1. Bachmann Products, Incorporated, has found that new products follow a learning curve.

The
first two units have been completed with the following results:

Units ProducedMarginal Labor Time

1 80.00
2 68.00

How much time will be needed to complete the 8th unit?

A. 74.00 hours.
B. 57.80 hours.
C. 56.00 hours.
D. 49.13 hours.

68/80 = 85% × 68 = 57.80 hours for 4th unit

57.80 × 85% = 49.13 hours for 8th unit

2. Balcom Enterprises is planning to introduce a new product that will sell for $110 per unit.
Manufacturing cost estimates for 20,000 units for the first year of production are:

 Direct materials $1,000,000.

 Direct labor $720,000 (based on $18 per hour × 40,000 hours).

Although overhead has not been estimated for the new product, monthly data for Balcom's total
production for the last two years has been analyzed using simple linear regression. The analysis
results are as follows:

Dependent variable Factory overhead costs

Independent variable Direct labor hours
Intercept $ 120,000
Coefficient on independent
variable
$ 5.00
Coefficient of correlation 0.911
R2 0.814

Based on this information, 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. Using the variable overhead estimated by the regression and assuming that direct
materials and direct labor are variable costs)

A. $14
B. $13
C. $99
D. $32

40,000 hours ÷ 20,000 units = 2 labor hours per unit

($1,000,000 ÷ 20,000) + ($720,000 ÷ 20,000) + ($5 × 2 labor hours) = $50 + $36 + $10 = $96; $110
− $96 = $14
 3. Balcom Enterprises is planning to introduce a new product that will sell for $110 per unit.
Manufacturing cost estimates for 20,000 units for the first year of production are:

 Direct materials $1,000,000.

 Direct labor $720,000 (based on $18 per hour × 40,000 hours).

Monthly data for Balcom's total production for the last two years has been analyzed using simple
linear regression. The analysis results are as follows:

Dependent variable Factory overhead costs

Independent variable Direct labor hours
Intercept $ 120,000
Coefficient on independent
variable
$ 5.00
Coefficient of correlation 0.911
R2 0.814

Based on this information, how much is the variable manufacturing cost per unit, using the variable
overhead estimated by the regression (assuming that direct materials and direct labor are variable
costs)?

A. $78
B. $91
C. $96
D. $71

40,000 hours ÷ 20,000 units = 2 labor hours per unit

($1,000,000 ÷ 20,000) + ($720,000 ÷ 20,000) + ($5 × 2 labor hours) = $50 + $36 + $10 = $96
 4. Balcom Enterprises is planning to introduce a new product that will sell for $110 per unit.
Manufacturing cost estimates for 20,000 units for the first year of production are:

 Direct materials $1,000,000.

 Direct labor $720,000 (based on $18 per hour × 40,000 hours).

Although overhead has not been estimated for the new product, monthly data for Balcom's total
production for the last two years has been analyzed using simple linear regression. The analysis
results are as follows:

Dependent variable Factory overhead costs

Independent variable Direct labor hours
Intercept $ 120,000
Coefficient on independent
variable
$ 5.00
Coefficient of correlation 0.911
R2 0.814

Based on this information, what is the total overhead cost for an estimated activity level of 45,000
direct labor-hours?

A. $125,000
B. $345,000
C. $600,000
D. $225,000

$120,000 + ($5 × 45,000) = $345,000

 5. Balcom Enterprises is planning to introduce a new product that will sell for $110 per unit.
Manufacturing cost estimates for 20,000 units for the first year of production are:

 Direct materials $1,000,000.

 Direct labor $720,000 (based on $18 per hour × 40,000 hours).

Although overhead has not been estimated for the new product, monthly data for Balcom's total
production for the last two years has been analyzed using simple linear regression. The analysis
results are as follows:

Dependent variable Factory overhead costs

Independent variable Direct labor hours
Intercept $ 120,000
Coefficient on independent
variable
$ 5.00
Coefficient of correlation 0.911
R2 0.814

Based on this information, what percentage of the variation in overhead costs is explained by the
independent variable?

A. 24%
B. 81.4%
C. 91.1 %
D. 9.7%

R2 (coefficient of determination) explains the proportion of the variation in Y (dependent variable)

explained by the X predictors (independent variables).
 6. Thane Company is interested in establishing the relationship between electricity costs and
machine hours. Data have been collected and a regression analysis prepared using Excel.
The monthly data and the regression output follow:

Month Machine Hours Electricity Costs

January 2,900 $ 19,400
February 3,300 23,000
March 2,300 14,500
April 3,500 25,000
May 4,200 29,250
June 3,700 24,000
July 4,500 25,750
August 3,900 23,750
Septembe
r
2,400 17,500
October 4,100 28,000
November 5,400 33,000
December 5,000 28,750

Summary Output
Regression Statistics
Multiple R 0.945
R Square 0.892
Adjusted R2 0.882
Standard Error 1,809.89
Observations 12.00

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 4,788.52 2,207.13 2.17 0.06 (129.26) 9,706.31
Machine Hours 5.19 0.57 9.11 0.00 3.92 6.46

The percent of the total variance that can be explained by the regression is:

A. 94.5%.
B. 89.2%.
C. 88.2%.
D. 94.2%.

The percent of the total variance that can be explained by the regression is the R square or 89.2%
(0.892).
 7. Thane Company is interested in establishing the relationship between electricity costs and
machine hours. Data have been collected and a regression analysis prepared using Excel.
The monthly data and the regression output follow:

Month Machine Hours Electricity Costs

January 2,500 $ 18,400
February 2,900 21,000
March 1,900 13,500
April 3,100 23,000
May 3,800 28,250
June 3,300 22,000
July 4,100 24,750
August 3,500 22,750
Septembe
r
2,000 15,500
October 3,700 26,000
November 4,700 31,000
December 4,200 27,750

Summary Output
Regression Statistics
Multiple R 0.965
R Square 0.932
Adjusted R2 0.925
Standard Error 1,425.18
Observations 12.00

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 3,726.88 1,682.82 2.21 0.05 (22.69) 7,476.45
Machine Hours 5.77 0.49 11.7 0.00 4.67 6.87

The correlation coefficient for the regression equation for electricity costs is:

A. 0.965.
B. 0.932.
C. 0.925.
D. 0.982.

Multiple R, or the correlation coefficient, for the regression equation for electricity costs is 0.965.
 8. Thane Company is interested in establishing the relationship between electricity costs and
machine hours. Data have been collected and a regression analysis prepared using Excel.
The monthly data and the regression output follow:

Month Machine Hours Electricity Costs

January 2,500 $ 18,400
February 2,900 21,000
March 1,900 13,500
April 3,100 23,000
May 3,800 28,250
June 3,300 22,000
July 4,100 24,750
August 3,500 22,750
September 2,000 15,500
October 3,700 26,000
November 4,700 31,000
December 4,200 27,750

Summary Output
Regression Statistics
Multiple R 0.965
R Square 0.932
Adjusted R2 0.925
Standard Error 1,425.18
Observations 12.00

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 3,726.88 1,682.82 2.21 0.05 (22.69) 7,476.45
Machine Hours 5.77 0.49 11.7 0.00 4.67 6.87

Based on the results of the regression analysis, the estimate of electricity costs in a month with
2,200 machine hours would be:
Note: Rounded to the nearest whole dollar.

A. $3,727.
B. $16,421.
C. $15,180.
D. $22,825.

$3,726.88 + ($5.77 × 2,200) = $16,421

 9. Thane Company is interested in establishing the relationship between electricity costs and
machine hours. Data have been collected and a regression analysis prepared using Excel.
The monthly data and the regression output follow:

Month Machine HoursElectricity Costs

January 2,500 $ 18,400
February 2,900 21,000
March 1,900 13,500
April 3,100 23,000
May 3,800 28,250
June 3,300 22,000
July 4,100 24,750
August 3,500 22,750
September 2,000 15,500
October 3,700 26,000
November 4,700 31,000
December 4,200 27,750

Summary Output
Regression Statistics
Multiple R 0.965
R Square 0.932
Adjusted R2 0.925
Standard
Error
1,425.18
Observations 12.00

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 3,726.88 1,682.82 2.21 0.05 (22.69) 7,476.45
Machine Hours 5.77 0.49 11.7 0.00 4.67 6.87

If the controller uses regression analysis to estimate costs, the estimate of the fixed portion of
electricity costs is:

A. Fixed Cost = $5.77.

B. Fixed Cost = $1,682.82.
C. Fixed Cost = $1,425.18.
D. Fixed Cost = $3,726.88

Using the Excel output, Fixed Cost = $3,726.88 (Intercept).

 10. Thane Company is interested in establishing the relationship between electricity costs and
machine hours. Data have been collected and a regression analysis prepared using Excel.
The monthly data and the regression output follow:

Month Machine HoursElectricity Costs

January 2,500 $ 18,400
February 2,900 21,000
March 1,900 13,500
April 3,100 23,000
May 3,800 28,250
June 3,300 22,000
July 4,100 24,750
August 3,500 22,750
September 2,000 15,500
October 3,700 26,000
November 4,700 31,000
December 4,200 27,750

Summary Output
Regression Statistics
Multiple R 0.965
R Square 0.932
Adjusted R2 0.925
Standard
Error
1,425.18
Observations 12.00

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 3,726.88 1,682.82 2.21 0.05 (22.69) 7,476.45
Machine Hours 5.77 0.49 11.7 0.00 4.67 6.87

If the controller uses regression analysis to estimate costs, the estimate of the variable portion of
electricity costs is:

A. Variable electricity costs = $11.70 × Machine hours.

B. Variable electricity costs = $0.93 × Machine hours.
C. Variable electricity costs = $5.77 × Machine hours.
D. Variable electricity costs = $0.49 × Machine hours.

Using the Excel output, Variable electricity costs = $5.77 × Machine hours.
 11. Thane Company is interested in establishing the relationship between electricity costs and
machine hours. Data have been collected and a regression analysis prepared using Excel.
The monthly data and the regression output follow:

Month Machine Hours Electricity Costs

January 2,500 $ 18,400
February 2,900 21,000
March 1,900 13,500
April 3,100 23,000
May 3,800 28,250
June 3,300 22,000
July 4,100 24,750
August 3,500 22,750
Septembe
r
2,000 15,500
October 3,700 26,000
November 4,700 31,000
December 4,200 27,750

Summary Output
Regression Statistics
Multiple R 0.965
R Square 0.932
Adjusted R2 0.925
Standard Error 1,425.18
Observations 12.00

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 3,726.88 1,682.82 2.21 0.05 (22.69) 7,476.45
Machine Hours 5.77 0.49 11.7 0.00 4.67 6.87

Using the high-low method, the estimate of electricity costs in a month with 2,200 machine hours
would be:

A. $15,375.
B. $22,825.
C. $15,180.
D. $16,427.

VC per machine hour = ($31,000 − $13,500) ÷ (4,700 − 1,900) = $6.25

FC = $31,000 − ($6.25 × 4,700) = $1,625
$1,625 + ($6.25 × 2,200 machine-hours) = $15,375
 12. Thane Company is interested in establishing the relationship between electricity costs and
machine hours. Data have been collected and a regression analysis prepared using Excel.
The monthly data and the regression output follow:

Month Machine Hours Electricity Costs

January 2,500 $ 18,400
February 2,900 21,000
March 1,900 13,500
April 3,100 23,000
May 3,800 28,250
June 3,300 22,000
July 4,100 24,750
August 3,500 22,750
Septembe
r
2,000 15,500
October 3,700 26,000
November 4,700 31,000
December 4,200 27,750

Summary Output
Regression Statistics
Multiple R 0.965
R Square 0.932
Adjusted R2 0.925
Standard Error 1,425.18
Observations 12.00

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 3,726.88 1,682.82 2.21 0.05 (22.69) 7,476.45
Machine Hours 5.77 0.49 11.7 0.00 4.67 6.87

If the controller uses the high-low method to estimate costs, the cost equation for electricity costs is:

A. Electricity Costs = $3,726.88 + ($5.77 × Machine-hours).

B. Electricity Costs = $1,625.00 + ($6.25 × Machine-hours).
C. Electricity Costs = $6.90 × Machine-hours.
D. Electricity Costs = $22,825.

VC per machine hour = ($31,000 − $13,500) ÷ (4,700 − 1,900) = $6.25

FC = $31,000 − ($6.25 × 4,700) = $1,625
Electricity Costs = $1,625.00 + ($6.25 × Machine-hours)
 13. The McGraw Company is accumulating data to be used in preparing its annual profit plan for
the coming year. The cost behavior pattern of the maintenance costs must be determined.
The accounting staff has suggested that linear regression be employed to derive an equation
in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and
costs for last year and the results of the regression analysis are as follows: (CMA adapted)

Maintenance
Hours of Activity
Costs
January 480 $ 4,200
February 320 3,000
March 400 3,600
April 300 2,820
May 500 4,350
June 310 2,960
July 320 3,030
August 520 4,470
September 490 4,260
October 470 4,050
November 350 3,300
December 340 3,160
Sum 4,800 $ 43,200
Average 400 3,600
A coefficient 684.65
B coefficient 7.2884
Standard error of the a coefficient 49.515
Standard error of the b
coefficient
0.12126
Standard error of the estimate 34.469
R2 0.99724
T-value a 13.827
T-value b 60.105

What would be the cost equation when the high-low method is used?

A. Maintenance Costs = $9.00 × Hours of Activity.

B. Maintenance Costs = $3,600 + ($400 × Hours of Activity).
C. Maintenance Costs = $570 + ($7.50 × Hours of Activity).
D. Maintenance Costs = $34.469 + ($0.99724 × Hours of Activity).

VC per hour = ($4,470 − $2,820) ÷ (520 − 300) = $7.50

FC = $2,820 − ($7.50 × 300) = $570
Maintenance Costs = $570 + ($7.50 × Hours of Activity)
 14. The McGraw Company is accumulating data to be used in preparing its annual profit plan for
the coming year. The cost behavior pattern of the maintenance costs must be determined.
The accounting staff has suggested that linear regression be employed to derive an equation
in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and
costs for last year and the results of the regression analysis are as follows: (CMA adapted)

Maintenance
Hours of Activity
Costs
January 480 $ 4,200
February 320 3,000
March 400 3,600
April 300 2,820
May 500 4,350
June 310 2,960
July 320 3,030
August 520 4,470
September 490 4,260
October 470 4,050
November 350 3,300
December 340 3,160
Sum 4,800 $ 43,200
Average 400 3,600
A coefficient 684.65
B coefficient 7.2884
Standard error of the a coefficient 49.515
Standard error of the b
coefficient
0.12126
Standard error of the estimate 34.469
R2 0.99724
T-value a 13.827
T-value b 60.105

Using the high-low method to estimate cost behavior, 420 maintenance hours in a month would
mean the maintenance costs would be budgeted at what amount?

A. $3,150
B. $3,600
C. $3,720
D. $3,780

VC per hour = ($4,470 − $2,820) ÷ (520 − 300) = $7.50

FC = $2,820 − ($7.50 × 300) = $570
TC = $570 + ($7.50 × 420) = $3,720
 15. The McGraw Company is accumulating data to be used in preparing its annual profit plan for
the coming year. The cost behavior pattern of the maintenance costs must be determined.
The accounting staff has suggested that linear regression be employed to derive an equation
in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and
costs for last year and the results of the regression analysis are as follows: (CMA adapted)

Maintenance
Hours of Activity
Costs
January 550 $ 4,240
February 340 3,040
March 440 3,640
April 320 2,860
May 540 4,390
June 338 3,000
July 340 3,070
August 560 4,510
September 530 4,300
October 510 4,090
November 380 3,340
December 360 3,200
Sum 5,208 $ 43,680
Average 434 3,640
A coefficient 859.90
B coefficient 6.4058
Standard error of the a coefficient 88.965
Standard error of the b
coefficient
0.2004
Standard error of the estimate 64.599
R2 0.9903
T-value a 9.666
T-value b 31.959

What is the variable cost per hour using the high-low method to estimate the cost equation?

A. $8.25
B. $6.88
C. $0.1222
D. $0.1019

($4,510 − $2,860) ÷ (560 − 320) = $6.88

 16. The McGraw Company is accumulating data to be used in preparing its annual profit plan for
the coming year. The cost behavior pattern of the maintenance costs must be determined.
The accounting staff has suggested that linear regression be employed to derive an equation
in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and
costs for last year and the results of the regression analysis are as follows: (CMA adapted)

Maintenance
Hours of Activity
Costs
January 480 $ 4,200
February 320 3,000
March 400 3,600
April 300 2,820
May 500 4,350
June 310 2,960
July 320 3,030
August 520 4,470
September 490 4,260
October 470 4,050
November 350 3,300
December 340 3,160
Sum 4,800 $ 43,200
Average 400 3,600
A coefficient 684.65
B coefficient 7.2884
Standard error of the a coefficient 49.515
Standard error of the b
coefficient
0.12126
Standard error of the estimate 34.469
R2 0.99724
T-value a 13.827
T-value b 60.105

What would be the cost equation if regression analysis is used?

A. Maintenance Costs = $7.2884 + ($684.65 × Hours of Activity).

B. Maintenance Costs = $684.65 + ($49.515 × Hours of Activity).
C. Maintenance Costs = $684.65 + ($7.2884 × Hours of Activity).
D. Maintenance Costs = $34.469 + ($0.99724 × Hours of Activity).

Maintenance Costs = A coefficient or intercept + (B coefficient or slope × X term or predictor).

Maintenance Costs = $684.65 + ($7.2884 × Hours of Activity).
 17. The cost accountants at the Barkley Company regressed total overhead costs and direct
labor hours for the past 30 months and reported the following results:

Slope $ 41.27
Intercept $ 596.36
Correlation
Coefficient
0.934

What is the estimated overhead cost if 225 direct labor hours are expected to be used in the
upcoming period?
Note: rounded to the nearest whole dollar.

A. $10,534.
B. $9,882.
C. $9,230.
D. $8,617.

$596.36 + ($41.27 × 225) = $9,882.

18. Brewsky's is a chain of micro-breweries. Managers are interested in the costs of the stores
and believe that the costs can be explained in large part by the number of customers
patronizing the stores. Monthly data regarding customer visits and costs for the preceding
year for one of the stores have been entered into the regression analysis and the analysis is
as follows:

Average monthly customer visits 1,462

Average monthly total costs $ 4,629
Regression Results
Intercept $ 1,496
b coefficient $ 2.08
R2 0.86814

Based on the data derived from the regression analysis, what are the estimated costs for 1,600
customer visits in a month? (CMA adapted)

A. $6,125
B. $4,629
C. $3,328
D. $4,824

The estimated costs for a month with 1,600 customer visits = $1,496 + ($2.08 × 1,600 customer
visits) = $4,824.
 19. Brewsky's is a chain of micro-breweries. Managers are interested in the costs of the stores
and believe that the costs can be explained in large part by the number of customers patron-
izing the stores. Monthly data regarding customer visits and costs for the preceding year for
one of the stores have been entered into the regression analysis and the analysis is as
follows:

Average monthly customer

visits
1,462
Average monthly total costs $ 4,629
Regression Results
Intercept $ 1,496
b coefficient $ 2.08
R2 0.86814

In a regression equation expressed as y = a + bx, how is the letter x best described? (CMA adapted)

A. Fixed costs per each customer-visit.

B. The observed store costs for a given month.
C. The estimate of the number of new customer visits for the month.
D. The observed customer visits for a given month.

The letter x is best described as the observed customer visits for a given month.

20. Given the following information, compute the total number of units for the period:

Direct labor hours 12,000

Direct labor cost $ 2.70 per hour
Direct materials cost $ 75 per unit
Total manufacturing cost $ 132,600
Fixed overhead cost $ 36,000
Variable overhead cost 50% of total labor cost

A. 360
B. 432
C. 640
D. 840

$132,600 = ($75 × Units) + (12,000 × $2.70) + [.50(12,000 × $2.70)] + $36,000; Units = 640.