Week 4 Homework.docx - Chapter 8 Homework Questions 8-27 8-29 8-31 8-35 8-27 Estimating Costs in an Uncertain Environment Many companies face

Week 4 Homework.docx - Chapter 8 Homework Questions 8-27...

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Chapter 8 Homework Questions: 8-27, 8-29, 8-31, 8-35 8-27 Estimating Costs in an Uncertain EnvironmentMany companies face increasingly unpredictable costs and revenues as the recession affects demand for products and the costs of materials and labor for these products. Revenues and costs have fluctuated significantly in recent years for such cost elements as fuel, labor, commodities (agricultural commodities, metals, etc.), interest, and rent expense, among others. Dealing with the increased fluctuations requires cost estimation methods that are more sophisticated and more frequently updated. The result is that companies are including in their cost estimation additional independent variables. Moreover, these companies are updating their estimation models more frequently. For example, Southwest Airlines updates its revenue prediction model on a daily basis.RequiredConsider Southwest Airlines and the following six key areas of cost for the company. Whichof these costs do you think the airline must update most frequently? 1. Flight Crew2. Fuel Costs3. Maintenance spending4. Advertising spending5. Aircraft ownership costsANSWER: During a time of recession, the costs I believe the airlines must update frequently is the fuel cost. During a time of economic downfall, the price of fuel can fluctuate on a daily basis.Because of the frequent change in price, the airline’s expenses will continuously fluctuate as well, leaving the total expense of fuel at an indefinite amount. Ultimately, this negatively affects the airline company. 8-29 Cost ClassificationMatch each cost to the appropriate cost behavior pattern shown in graphs (a)through (l). Any graph can fit two or more patterns. ANSWERS TO THE RIGHT IN BOLD 1. The cost of lumber used to manufacture wooden kitchen tables. B 2. The cost of order fillers in a warehouse. When demand increases significantly, the number of order fillers is increased, and when demand falls off significantly, the number is decreased. F 3. The salary of the plant’s quality control inspector, who inspects each batch of products. E 4. The cost of water and sewer service to the manufacturing plant. The local municipality charges a fixed rate per gallon for usage up to 10,000 gallons and a higher charge per gallon for usage above that point. I 5. The cost of an internet connection of $23 per month. E 6. The cost of an internet connection of $10 per month plus $2 per hour of usage above 10 hours. H

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