10.2   Understand the various methods of cost estimation and use historical data to predict future costs.

1) The account analysis method classifies cost accounts with respect to the identified cost driver.

2) All of the following are approaches to cost estimation EXCEPT

A) the account analysis method.

B) the conference method.

C) the flexible cost analysis method.

D) the industrial engineering method.

E) quantitative analysis.

3) Which of the following statements about the cost estimation methods is FALSE?

A) With the conference method, the accuracy of the cost estimates largely depends on the accuracy and details of the inputs.

B) The methods require more historical data than most quantitative analyses.

C) The methods are not mutually exclusive.

D) There are four methods generally used for cost estimation.

E) Many organizations use a combination of the approaches.

4) The industrial-engineering method is

A) for analyzing relationships between inputs and outputs in physical terms.

B) for significant costs which cannot be easily traced.

C) used only for governmental contracts which are cost plus based.

D) used with qualitative rather than quantitative information.

E) used with both qualitative and quantitative information.

5) The collection of information on costs and their drivers, gathered through observations and interviews, from departments within an organization is known as

A) the account analysis method.

B) the conference method.

C) the industrial-engineering method.

D) the quantitative analysis method.

E) the departmental analysis method.

6) Which cost estimation method typically uses qualitative analysis rather than quantitative analysis?

A) the account analysis method

B) the conference method

C) the industrial-engineering method

D) the quantitative analysis method

E) the departmental analysis method

7) Which cost estimation method would be described as a formal method to fit linear cost functions to past data observations?

A) the account analysis method

B) the conference method

C) the industrial-engineering method

D) the quantitative analysis method

E) the departmental analysis method

Use the information below to answer the following question(s).

Presented below is the production data for the last six months of the year for the mixed costs incurred by Wagner Company.

 Month Cost Units July \$24,450 8,200 August 20,120 6,400 September 32,400 10,600 October 44,200 15,000 November 29,000 9,600 December 36,680 13,200

8) Using the high-low method, the cost function would be stated as

A) Y = \$2,200 + \$2.80X.

B) Y = \$17,816 + \$0.36X.

C) Y = \$536 + \$3.06X.

D) Y = \$24,450 + \$0.33X.

E) Y = \$39,250 + \$0.33X.

9) The total cost at an operating level of 10,000 units would be

A) \$31,136.

B) \$30,200.

C) \$21,416

D) \$42,550

E) \$46,625

Use the information below to answer the following question(s).

The Skip Corporation has assembled the following data pertaining to certain costs which cannot be easily identified as either fixed or variable. Skip Corporation has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.

 Cost Hours \$20,000 7,000 12,200 4,000 17,000 5,200 15,640 4,900 18,200 6,000 22,080 7,800 21,200 7,480 18,600 6,760

10) The cost function would be stated as

A) Y = \$13,386 + \$0.46X.

B) Y = \$10,680 + \$0.38X.

C) Y = \$5,056 + \$2.16X.

D) Y = \$1,800 + \$2.16X.

E) Y = \$1,800 + \$2.60X.