CMA- GLEIM MCQ - Part 1 (1st Batch)

[1] Gleim #: 1.1.1 -- Source: CMA 691 3-2 Each organization plans and budgets its operations for slightly different reasons. Which one of the following is not a significant reason for planning?

[2] Gleim #: 1.1.2 -- Source: CMA 697 3-11 When developing a budget, an external factor to consider in the planning process is

[3] Gleim #: 1.1.3 -- Source: CMA 692 3-11 Which one of the following is usually not cited as being an advantage of a formal budgetary process?

[4] Gleim #: 1.1.4 -- Source: CIA 1194 III-54 The major objectives of any budget system are to

[5] Gleim #: 1.1.5 -- Source: CMA 1291 3-21 A planning calendar in budgeting is the

[6] Gleim #: 1.1.6 -- Source: CMA 1292 3-8 A budget manual, which enhances the operation of a budget system, is most likely to include

[7] Gleim #: 1.1.7 -- Source: CIA 590 IV-14 One of the primary advantages of budgeting is that it

[8] Gleim #: 1.1.8 -- Source: CMA 692 3-7 The budget that describes the long-term position, goals, and objectives of an entity within its environment is the

[9] Gleim #: 1.1.9 -- Source: CMA 697 3-20 Which one of the following best describes the role of top management in the budgeting process? Top management

[10] Gleim #: 1.1.10 -- Source: Publisher An advantage of participative budgeting is that it

[11] Gleim #: 1.1.11 -- Source: CMA 683 4-2 The primary role of the budget director and the budgeting department is to

[12] Gleim #: 1.1.12 -- Source: CMA 693 3-22 Which one of the following is not considered to be a benefit of participative budgeting?

[13] Gleim #: 1.1.13 -- Source: CMA 1292 3-23 The budgeting technique that is most likely to motivate managers is

[14] Gleim #: 1.1.14 -- Source: CMA 1292 3-13 When comparing performance report information for top management with that for lower-level management,

[15] Gleim #: 1.1.15 -- Source: CMA 0205 In the budgeting and planning process for a firm, which one of the following should be completed first?

[16] Gleim #: 1.1.16 -- Source: CMA 0205 Which one of the following is most important to a successful budgeting effort?

[17] Gleim #: 1.1.17 -- Source: Publisher An improperly executed budget process might have the effect(s) of

[18] Gleim #: 1.1.18 -- Source: Publisher The major disadvantage of a budget produced by means of a top-down process is

[19] Gleim #: 1.1.19 -- Source: Publisher A budget helps a company control costs by setting cost guidelines. However, a budget also performs the function(s) of

[20] Gleim #: 1.1.20 -- Source: Publisher Ineffective budget control systems are characterized by

[21] Gleim #: 1.1.21 -- Source: Publisher Which of the following statements regarding budgets is false?

[22] Gleim #: 1.1.22 -- Source: CMA 0408 2-001 All of the following are advantages of the use of budgets in a management control system except that budgets

[23] Gleim #: 1.1.23 -- Source: CMA 0408 2-003 All of the following are criticisms of the traditional budgeting process except that it

[24] Gleim #: 1.1.24 -- Source: CMA 0408 2-005 The following sequence of steps is employed by a company to develop its annual profit plan: Planning guidelines are disseminated downward by top management after receiving input from all levels of management. A sales budget is prepared by individual sales units reflecting the sales targets of the various segments. This provides the basis for departmental production budgets and other related components by the various operating units. Communication is primarily lateral with some upward communication possible. A profit plan is submitted to top management for coordination and review. Top management’s recommendations and revisions are acted upon by middle management. A revised profit plan is resubmitted for further review to top management. Top management grants final approval and distributes the formal plan downward to the various operating units. This outline of steps best describes which one of the following approaches to budget development?

[25] Gleim #: 1.1.25 -- Source: CMA 0408 2-006 All of the following are advantages of top-down budgeting as opposed to participatory budgeting, except that it

[26] Gleim #: 1.1.26 -- Source: CMA 0408 2-007 In developing the budget for the next year, which one of the following approaches would produce the greatest amount of positive motivation and goal congruence?

[27] Gleim #: 1.1.27 -- Source: CMA 0408 2-008 Which one of the following is not an advantage of a participatory budgeting process?

[28] Gleim #: 1.1.28 -- Source: CMA 0408 2-010 Which one of the following statements concerning approaches for the budget development process is correct?

[29] Gleim #: 1.1.29 -- Source: CMA 0408 2-011 Rock Industries has four divisions. In the quest to develop a more achievable budget for the coming year, the chief executive officer has elected to develop the company’s budget by using a decentralized bottom-up budget approach. Chip Jones is production manager in one of the divisions. Jones’ involvement in the budget process this year will probably

[30] Gleim #: 1.1.30 -- Source: CMA 0408 2-012 Marietta Thomas, Amador Corporation’s vice president of planning, has seen and heard it all. She has told the corporate controller that she is “....very upset with the degree of slack that veteran managers use when preparing their budgets.” Thomas has considered implementing some of the following activities during the budgeting process. 1. Develop the budgets by top management and issue them to lower-level operating units. 2. Study the actual revenues and expenses of previous periods in detail. Have the budgets developed by operating units and accept them as submitted by a company-wide budget committee. 3. 4. Share the budgets with all employees as a means to reach company goals and objectives. Use an iterative budgeting process that has several “rounds” of changes initiated by operating units and/or senior managers. 5. Which one of these activities should Amador implement in order to best remedy Thomas’ concerns, help eliminate the problems experienced by Amador, and motivate personnel?

[31] Gleim #: 1.1.31 -- Source: CMA 0408 2-013 Budgeting problems where departmental managers are repeatedly achieving easy goals or failing to achieve demanding goals can be best minimized by establishing

[32] Gleim #: 1.1.32 -- Source: CMA 0408 2-015 Which one of the following items would most likely cause the planning and budgeting system to fail? The lack of

[33] Gleim #: 1.1.33 -- Source: CMA 0408 2-016 All of the following are disadvantages of top-down budgeting as opposed to participatory budgeting, except that it

[34] Gleim #: 1.1.34 -- Source: CMA 0408 2-017 Suboptimal decision making is not likely to occur when

[35] Gleim #: 1.1.35 -- Source: CMA 0408 2-018 All of the following statements concerning standard costs are correct except that

[36] Gleim #: 1.1.36 -- Source: CMA 0408 2-019 One approach for developing standard costs incorporates communication, bargaining, and interaction among product line managers; the immediate supervisors for whom the standards are being developed; and the accountants and engineers before the standards are accepted by top management. This approach would best be characterized as a(n)

[37] Gleim #: 1.1.37 -- Source: CMA 0408 2-020 When compared with ideal standards, practical standards

[38] Gleim #: 1.1.38 -- Source: CMA 0408 2-021 Diana Stinson, Cherry Valley, Inc.’s factory manager, had lost her patience. Six months ago, she appointed a team from the production and service departments to finalize the allocation of costs and setting of standard costs. They were still feuding, so she hired Brennan and Rose, a large consulting firm, to resolve the matter. All of the following are potential consequences of having the standards set by Brennan and Rose except that

[39] Gleim #: 1.1.39 -- Source: CMA 0408 2-022 Jura Corporation is developing standards for the next year. Currently XZ-26, one of the material components, is being purchased for $36.45 per unit. It is expected that the component’s cost will increase by approximately 10% next year and the price could range from $38.75 to $44.18 per unit, depending on the quantity purchased. The appropriate standard for XZ-26 for next year should be set at the

[40] Gleim #: 1.1.40 -- Source: CMA 0408 2-023 Which one of the following will allow a better use of standard costs and variance analysis to help improve managerial decision-making?

[41] Gleim #: 1.1.41 -- Source: CMA 0408 2-024 After performing a thorough study of Michigan Company’s operations, an independent consultant determined that the firm’s labor standards were probably too tight. Which one of the following facts would be inconsistent with the consultant’s conclusion?

[42] Gleim #: 1.2.42 -- Source: CMA 1291 4-27 Automite Company is an automobile replacement parts dealer in a large metropolitan community. Automite is preparing its sales forecast for the coming year. Data regarding both Automite’s and industry sales of replacement parts as well as both the used and new automobile sales in the community for the last 10 years have been accumulated. If Automite wants to determine whether its sales of replacement parts are dependent upon the industry sales of replacement parts or upon the sales of used and new automobiles, the company should employ

[43] Gleim #: 1.2.43 -- Source: CMA 1285 5-27 The correlation coefficient that indicates the weakest linear association between two variables is

[44] Gleim #: 1.2.44 -- Source: CMA 1289 5-14 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

[45] Gleim #: 1.2.45 -- Source: CMA 697 4-26 A regression equation

[46] Gleim #: 1.2.46 -- Source: CIA 593 III-64 What coefficient of correlation results from the following data? X Y 1 10 2 8 3 6 4 4 5 2

[47] Gleim #: 1.2.47 -- Source: CMA 1290 4-27 In the standard regression equation y = a + bx, the letter b is best described as a(n)

[48] Gleim #: 1.2.48 -- Source: CMA 1290 4-28 The letter x in the standard regression equation is best described as a(n)

[49] Gleim #: 1.2.49 -- Source: CIA 1194 II-46 In regression analysis, which of the following correlation coefficients represents the strongest relationship between the independent and dependent variables?

[50] Gleim #: 1.2.50 -- Source: CIA 595 II-46 The internal auditor of a bank has developed a multiple regression model which has been used for a number of years to estimate the amount of interest income from commercial loans. During the current year, the auditor applies the model and discovers that the r 2 value has decreased dramatically, but the model otherwise seems to be working okay. Which of the following conclusions are justified by the change?

[51] Gleim #: 1.2.51 -- Source: Publisher The least exact method for separating fixed and variable costs is

Jackson Co. has the following information for the first quarter of its year: Machine Cleaning Hours Expense January 2,100 $ 900 February 2,600 1,200 March 1,600 800 April 2,000 1,000 [52] Gleim #: 1.2.52 -- Source: Publisher (Refers to Fact Pattern #1) Using the high-low method, what is Jackson’s variable cost of cleaning per machine hour?

[53] Gleim #: 1.2.53 -- Source: Publisher (Refers to Fact Pattern #1) Using the high-low method, what is Jackson’s fixed cost?

[54] Gleim #: 1.2.54 -- Source: Publisher (Refers to Fact Pattern #1) Jackson’s management expects machine hours for the month of May to be 1,400 hours. What is their expected total cost for the month of May using the high-low method?

[Fact Pattern #2] In preparing the annual profit plan for the coming year, Wilkens Company wants to determine the cost behavior pattern of the maintenance costs. Wilkens has decided to use linear regression by employing the equation y = a + bx for maintenance costs. The prior year’s data regarding maintenance hours and costs and the results of the regression analysis are as follows. Average cost per hour $ 9.00 a 684.65 b 7.2884 Standard error of a 49.515 Standard error of b .12126 Standard error of the estimate 34.469 r 2 .99724 Hours of Maintenance Activity Costs January 480 $ 4,200 February 320 3,000 March 400 3,600 April 300 2,820 May 500 4,350 June 310 2,960 July 320 3,030 August 520 4,470 September 490 4,260 October 470 4,050 November 350 3,300 December 340 3,160 Sum 4,800 $43,200 Average 400 $ 3,600 [55] Gleim #: 1.2.55 -- Source: CMA 1290 4-29 (Refers to Fact Pattern #2) Based upon the data derived from the regression analysis, 420 maintenance hours in a month would mean that Wilkens Co.’s maintenance costs (rounded to the nearest dollar) would be budgeted at:

[56] Gleim #: 1.2.56 -- Source: CMA 1290 4-30 (Refers to Fact Pattern #2) The percentage of Wilkens Co.’s total variance that can be explained by the regression equation is

[57] Gleim #: 1.2.57 -- Source: Publisher (Refers to Fact Pattern #2) If Wilkens Company uses the high/low method of analysis, the equation for the relationship between hours of activity and maintenance cost would be

Alpha Company produces several different products and is making plans for the introduction of a new product which it will sell for $6 a unit. The following estimates have been made for manufacturing costs on 100,000 units to be produced the first year: Direct materials $500,000 Direct labor $40,000 (the labor rate is $4/hour) Overhead costs have not been established for the new product, but monthly data on total production and overhead cost for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and provide the basis for overhead cost estimates for the new product. Dependent variable (y) -- Factory overhead costs Independent variable (x) -- Direct labor hours Computed values: y-intercept $40,000 Coefficient of independent variable $2.10 Coefficient of correlation 0.953 Standard error of estimate $2,840 Standard error of regression coefficient 0.42 Mean value of independent variable $18,000 Coefficient of determination 0.908 [58] Gleim #: 1.2.58 -- Source: Publisher (Refers to Fact Pattern #3) What percentage of the variation in Alpha’s overhead costs is explained by the independent variable?

Gleim #: 1.2.59 -- Source: Publisher (Refers to Fact Pattern #3) Alpha’s total overhead cost for an estimated activity level of 20,000 direct labor hours would be

[60] Gleim #: 1.2.60 -- Source: CIA 1194 III-59 The manager of the assembly department of a company would like to estimate the fixed and variable components of the department’s cost. To do so, the manager has collected information on total cost and output for the past 24 months. To estimate the fixed and variable components of total cost, the manager should use

Gleim #: 1.2.61 -- Source: CIA 1195 II-30 A division uses a regression in which monthly advertising expenditures are used to predict monthly product sales (both in millions of dollars). The results show a regression coefficient for the independent variable equal to 0.8. This coefficient value indicates that

[62] Gleim #: 1.2.62 -- Source: CMA 1289 4-11 All of the following are assumptions underlying the validity of linear regression output except

Gleim #: 1.2.63 -- Source: CMA 1292 3-3 In determining cost behavior in business, the cost function is often expressed as y = a + bx. Which one of the following cost estimation methods should not be used in estimating fixed and variable costs for the equation?

[64] Gleim #: 1.2.64 -- Source: CMA 0408 1-136 For cost estimation, simple regression differs from multiple regression in that simple regression uses only

[65] Gleim #: 1.2.65 -- Source: CMA 0408 1-137 A company has accumulated data for the last 24 months in order to determine if there is an independent variable that could be used to estimate shipping costs. Three possible independent variables being considered are packages shipped, miles shipped, and pounds shipped. The quantitative technique that should be used to determine whether any of these independent variables might provide a good estimate for shipping costs is

[66] Gleim #: 1.2.66 -- Source: CMA 0408 1-138 Slawford Manufacturing developed the following multiple regression equation, utilizing many years of data, and uses it to model, or estimate, the cost of its product. Cost = FC + (a × L) + (b × M) Where: FC = fixed costs L = labor rate per hour M = material cost per pound Which one of the following changes would have the greatest impact on invalidating the results of this model?

[67] Gleim #: 1.2.67 -- Source: CMA 0408 1-139 In order to analyze sales as a function of advertising expenses, the sales manager of Smith Company developed a simple regression model. The model included the following equation, which was based on 32 monthly observations of sales and advertising expenses with a related coefficient of determination of .90. Sales = $10,000 + (2.5 × Advertising expenses) If Smith Company’s advertising expenses in one month amounted to $1,000, the related point estimate of sales would be

[68] Gleim #: 1.2.68 -- Source: CMA 0408 1-140 The results of regressing Y against X are as follows: Coefficient Intercept 5.23 Slope 1.54 When the value of X is 10, the estimated value of Y is

[69] Gleim #: 1.3.69 -- Source: CMA 697 4-25 Corrigon Industries is preparing a bid for a special project requiring the production of 35,000 units. The engineering personnel have advised that the units can be produced in groups with the first group consisting of 1,000 units. A review of prior experience indicates that the direct labor time needed per unit will be progressively smaller by a constant percentage rate as experience is gained in the production process. The quantitative method that would best estimate Corrigon’s total cost for the project is

[70] Gleim #: 1.3.70 -- Source: CMA 1293 4-24 The average labor cost per unit for the first batch produced by a new process is $120. The cumulative average labor cost after the second batch is $72 per product. Using a batch size of 100 and assuming the learning curve continues, the total labor cost of four batches will be

[Fact Pattern #4] Moss Point Manufacturing recently completed and sold an order of 50 units that had costs as shown in the next column. The company has now been requested to prepare a bid for 150 units of the same product. Direct materials $ 1,500 Direct labor (1,000 hours × $8.50) 8,500 Variable overhead (1,000 hours × $4.00)* 4,000 Fixed overhead** 1,400 $15,400 *Applied on the basis of direct labor hours. **Applied at the rate of 10% of variable cost. [71] Gleim #: 1.3.71 -- Source: CMA 1288 5-19 (Refers to Fact Pattern #4) If an 80% learning curve is applicable, Moss Point’s total cost on this order would be estimated at

[72] Gleim #: 1.3.72 -- Source: CMA 1288 5-20 (Refers to Fact Pattern #4) If Moss Point had experienced a 70% learning curve, the bid for the 150 units would

[73] Gleim #: 1.3.73 -- Source: Publisher A particular manufacturing job is subject to an estimated 90% learning curve. The first unit required 50 labor hours to complete. What is the cumulative average time per unit after four units are completed?

[74] Gleim #: 1.3.74 -- Source: Publisher A particular manufacturing job is subject to an estimated 80% learning curve. The first unit required 50 labor hours to complete. What is the cumulative average time per unit after eight units are completed?

[75] Gleim #: 1.3.75 -- Source: Publisher A particular manufacturing job is subject to an estimated 80% learning curve. The first unit required 50 labor hours to complete. If the learning curve is based on a cumulative average time per unit assumption, what is the time required to complete the second unit?

[76] Gleim #: 1.3.76 -- Source: CIA 1187 III-41 A learning curve of 80% assumes that direct labor costs are reduced by 20% for each doubling of output. What is the incremental cost of the sixteenth unit produced as an approximate percentage of the first unit produced?

[77] Gleim #: 1.3.77 -- Source: Publisher Red Baron, Inc. is a new competitor in the production of airplane propellers. Red Baron has to train its employees in the process of making propellers. To increase the speed of learning, Red Baron will give a bonus to the employee with the lowest cumulative average time per unit after eight units are completed. Lucy took 50 hours to complete the first unit, and she is subject to an 80% learning curve. Sally took 60 hours to complete the first unit, and she is subject to a 70% learning curve. Marcy took 40 hours to complete the first unit, and she is subject to a 90% learning curve. Patty took 55 hours to complete the first unit, and she is subject to a 75% learning curve. Which employee will receive the bonus?

[78] Gleim #: 1.3.78 -- Source: CMA 692 4-5 Lake Corporation manufactures specialty components for the electronics industry in a highly labor intensive environment. Arc Electronics has asked Lake to bid on a component that Lake made for Arc last month. The previous order was for 80 units and required 120 hours of direct labor to manufacture. Arc would now like 240 additional components. Lake experiences an 80% learning curve on all of its jobs. The number of direct labor hours needed for Lake to complete the 240 additional components is

[79] Gleim #: 1.3.79 -- Source: CMA 696 4-7 It is estimated that a particular manufacturing job is subject to an 80% learning curve. The first unit required 50 labor hours to complete. What is the cumulative average time per unit after completing four units?

[80] Gleim #: 1.3.80 -- Source: CMA 1291 4-22 A company plans to bid on a special project that calls for a total of 24,000 units. The units will be produced in lots, with the first lot consisting of 750 units. Based on prior experience, the direct labor time needed per unit of product will be progressively smaller by a constant percentage rate as experience is gained in the manufacturing process. The quantitative method that would best estimate the company’s total cost for the project is

[81] Gleim #: 1.3.81 -- Source: CMA 1294 4-28 Seacraft, Inc. received a request for a competitive bid for the sale of one of its unique boating products with a desired modification. Seacraft is now in the process of manufacturing this product but with a slightly different modification for another customer. These unique products are labor intensive and both will have long production runs. Which one of the following methods should Seacraft use to estimate the cost of the new competitive bid?

[82] Gleim #: 1.3.82 -- Source: CMA 1289 4-7 The technique used to predict the change in direct labor hours as a new process stabilizes is

[Fact Pattern #5] LCB, Inc. is preparing a bid to the Department of the Navy to produce engines for rescue boats. The company has manufactured these engines for the Navy for the past 3 years on an exclusive contract and has experienced the following costs: Cumulative Total Cumulative Costs Units Produced Materials Labor 10 $ 60,000 $120,000 20 120,000 192,000 40 240,000 307,200 At LCB, variable overhead is applied on the basis of $1.00 per direct labor dollar. Based on historical costs, LCB knows that the production of 40 engines will incur $100,000 of fixed overhead costs. The bid request is for an additional 40 units; all companies submitting bids are allowed to charge a maximum of 25% above full cost for each order. [83] Gleim #: 1.3.83 -- Source: CMA 688 5-9 (Refers to Fact Pattern #5) In order to ensure that the company would not lose money on the project, LCB’s minimum bid for the 40 units would be

Gleim #: 1.3.84 -- Source: CMA 688 5-7 (Refers to Fact Pattern #5) LCB’s rate of learning on the 3-year engine contract is

[85] Gleim #: 1.3.85 -- Source: CMA 688 5-8 (Refers to Fact Pattern #5) The maximum bid price that LCB, Inc. could submit to the Department of the Navy for the 40 units is

Donehart Corporation produces agricultural vehicles. Most of the component parts for these vehicles are subcontracted to reliable vendors. The final assembly of all vehicles is accomplished at Donehart’s plant. Donehart’s Engineering Department has developed a new fuel injection system that can be produced in-house because of the availability of production capacity. The first production run of the new fuel injection system has already been completed in-house. This 80-unit production run took 60 direct labor hours per unit to produce based on the cumulative average labor hours per fuel injection unit. Donehart has experienced an 80% learning curve with similar products, and this experience indicates that learning tends to cease by the time 640 systems are produced. Donehart’s direct labor cost (including employee benefits) is $18 per direct labor hour. Donehart’s management must decide whether to continue producing the fuel injection system or to subcontract the work. Donehart’s purchasing agent has received a proposal from Midland, Inc., a company specializing in fuel injection systems. From past contracts, Midland has proven to be efficient and reliable. The terms of Midland’s proposal are outlined below. - Donehart must supply all materials required for the fuel injection system units. - The first 80 units produced by Midland will require direct labor input at the rate of 56 hours per unit. Current direct labor cost is $20 per hour. - The direct labor cost charged to Donehart will be the hourly rate in effect at the time the work is performed. Midland is currently negotiating its labor contract, which includes a 4% increase in direct labor cost and should be applicable when Donehart signs the contract. - A learning curve factor of 75% will be applied through the first 640 units produced, and all benefits derived from the learning factor will accrue to Donehart. - Donehart must pay the actual labor cost incurred plus a 5% margin. [86] Gleim #: 1.3.86 -- Source: Publisher (Refers to Fact Pattern #6) If Donehart manufactures the units in-house, what is the average labor hours per unit after manufacturing 640 units?

[87] Gleim #: 1.3.87 -- Source: Publisher (Refers to Fact Pattern #6) If Donehart manufactures the units in-house, how many total hours will it take to complete 1,000 units?

[88] Gleim #: 1.3.88 -- Source: Publisher (Refers to Fact Pattern #6) If Donehart manufactures the units in-house, how much additional cost will the company incur after the first batch in order to produce a total of 1,000 units?

[89] Gleim #: 1.3.89 -- Source: Publisher (Refers to Fact Pattern #6) If Donehart subcontracts the order to Midland, what is the total number of labor hours required to produce the 640 units on the learning curve?

[90] Gleim #: 1.3.90 -- Source: Publisher (Refers to Fact Pattern #6) If Donehart subcontracts the order to Midland, how many hours will it take to complete a unit after the initial 640 units on the learning curve are finished?

[91] Gleim #: 1.3.91 -- Source: Publisher (Refers to Fact Pattern #6) If Donehart subcontracts the order to Midland, how much additional cost will Donehart incur after the first batch in order to obtain a total of 1,000 units?

[92] Gleim #: 1.3.92 -- Source: CIA 1193 III-69 Management of a bookkeeping company observed that the average time spent to perform identical tasks using a new software package decreases as the number of tasks performed increases. The following information on the use of the new software was collected. Number of Total Time to Average Time Tasks Perform All to Perform Performed Tasks Each Task 1 10 minutes 10 minutes 2 18 minutes 9 minutes 4 32.4 minutes 8.1 minutes If this learning effect continues, what is the average time to perform each of the first eight tasks?

[93] Gleim #: 1.3.93 -- Source: CMA 1289 4-10 Learning curves are best used to predict

[Fact Pattern #7] Aerosub, Inc. has developed a new product for spacecraft that includes the production of a complex part. The manufacture of this part requires a high degree of technical skill. Management believes there is a good opportunity for its technical force to learn and improve as they become accustomed to the production process. The production of the first unit requires 10,000 direct labor hours. Management projects an 80% learning curve and wants to produce a total of eight units. [94] Gleim #: 1.3.94 -- Source: CMA 0408 1-142 (Refers to Fact Pattern #7) Upon completion of the eighth unit, Aerosub’s cumulative average direct labor hours required per unit of the product will be

[95] Gleim #: 1.3.95 -- Source: CMA 0408 1-145 (Refers to Fact Pattern #7) Upon completion of the eighth unit, Aerosub’s cumulative direct labor hours will be

[96] Gleim #: 1.3.96 -- Source: CMA 0408 1-149 (Refers to Fact Pattern #7) After completing the first unit, the estimated total direct labor hours Aerosub will require to produce the seven additional units will be

[97] Gleim #: 1.3.97 -- Source: CMA 0408 1-144 A manufacturing company has the opportunity to submit a bid for 20 units of a product on which it has already produced two 10-unit lots. The production manager believes that the learning experience observed on the first two lots will continue for at least the next two lots. The direct labor required on the first two lots was as follows: 5,000 direct labor hours for the first lot of 10 units 3,000 additional direct labor hours for the second lot of 10 units The learning rate experienced by the company on the first two lots of this product is

[Fact Pattern #8] Proper Propeller, Inc. plans to manufacture a newly designed high-technology propeller for airplanes. Proper Propeller forecasts that as workers gain experience, they will need less time to complete the job. Based on prior experience, Proper Propeller estimates a 70% cumulative learning curve and has projected the following costs. Cumulative number Manufacturing Projections of units produced Average cost per unit Total costs 1 $20,000 $20,000 2 14,000 28,000 [98] Gleim #: 1.3.98 -- Source: CMA 0408 1-148 (Refers to Fact Pattern #8) If Proper Propeller produces eight units, the average manufacturing cost per unit will be

[99] Gleim #: 1.3.99 -- Source: CMA 0408 1-146 (Refers to Fact Pattern #8) If Proper Propeller produces eight units, the total manufacturing cost will be

[100] Gleim #: 1.3.100 -- Source: CMA 0408 1-151 (Refers to Fact Pattern #8) After completing production of the first propeller, the estimated cost for Proper Propeller to fill an order for seven additional propellers is