COST BEHAVIOR with LEARNING CURVE & REGRESSION ANALYSIS

Question 1

1. For a simple regression analysis that is used to estimate the total factory overhead, an internal auditor finds that the line of regression that intersects with the y-axis is P 5,000 while the slope of the line is 0.20. The independent variable amounts to P 900,000 for month. What is the estimated amount of factory overhead for the month?
   a. P 92,500
   b. P 180,000
   c. P 185,000
   d. P 230,000

Answer 1

c. P 185,000 U
Solution: Y = a + bX = 5,000 + 0.20 (900,000)

Question 2

2. In the standard regression equation y = a + bx, the letter b is best described as a(n)
   a. Independent variable {X}
   b. Dependent variable {Y}
   c. Constant coefficient {a}
   d. Variable coefficient

Answer 2

d. Variable coefficient

Question 3

3. The slope of the line of regression is
   a. The level of total fixed costs.
   b. The level of total variable costs.
   c. The rate at which the dependent variable varies.
   d. The rate at which the independent variable varies.

Answer 3

c. The rate at which the dependent variable varies.

Question 4

Items 4 and 5 are based on the following information

Cocktails-Mocktails Company incurred the following factory overhead costs for the second quarter of the year:
Machine Hours Factory Overhead
April 150 P 4,200
May 120 P 3,600
June 180 P 4,800

4. Using high-low method, how much is the fixed factory overhead cost for the second quarter?
   a. P 1,200
   b. P 2,400
   c. P 3,600
   d. P 4,800

Answer 4

a. P 1,200
Solution: Variable cost per hour = ∆ Y ÷ ∆ X = (4,800 – 3,600) ÷ (180 – 120) = 20 per hour
Monthly fixed cost = 3,600 – 20 (120) = 1,200

Question 5

6. Regression analysis is superior to other cost behavior analysis techniques because it
   a. Examines only one variable
   b. Is not a simple sampling technique
   c. Produces measures of probable error
   d. Considers all the points in the regression line

Answer 5

d. Considers all the points in the regression line

Question 6

5. Which of the following equations shall be used under least-squares method?
   a. 12,600 = 3 a + 69,300 b
   b. 1,926,000 = 3 a + 69,300 b
   c. 1,890,000 = 450 a + 69,300 b
   d. 1,926,000 = 450 a + 69,300 b

Answer 6

d. 1,926,000 = 450 a + 69,300 b

Solution: Sum of the hours: 450 Sum of
Sum of the costs: 12,600
Sum of the hours x costs: 1,926,000
the squared hours: 69,300
Equation 1: 12,600 = 3 a + 450 b
Equation 2: 1,926,000 = 450 a + 69,300 b

Question 7

7. Correlation is a term frequently used in conjunction with regression analysis and is measured by the value of the
   coefficient of correlation (r). The best explanation of the value ‘r’ is that it
   a. is positive only for downward-sloping regression lines
   b. ranges in size from negative infinity to positive infinity
   c. interprets variances in terms of the independent variable
   d. is a measure of the relative relationship between two variables

Question 8

8. In regression analysis, the coefficient of determination (r²) is a measure of
   a. The slope of the regression line
   b. The predicted value of the dependent variable
   c. The amount of variation in the dependent variable explained by the independent variables
   d. The amount of variation in the dependent variable unexplained by the independent variables

Question 9

9. In regression analysis, R-squared (r2) of 0.99 between two variables indicates a (an)
   a. Weak goodness-of-fit
   b. Excellent goodness-of-fit
   c. Reasonable goodness-of-fit
   d. Spurious relationship between the two variables

Question 10

10. Which of the following statements is false regarding learning/experience/productivity/efficiency curve?
    a. Learning curves differ from company to company
    b. Changes in personnel can change the learning curve
    c. Learning curves can always be used for indirect labor
    d. The learning curve may spike for a short time even if it is going to drop in the long run

Answer 10

c. Learning curves can always be used for indirect labor