Question

1. Total costs may be computed as follows:

a.(Fixed costs per unit × Unit volume) + Variable costs per unit

b.Fixed costs per unit + (Variable costs per unit × Unit volume)

c.Fixed costs + (Variable costs per unit × Unit volume)

2. A coefficient of determination of 0.91 means

a.that the independent variable explains 91 percent of the cost.

b.the model is significant 91 percent of the time.

c.the two variables move together in the same direction and have a strong relationship.

d.the parameter is not significant.

3. What does a correlation coefficient near -1 mean?

a.Two variables are moving in the opposite direction.

b.Two variables are moving in the same direction.

c.Two variables are unrelated.

d.One variable is not a good predictor of the other.

d.(Fixed costs per unit × Unit volume) + Variable costs

4. Green Company is planning to introduce a new product with a 75 percent incremental unit-time learning curve for production in batches of 1,500 units. The variable labor costs are $55 per unit for the first 1,500-unit batch. Each batch requires 200 hours. There are $15,000 in fixed costs not subject to learning. What is the cumulative total time (labor hours) to produce 3,000 units?

a.250 hours

b.300 hours

c.255 hours

d.350 hours

Answer 1

1. Total cost is the sum of fixed cost and variable cost. Fixed costs do not change with volume and are same at all levels of production. Variable cost total changes with level of production. SO, it is better to compute variable cost on per unit basis and then multiplying with volume of production. Hence, correct option is c. Fixed costs + (Variable costs per unit × Unit volume)

2. Coefficient of determination depicts the proportion of variance in the dependent variable that is derived from changes in independent variable. That would mean simply that how much derived value would change from the changes in base value of the primary item. In this scenario, 0.91 would mean independent variable forms 91% of the cost.

Hence, the correct option is a. that the independent variable explains 91% of the cost.

3. Correlation coefficient defines the relation of one variable to another. The coefficient of -1 or 1 depicts perfect relation between two variables. If coefficient of correlation is -1, it means that the both variables are perfectly negative related meaning indirect relation. While coefficient of 1 reflects positive relation. Hence, correct option would be a.Two variables are moving in the opposite direction.

4. Learning curve of 75% with 1500 unit batch means that with each increasing batch, the number of hours would reduce 75% for next batch. That means if first batch requires 200 hours which is the case here, the second batch would require 200*75% = 150 hours.

3000 units are to produced in 2 batches.

Hence, number of hours for 2 batches = 200+150 = 350 hours

Hence, correct option is d. 350 hours.