Week 10 - Accy211: Management Accounting II Autumn Session...

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Accy211: Management Accounting II Autumn Session 2009 Tutorial solutions: Week 10 CHAPTER 10 & 11 Questions Q10-18 Q10-32 Q11-17 Q11-18 Q11-33 10-18: Various cost-behavior patterns. 1. K 2. B 3. G 4. J Note that A is incorrect because, although the cost per pound eventually equals a constant at $9.20, the total dollars of cost increases linearly from that point onward. 5. I The total costs will be the same regardless of the volume level. 6. L 7. F This is a classic step-cost function. 8. K 9. C 10-32 : High-low method and regression analysis. 1. See Solution Exhibit 10-32. SOLUTION EXHIBIT 10-32 Plot, High-low Line, and Regression Line for Number of Customers per Week versus Weekly Total Costs for Happy Business College Restaurant $0 $5,000 $10,000 $15,000 $20,000 $25,000 0 200 400 600 800 1000 Number of Customers per Week Weekly Total Costs Regression High-low Page 1 of 5
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2. Number of Customers per week Weekly Total Costs Highest observation of cost driver (Week 9) 925 $20,305 Lowest observation of cost driver (Week 2) 745 16,597 Difference 180 $ 3,708 Weekly total costs = a + b (number of customers per week) Slope coefficient ( b ) = $3,708 180 = $20.60 per customer Constant ( a ) = $20,305 – ($20.60 × 925) = $1,250 = $16,597 – ($20.60 × 745) = $1,250 Weekly total costs = $1,250 + $20.60 (number of customers per week) See high-low line in Solution Exhibit 10-32. 3. Solution Exhibit 10-32 presents the regression line. Economic Plausibility . The cost function shows a positive economically plausible relationship between number of customers per week and weekly total restaurant costs. Number of customers is a plausible cost driver since both cost of food served and amount of time the waiters must work (and hence their wages) increase with the number of customers served. Goodness of fit . The regression line appears to fit the data well. The vertical differences between the actual costs and the regression line appear to be quite small. Significance of independent variable . The regression line has a steep positive slope and increases by more than $19 for each additional customer. Because the slope is not flat, there is a strong relationship between number of customers and total
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This note was uploaded on 12/13/2010 for the course ACCY 201 taught by Professor Kevin during the Three '09 term at University of Wollongong, Australia.

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Week 10 - Accy211: Management Accounting II Autumn Session...

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