Exam 3: Measurement of Cost Behavior

A concern with using historical data to measure cost behavior is the possibility that historical data may hide past inefficiencies that the company could reduce if it could identify them.

Palmer Inc.currently produces 110,000 units at a cost of $440,000.Next year Palmer Inc.expects to produce 115,000 units.Palmer's relevant range is 100,000 to 120,000 units.If the cost is variable and 115,000 units are produced, the cost _____.

The cost of using the telephone, which involves a flat rate per month plus a fee for extra usage, would be considered a _____.

Step costs change abruptly at intervals of activity.

Linear-cost behavior is graphed using a straight or curved line.

Righteous Company makes metal signs for businesses and residences.These signs are made of sheet metal, which the owner paints by hand.The owner has a good sense of his labor and materials cost behavior, but he is concerned that he does not have good measure of other support costs.Currently, he predicts support costs to be 40% of the cost of materials.Close investigation of the business reveals that $10 per direct labor hour is a more plausible and reliable support cost relationship. Consider estimated support costs of the following two signs that Righteous Company makes. Small Sign Large Sign Materials cost \ 200 \ 500 Direct labor hours 5 11 Support costs 8 15 The amount of support costs assigned to a large sign using number of components as the cost driver is _____.

The process of identifying appropriate cost drivers and their effects on the costs of making a product or providing a service is called _____.

Sam Company makes metal signs for businesses and residences.These signs are made of sheet metal, which the owner paints by hand.The owner has a good sense of his labor and materials cost behavior, but he is concerned that he does not have good measure of other support costs.Currently, he predicts support costs to be 40% of the cost of materials.Close investigation of the business reveals that $8 per direct labor hour is a more plausible and reliable support cost relationship. Consider estimated support costs of the following two signs that Sam Company makes. Small Sign Large Sign Materials cost \ 150 \ 500 Direct labor hours 5 7 Support costs 9 11 The amount of support costs assigned to a small sign using direct labor hours as the cost driver is _____.

Capacity costs are the mixed costs of being able to achieve a desired level of production or service while maintaining product or service attributes.

The following three data points appear to be _____. Units Costs 600 \ 500 800 500 1,000 500

An activity analysis is used to _____.

Each cost in a manufacturing operation must be either fixed or variable.

Cost prediction is used to _____.

A car lease payment computed by the number of miles driven can be identified as a _____.

The _____ method of measuring cost functions is the least reliable.

Goodness of fit pertains to how well a cost function predicts cost behavior.

_____ change abruptly at intervals of activity because the resources and their costs are only available in indivisible chunks.

Committed fixed costs usually arise from the possession of facilities, equipment, and basic organization.

Most companies make a capacity decision frequently.

The understanding and quantification of how activities of an organization affect levels of costs