Reference no: EM131700788

Question #1

A production manager has obtained the following estimates of costs/revenues for radios. Their plan is to produce this model of radio for 10 years.
Yearly sales = 3,000 units/year (steady state/no growth expected)
Sales Price = $80/unit
Variable Cost = $31.52/unit
Initial Investment = $125,000

A. How many units does the company need to produce/sell to breakeven?
B. Does the company break even during year 1?
C. How much PROFIT does the company make over the 10-year production run?
D. Suppose the company can reduce the Variable Costs by $2.00 per unit if they invested in the "latest technology" for $175,000 (vice $125,000). Based upon the potential profitability over the 10 year period only, should the company invest in the latest technology?

Question #2

Given the initial cost of $500.00, determine the Learning Rate (LR) that "best fits" the actual observed data in GREY Fill by changing the LR value in YELLOW Fill/RED Text.

What is the LR Value in cell with YELLOW Fill/RED Text that best fits the "Actual" data observed in with GREY Fill? Refer to Chart A for initial visual indicators...

If employee turnover significantly increases, what do you suspect will happen to the learning rate for your company? Will it drift towards 99% or towards 85%? Explain in less than 50 words.

Initial Cost estimated at	$500.00
LR	95.00%	Initially set to 0.95
	b =	-0.074000581	-0.01449957	-0.234465254
	Test LR	95.00%	99%	85%
Unit	Actual	Predicted LR	LR too low	LR too high
10	$341.07	$421.67	$483.58	$291.41
20	$303.97	$400.58	$478.75	$247.70
30	$284.17	$388.74	$475.94	$225.24
40	$270.91	$380.55	$473.96	$210.54
50	$261.05	$374.32	$472.43	$199.81
60	$253.26	$369.31	$471.18	$191.45
70	$246.86	$365.12	$470.13	$184.65
80	$241.44	$361.53	$469.22	$178.96
90	$236.76	$358.39	$468.42	$174.09
100	$232.65	$355.61	$467.70	$169.84

Question #3 Overhead Allocation

The lead accountant has compiled the following data in preparation for allocating overhead to three cost drivers.

Overhead Costs
Utilities	$80,000	Utilities (phone, electric, water, gas, etc.)
Admin/MGMT	$150,000	CEO, VPs, Supervisors, Secretary staff costs
Factory Costs	$220,000	Building lease & equipment
	$450,000.00

A. Allocate the $450,000 of monthly overhead costs to the following three cost drivers : 1) Units Produced 2) Direct Labor Hours
3) Raw Material Costs to determine the final product cost per unit (which includes Direct Labor, Raw Materials, and Overhead)

	Labor Hrs Per Widget	Direct Labor Cost per Widget
Widget-1	3	$75.00
Widget-2	6	$150.00
Widget-3	12	$300.00

Drivers
Units Produced in Factory (all  inclusive)	25,500	Widget-1	10,000	units per month
		Widget-2	15,000	units per month
		Widget-3	500	units per month
Direct  Labor Hours	126,000	Widget-1	30,000	hours per month
		Widget-2	90,000	hours per month
		Widget-3	6,000	hours per month
Raw Material Costs	$5.00	per unit of Widget-1
	$20.00	per unit of Widget-2
	$200.00	per unit of Widget-3

B. Which of the three methods causes the Final Product Cost of Widget-3 to exceed $600? In 50 words or less, why did this occur?

C. If the current sales price of Widget-3 is only $600, as the lead accountant, name at least TWO strategies you should consider to make Widget-3 a viable product to sell/produce?

Question #4

Below is the average 30-year mortgage rate over the last 44 years, as graphically shown in Chart A below. In addition, there is a "Linear' trend line provided. Unfortunately, this "Linear" trend line includes significant error as evidenced by the low R² value of 0.521

A. Tasking: Using the data provided, creat your own chart, with linear trend line. (Show final chart)

B. Select the trend line that best fits the overall data by choosing ONE of the following: 1) Exponential 2) Linear 3) Logarithmic 4) Polynomial (order 2 thru 6) 5) Power 6) Moving Average (periods 2 thru x)

Year	30 Year (%)
1972	7.29%
1973	7.54%
1974	8.58%
1975	8.82%
1976	8.73%
1977	8.75%
1978	9.35%
1979	10.50%
1980	16.32%
1981	15.58%
1982	16.89%
1983	12.78%
1984	13.65%
1985	13.20%
1986	9.94%
1987	9.83%
1988	10.20%
1989	11.05%
1990	10.37%
1991	9.50%
1992	8.85%
1993	7.46%
1994	8.32%
1995	8.32%
1996	7.93%
1997	8.14%
1998	7.14%
1999	6.92%
2000	8.15%
2001	7.08%
2002	6.99%
2003	5.81%
2004	5.83%
2005	5.86%
2006	6.51%
2007	6.18%
2008	5.92%
2009	4.81%
2010	5.10%
2011	4.84%
2012	3.91%
2013	3.45%
2014	4.34%
2015	3.67%
2016	3.61%

C. In Chart B below, the average 30-year mortgage rate over the last 10 years are shown. A "Linear" trend line is added to "forecast" years 2017 thru 2021.

Through observation, provide TWO key reasons this forecast can/should be considered "flawed."

D: Forecast the 30-year mortgage rate over the next five years (2017 thru 2021) utilizing the method that you believe represents the historical trend and best reflects mortgage interest rates going into the future. Show your results both graphically & in tabular forms.

Question #5

Answer the following True/False questions:

Parametric cost estimates utilize a "bottom-up" approach	True     False
Engineering cost estimates require detailed designs	True     False
"Rough order of magnitude" estimates are most often associated with Parametric cost estimating	True     False
Engineering cost estimates are quick and easy to develop	True     False
Class 1 estimates are the initial/basic estimate, usually involving the largest range of error	True     False
According to Standish, more than 50% of all IT projects experience cost overruns of 51% or more	True     False
Tetlock believes Hedgehogs make better forecasters due to their cognitive style that is biased towards a single idea or approach.	True     False
When developing a cost estimate, determining the estimates "purpose" is one of the most important steps	True     False
Updating an estimate is recommended only when it is easily achieved	True     False
Analogy estimatesare based upon years of highly accurate data, therefore is the gold standard whenever possible	True     False

Extra Credit (2):

A. The list below are examples of Cognitive Bias in forecasting (according to Tetlock). Which of the below are NOT forms of bias cited by Tetlock:

Selective Perception                         Normalcy                   Availability
Overconfidence                                Anchoring                  Search for Supportive Evidence
Recency                                         Conservatism             
Understanding Uncertainty                 Halo Effect

B.
Tetlock determined that Expert Judgement has no role in forecasting. True or False