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accounting stuff
learning curve
check it iout

© All Rights Reserved

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Requirement

Match each cost to the appropriate cost behavior pattern shown in the graphs (a) through (

fit two or more patterns.

Solution

capacity to produce 250 computers per day. The variable costs for e

Solution

ay. The variable costs for each computer are $150 and the

Background

The following costs are for Optical View Inc., a contact lens manufacturer:

Output in Units

250

300

350

400

Fixed Costs

$4,750

$4,750

$4,750

$4,750

Variable Costs

$7,500

$9,000

$10,500

$12,000

6-28 Requirements

1. Graph total cost, total variable costs, and total fixed costs.

2. Graph the per-unit total cost, per-unit variable cost, and per-unit fixed cost.

3. Discuss the behavior of the fixed, variable, and total costs.

Solution

nufacturer:

Total Costs

$12,250

$13,750

$15,250

$16,750

Units

Avg. Cost

500

$0.55

600

$0.50

560

?

Solution

Background

Advertising Expense

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

Annual Sales

$95,000

$110,000

$124,000

$138,000

$143,000

$147,000

$5,500

$150,000

6-30 Requirements

1. Graph annual sales and advertising expense.

2. Do the data prove Sue's point?

Solution

labor hours and/or

machine

hours, and

has developed

the three follow

Regression

1

Regression

2 Regression

3

SE

R-squared

t-values:

Labor Hours

Machine Hours

Solution

33,844

0.55

45,383

0.35

31,044

0.58

1.1

1.9

0.8

2.3

session

developed

the three following regression equations.

3

31,044

0.58

1.9

0.8

Background

The owner is concerned about the maintenance costs for the production mac

Problem Information

Month

1

2

3

4

5

6

7

8

9

10

11

Expense

$2,625

$2,670

$2,720

$2,820

$2,855

$3,005

$2,865

$2,905

$2,780

$2,570

$2,590

Hours

1499

1590

1605

1655

1775

1880

1785

1805

1695

1410

1550

12

$2,890

1405

6-32 Requirements

What is the cost equation for maintenance cost using the high-low method?

Solution

ts for the production machinery, as maintenance costs for the

-low method?

Background

Month

1

2

3

4

5

6

7

8

9

10

11

Expense

$2,600

$2,760

$2,910

$3,020

$3,100

$3,070

$3,010

$2,850

$2,620

$2,220

$2,230

Machine-Hours

1,690

1,770

1,850

1,870

1,900

1,880

1,860

1,840

1,700

1,100

1,300

12

$2,450

1,590

6-33 Requirements

What is the cost equation for maintenance cost using the high-low method?

Solution

ts for automobiles.

method?

The owner,

procedures has shown the impact of certain complications encounter

cost of patients stay in the hospital. The researchers used regressio

following results:

Total Cost for Patient = Constant, plus

b x presence of one or more complications (1 if true, 0 if false), plus

c x use of a laparoscope (1 if true, 0 if false)

Where:

a, b, c are coefficients of the regression model, and

system which brings light into the abdomen. It is about as big aroun

twice as long.

The

research,

based

on

57

patients,

showed

the

follow

r-squared: 53%

constant term: $3,719

Coefficients and t-values for independent variables:

Coefficient

t-value

Required

Length of Stay

$861

10.76

Complication

$1,986

4.89

Lap

Solution

in complications encountered in surgery on the total

researchers used regression analysis and found the

us

ns (1 if true, 0 if false), plus

se)

model, and

en. It is about as big around as a fountain pen and

nts,

showed

the

following

regression

variables:

Complication

$1,986

4.89

Laproscope

$908

2.54

results:

in Exercise 6-34. The right hand column shows the results for the

column shows the results for the sample of patients who were

surgery, and the related costs.

Regression Intercept

Length of Stay

Coefficient*

Standard error for the coefficient

Number of Complications

Coefficient

Standard error for the coefficient

Laparascopic

Coefficient

Standard error for the coefficient

Not Laparoscopic

La

8,043

Not significant

Not applicable

3,393

1,239

Not applicable

Not applicable

R-squared

0.11

0.5

*Note: All independent variables are significant at the level of p=

length of stay variable in the Non-laparoscopic condition.

Required

Solution

shows the results for the laparoscopic surgery. The left hand

ple of patients who were treated without the laparoscopic

ot Laparoscopic

8,043

Not significant

Not applicable

3,393

1,239

Not applicable

Not applicable

Laparoscopic

$

3,719

861

80

1,986

406

908

358

11

0.53

gnificant at the level of p=.05 (and t-value >2) except for the

scopic condition.

Background

Jay Bauer Company specializes in the purchase, renovation, and resale of olde

and painters to do the work for him. It is essential for him to have accurate cos

costs before he purchases a piece of property. If estimated renovation costs plus

estimated resale value, the house is not a worthwhile investment.

Jay has been using the homes interior square feet for his exterior paint cost

House

1

2

3

4

5

6

7

8

9

10

11

Square Feet

2,600

3,010

2,800

2,850

4,050

2,700

2,375

2,450

2,600

3,700

2,650

Openings

13

15

12

12

19

13

11

11

10

16

13

12

3,550

16

6-36 Requirements

1. Using the high-low cost-estimation technique, determine the cost of painting a 3,300-squ

Also, determine the cost for a 2,400-square-foot house with 8 openings.

2. Plot the cost data against square feet and against openings. Which variable is a better c

Solution

to have accurate cost estimates so he can determine total renovation

renovation costs plus the purchase price of a house are higher than its

ment.

exterior paint cost estimations. Recently he decided to include the

Cost

$3,300

$3,750

$3,100

$3,150

$4,700

$3,250

$2,800

$2,800

$2,875

$4,100

$3,200

$3,950

Background

California. As a result of age and wear, a critical machine in the produ

Output (square yards)

Machine A

Estimated Total Costs

4,000

7,000

9,000

14,000

16,000

24,000

$54,600

$78,800

$90,300

$114,900

$132,400

$210,000

6-37 Requirements

2. As a cost analyst at SpectroGlass, you have been assigned to complete Requirement 1.

you to say that the nature of the defect is really very difficult to detect and that most cust

replacing it. He suggests that you modify your calculations to justify keeping the present

and save the company some money. What do you say?

3. Assume that brand A is manufactured in Germany and brand B is manufactured in Cana

considerations are important to SpectroGlass, in addition to those already mentioned in

Solution

nt, Ethics

a critical machine in the production process has begun

Machine B

Estimated Total Costs

$70,000

$100,000

$115,000

$137,000

$146,000

$192,000

ned to complete Requirement 1. A production supervisor comes to

cult to detect and that most customers will not notice it, so he questions

ns to justify keeping the present machine to keep things the way they are

to those already mentioned in your answer to requirement 1?

Background

higher the colder the average monthly temperature is. The only thing i

is the furnace. Because of prevailing low temperatures, the furnace

(though less in the summer months and very little in August). Every

January

February

March

April

May

June

July

August

September

October

November

Avg. Temp F

31

41

43

44

46

50

53

60

50

40

30

Utility Cost

760

629

543

510

275

233

220

210

305

530

750

December

20

870

6-38 Requirements

Use the high-low method to estimate utility cost for the upcoming months of January and F

near-record average temperature of 10 degrees Fahrenheit; temperatures in February are

Fahrenheit.

Solution

ure is. The only thing in the shop that uses natural gas

eratures, the furnace is used every month of the year

little in August). Everything else in the shop runs on

atures in February are expected to average 40 degrees

Problem 6-39

January

February

March

April

May

June

July

August

September

October

November

December

Sum

Average

Hours of Activity

480

320

400

300

500

310

320

520

490

470

350

340

4,800

400

a (intercept)

b coefficient

Standard error of the estimate

R-squared

t-value for b

6-39 Requirements

If Armer Company uses the High-Low method of analysis, the equation for the relationship b

maintenance cost is?

Solution

Maintenance

Costs

$4,200

$3,000

$3,600

$2,820

$4,350

$2,960

$3,030

$4,470

$4,260

$4,050

$3,300

$3,160

$43,200

$3,600

,200/4,800) =

$9.00

684.65

7.2884

34.469

0.99724

60.105

Problem 6-40

January

February

March

April

May

June

July

August

September

October

November

December

Sum

Average

Hours of Activity

480

320

400

300

500

310

320

520

490

470

350

340

4,800

400

a (intercept)

b coefficient

Standard error of the estimate

R-squared

t-value for b

6-40 Requirements

Based on the data derived from the regression analysis, 420 maintenance hours in a month

should be budgeted at:

Solution

Maintenance

Costs

$4,200

$3,000

$3,600

$2,820

$4,350

$2,960

$3,030

$4,470

$4,260

$4,050

$3,300

$3,160

$43,200

$3,600

$43,200/4,800) =

$9.00

684.65

7.2884

34.469

0.99724

60.105

Problem 6-41

Hours of Activity

January

480

February

320

March

400

April

300

May

500

June

310

July

320

August

520

September

490

October

470

November

350

December

340

Sum

4,800

Average

400

a (intercept)

b coefficient

Standard error of the estimate

R-squared

t-value for b

6-41 Requirements

The coefficient of determination for Armer's regression equation for maintenance activities i

Solution

Maintenance

Costs

$4,200

$3,000

$3,600

$2,820

$4,350

$2,960

$3,030

$4,470

$4,260

$4,050

$3,300

$3,160

$43,200

$3,600

$43,200/4,800) =

$9.00

684.65

7.2884

34.469

0.99724

60.105

Problem 6-42

Problems 639 through 643 are based on Armer Company, which is acc

January

February

March

April

May

June

July

August

September

October

November

December

Sum

Average

Hours of

Activity

480

320

400

300

500

310

320

520

490

470

350

340

4,800

400

a (intercept)

b coefficient

Standard error of the estimat

R-squared

t-value for b

6-42 Requirements

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

Solution

Maintenance

Costs

$4,200

$3,000

$3,600

$2,820

$4,350

$2,960

$3,030

$4,470

$4,260

$4,050

$3,300

$3,160

$43,200

$3,600

ur ($43,200/4,800) =

684.65

7.2884

34.469

0.99724

60.105

$9.00

Problem 6-43

January

February

March

April

May

June

July

August

September

October

November

December

Sum

Average

Hours of Activity

480

320

400

300

500

310

320

520

490

470

350

340

4,800

400

a (intercept)

b coefficient

Standard error of the estimate

R-squared

t-value for b

6-43 Requirements

At 400 hours of activity, Armer management can be approximately two-thirds confident that

be in the range of?

Solution

Maintenance

Costs

$4,200

$3,000

$3,600

$2,820

$4,350

$2,960

$3,030

$4,470

$4,260

$4,050

$3,300

$3,160

$43,200

$3,600

$43,200/4,800) =

684.65

7.2884

34.469

0.99724

60.105

$9.00

Whittenberg Distributors, a major retailing and mail-order operation, has been in busines

During that time, its mail-order operations have grown from a sideline to represent more

companys annual sales. Of course, the company has suffered growing pains. At times, overl

programs resulted in lost sales, and scheduling temporary workers to augment the perm

periods has always been a problem.

Peter Bloom, manager of mail-order operations, has developed procedures for handling mos

is still trying to improve the scheduling of temporary workers to take customer telephone o

system, Peter keeps a permanent staff of 60 employees who handle the base telephone wo

this staff with temporary workers as needed. The temporary workers are hired on a daily

number needed for the next day the afternoon before based on his estimate of the upcoming

Peter has decided to try regression analysis to improve the hiring of temporary workers. B

labor hours into weekly totals for the past year, he determined the number of workers used e

listed the number of orders processed each week. After entering the data into a spre

regressions. Regression 1 related the total number of workers (permanent staff plus te

number of orders received. Regression 2 related only temporary workers to the number

output of these analyses follows:

Regression model: W = a + (b * T)

where: W = workers; T = telephone orders

Regression 1

a

b

Standard error of the estimate

t-value

Coefficient of determination

Durbin watson statistic

Regre

21.9380

0.0043

3.7210

-46

0.

1.

1.9500

0.6240

2.

0.

1.3300

1.

Required

1.

Peter Bloom estimates that Whittenberg Distributors will receive 12,740 orders duri

December.

a. Predict the number of temporary workers needed for this week using regression 1. R

nearest whole number.

b. Using regression 2, predict the number of temporary workers needed during this w

to the nearest whole number.

Data Inputs

a

b

Std error of the estimate

t-value

Coefficient of determ

Durbin-Watston statistic

est orders to be rec'd

number of perm workers

Solution

Regression 1

21.938

0.0043

3.721

1.95

0.624

1.33

12,740

60

wn from a sideline to represent more than 80 percent of the

suffered growing pains. At times, overloaded or faulty computer

mporary workers to augment the permanent staff during peak

workers to take customer telephone orders. Under the current

es who handle the base telephone workload and supplements

mporary workers are hired on a daily basis; he determines the

based on his estimate of the upcoming telephone volume.

ermined the number of workers used each week. In addition, he

After entering the data into a spreadsheet, Peter ran two

of workers (permanent staff plus temporary workers) to the

ly temporary workers to the number of orders received. The

Regression 1

Regression 2

21.9380

0.0043

3.7210

-46.5690

0.0051

1.4950

1.9500

0.6240

2.0400

0.7550

1.3300

1.6700

ded for this week using regression 1. Round your answer to the

Regression 2

-46.569

0.0051

1.495

2.04

0.755

1.67

the world. Maynard Shephard, the recently hired assistant controller, has been

cost function to forecast shipping costs. The previous assistant controller had

department costs each year by plotting cost data against direct labor-hours for

months and visually fitting a straight line through the points. The results were no

could be more closely related to the number of orders filled. He based his con

that 10 months ago the shipping department added some automated equipme

believes that using linear regression analysis will improve the forecasts of sh

data for the shipping department have been accumulated for the last 25 w

regression analyses of the data, one using direct labor-hours, and one using the

shipped. The information from the two linear regressions follows:

Equation

R-squared

Standard error of the

estimate

t-value

where:

SC

DL

NR

Regression 1

Regression 2

SC = 804.3 + 15.68DL

0.3650

SC = 642.9 + 3.92NR

0.7290

2.6520

1.8900

1.8840

3.4600

= total direct labor-hours

= number of cartons shipped

Required

forecasting total shipping department costs and explain why.

2. If Pilot Shop projects that 600 orders will be filled the coming week,

shipping department costs using the regression you selected in requireme

3. Explain two or three important limitations of the regression you selected

and identify one or two ways to address the limitations. Specifically include

Solution

ant controller, has been asked to develop a

assistant controller had forecast shipping

st direct labor-hours for the most recent 12

nts. The results were not satisfactory.

filled. He based his conclusion on the fact

me automated equipment. Furthermore, he

rove the forecasts of shipping costs. Cost

ulated for the last 25 weeks. He ran two

hours, and one using the number of cartons

s follows:

Regression 2

SC = 642.9 + 3.92NR

0.7290

1.8840

3.4600

xplain why.

lled the coming week, calculate the total

ou selected in requirement 1.

regression you selected in requirement 1,

ions. Specifically include in your discussion

season, from late spring to early fall. Rock n Roll presents a divers

approximately 40 events each season. In order to better project its co

Rock n Roll uses regression analysis to project expected ticket sales

performer. The regression results shown below are derived from the th

dependent variable for Rock n Roll is the number of paying tickets ho

independent variables are:

no and 1 if yes)

2. the spending on advertising targeted to the performers appearance

3. the performers local sales of CDs in the most recent year prior to the

4. the number of television appearances for the performer in the most r

5. the number of public appearances in the U.S. by the performer in the

Independent Variables

Regression intercept

Results

1,224

Coefficient

t-value

3,445

4.11

Spending on advertising

Coefficient

t-value

0.113

1.88

Performer's CD sales

Coefficient

t-value

0.00044

1.22

Television appearances

Coefficient

t-value

898

2.4

Coefficient

t-value

Television appearances

Coefficient

t-value

0.00044

1.22

898

2.4

R-squared

0.88

Standard error of the estimate 2,447

Required:

appeared at Rock n Roll previously, had 6 other public appearances

sales of $10 million, and Rock n Roll planned to spend $35,000 on adv

Data Input

Independent Variables

Regression intercept

Results

1,224

Coefficient

t-value

3,445

4.11

Spending on advertising

Coefficient

t-value

0.113

1.88

Performer's CD sales

Coefficient

t-value

0.00044

1.22

Television appearances

Coefficient

t-value

898

2.4

Coefficient

t-value

1,233

3.7

R-squared

Standard error of the estimate

0.88

2,447

Dummary variable:

"no" = 0

"yes" = 1

Requirements

1. Using the above regression, what attendance would be predicted for a performer who ha

previously, had six other public appearances but no TV appearances, and had CD sales

planned to spend $35,000 on advertising?

2. Evaluate the precision and reliability of the regression results shown above. What chang

regression? Which variables should be deleted, and which do you think should be added

Solution

n Roll presents a diverse venue of artists in a set of

der to better project its costs and expected attendance,

ect expected ticket sales for upcoming events for each

w are derived from the three most recent seasons. The

umber of paying tickets holders for each event, and the

performers appearance

ost recent year prior to their appearance

he performer in the most recent year

.S. by the performer in the recent year

other public appearances but no TV appearances, CD

to spend $35,000 on advertising?

rances, and had CD sales of $10 million, and Rock n' Roll

you think should be added, and why?

applications; the packages are used by customers to carry away th

succeeded for many years by providing a high quality product a

Recently, additional competitors have entered the market, both local

PolyChem is finding that it must increasingly compete on price. Po

with the increased competition is to market its products to smaller ret

firms quality and service, as well as the firms ability to customize

designs and colors to the packaging material. Until recently, the

based on simple averages of materials purchases, plant labo

management is now interested in improving, if possible, the accura

start, Cheryl Greenberg, the management accountant, obtains the f

1) from the plant manager, showing the machine number, the order s

machine setup time (in hours per unit; setup time also includes clean

runtime (the operating time for the machine to produce the order), an

of the order based on a subjective rating where 1= less complex and

relates to the number and type of images and colors printed on the pa

obtains a correlation analysis which shows the simple correlation be

Table 1.

The results are shown in Table 2. Cheryl understand

numbers in Table 2 is equivalent to the R-squared for a simple

variable, as follows: (correlation between two variables)2 = the R

analysis between these two variables. To illustrate, note that the

number and order quantity = -0.33919. The R-squared for the

variables (with either as the dependent variable) is (-0.33919)2 = 0.

Machine Order

Number Size

2

480

2

489

2

480

4

180

4

2160

Order

Per Unit

Complexity Setup time Runtime

1

0.002

0.042

1

0.000

0.043

2

0.005

0.042

1

0.004

0.040

1

0.002

0.035

Machine Order

Number Size

2

480

2

489

2

480

4

180

4

2160

4

1377

4

120

4

540

4

360

4

1080

4

300

4

2400

4

81

8

360

8

120

8

120

8

60

8

240

8

60

Order

Per Unit

Complexity Setup time Runtime

1

0.002

0.042

1

0.000

0.043

2

0.005

0.042

1

0.004

0.040

1

0.002

0.035

1

0.002

0.040

2

0.004

0.040

1

0.003

0.041

2

0.014

0.041

2

0.011

0.038

1

0.004

0.043

2

0.005

0.035

2

0.046

0.041

1

0.002

0.043

1

0.002

0.043

2

0.007

0.042

2

0.008

0.042

1

0.008

0.043

2

0.005

0.047

Set

Number

Order Size

Complexity

Setup time

Runtime

Requirements

Solution

Number

1

-0.33919

0.071001

-0.03805

0.346651

1

-0.07095

-0.20952

-0.80882

1

0.4521388 1

-0.140537 -0.06534

omers to carry away their purchases. PolyChem has

high quality product and superior customer service.

d the market, both local and from other countries, and

y compete on price. PolyChems strategy for dealing

products to smaller retailers that would appreciate the

ms ability to customize the product adding different

ial. Until recently, the firm determined product costs

purchases, plant labor and overhead. The firms

if possible, the accuracy of its cost information. As a

countant, obtains the following sample of data (Table

ine number, the order size (quantity, in thousands), the

ime also includes clean up time after the order is run),

o produce the order), and a measure of the complexity

re 1= less complex and 2 is more complex (complexity

colors printed on the packaging material).

he simple correlation between each of the variables in

2. Cheryl understands that each of the correlation

-squared for a simple linear regression between the

wo variables)2 = the R-squared for simple regression

llustrate, note that the correlation between machine

he R-squared for the regression between these two

ble) is (-0.33919)2 = 0.1151. Cheryl also recalls that a

ntime

42

43

42

40

35

ntime

42

43

42

40

35

40

40

41

41

38

43

35

41

43

43

42

42

43

47

Plant Data

Setup

ze Complexity time

1

0.4521388 1

-0.140537 -0.06534

Runtime

United States Motors Inc. (USMI) manufactures automobiles and light trucks

sale to consumers through franchised retail outlets. As part of the franchise

must provide monthly financial statements following the USMI accounting pro

has developed the following financial profile of an average dealership that s

annually.

AVERAGE DEALERSHIP FINANCIAL PROFI

Composite Income Statement

Sales

Cost of goods sold

Gross profit

Operating costs

Variable expenses

Mixed expenses

Fixed expenses

Operating income

$30,000,000

24,750,000

$5,250,000

862,500

2,300,000

1,854,000

$233,500

has asked Jack Snyder, corporate controller, to develop some measure of

the addition of these franchises. Jack estimates that 90 percent of the mixe

variable for purposes of this analysis. He also suggested performing regre

various components of the mixed expenses to more definitively determine the

Required

2. Assume that regression analyses were performed on the separate compon

expenses and that a coefficient of determination value of 0.60 was determ

aggregate mixed expenses over the relevant range.

a. Define the term relevant range.

b. Explain the significance of an R-squared value of 0.60 to USMIs ana

c. Describe the limitations that may exist in applying the compositespecific new dealerships that have been proposed.

d. Define the standard error of the estimate.

3. The regression equation that Jack Snyder developed to project annual sa

an R-squared of 60 percent and a standard error of the estimate of $4,50

annual sales for a dealership total $28,500,000, determine the app

Input Data

Annual sales volume, average dealership =

Sales Revenue

CGS

Gross Profit

Operating expenses:

Variable

Mixed

Fixed

Operating income

$862,500

$2,300,000

$1,854,000

estimated sales volume (part 1) =

Std error of the regression (part 3) =

Projected sales dollars (part 3) =

No. std deviations (for CI, part 3) =

Solution

. As part of the franchise agreement, dealerships

g the USMI accounting procedures manual. USMI

average dealership that sells 1,500 new vehicles

Income Statement

000,000

750,000

250,000

862,500

300,000

854,000

233,500

evelop some measure of the risk associated with

hat 90 percent of the mixed expenses shown are

uggested performing regression analyses on the

e definitively determine their variability.

d on the separate components of the mixed

value of 0.60 was determined as applicable to

nge.

applying the composite-based relationships to

roposed.

or of the estimate of $4,500,000. If the projected

,000, determine the approximate 95 percent

1,500

$30,000,000

$24,750,000

$5,250,000

$5,016,500

$233,500

90.00%

2,000

$4,500,000

$28,500,000

2

Problem Information

DVD Express is a large manufacturer of affordable DVD players. Management recently became aware

costs resulting from returns of malfunctioning products. As a starting point for further analysis, Bridget

the controller, wants to test different forecasting methods and then use the best one to forecast quarte

for 2007. The relevant data for the previous three years is as follows:

2004

Quarter

1

2

3

4

Return

Expenses

$15,000

$17,500

$18,500

$18,600

2005

Quarter

1

2

3

4

Return

Expenses

$16,200

$17,800

$18,800

$17,700

2006

Quarter

1

2

3

4

Return

Expenses

$16,600

$18,100

$19,000

$19,200

The result of a simple regression analysis using all 12 data points yielded the following:

Intercept term

Coefficient estimate

R-squared

t-statistic

SE

$16,559

$183.22

0.27

1.94

1,128

6-49 Requirements

1. Calculate the quarterly forecast for 2007 using the high-low method and regression analysis. Recommend which m

Bridget should use.

2. How does your analysis in requirement 1 change if DVD Express manufactures its products in multiple global prod

facilities to serve the global market?

Solution

urther analysis, Bridget Forrester,

st one to forecast quarterly expenses

Problem Information

Clothes for U is a large merchandiser of apparel for budget-minded families. Management recently

2004

Quarter

W&T

Expenses

2005

Quarter

W&T

Expenses

2006

Quarter

W&T

Expenses

1

2

3

4

$12,500

$11,300

$11,600

$13,700

1

2

3

4

$12,900

$12,100

$11,700

$14,000

1

2

3

4

$13,300

$12,300

$12,100

$14,600

Intercept term (constant) =

Slope coefficient (variable cost rate) =

R-squared (coefficient of determination) =

t-statistic =

SE =

$11,854.55

$126.22

0.19

1.5

974

6-50 Requirements

1. Calculate the quarterly forecasts for 2007 using the High-Low method and using regression analysis. Recommend which method

Gregory should use.

2. How does your analysis in requirement 1 change if Clothes for U is involved in global sourcing of products for its stores?

Solution

aircraft. They will be built completely from scratch to the exact specificat

authentication, the aircraft will be made using the technology and man

the originals were built. Each of the 16 will be flown to Air Force an

country for exhibition. Aviation enthusiasts can also visit the product

aircraft were built in 1938.

Soren Industries wants to bid on the aircraft contract and asked for a

about the Four F Sixes from the Air Force. The information includes

builders of the original aircraft. The available information is for the total

and thirty-second aircraft, respectively, were completed.

Output

1

8

32

Total Hours

250

1,458

Required

Input Data

Output

1

8

32

Total Hours

250

1,458

4,724

Requirements

1. If Soren Industries expects that the time spent per unit will be the same as it was in 1938

the 16 aircraft for the Air Force Museum Foundation?

2. What is the role of learning curves in Soren Industries' business for contracts such as th

Solution

cratch to the exact specifications used for the originals. As further

ng the technology and manufacturing processes available when

ll be flown to Air Force and aviation museums throughout the

can also visit the production facility to see exactly how such

aft contract and asked for and received certain cost information

. The information includes some of the old cost data from the

e information is for the total accumulated time as the first, eighth,

completed.

urs

0

8

4,724

be the same as it was in 1938, how many hours will it take to build

Their principal job is to lay railroad ties to line the sidewalks around a

install flower boxes. The first time Ben and David undertook one of th

hours. Their goal by the end of the summer was to be able to finish

hours, one working day. They performed eight of these jobs and had a

Assume that all apartment complexes are approximately the same size

Data Inputs

Project #

1

Time

17

Solution

80%

sidewalks around apartment complexes and to

ndertook one of these projects, they spent 17

o be able to finish an apartment complex in 8

ese jobs and had an 80 percent learning curve.

ately the same size.

Problem Information

11, 2004, the company purchased a new machine to aid in prod

Production efficiency on the new machine increases with the workfo

cumulative output on the new machine increases, average labor tim

of at least 3,200 units. As EHs cumulative output doubles from a

labor time per unit declines by 15 percent. EHs production varies litt

hats per month.

Decrase in Avg DLHs/Unit when output doubles

Average Hats/Month:

Fixed cost per month

Capacity (hats per month)

Other Direct Costs/Hat:

Markup on Cost:

Batch size

Hours per batch

Direct labor cost per hour

15%

800

$8,000

3,200

$16.25

125%

100

25

$15.00

6-53 Requirements

1. Emotional Headdress wishes to set the selling price for a Morrisey hat at 125% of the ha

level of 100 units, what is the estimated selling price?

2. The company has received an order for 1,600 Morrisey hats from Smiths, Inc. Smiths is

Should the company accept Smiths' order and produce the 1,600 hats? Explain.

Solution

ne to aid in producing various established product lines.

es with the workforce experience. It has been shown that as

average labor time per unit decreases up to the production

t doubles from a base of 100 units produced, the average

oduction varies little from month to month and averages 800

s? Explain.

6-54 Requirements

Assumed learning curve =

the following schedule:

Direct labor cost/hour =

Batch size (units) =

80%

$14.50

80

Cumul

Output

80

160

320

Average

Time

60.00

48.00

38.40

Total

Time

4,800

7,680

12,288

Increase

in Time

4,800

2,880

4,608

Time Per

Unit

60.00

36.00

28.80

Note: the total time of 12,288 can also be derived by using the powerfunction

functions). Use the formula Y = ax-b , where Y = average time for the first unit (

learning rate of 80%. Set x = 4 and b = -0.322 in the Excel function to find 0.6

38.396 hours. Since Y = average time per unit, then 320 x 38.396 = 12,287 ho

Required

1. Hauser Company has an immediate requirement for a total of 1,000 units of the braking

direct labor costs to produce the required braking system if it manufactures the units in-h

2. A consultant has advised Joyce that the learning rate for this application might be closer

projected costs of having a 75% learning curve compared to an 80% learning curve?

3. What conditions in a manufacturing plant, if present, would offest the potential benefits o

strategic role of learning curve analysis for Hauser Company?

Solution

ge time for the first unit (or batch) and b = 0.322 for a

Excel function to find 0.63993; 60 hours x 0.63993 =

20 x 38.396 = 12,287 hours.

anufactures the units in-house.

plication might be closer to 75%. What is the effect on

80% learning curve?

st the potential benefits of the learning curve? What is the

Background

Plantcity is a large nursey and retail store specializing in house and garden plants and supplies. Jean Raouth, the assistant

manager, is in the process of budgeting monthly supplies expense for 2007. She assumes that in some way supplies expense

is related to sales, either in units or in dollars. She has collected these data for sales and supplies expenses for June 2004

through December 2006, and has estimated sales for 2007.

Problem Information

Background

plants and recycling plants.

A major cost driver in either type

example, the capacity of a recycling plant is measured the num

plant can process. These plants can vary in size from a few hun

Problem Information

Location

Commerce, CA

Hudson Fall, NY

Layton, UT

Oxford Township, NJ

Savannah, GA

Poughkeepsie, NY

Panama City, FL

Ronkonkoma, NY

Okahuma,FL

Spokane, WA

Arlington, VA

Camden, NJ

York, PA

Bridgeport, CT

Chester, PA

TPD

360

400

420

450

500

506

510

518

528

800

975

1,050

1,344

2,250

2,688

6-56 Requirements

1. Develop a regression model to predict the cost of a propopsed new plant in Babylon,

of 750 TPD. What is the predicted cost for the Babylon plant, using your regression?

2. Evaluate the precision and reliability of the regression you have developed. How migh

Solution

st driver in either type of facility is the capacity of the plant. For

s measured the number of tons of waster per day (TPD) that the

in size from a few hundred TPD to as many as several thousand

Cost

$59,369

$77,013

$50,405

$75,779

$87,439

$57,463

$60,730

$84,457

$88,119

$152,902

$127,021

$163,395

$139,302

$344,852

$448,073

sing your regression?

e developed. How might it be improved?

Background

including a chain of 15 convenience stores located in the greater metropolitan

the recent increase in inventory theft and waste (he calls it spoilage) in hi

percent in each of the past two years. In some stores, the main reason is theft;

others, merchandise actually does spoil and must be thrown out. Jim has coll

recent month and is looking for patterns of spoilage relative to store size (m

employees, and total sales) and to the location of the store (location 1 is an ar

or vandalism are made, and location 3 is for areas with high arrests). Jim is n

managing convenience stores, that a relationship exists among these factors

called cross-sectional regression would suit his needs. The cross-sectional

for the dependent variable to the predicted value as a basis for assessing the re

Problem Information

Store

Number

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

$1,512

2,400

$3,005

3,900

$1,686

3,200

$1,908

3,400

$2,384

3,750

$4,806

4,800

$2,253

3,500

$1,443

3,000

$3,755

5,550

$1,023

2,250

$1,552

2,500

$2,119

3,500

$5,506

7,500

$3,034

5,700

$772

2,200

Number of

Employees

8

10

12

12

9

10

8

10

15

15

9

16

15

16

8

TOTALS

$36,758

57,150

173

Requirements

1. Use regression analysis that predicts inventory spoilage at each of the 15 stores. Use a

independent variables (or a combination) you think appropriate and explain your answer. A

reliability of the regression you select.

2. Using the regression equation you developed in requirement 1, determine which of the 1

spoilage that is out of line relative to the entire chain of stores. Explain your choice.

Solution

n the greater metropolitan area of Cleveland, Ohio. Jim is concerned about

calls it spoilage) in his stores. Spoilage has increased by more than 20

, the main reason is theft; in others, it is damage and vandalism; and in still

thrown out. Jim has collected data on spoilage at each of his stores in the

e relative to store size (measured by square feet of floor space, number of

store (location 1 is an area where few arrests for theft, disorderly conduct,

with high arrests). Jim is not sure, but he suspects, based on his experience

xists among these factors. A colleague told him that a type of regression

eeds. The cross-sectional regression is to compare the actual known value

basis for assessing the reasonableness of the actual value. This approach is

Location

1

2

1

1

2

3

1

1

2

1

1

2

3

2

1

Sales

$312,389

$346,235

$376,465

$345,723

$453,983

$502,984

$325,436

$253,647

$562,534

$287,364

$198,374

$333,984

$673,345

$588,947

$225,364

$5,786,774

d explain your answer. Also evaluate the precision nad

plain your choice.

Since at least the late 1960s, the court systems in the United States and else

regression analysis as evidence in court cases. In many instances, however,

or errors in developing the regression analysis, tax courts question or deny the

A study was performed recently to determine the factors in the regression a

Solution

n many instances, however, because of limitations

x courts question or deny the regression evidence.

e factors in the regression analysis that the court

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