Please verify the answers. I wrote all the questions and the answers in the attachment.

5-36 Linear Cost Functions Let Y = total costs, X1 = production volume, and X2 = number of setups. Which of ~e following are linear cost functions? Which are mixed cost functions? a. Y = $8X1 b. y = $1,500 c. Y = $8,500 + $ I.50X1 d. Y = $3,000 + $6X1 + $30X2 e. Y = $9,000 + $3(X1 X X2) f. Y = $5,000 + $4.00X1 Answer: E 5-41 Government Service Cost Analysis Auditors for the Internal Revenue Service (IRS) scrutinize income tax returns after they have been prescreened with the help of computer tests for normal ranges of deductions claimed by taxpayers. The IRS uses an expected cost of $5 per tax return, based on measurement studies that allow 15 minutes per return. Each agent has a workweek of 5 days of 8 hours per day. Eighteen auditors are employed at a salary of $790 each per week. The audit supervisor has the following data regarding performance for the most recent 4-week period, when 8,300 returns were processed: =================================================================================== Actual Cost Expected Cost for Difference or Of Auditors Processing Returns Variance =================================================================================== $56,880 $41,500 $15,380 U ==================================================================================== 1. Compute the expected cost and the variance. 2. The supervisor believes that audit work should be conducted more productively and that superfluous personnel should be transferred to field audits. If the foregoing data are representative, how many auditors should be transferred? 5 auditors should be transferred. $15380 ($790 x 4) = 5.056 Or Total of 8,300 returns, means: 2075/week, 415/day, 51.875/hour, and the agent complete 4/hour, 13 agents will complete 52 returns. 3. List some possible reasons for the variance. The variance may be due to inefficiency of the auditors, improperly trained or inexperienced auditors, inaccuracy of the cost measures, a batch of unusually complex returns, or a combination of all these factors. 4. Describe some alternative cost drivers for processing income tax returns. Alternative cost drivers might include number of individual forms included in filed returns, number of pages of returns processed, and amount of taxes shown on returns filed. 5-46 High-Low, Regression Analysis On November 15, 2009, Sandra Cook, a newly hired cost analyst at Peterson Company, was asked to predict overhead costs for the company's operations in 2010, when 530 units are expected to be produced. She collected the following quarterly data: =================================================================================================== Quarter Production in Units Overhead Costs =================================================================================================== 1/06 2/06 3/06 4/06 1/07 2/07 3/07 4/07 1/08 2/08 3/08 4/08 1/09 2/09 3/09 1. 73 76 68 133 122 125 122 130 121 126 112 81 81 119 87 $ 715 709 640 1,124 995 1,105 1,113 1,036 982 1,060 990 951 829 1,044 985 Using the high-low method to estimate costs, prepare a prediction of overhead costs for 2010. High Level Low Level Difference Overhead Costs $1,124 640 $484 Production in Units 133 68 65 Variable cost Fixed Cost 2. = Change in cost Change in activity = $484 65 = $7.45 per unit = total cost - variable cost = $1,124 - ($7.45133) = $133.15 per batch Sandy ran a regression analysis using the data she collected. The result was Y = $347 + $5.76X Using this cost function, predict overhead costs for 2010. $347 + (5.76 x 133) = $1,113.08 3. Which prediction do you prefer? Why? I prefer the regression analysis because it gives more accurate data. But the high-low method is easy and simple. 5-48 Regression Analysis Study Appendix 3. Mr. Liao, CEO of a manufacturer of fine china and stoneware, is troubled by fluctuations in productivity and wants to compute how manufacturing support costs are related to the various sizes of batches of output. The following data show the results of a random sample of 10 batches of one pattern of stoneware: ============================================================================================== Sample Support Costs, Y Batch Size, X ============================================================================================== 1 2 3 4 15 12 20 17 12 25 22 9 18 30 5 6 7 8 9 10 $180 140 230 190 160 300 270 110 240 320 ========================================================================== 1. Plot support costs, Y, versus batch size, X. 400 300 Axis T it le 200 100 0 5 10 15 20 25 30 35 Axis T it le 2. Using regression analysis, measure the cost function of support costs and batch size. Constant R Squared X Coefficient 24.42553 0.955692 10.53191 3. Predict the support costs for a batch size of 25. Support costs = fixed cost + variable cost = $24.43 + $10.53 25 = $287.68 4. Using the high-low method, repeat requirements 2 and 3. Should the manager use the high-low or regression method? Explain. High Level Low Level Difference Support cost $320 110 $210 Batch size 30 9 21 Variable cost = Change in cost Change in activity = $210 21 = $10 per unit in batch Fixed Cost = total cost - variable cost = $320 - $1030 = $20 per batch Support costs of a batch of size 25 = $20 + $10 25 = $270 Although the cost functions and cost estimates are fairly close, the manager would probably be better off using the regression result. The regression results appear to be very reliable and plausible. Since regression uses all the data and no data appear to be unusual (per the graph), there is little reason not to use the regression. 6-26 Fill In the Blanks Enter the word or phrase that best completes each sentence. I. The financial budget process includes the following budgets: a. Cash budget b. Capital budget c. Budgeted balance sheet 2. The master budget process usually begins with the sales budget. 3. A(n) continuous budget is a plan that is revised monthly or quarterly, dropping one period and adding another. 4. Strategic planning sets the overall goals of the organization. 6-30 Sales Budget Suppose a lumber yard has the following data: Accounts receivable, May 31: (.2 X May sales of $360,000) = $72,000 Monthly forecasted sales: June, $437,000; July, $441,000; August, $502,000; September, $531,000 Sales consist of 80% cash and 20% credit. All credit accounts are collected in the month following the sales. Uncollectible accounts are negligible and may be ignored. Prepare a sales budget schedule and a cash collections budget schedule for June, July, and August. Sales budget June July August September Credit sales $87,400 $88,200 $100,400 106,200 Cash sales 349,600 352,800 401,600 424,800 Total sales $437,000 $441000 $502,000 531,000 Cash collections budget June July August September Cash sales this month $349,600 $352,800 $401,600 424,800 100% of last months credit sales 72,000 $87,400 88,200 100,400 Total collections from customers $421,600 $440,200 $489,800 525,200 6-36 Cash Budget Daniel Merrill is the manager of an airport gift shop, Merrill News and Gifts. From the following data, Mr. Merrill wants a cash budget showing expected cash receipts and disbursements for the month of April, and the cash balance expected as of April 30, 20X7. Planned cash balance, March 31, 20X7: $100,000 Customer receivables as of March 31: $530,000 total, $80,000 from February sales, $450,000 from March sales Accounts payable, March 31: $460,000 Merchandise purchases for April: $450,000, 40% paid in month of purchase, 60% paid in next month Payrolls due in April: $90,000 Other expenses for April, payable in April: $45,000 Accrued taxes for April, payable in June: $7, 500 Bank note due' April 10: $90,000 plus $7, 200 interest Depreciation for April: $2, 100 Two-year insurance policy due April 14 for renewal: $1,500, to be paid in cash Sales for April: $1,000,000, half collected in month of sale, 40% in next month, and 10% in third month Prepare the cash budget for the month ending April 30, 20X7. The cash budget for the month ending April 30, 20X7: Beginning Balance $ 100,000 Collection from Sales $ 500,000 (50% of April Sales of $ 1,000,000) Collection from Customer Receivables $ 80,000 (of February to be received in April) Collection from Customer Receivables $ 360,000 (of March to be received in April) ($ 450,000/50% * 40%) Total Receipts $ 1,040,000 Payment for Merchandise Inventory $ 180,000 (40% of Merchandise purchases of $ 450,000) Payment to accounts payable $ 460,000 (to be paid in April, being 60% of merchandise purchases of March) Payrolls due in April $ 90,000 Other expenses $ 45,000 Bank note $ 90,000 interest on bank note $ 7,200 Insurance policy $ 1,500 Total Payments $ 873,700 Ending Cash Balance $ 166,300 7-A3 Direct-Material and Direct-Labor Variances Hill Fine Instruments manufactures trumpets, trombones, tubas, and other brass instruments. The following standards were developed for a line of trumpets: ======================================================================================================== Standard Inputs Expected for Each Unit of Output Achieved Standard Price per Unit of Input ============================================================================== 5 pounds Direct materials Direct labor $IO per pound $25 per hour 10 hours ============================================================================== During April, Hill scheduled 550 trumpets for production. However, the company produced only 525. Hill purchased and used 3,100 pounds of direct materials at a unit price of $9.00 per pound. It used 5,500 hours of direct labor at an actual rate of $26.00 per hour. 1. Compute the standard cost per trumpet for direct materials and direct labor. 2. Compute the price variances and quantity variances for direct materials and direct labor. 3. Based on these sketchy data, what clues for investigation are provided by the variances? 1. 5 lb. $10.00 = Direct labor: 10 hrs. $25.00 = 250.00 Total 2. Direct materials: $ 50.00 $300.00 The flexible budget is based on actual output achieved, not scheduled or budgeted output. A Actual Cost Incurred: Actual Input Quantities Actual Prices Direct Materials B Actual Input Quantities Standard Prices Flexible Budget: Standard Input Quantities Allowed for Outputs Achieved Standard Prices 3,100 lbs $9.00 = $27,900 3,100 lbs $10.00 = $31,000 525 units 5 $10.00 = $26,250 Price variance Quantity variance (A - B) =$27,900 - $31,000 = (B - C)$31,000 - $26,250 = $3,100 F $4,750 U Flexible-budget variance (A - C) $27,900 - $26,250 = $1,650 U A Direct Labor C B 5,500 hrs $26.00 = $143,000 C 5,500 hrs $25.00 = $137,500 525 units 10 hrs $25.00 = $131,250 Quantity variance (B - C) = $137,500 - $131,250 = $6,250 U Price variance (A - B) = $143,000 - $137,500 = $5,500 U Flexible-budget variance (A - C) $143,000 - $131,250 = $11,750 U 3. Among the possible explanations for the performance are: (a) Were substandard materials used because they were cheaper, resulting in higher waste than usual? (b) Net savings in material costs may be undesirable if they cause inefficient use of direct labor. It is possible that use of substandard materials led to increased use of direct labor and the unfavorable direct labor quantity variance. (c) Direct labor is expensive. A wage rate that is about 4% above the standard rate creates a significant dollar amount of direct-labor price variance. 7-21 Production Responsibility for Flexible-Budget Variances Suppose a plant manager planned to produce 100 units of product at a total cost of $1,000. Instead, actual production was 10% higher at 110 units. When costs came in at less than a 10% increase in costs or $1,100, the plant manager claimed that she should get credit for a favorable variance equal to the amount by which the actual costs fell short of $1,100. Comment on this claim. This is an unfavorable Variance, the planned cost was $1,000 and the actual is $1,100. It means the manager is $100 over budget. 7-29 Direct-Material Variances Nakhon Custom Shirt Company uses a special fabric in the production of dress shirts. During August, Nakhon Custom Shirt purchased and used 4,100 square yards in the production of 3,700 shirts at a total cost of B2,812,600. (B stands for the Thai baht. There are roughly 30 bahts to a U.S. dollar.) The standard allows one yard at B680 per yard for each shirt. Calculate the material price variance and the material quantity variance. Actual Cost Incurred: Actual Input Quantities Actual Prices Actual Input Quantities Standard Prices 4,100 sq. yd. Flexible Budget: Standard Input Quantities Allowed for Outputs Achieved Standard Prices 3,700 sq. yds. B686 = B680 = B680 = B2,812,600 B2,788,000 B2,516,000 4,100 sq. yd 4,100 (B686 - B680) = Price variance, B24,600U 7-30 Labor Variances (4,100 - 3,700) B680 = Quantity variance, B272,000U Ellen Chenoweth, the manager of the city of St. Paul road maintenance shop, uses standards to judge performance. Because a clerk mistakenly discarded some labor records, however, Ellen has only partial data for April. She knows that the total direct-labor flexible-budget variance was $1,643 favorable. Moreover, a recent pay raise produced an unfavorable labor price variance for April of $1,157. The actual hours of input were 1,780 and the standard labor price was $20 per hour. 1. Find the actual labor rate per hour. 2. Determine the standard hours allowed for the output achieved. Actual Hours Actual Hours Actual Price Standard Price 1,780 hrs. 1,780 hrs. Actual Price $20.00 = $A = $B 1,780 (Actual price - $20.00) = Price variance, $1,157 U Standard Hours Standard Price D hrs. $20.00 = $C (1,780 - D) $20.00 = Quantity variance, $E Flexible-budget variance, $1,643 F 1. Given the price variance of $1,157 U and the actual hours of 1,780, the actual labor rate will be $1,157 1,780 hours = $.65 / hour higher than the standard rate. Therefore, the actual labor rate per hour y = $20.00 + .65 = $20.65. 2. Items A, B, C, and D in the framework can now be completed as follows: A = 1,780 hours $20.65 per hour =36,757. B = 1,780 hours $20.00 per hour = 35,600. E = Quantity variance = Flexible Budget variance - Price Variance = 1,643 F - 1,157 U = 2,800 F C = 35,600 + quantity variance = 35,600 + 2,800 = 38,400. D = 38,400 20.00 = 1,920 standard hours allowed