Cost Accounting (14th Edition)

ASSIGNMENT MATERIAL 375
Terms to Learn
This chapter and the Glossary at the end of this book contain definitions of the following important terms:
account analysis method (p. 347)
coefficient of determination (r 2 ) (p. 367)
conference method (p. 346)
constant (p. 343)
cost estimation (p. 344)
cost function (p. 341)
cost predictions (p. 344)
cumulative average-time learning
model (p. 359)
dependent variable (p. 348)
experience curve (p. 358)
high-low method (p. 350)
incremental unit-time learning model
(p. 360)
independent variable (p. 348)
industrial engineering method (p. 346)
intercept (p. 343)
learning curve (p. 358)
linear cost function (p. 342)
mixed cost (p. 343)
multicollinearity (p. 374)
multiple regression (p. 352)
nonlinear cost function (p. 357)
regression analysis (p. 352)
residual term (p. 352)
semivariable cost (p. 343)
simple regression (p. 352)
slope coefficient (p. 342)
specification analysis (p. 369)
standard error of the estimated
coefficient (p. 368)
standard error of the regression
(p. 368)
step cost function (p. 357)
work-measurement method (p. 346)
Assignment Material
Questions
10-1 What two assumptions are frequently made when estimating a cost function?
10-2 Describe three alternative linear cost functions.
10-3 What is the difference between a linear and a nonlinear cost function? Give an example of each
type of cost function.
10-4 “High correlation between two variables means that one is the cause and the other is the effect.”
Do you agree? Explain.
10-5 Name four approaches to estimating a cost function.
10-6 Describe the conference method for estimating a cost function. What are two advantages of
this method?
10-7 Describe the account analysis method for estimating a cost function.
10-8 List the six steps in estimating a cost function on the basis of an analysis of a past cost relationship.
Which step is typically the most difficult for the cost analyst?
10-9 When using the high-low method, should you base the high and low observations on the dependent
variable or on the cost driver?
10-10 Describe three criteria for evaluating cost functions and choosing cost drivers.
10-11 Define learning curve. Outline two models that can be used when incorporating learning into the
estimation of cost functions.
10-12 Discuss four frequently encountered problems when collecting cost data on variables included in
a cost function.
10-13 What are the four key assumptions examined in specification analysis in the case of simple
regression?
10-14 “All the independent variables in a cost function estimated with regression analysis are cost drivers.”
Do you agree? Explain.
10-15 “Multicollinearity exists when the dependent variable and the independent variable are highly
correlated.” Do you agree? Explain.
Exercises
10-16 Estimating a cost function. The controller of the Ijiri Company wants you to estimate a cost function
from the following two observations in a general ledger account called Maintenance:
Month Machine-Hours Maintenance Costs Incurred
January 6,000 $4,000
February 10,000 5,400