Chapter 1: The Role of Accounting Information in Management Decision Making
Page 1-37
4. Customer survey responses are relevant in measuring customer perceptions about
product quality. However, this survey is sent only to repeat customers, who are more
li

Chapter 2: The Cost Function
Page 2-16
C. The p-value for the intercept in the regression of overhead cost against machine hours is
0.25. This means that there is a 25% probability that the intercept (fixed cost) is zero
instead of $10,000. If this cost i

Chapter 2: The Cost Function
Page 2-15
C.
B
F or M
Employee benefits occur in any business in which employees are hired. Benefits might
include mandated items such as social security, workers compensation, and
unemployment insurance, as well as voluntary

Chapter 2: The Cost Function
Page 2-18
Explanation for Parts D and E: Notice that the wages of the tax department administrative
assistant are considered a direct cost when the cost object is the entire tax department but are
considered indirect for the o

Chapter 2: The Cost Function
Page 2-17
B. Cost of burger with everything except cheese = ($0.6815 - $0.1619) = $0.5196
Suggested selling price: 300% $0.5195 = $1.56
C. Selling price of cheeseburger with everything: 300% $0.6815 = $2.04
Therefore, the pric

Chapter 2: The Cost Function
2.30
Page 2-19
Tax Plus
A. Hours for two returns would be determined as follows; using the learning curve equation
Y = Xr
Learning rate = 80%
= 6 hours
X (units produced) = 2
Learning rate = (ln 0.80/ln2) =
Y = 6 hours2-0.321

Chapter 2: The Cost Function
Page 2-20
C. Other possible cost drivers for marketing department costs could be revenue, number of
advertisements placed, or profits. In addition, it is possible that marketing costs are
discretionary. The cost analyst needs

Chapter 2: The Cost Function
Page 2-25
C. The regression results and cost function for the three potential cost drivers are:
Potential Cost Driver
Output
Direct labor hours
Machine setups
Adj. R-Square
0.588
0.313
0.945
Cost Function
TC = $884 + $0.521Out

Chapter 2: The Cost Function
Page 2-21
G. I, F
The business license is not related to production, making it an indirect cost. It
is mostly likely a flat fee or is calculated on a basis unrelated to production
volume, making it a fixed cost.
H. I, F
Advert

Chapter 2: The Cost Function
Page 2-29
C. The adjusted R-Square statistic is very low at 0.186. This means that variation in sales
explains only about 18% of the variation in research and development cost. Future costs
are not likely to be estimated accur

Chapter 2: The Cost Function
Page 2-11
SUMMARY OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
Intercept
Units Produced
2.21
1
1
1
0
5
Coefficients
-2.91E-11
25
Standard Error
0
0
t Stat
65535
65535
P-value
#

Chapter 2: The Cost Function
Page 2-12
C. Assumptions: Fixed costs remain fixed within the relevant range, and variable costs
remain constant within the relevant range.
Factors that could cause the assumptions to be incorrect next month include the
follow

Chapter 2: The Cost Function
2.23
Page 2-13
Equipment maintenance department
A. Following are the cost categorizations
Managers salary
Supplies
Insurance
Electricity
Property tax
Repair manuals
Total
Fixed
$3,200
Variable
$5.23
250
62
100
90
$3,702
_
$5.2

Chapter 2
The Cost Function
SOLUTIONS
Eldenburg & Wolcott 2e
August 2010
LEARNING OBJECTIVES
Chapter 2 addresses the following questions:
Q1 What are different ways to describe cost behavior?
Q2 What process is used to estimate future costs?
Q3 How are th

Chapter 2: The Cost Function
Page 2-2
QUESTIONS
2.1
Fixed costs do not vary with small changes in activity levels. Fixed costs within a car
rental agency include the salaries of managers, rent, lease, or depreciation on the building
located on the rental

Chapter 2: The Cost Function
Page 2-3
2.8
The information leads to the conclusion that fixed costs exist because cost per unit
changes between two levels of activity within the relevant range. The information is not
sufficient to determine the amount of f

Chapter 2: The Cost Function
Page 2-4
2.14
The trend line developed using regression analysis incorporates all of the cost
observations, while the two-point method uses only two observations. Because there is
fluctuation in cost over time, better estimate

Chapter 2: The Cost Function
Page 2-6
The cost function includes the following assumptions:
Operations are within a relevant range of activity
Within the relevant range of activity:
o Fixed costs will remain fixed
o Variable cost per unit will remain co

Chapter 2: The Cost Function
Page 2-7
Use one data point in the total cost function and solve for F:
Using the data for 10,000 units:
$450,000 = F + $3910,000
F = $450,000 - $390,000 = $60,000
Combining the fixed and variable costs to create the cost func

Chapter 1: The Role of Accounting Information in Management Decision Making
Page 1-30
Transportation costs if apartment is not
within walking distance
Deposit on apartment
Rachels share of costs if she fails to pay
Costs Excluded from Computations:
Costs

Chapter 2: The Cost Function
Page 2-9
provide reasonable estimates for Q > 1,000 units but would underestimate total cost
for Q 1,000 units.
3. If the data estimation points occurred across the two relevant ranges, then the cost
function would be some mix

Chapter 2: The Cost Function
Page 2-5
EXERCISES
2.16
Computer Manufacturer
A. Production of a large monitor with a thin screen
B. If all of the parts for the monitor are currently used in the organization, all of the
information is likely to be contained

Chapter 2: The Cost Function
2.20
Page 2-10
Toyco
A. Direct labor appears to be a fixed cost; therefore, the cost function is TC = $95,000.
B. There are no apparent outliers; all of the observations appear to be close to or on the same
slope line:
Scatter

Chapter 2: The Cost Function
2.24
Page 2-14
Yummy Yogurt
[Note about problem complexity: Item A is coded as Extend because judgment is needed for
categorization.]
A.
Fixed
Cost of ingredients
Rent
Store attendant (salaried)
Total Costs at $9,000 in sales

Chapter 2: The Cost Function
Page 2-28
Analysis at the account level can be used to increase the understanding of this cost. If
this cost pool includes items such as salaries and other fixed costs (insurance, etc), the
regression intercept can be used as

Chapter 2: The Cost Function
2.37
Page 2-31
Fancy Furniture
A. Hours per batch would be determined as follows; using the learning curve equation Y =
Xr
= 10 hours
X (units produced) = 4
Learning rate = (ln 0.90/ln2) =
Y = 10 hours4-0.152
Y = 8.1 hours (a