COST ACCOUNTING
16th Edition
ISBN: 9781323169261
Author: Horngren
Publisher: PEARSON C
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Chapter 10, Problem 10.28E
Estimating a cost function, high-low method. Lacy Dallas is examining customer-service costs in the southern region of Camilla Products. Camilla Products has more than 200 separate electrical products that are sold with a 6-month guarantee of full repair or replacement with a new product. When a product is returned by a customer a service report is prepared. This service report includes details of the problem and the time and cost of resolving the problem. Weekly data for the most recent 8-week period are as follows:
| Week | Customer-Service Department Costs | Number of Service Reports |
| 1 | $13,300 | 185 |
| 2 | 20,500 | 285 |
| 3 | 12,000 | 120 |
| 4 | 18,500 | 360 |
| 5 | 14,900 | 275 |
| 6 | 21,600 | 440 |
| 7 | 16,500 | 350 |
| 8 | 21,300 | 315 |
- 1. Plot the relationship between customer-service costs and number of service reports. Is the relationship economically plausible?
Required
- 2. Use the high-low method to compute the cost function relating customer-service costs to the number of service reports.
- 3. What variables, in addition to number of service reports, might be cost drivers of weekly customer-service costs of Camilla Products?
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Estimating a cost function, high-low method. Lacy Dallas is examining customer-service costs in the southern region of Camilla Products. Camilla Products has more than 200 separate electrical products that are sold with a 6-month guarantee of full repair or replacement with a new product. When a product is returned by a customer, a service report is prepared. This service report includes details of the problem and the time and cost of resolving the problem. Weekly data for the most recent 8-week period are as follows:
Plot the relationship between customer-service costs and number of service reports. Is the relationship economically plausible?
Wizard Corporation has analyzed their customer and order handling data for the past year and has determined the following costs:
Order processing cost per order
$7
Additional costs if order must be expedited (rushed)
$10.00
Customer technical support calls (per call)
$12
Relationship management costs (per customer per year)
$1200
In addition to these costs, product costs amount to 75% of Sales.
In the prior year, Wizard had the following experience with one of its customers, Chester Company:
Sales
$15,500
Number of orders
160
Percent of orders marked rush
70%
Calls to technical support
80
Required:
Calculate the profitability of the Chester Company account.
Chapter 10 Solutions
COST ACCOUNTING
Ch. 10 - What two assumptions are frequently made when...Ch. 10 - Describe three alternative linear cost functions.Ch. 10 - What is the difference between a linear and a...Ch. 10 - High correlation between two variables means that...Ch. 10 - Name four approaches to estimating a cost...Ch. 10 - Describe the conference method for estimating a...Ch. 10 - Describe the account analysis method for...Ch. 10 - List the six steps in estimating a cost function...Ch. 10 - When using the high-low method, should you base...Ch. 10 - Describe three criteria for evaluating cost...
Ch. 10 - Define learning curve. Outline two models that can...Ch. 10 - Discuss four frequently encountered problems when...Ch. 10 - Prob. 10.13QCh. 10 - All the independent variables in a cost function...Ch. 10 - Multicollinearity exists when the dependent...Ch. 10 - HL Co. uses the high-low method to derive a total...Ch. 10 - A firm uses simple linear regression to forecast...Ch. 10 - In regression analysis, the coefficient of...Ch. 10 - A regression equation is set up, where the...Ch. 10 - What would be the approximate value of the...Ch. 10 - Estimating a cost function. The controller of the...Ch. 10 - Identifying variable-, fixed-, and mixed-cost...Ch. 10 - Various cost-behavior patterns. (CPA, adapted)....Ch. 10 - Matching graphs with descriptions of cost and...Ch. 10 - Account analysis, high-low. Stein Corporation...Ch. 10 - Account analysis method. Gower, Inc., a...Ch. 10 - Prob. 10.27ECh. 10 - Estimating a cost function, high-low method. Lacy...Ch. 10 - Linear cost approximation. Dr. Young, of Young and...Ch. 10 - Cost-volume-profit and regression analysis....Ch. 10 - Regression analysis, service company. (CMA,...Ch. 10 - High-low, regression. May Blackwell is the new...Ch. 10 - Learning curve, cumulative average-time learning...Ch. 10 - Learning curve, incremental unit-time learning...Ch. 10 - High-low method. Wayne Mueller financial analyst...Ch. 10 - High-low method and regression analysis. Market...Ch. 10 - High-low method; regression analysis. (CIMA,...Ch. 10 - Regression, activity-based costing, choosing cost...Ch. 10 - Interpreting regression results. Spirit...Ch. 10 - Cost estimation, cumulative average-time learning...Ch. 10 - Cost estimation, incremental unit-time learning...Ch. 10 - Regression; choosing among models. Apollo Hospital...Ch. 10 - Multiple regression (continuation of 10-42). After...Ch. 10 - Cost estimation. Hankuk Electronics started...Ch. 10 - Prob. 10.45PCh. 10 - Interpreting regression results, matching time...Ch. 10 - Purchasing department cost drivers, activity-based...Ch. 10 - Purchasing department cost drivers, multiple...
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