketing and administrative costs are fixed.) 1.$96.00 2. $24.00 3.$56.00 4. $14.00 5. Some other amount.