Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 5, Problem 65P
Cost Estimation: Simple Regression
The following information on maintenance and repair costs and revenues for the last two years is available from the accounting records at Arnie’s Arcade & Video Palace. Arnie has asked you to help him understand the relation between business volume and maintenance and repair cost.
Required
- a. Ignoring the data, would you predict that, in general, there is a positive relation between revenues and maintenance and repair costs? Why?
- b. Estimate a linear regression with maintenance and repair cost as the dependent variable and revenue as the independent variable. Does the result support your prediction in requirement (a)? What are some factors that may explain the result?
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
High-low method; regression analysis. (CIMA, adapted) Catherine McCarthy, sales manager of Baxter Arenas, is checking to see if there is any relationship between promotional costs and ticket revenues at the sports stadium. She obtains the following data for the past 9 months:
Carter Dry Cleaning has developed two regression analyses for cost estimation. The accounting manager has presented statistical measures for both of these regressions. Regression A has an R-squaredvalue of .53 and a t-value of 1.08. Regression B has an R-squared of .89 and a t-value of 2.17. Whatdo these statistical measures indicate about the regressions? Which regression should Carter DryCleaning use for cost estimation?
Refer to the information for Jasper Company on the previous page.Required:1. Prepare an income statement for Jasper for last year. Calculate the percentage of sales for eachline item on the income statement. (Note: Round percentages to the nearest tenth of a percent.)2. CONCEPTUAL CONNECTION Briefly explain how a manager could use the incomestatement created for Requirement 1 to better control costs.
Chapter 5 Solutions
Fundamentals Of Cost Accounting (6th Edition)
Ch. 5 - What are the common methods of cost estimation?Ch. 5 - Prob. 2RQCh. 5 - Under what conditions is the engineering estimates...Ch. 5 - If one wishes simply to prepare a cost estimate...Ch. 5 - When using cost estimation methods based on past...Ch. 5 - Prob. 6RQCh. 5 - What is the difference between R2 and adjusted R2?Ch. 5 - Why are accurate cost estimates important?Ch. 5 - What are three practical implementation problems...Ch. 5 - Why is it important to incorporate learning into...
Ch. 5 - What are some complications that can arise when...Ch. 5 - The following costs are labeled fixed or variable...Ch. 5 - Prob. 13CADQCh. 5 - When preparing cost estimates for account analysis...Ch. 5 - How can one compensate for the effects of price...Ch. 5 - Prob. 16CADQCh. 5 - Prob. 17CADQCh. 5 - A decision maker is interested in obtaining a cost...Ch. 5 - Consider the Business Application item Using...Ch. 5 - A friend comes to you with the following problem....Ch. 5 - After doing an account analysis and giving the...Ch. 5 - In doing cost analysis, you realize that there...Ch. 5 - Prob. 23CADQCh. 5 - Are learning curves likely to affect materials...Ch. 5 - McDonalds, the fast-food restaurant, is known for...Ch. 5 - Prob. 26CADQCh. 5 - A manager asks you for a cost estimate to open a...Ch. 5 - Prob. 28CADQCh. 5 - Methods of Estimating Costs: Engineering Estimates...Ch. 5 - Prob. 30ECh. 5 - Methods of Estimating Costs: Engineering Estimates...Ch. 5 - Prob. 32ECh. 5 - Methods of Estimating Costs: Account Analysis The...Ch. 5 - Methods of Estimating Costs: Account Analysis...Ch. 5 - Methods of Estimating Costs: High-Low, Ethical...Ch. 5 - Methods of Estimating Costs: High-Low Adriana...Ch. 5 - Methods of Estimating Costs: High-Low
Adriana...Ch. 5 - Prob. 38ECh. 5 - Adriana Corporation manufactures football...Ch. 5 - Methods of Estimating Costs: Simple...Ch. 5 - Prob. 41ECh. 5 - Methods of Estimating Costs: High-Low Davis Stores...Ch. 5 - Methods of Estimating Costs: Scattergraph Prepare...Ch. 5 - Prob. 44ECh. 5 - Interpretation of Regression Results: Multiple...Ch. 5 - Interpretation of Regression Results Brodie...Ch. 5 - Prob. 47ECh. 5 - Interpretation of Regression Results: Simple...Ch. 5 - Learning Curves Assume that General Dynamics,...Ch. 5 - Learning Curves Assume that Whee, Cheatham, and...Ch. 5 - Prob. 51ECh. 5 - Learning Curves (Appendix B) Refer to the example...Ch. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Regressions from Published Data Obtain 13 years of...Ch. 5 - Prob. 56PCh. 5 - High-Low Method, Scattcrgraph Cubicle Solutions...Ch. 5 - High-Low Method, Scattcrgraph Academy Products...Ch. 5 - High-Low, Scattergraph, Issues with Data
Wyoming...Ch. 5 - Interpretation of Regression Results: Simple...Ch. 5 - Interpretation of Regression Results: Simple...Ch. 5 - Interpretation of Regression Results: Multiple...Ch. 5 - Interpretation of Regression Results: Simple...Ch. 5 - Interpretation of Regression Results Brews 4 U is...Ch. 5 - Cost Estimation: Simple Regression The following...Ch. 5 - Prob. 68PCh. 5 - Methods of Cost Analysis: Account Analysis, Simple...Ch. 5 - Learning Curves (Appendix B) Refer to the example...Ch. 5 - Learning Curves (Appendix B) Krylon Company...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Use the following information to answer the questions that follow. A. Calculate the operating income percentage for each of the courses. Comment on how your analysis has changed for each course. B. Perform a vertical analysis for each course. Based on your analysis, what accounts would you want to investigate further? How might management utilize this information? C. Which method of analysis (using a dollar value or percentage) is most relevant and/or useful? Explainarrow_forwardA production company manager identify three items namely Item A, Item B and Item C are major contributors to the profit of the company. He found the p-values of each of the item from the multiple regression ANOVA table as follows. Item A 0.035 Item B 0.0305 Item C 0.03005 The most significant contributor item of the company profit? Select one: O a. All Item Ob. Item B O c. Item C Od. Non of the item Oe. Item Aarrow_forward1. Compare the costs of Version 1 POS and Version 2 POS. Consider the cumulative resultsfor the three years together, ignoring the time value of money and income taxes. 2. Advise Mr. Williams on the factors that determine whether a revenue or cost item is relevantfor management at Carib Systems and indicate whether he should accept the proposal.arrow_forward
- Howard Cooper, the president of Vernon Computer Services, needs your help. He wonders about the potential effects on the firm's net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal Year 3. Standard rate and variable costs Service rate per hour Labor cost Overhead cost Selling, general, and administrative cost Expected fixed costs Facility maintenance Selling, general, and administrative Required A Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 42,000 hours of services in Year 3. b. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultant's analysis, if Vernon charges customers $83 per hour, the firm can achieve 52,000 hours of services. Prepare a flexible budget using the consultant's assumption. c. The same consultant also suggests that if…arrow_forwardA marketing professor at Givens College is interested in the relationship between hours spent studying and total points earned in a course. Data collected on 156 students who took the course last semester are provided in the tile MktHrsPts. Develop a scatter chart for these data. What does the scatter chart indicate about the relationship between total points earned and hours spent studying? Develop an estimated regression equation showing how total points earned is related to hours spent studying. What is the estimated regression model? Test whether each of the regression parameters β0 and β1 is equal to zero at a 0.01 level of significance. What are the correct interpretations of the estimated regression parameters? Are these interpretations reasonable? How much of the variation in the sample values of total point earned does the model you estimated in part (b) explain? Mark Sweeney spent 95 hours studying. Use the regression model you estimated in part (b) to predict the total points Mark earned.arrow_forwardSouth Shore Construction builds permanent docks and seawalls along the southern shore of Long Island, New York. Although the firm has been in business only five years, revenue has increased from $308,000 in the first year of operation to $1,084,000 in the most recent year. The following data show the quarterly sales revenue in thousands of dollars: Construct a time series plot. What type of pattern exists in the data? Use a multiple regression model with dummy variables as follows to develop an equation to account for seasonal effects in the data: Qtr1 = 1 if quarter I, 0 otherwise; Qtr2 = 1 if quarter 2, 0 otherwise; Qtr3 = 1 if quarter 3, 0 otherwise. Based on the model you developed in part (b), compute estimates of quarterly sales for year 6. Let Period = 1 refer to the observation in quarter 1 of year 1; Period = 2 refer to the observation in quarter 2 of year 1; … and Period = 20 refer to the observation in quarter 4 of year 5. Using the dummy variables defined in part (b) and the variable Period, develop an equation to account for seasonal effects and any linear trend in the time series. Based on the seasonal effects in the data and linear trend estimated in part (c), compute estimates of quarterly sales for year 6. Is the model you developed in part (b) or the model you developed in part (d) more effective? Justify your answer.arrow_forward
- Howard Cooper, the president of Thornton Computer Services, needs your help. He wonders about the potential effects on the firm's net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal Year 3. Standard rate and variable costs Service rate per hour Labor cost Overhead cost Selling, general, and administrative cost Expected fixed costs Facility maintenance Selling, general, and administrative Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 42,000 hours of services in Year 3. b. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultant's analysis, if Thornton charges customers $79 per hour, the firm can achieve 48,000 hours of services. Prepare a flexible budget using the consultant's assumption. c. The same consultant also suggests that if the…arrow_forwardHoward Cooper, the president of Stuart Computer Services, needs your help. He wonders about the potential effects on the firm's net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal Year 3. Standard rate and variable costs Service rate per hour Labor cost Overhead cost Selling, general, and administrative cost Expected fixed costs Facility maintenance Selling, general, and administrative Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 30,000 hours of services in Year 3. b. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultant's analysis, if Stuart charges customers $80 per hour, the firm can achieve 36,000 hours of services. Prepare a flexible budget using the consultant's assumption. c. The same consultant also suggests that if the firm…arrow_forwardAssume you have asked your data folks to determine the relationship between customer service scores (i.e. the ratings provided by customers in response to a survey) and profit. The analyst reports the following: "I gathered data for the last 48 months and ran a regression where profit in a given month is the dependent variable and customer service score in that same month is the independent variable. I found an intercept of $10,000 (p-value: 0.31) and the coefficient on customer service score is $1,200 (p-value: 0.22). The R-2 (which is appropriate when there is just one independent variable) is 0.07." What do you infer from the results (two to three sentences, sticking to the information provided) and why?arrow_forward
- (a) Calculate the following:i. Break-even point in bottles and value ii.Total net profit for the year iii. Margin of safety in bottles and value Please provide a calculation for each of them.arrow_forwardThe production department is proposing the purchase of an automatic insertion machine. It has identified three machines and has asked the accountant to analyze them to determine which one has the best average rate of return. Machine A $43,529.50 $80,697.00 Machine B Machine C $64,675.95 310,925.00 268,990.00 431,173.00 Estimated average income Average investment Oa. Machine B Ob. Machine A Oc. Machine C Od. Machines B and C have the same preferred average rate of return.arrow_forwardCurry Rubber manufactures rubber bands for retail companies. The accounting manager has performed a regression analysis of past data. You notice that the formula has an R-squared of 0.68, a t-value of 2.2, and a standard error of the estimate of $218,200. The estimate for next quarter costs is $2,597,623. Calculate Standard Error as a % of predicted total cost which represents a measure of precision of his regression analysis? (Round your answer to one decimal place, i.e., 0.052 = 5.2%.)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Essentials Of Business AnalyticsStatisticsISBN:9781285187273Author:Camm, Jeff.Publisher:Cengage Learning,
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Essentials Of Business Analytics
Statistics
ISBN:9781285187273
Author:Camm, Jeff.
Publisher:Cengage Learning,
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
How to Estimate Project Costs: A Method for Cost Estimation; Author: Online PM Courses - Mike Clayton;https://www.youtube.com/watch?v=YQ2Wi3Jh3X0;License: Standard Youtube License