Exam 6: Activity Analysis, Cost Behavior, and Cost Estimation

Differentiate between committed costs and discretionary costs.Be sure to present two examples of each and explain which of the two cost types would likely be cut should a company encounter ﬁnancial diﬃculties.

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Question 1

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A committed cost is a ﬁxed amount that stems from an organization's ownership or use of facilities, and its basic organizational
structure.Property taxes, rent, and salaries of top management are examples of committed costs.
A discretionary cost, also a ﬁxed amount, occurs as a result of a management decision to spend a particular amount of money for some
purpose.Examples are advertising, training, promotion, and contributions to charitable organizations.
The distinction between committed and discretionary costs is that committed costs can be changed only by major decisions with long-
term implications.Discretionary costs can be changed in the short run and, thus, are cost-cutting targets should an organization
encounter ﬁnancial diﬃculties.

Fulton and Sons, Inc.presently leases a copy machine under an agreement that calls for a ﬁxed fee each month and a charge for each copy made.Fulton made 7,000 copies and paid a total of $360 in March; in May, the ﬁrm paid $280 for 5,000 copies.The company uses the high-low method to analyze costs. How much would Fulton pay if it made 5,500 copies?

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Question 2

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The relationship between cost and activity is known as:

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Question 3

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Which of the following techniques is not used to analyze cost behavior?

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Question 4

Straight-line depreciation is a typical example of a:

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Question 5

Rushmont, Inc.operates a small package delivery service in the Nashville suburbs.If the company uses a regression equation to forecast total operating costs, the coeﬃcient of the equation's independent variable would correspond to the:

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Question 6

A review of Parson Corporation's accounting records found that at a volume of 90,000 units, the variable and ﬁxed cost per unit amounted to $8 and $4, respectively.On the basis of this information, what amount of total cost would Parson anticipate at a volume of 85,000 units?

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Question 7

Focus, Inc.operates a small package delivery service in the Atlanta suburbs.If the company uses a regression equation to forecast total operating costs, the equation's intercept would correspond to the:

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Question 8

Berringer Designs hired a graphic artist.It is estimated that the artist's learning rate is at 70% and her ﬁrst quarter's output amounted to 300 relatively equal job outputs, which took her a total of 50 hours to complete.Output is expected to double in every succeeding quarter. What is the total time requirement as of the 5th quarter? (Do not round your intermediate calculations.)

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Question 9

Norman Company pays a sales commission of 4% on each unit sold.If a graph is prepared, with the vertical axis representing per-unit cost and the horizontal axis representing units sold, how would a line that depicts sales commissions be drawn?

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Question 10

Swan, Inc.uses the high-low method to analyze cost behavior.The company observed that at 22,000 machine hours of activity, total maintenance costs averaged $33.40 per hour.When activity jumped to 25,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $30.40. On the basis of this information, the ﬁxed cost for Swan was:

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Question 11

The determination of cost behavior is called cost prediction.

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Question 12

Outliers are a common data collection problem.

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Question 13

Almed Products has determined that the number of machine hours worked (MH) drives the amount of manufacturing overhead incurred (MOH).On the basis of this relationship, a staff analyst has constructed the following regression equation: MOH = 240,000 + 8MH Which of the choices correctly depicts the nature of Almed's variables?

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Question 14

Tallequah, Inc.uses the high-low method to analyze cost behavior.The company observed that at 20,000 machine hours of activity, total maintenance costs averaged $10.50 per hour.When activity jumped to 24,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $9.75.On the basis of this information, the company's ﬁxed maintenance costs were:

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Question 15

Grimaldi Chocolates projects its factory rent to be $8,000 in July when 4,000 pounds of candy are expected to be produced.If rent is a ﬁxed cost, and if production is expected to increase to 6,000 units in August, what is the expected cost of rent in August?

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Question 16

Volcano Hot Wings has budgeted the following costs for a month in which 12,000 wings will be cooked and sold. Each wing sells for $1.60 each.How much is the budgeted variable cost per unit?

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Question 17

Swan, Inc.uses the high-low method to analyze cost behavior.The company observed that at 22,000 machine hours of activity, total maintenance costs averaged $33.40 per hour.When activity jumped to 25,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $30.40. On the basis of this information, the variable cost per machine hour for Swan was:

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Question 18

The high-low method and least-squares regression are used by accountants to:

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Question 19

A company observed a decrease in the cost per unit.All other things being equal, which of the following is most likely true?

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Question 20

Showing 1 - 20 of 117

Differentiate between committed costs and discretionary costs.Be sure to present two examples of each and explain which of the two cost types would likely be cut should a company encounter ﬁnancial diﬃculties.

The relationship between cost and activity is known as:

Which of the following techniques is not used to analyze cost behavior?

Straight-line depreciation is a typical example of a:

Rushmont, Inc.operates a small package delivery service in the Nashville suburbs.If the company uses a regression equation to forecast total operating costs, the coeﬃcient of the equation's independent variable would correspond to the:

A review of Parson Corporation's accounting records found that at a volume of 90,000 units, the variable and ﬁxed cost per unit amounted to $8 and $4, respectively.On the basis of this information, what amount of total cost would Parson anticipate at a volume of 85,000 units?

Focus, Inc.operates a small package delivery service in the Atlanta suburbs.If the company uses a regression equation to forecast total operating costs, the equation's intercept would correspond to the:

Norman Company pays a sales commission of 4% on each unit sold.If a graph is prepared, with the vertical axis representing per-unit cost and the horizontal axis representing units sold, how would a line that depicts sales commissions be drawn?

The determination of cost behavior is called cost prediction.

Outliers are a common data collection problem.

Grimaldi Chocolates projects its factory rent to be $8,000 in July when 4,000 pounds of candy are expected to be produced.If rent is a ﬁxed cost, and if production is expected to increase to 6,000 units in August, what is the expected cost of rent in August?

Volcano Hot Wings has budgeted the following costs for a month in which 12,000 wings will be cooked and sold. Each wing sells for $1.60 each.How much is the budgeted variable cost per unit?

The high-low method and least-squares regression are used by accountants to:

A company observed a decrease in the cost per unit.All other things being equal, which of the following is most likely true?

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Cost-Volume-Profit Analysis

Variable Costing and the Costs of Quality and Sustainability

Financial Planning and Analysis: the Master Budget

Standard Costing and Analysis of Direct Costs

Flexible Budgeting and Analysis of Overhead Costs

Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard

Inventory Management and Economic Order Quantity (EOQ) Analysis

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