Question 1

Describe how the learning effect will affect cost prediction.

Accepted Answer

In many production processes, production efficiency increases with experience. For example, as cumulative production output increases, the average labour time required per unit declines. Therefore, as a manufacturer gains experience with a product, estimates of the cost of direct labour should be adjusted downwards to consider this learning effect.

Question 2

The results of the regression analysis to estimate the operation costs of the polishing machine ('polishing cost per month') are as follows:   
Interpret the above regression output, and construct a regression equation to describe the relationship between polishing costs per month and number of batches. Explain how confident you are with the cost equation in estimating future polishing costs.

Accepted Answer

The cost equation is:
Polishing costs = $298.764+ $7.226X₁, where X₁ is the number of batches.
When interpreting the regression output, the student should discuss the following points:
The F-statistic is significant (0.024) so the relationships depicted by the model did not happen by chance.
The p-value for number of batches is less than the benchmark 0.05 so the number of batches is a good cost driver.
However, adjusted R square is not high, suggesting that only 70% of variations can be explained by this cost model. The sample size is also very small, with only 6 observations. (Note: small sample size means we should focus on adjusted R square not the 'regular' R square.). So overall, one should not be too confident with this model.

Question 3

For a manufacturer of kitchens, which of the following would you expect to be a direct cost?

Accepted Answer

A)  Hourly labour cost of employees installing kitchens 
B)  Material for kitchen benchtops 
C)  Hourly labour cost of employees installing kitchens AND material for kitchen benchtops 
D)  Rent of factory premises 
A)  Hourly labour cost of employees installing kitchens 
B)  Material for kitchen benchtops 
C)  Hourly labour cost of employees installing kitchens AND material for kitchen benchtops 
D)  Rent of factory premises C

Question 4

Explain why many businesses are finding that more and more of their costs no longer vary directly with the volume of production.

Accepted Answer

One reason is that, as organisations bec

Question 5

In assessing the costs and benefits of using a particular cost driver, which of the following must be taken into account?
i. The availability of cost data.
ii. The time frame for analysing the cost behaviour.
iii. Whether it is a fixed or variable cost.

Accepted Answer

A)  i 
B)  ii 
C)  i and ii 
D)  i and iii 
A)  i 
B)  ii 
C)  i and ii 
D)  i and iii

Question 6

Technical Engineering presently leases a copying machine on a monthly basis. The lease agreement requires a fixed fee each month in addition to a charge per copy. Technical Engineering made 2400 copies and paid a total of $162 in rent in September and in October they paid $195 for 3500 copies. Determine Technical's monthly fixed fee.

Accepted Answer

A)  $138 
B)  $ 90 
C)  $ 66 
D)  $ 55 
A)  $138 
B)  $ 90 
C)  $ 66 
D)  $ 55

Question 7

Research and development costs are an example of discretionary costs.

Accepted Answer

A) True 
 B)False

Question 8

Consider the following equation:
Total cost = fixed costs + (cost driver rate $\times$ cost driver quantity)
If a cost can be estimated using this equation, it is probably a:

Accepted Answer

A)  fixed cost. 
B)  variable cost. 
C)  mixed or semivariable cost. 
D)  non-linear cost. 
A)  fixed cost. 
B)  variable cost. 
C)  mixed or semivariable cost. 
D)  non-linear cost.

Question 9

Which of the following are valid reasons for a firm not using objective techniques?
i. Data may not be available.
ii. Cost estimates are sufficiently accurate for the firm's purposes.
iii. Accountants may be ignorant of appropriate techniques.
iv. The firm gives low priority to cost estimation.

Accepted Answer

A)  i and ii 
B)  i, ii and iii 
C)  ii, iii and iv 
D)  i, ii and iv 
A)  i and ii 
B)  i, ii and iii 
C)  ii, iii and iv 
D)  i, ii and iv

Question 10

Technical Engineering presently leases a copying machine on a monthly basis. The lease agreement requires a fixed fee each month in addition to a charge per copy. Technical made 2400 copies and paid a total of $162 in rent in September and in October they paid $195 for 3500 copies. Determine the total amount that would be paid for 1800 copies.

Accepted Answer

A)  $120 
B)  $138 
C)  $144 
D)  $163 
A)  $120 
B)  $138 
C)  $144 
D)  $163

Question 11

For a fixed cost, as volume increases:

Accepted Answer

A)  the cost behaviour depends on the type of fixed cost involved. 
B)  total fixed costs remain constant and fixed costs per unit increase. 
C)  both total fixed costs and fixed costs per unit remain constant. 
D)  total fixed costs remain constant and fixed costs per unit decrease. 
A)  the cost behaviour depends on the type of fixed cost involved. 
B)  total fixed costs remain constant and fixed costs per unit increase. 
C)  both total fixed costs and fixed costs per unit remain constant. 
D)  total fixed costs remain constant and fixed costs per unit decrease.

Question 12

Compare and contrast the following types of costs:
i. Variable and step-variable
ii. Fixed and step-fixed

Accepted Answer

i. A variable cost changes in total in d

Question 13

Costs that remain fixed over wide ranges of activity but jump to a different amount outside that range are called:

Accepted Answer

A)  step-fixed costs. 
B)  step-variable costs. 
C)  semivariable costs. 
D)  curvilinear costs. 
A)  step-fixed costs. 
B)  step-variable costs. 
C)  semivariable costs. 
D)  curvilinear costs.

Question 14

Which of the following describes a cost-estimation method that involves a careful examination of the ledger accounts?

Accepted Answer

A)  Least squares regression 
B)  Visual fit 
C)  Account classification 
D)  Multiple regression 
A)  Least squares regression 
B)  Visual fit 
C)  Account classification 
D)  Multiple regression

Question 15

Within the relevant range of activity, costs:

Accepted Answer

A)  can be estimated with reasonable accuracy. 
B)  exhibit decreasing marginal cost patterns. 
C)  exhibit increasing marginal cost patterns. 
D)  None of the given answers 
A)  can be estimated with reasonable accuracy. 
B)  exhibit decreasing marginal cost patterns. 
C)  exhibit increasing marginal cost patterns. 
D)  None of the given answers

Question 16

A regression model in which more than one independent variable is used to predict the dependent variable is called a:

Accepted Answer

A)  simple regression model. 
B)  multiple regression model. 
C)  dependent model. 
D)  B and C 
A)  simple regression model. 
B)  multiple regression model. 
C)  dependent model. 
D)  B and C

Question 17

The method of cost estimation that fits a cost line between two data points is:

Accepted Answer

A)  least squares regression. 
B)  high-low. 
C)  account classification. 
D)  multiple regression. 
A)  least squares regression. 
B)  high-low. 
C)  account classification. 
D)  multiple regression.

Question 18

Truweight Ltd has introduced a new line of weight machines for the catering industry which has required additional steps in the production line. During the first two months of production the labour time for the weight machines was as follows:  
The average labour time per unit for February was

Accepted Answer

A)  1800 hours. 
B)  100 hours. 
C)  90 hours. 
D)  80 hours. 
A)  1800 hours. 
B)  100 hours. 
C)  90 hours. 
D)  80 hours.

Question 19

The Longreach Toy Factory has determined machine hours to be the cost driver of the company's electricity costs. During the first six months of the year, the company incurred the following electricity costs:  
Using the high-low method, determine the cost formula that expresses the cost behaviour of the company's electricity costs.

Accepted Answer

A)  Y = $3735 + $6.20X 
B)  Y = $1664 + $8.38X 
C)  Y = $4760 + $5.00X 
D)  Y = $4400 + $5.50X 
A)  Y = $3735 + $6.20X 
B)  Y = $1664 + $8.38X 
C)  Y = $4760 + $5.00X 
D)  Y = $4400 + $5.50X

Question 20

If a very short time period, such as a week, is used for a regression study, rather than a longer period such as a month:

Accepted Answer

A)  coping with inflation becomes more difficult. 
B)  accounting measurement errors are more likely. 
C)  time and motion studies will be required to supplement the cost and volume data. 
D)  coping with inflation becomes more difficult AND time and motion studies will be required to supplement the cost and volume data. 
A)  coping with inflation becomes more difficult. 
B)  accounting measurement errors are more likely. 
C)  time and motion studies will be required to supplement the cost and volume data. 
D)  coping with inflation becomes more difficult AND time and motion studies will be required to supplement the cost and volume data.

Describe how the learning effect will affect cost prediction.

For a manufacturer of kitchens, which of the following would you expect to be a direct cost?

Explain why many businesses are finding that more and more of their costs no longer vary directly with the volume of production.

In assessing the costs and benefits of using a particular cost driver, which of the following must be taken into account? i. The availability of cost data. ii. The time frame for analysing the cost behaviour. iii. Whether it is a fixed or variable cost.

Research and development costs are an example of discretionary costs.

Consider the following equation: Total cost = fixed costs + (cost driver rate $\times$ cost driver quantity) If a cost can be estimated using this equation, it is probably a:

Which of the following are valid reasons for a firm not using objective techniques? i. Data may not be available. ii. Cost estimates are sufficiently accurate for the firm's purposes. iii. Accountants may be ignorant of appropriate techniques. iv. The firm gives low priority to cost estimation.

For a fixed cost, as volume increases:

Compare and contrast the following types of costs: i. Variable and step-variable ii. Fixed and step-fixed

Costs that remain fixed over wide ranges of activity but jump to a different amount outside that range are called:

Which of the following describes a cost-estimation method that involves a careful examination of the ledger accounts?

Within the relevant range of activity, costs:

A regression model in which more than one independent variable is used to predict the dependent variable is called a:

The method of cost estimation that fits a cost line between two data points is:

Truweight Ltd has introduced a new line of weight machines for the catering industry which has required additional steps in the production line. During the first two months of production the labour time for the weight machines was as follows: The average labour time per unit for February was

If a very short time period, such as a week, is used for a regression study, rather than a longer period such as a month:

Management Accounting: Information for Creating Value and Managing Resources

Management Accounting: Cost Terms and Concepts

Product Costing Systems

Process Costing and Operation Costing

Service Costing

A Closer Look at Overhead Costs

Activity-Based Costing

Budgeting Systems

Standard Costs for Control: Direct Material and Direct Labour

Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Managing and Reporting Performance

Financial Performance Measures and Incentive Schemes

Strategic Performance Measurement Systems

Managing Suppliers and Customers

Managing Costs and Quality

Sustainability and Management Accounting

Cost Volume Profit Analysis

Information for Decisions: Relevant Costs and Benefits

Pricing and Product Mix Decisions

Information for Capital Expenditure Decisions

Filters

Exam 3: Cost Behaviour, Cost Drivers and Cost Estimation

Describe how the learning effect will affect cost prediction.

For a manufacturer of kitchens, which of the following would you expect to be a direct cost?

Explain why many businesses are finding that more and more of their costs no longer vary directly with the volume of production.

In assessing the costs and benefits of using a particular cost driver, which of the following must be taken into account? i. The availability of cost data. ii. The time frame for analysing the cost behaviour. iii. Whether it is a fixed or variable cost.

Research and development costs are an example of discretionary costs.

Consider the following equation: Total cost = fixed costs + (cost driver rate ×\times× cost driver quantity) If a cost can be estimated using this equation, it is probably a:

Which of the following are valid reasons for a firm not using objective techniques? i. Data may not be available. ii. Cost estimates are sufficiently accurate for the firm's purposes. iii. Accountants may be ignorant of appropriate techniques. iv. The firm gives low priority to cost estimation.

For a fixed cost, as volume increases:

Compare and contrast the following types of costs: i. Variable and step-variable ii. Fixed and step-fixed

Costs that remain fixed over wide ranges of activity but jump to a different amount outside that range are called:

Which of the following describes a cost-estimation method that involves a careful examination of the ledger accounts?

Within the relevant range of activity, costs:

A regression model in which more than one independent variable is used to predict the dependent variable is called a:

The method of cost estimation that fits a cost line between two data points is:

Truweight Ltd has introduced a new line of weight machines for the catering industry which has required additional steps in the production line. During the first two months of production the labour time for the weight machines was as follows: The average labour time per unit for February was

If a very short time period, such as a week, is used for a regression study, rather than a longer period such as a month:

Management Accounting: Information for Creating Value and Managing Resources

Management Accounting: Cost Terms and Concepts

Product Costing Systems

Process Costing and Operation Costing

Service Costing

A Closer Look at Overhead Costs

Activity-Based Costing

Budgeting Systems

Standard Costs for Control: Direct Material and Direct Labour

Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Managing and Reporting Performance

Financial Performance Measures and Incentive Schemes

Strategic Performance Measurement Systems

Managing Suppliers and Customers

Managing Costs and Quality

Sustainability and Management Accounting

Cost Volume Profit Analysis

Information for Decisions: Relevant Costs and Benefits

Pricing and Product Mix Decisions

Information for Capital Expenditure Decisions

Filters

Consider the following equation: Total cost = fixed costs + (cost driver rate $\times$ cost driver quantity) If a cost can be estimated using this equation, it is probably a: