Deck 3: Measurement of Cost Behavior

Question 1

Presented below is the production data for the first six months of the year for the mixed costs incurred by Strongsville Company. $$\begin{array} { l l l } \text { Month } & \text { Cost } & \text { Units } \\\text { January } & \$ 7,500 & 4,000 \\\text { February } & 10,250 & 6,500 \\\text { March } & 10,500 & 8,000 \\\text { April } & 12,700 & 10,500 \\\text { M ay } & 13,500 & 12,000 \\\text { June } & 10,850 & 9,000\end{array}$$ Strongsville Company uses the high- low method to analyze mixed costs. The total fixed cost (rounded to the nearest dollar) is:

A) $10,500
B) $10,417
C) $4,000
D) $4,500

Answer 1

$4,500

Question 2

A mortgage payment would most likely be identified as a:

A) mixed cost
B) discretionary fixed cost
C) purely variable cost
D) committed fixed cost

Answer 2

D

Question 3

An algebraic equation used by managers to describe the relationship between a cost and its cost driver(s) is called a:

A) budget
B) cost analysis
C) cost behavior
D) cost function

Answer 3

D

Question 4

Costs arising from the possession of facilities, equipment, and a basic organization are:

A) engineered costs
B) discretionary costs
C) capacity costs
D) committed fixed costs

Question 5

Roach Motel's cost function based on guest- days of occupancy for custodial cost is given as: Y = $60,000 + $5.50X. Roach Motel expects an occupancy level of 10,000 guest days. Roach Motel's expected total variable cost is:

A) $115,000
B) $60,000
C) $55,000
D) $5.50

Question 6

In the mixed- cost function, Y = $59,000 + $7.70X, the Y signifies:

A) total cost
B) variable cost per unit of cost driver
C) total fixed cost
D) number of units of the cost driver

Question 7

Peace 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 Peace Company makes. $\begin{array}{lll}&\text { Small Sign }&\text { Large Sign }\\\text { Materials cost } & \$ 200 & \$ 500 \\\text { Direct labor hours } & 5 & 9 \\\text { Support costs } & ? & ?\end{array}$ The amount of support costs assigned to a large sign using direct labor hours as the cost driver is:

A) $80
B) $90
C) $50
D) $200

Question 8

The Partridge Corporation used regression analysis to predict the annual cost of indirect materials. The results were as follows: Indirect $M$ aterials Cost
Explained by Units Produced
$\begin{array}{ll}\text { Constant } & \$ 21,885 \\\text { Standard err or of Y estimate } & \$ 4,560 \\\text { R - squared } & 0.7832 \\\text { No. of obs ervations } & 22 \\\text { Degrees of freedom } & 20 \\\text { X coefficient(s) } & 9.75 \\\text { Standard error of coefficient(s) } & 4.1876\end{array}$ The variable cost per unit of product is:

A) $0.78
B) $4.19
C) $2.20
D) $9.75

Question 9

In relation to a cost function, the term reliability means:

A) whether the cost function conforms to a given mathematical model
B) how well the cost function predicts future costs
C) how well the cost function explains past cost behavior
D) whether the costs and activities can be easily observed

Question 10

In a mixed- cost function, the slope is the:

A) number of units of the cost driver
B) fixed cost
C) total cost
D) variable cost

Question 11

It may be difficult to trace cost to products and services if the costs are:

A) affected by activities not related to volume and by multiple cost drivers
B) volume- driven
C) affected by multiple cost drivers
D) affected by activities not related to volume

Question 12

Peace 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 Peace Company makes. $\begin{array}{lll}&\text { Small Sign }&\text { Large Sign }\\\text { Materials cost } & \$ 100 & \$ 300 \\\text { Direct labor hours } & 5 & 7 \\\text { Support costs } & 8 & 9\end{array}$ The amount of support costs assigned to a small sign using direct labor hours as the cost driver is:

A) $80
B) $200
C) $50
D) $90

Question 13

The Kojak Company used regression analysis to predict the annual cost of utilities. The results were as follows: Utilities Cost
Explained by Direct Labor Hours
$\begin{array}{ll}\text { Constant } & \$ 9,650 \\\text { Standard error of Y estimate } & \$ 875.20 \\R \text { - squared } & 0.7650 \\\text { No. of obs ervations } & 33\\\text { Degrees of freedom } & 31 \\\text { X coefficient(s) } & 4.43 \\\text { Standard error of coefficient(s) } & 0.917\end{array}$ The variable cost per direct labor hour is:

A) $4.437
B) $875.20
C) $0.917
D) $0.765

Question 14

Costs that may be essential to the long- run achievement of the organization's goals, but that managers can almost reduce to zero in the short run, are called:

A) mixed costs
B) engineered costs
C) committed fixed costs
D) discretionary fixed costs

Question 15

Costs that change abruptly at intervals of activity because the resources and their costs come in indivisible chunks are called:

A) step costs
B) mixed costs
C) variable costs
D) fixed costs

Question 16

A thorough knowledge of cost behavior helps managers to:

A) decide on the efficient use of resources
B) obtain feedback
C) plan costs
D) All of these answers are correct.

Question 17

measures how much of the fluctuation of a cost is explained by changes in the cost driver.

A) Regression analysis
B) The visual- fit method
C) The high- low method
D) The coefficient of determination

Question 18

The following three data points appear to be: $$\begin{array} { l l } \text { Units } & \text { Costs } \\100 & \$ 500 \\130 & 550 \\160 & 600\end{array}$$

A) a fixed cost
B) a variable cost
C) a step cost
D) a mixed cost

Question 19

A company could not temporarily eliminate:

A) management salaries
B) depreciation
C) research and development
D) employee training

Question 20

Peace 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 Peace Company makes. $\begin{array}{lll}&\text { Small Sign }&\text { Large Sign }\\\text { Labor cost (p er hour) } & \$ 200 & \$ 500 \\\text { Direct labor hours } & 5 & 9 \\\text { Number of components } & 8 & 10\end{array}$ The amount of support costs assigned to a small sign using number of components as the cost driver is:

A) $90
B) $50
C) $200
D) $80

Question 21

The Partridge Corporation used regression analysis to predict the annual cost of indirect materials. The results were as follows:

Question 22

Presented below is the production data for the first six months of the year for the mixed costs incurred by Scott Company. $$\begin{array} { l l l } \text { Month } & \text { Cost } & \text { Units } \\\text { January } & \$ 4,890 & 4,100 \\\text { February } & 4,024 & 3,200 \\\text { March } & 6,480 & 5,300 \\\text { April } & 8,840 & 7,500 \\\text { May } & 5,800 & 4,800 \\\text { June } & 7,336 & 6,600\end{array}$$ Scott Company uses the high- low method to analyze mixed costs. The cost function is stated as:

A) Y = $3,562.30 + $0.144X
B) Y = $440 + $1.12X
C) Y = $7,850 + $0.132X
D) Y = $107.20 + $1.416X

Question 23

Presented below is the production data for the first six months of the year for the mixed costs incurred by Strongsville Company. $$\begin{array} { l l l } \text { Month } & \text { Cost } & \text { Units } \\\text { January } & \$ 7,500 & 4,000 \\\text { February } & 13,000 & 6,500 \\\text { March } & 10,500 & 8,000 \\\text { April } & 12,700 & 10,500 \\\text { May } & 13,500 & 12,000 \\\text { June } & 10,850 & 9,000\end{array}$$ Strongsville Company uses the high- low method to analyze mixed costs. The variable cost per unit is:

A) $1.25
B) $1.31
C) $0.132
D) $0.75

Question 24

Accountants sometimes use a linear cost model for nonlinear costs because:

A) the cost of using more accurate models may exceed the benefit of greater accuracy
B) a nonlinear model is too difficult to develop
C) a nonlinear model is too difficult for managers to interpret
D) All of these answers are correct.

Question 25

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

A) discretionary fixed cost
B) mixed cost
C) purely variable cost
D) committed fixed cost

Question 26

In the mixed- cost function, Y = $59,000 + $7.70X, the X signifies:

A) variable cost per unit of cost driver
B) number of units of the cost driver
C) total cost
D) total fixed cost

Question 27

is the first step in estimating or predicting costs as a function of appropriate cost drivers.

A) Cost behavior investigation
B) Cost measurement
C) Cost driver identification
D) Cost determination

Question 28

The fixed costs required to achieve a desired level of production or to provide a desired level of service, while maintaining product or service attributes (e.g., quality), are:

A) engineered costs
B) mixed costs
C) committed costs
D) capacity costs

Question 29

Presented below is the production data for the first six months of the year for the mixed costs incurred by Strongsville Company. $$\begin{array} { l l l } \text { Month } & \text { Cost } & \text { Units } \\\text { January } & \$ 7,500 & 4,000 \\\text { February } & 11,250 & 6,500 \\\text { March } & 10,500 & 8,000 \\\text { April } & 12,700 & 10,500 \\\text { M ay } & 13,500 & 12,000 \\\text { June } & 10,850 & 9,000\end{array}$$ Strongsville Company uses the high- low method to analyze mixed costs. The total cost at an operating level of 10,000 units is:

A) $11,800
B) $11,725
C) $12,500
D) $12,000

Question 30

Peace 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 Peace Company makes. $$\begin{array} { l l l } & \text { Small Sign } & \text { Large Sign } \\\text { Materials cost } & \$ 200 & \$ 300 \\\text { Direct labor hours } & 5 & 9 \\\text { Support costs } & 8 & 10\end{array}$$ The amount of support costs assigned to a large sign using number of components as the cost driver is:

A) $50
B) $80
C) $120
D) $90

Question 31

The following data has been assembled for Yippee Company. Use the high- low method. $$\begin{array} { l l } \text { Cost } & \text { Hours } \\\$ 24,400 & 2,000 \\34,000 & 2,600 \\31,280 & 2,450 \\36,400 & 3,000 \\44,160 & 3,900\end{array}$$ The cost function is stated as:

A) Y = $3,600 + $10.40X
B) Y = $21,360 + $1.52X
C) Y = $10,112 + $8.64X
D) Y = $26,672 + $1.84X

Question 32

A property tax is an example of a(n):

A) mixed cost
B) committed fixed cost
C) engineered cost
D) discretionary cost

Question 33

uses statistics to fit a cost function to all the historical data.

A) The high- low method
B) Regression analysis
C) The visual- fit method
D) The coefficient of determination

Question 34

The Brady Corporation used regression analysis to predict the annual cost of indirect materials. The results were as follows: Indirect M aterials Cost
Explained by Units Produced
$\begin{array}{cc}\text { Constant } & \$ 13,885 \\\text { Standard error of } Y \text { estimate } & \$ 9,560 \\\text { R - squared } & 0.7832 \\\text { No. of observations } & 22 \\\text { Degrees of freedom } & 20\\\text { X coefficient }(s) & 11.75 \\\text { Standard error of coefficient(s) } & 2.1876\end{array}$ The total fixed cost is:

A) $20,100
B) $15,664
C) $13,885
D) $9,560

Question 35

arise as a result of strategic decisions about the scale and scope of an organization's activities.

A) Discretionary costs
B) Engineered costs
C) Mixed costs
D) Capacity costs

Question 36

A compensation plan where the sales force is paid salary plus commission is a:

A) mixed cost
B) purely variable cost
C) discretionary fixed cost
D) committed fixed cost

Question 37

One of the simplest methods to measure a linear cost function from past data is the:

A) visual- fit method
B) least- squares regression method
C) regression analysis method
D) high- low method

Question 38

The Kojak Company used regression analysis to predict the annual cost of utilities. The results were as follows: Utilities Cost
Explained by Direct Labor Hours
$\begin{array}{cc}\text { Constant } & \$ 2,500 \\\text { Standard error of } Y \text { estimate } & \$ 545.20 \\\text { R - squared } & 0.650 \\\text { No. of observations } & 30\\\text { Degrees of freedom } & 28 \\\text { X coefficient }(s) & 2.037 \\\text { Standard error of coefficient(s) } & 0.917\end{array}$ The total fixed cost is:

A) $2.037
B) $545.20
C) $2,500
D) None of these answers is correct.

Question 39

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

A) Step costs
B) Discretionary fixed costs
C) Mixed costs
D) Committed fixed costs

Question 40

In the mixed- cost function, Y = $59,000 + $7.70X, the $59,000 stands for:

A) number of units of the cost driver
B) total fixed cost
C) variable cost per unit of cost driver
D) total cost

Question 41

Selecting a volume- related cost driver and classifying each account as a variable cost or a fixed cost is called:

A) high- low analysis
B) visual- fit analysis
C) account analysis
D) engineering analysis

Question 42

In a mixed- cost function, the intercept is:

A) number of units of the cost driver
B) variable cost per unit of the cost driver
C) fixed cost
D) total cost

Question 43

A measurement of how much of the fluctuation of a cost is explained by changes in the cost driver is:

A) coefficient of determination
B) standard error of coefficient
C) least- squares analysis
D) standard error of Y

Question 44

of approximating cost functions does not involve the analysis of past costs.

A) Visual- fit analysis
B) Engineering analysis
C) Simple least- squares regression
D) High- low analysis

Question 45

In the high- low method, the change in total cost is due to:

A) total fixed cost
B) mixed cost per unit
C) variable cost per unit
D) fixed cost per unit

Question 46

Which statement regarding committed and discretionary fixed costs is true?

A) Both discretionary and committed fixed costs preserve flexibility.
B) Both discretionary and committed fixed costs limit flexibility.
C) Discretionary fixed costs preserve management's flexibility.
D) Committed fixed costs preserve management's flexibility.

Question 47

A lump sum amount of research and development planned for Senko Corporation would most likely be identified as a:

A) mixed cost
B) discretionary fixed cost
C) step cost
D) purely variable cost

Question 48

The method of measuring cost functions is the most subjective.

A) high- low
B) least- squares regression
C) account analysis
D) visual- fit

Question 49

Engineering analysis and account analysis are similar because:

A) both are extremely expensive
B) both require the subjective judgment of the analyst
C) both focus on past costs
D) both focus on future costs

Question 50

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

A) mixed cost
B) fixed cost
C) variable cost
D) step cost

Question 51

A cost function for a mixed cost includes:

A) expected total cost
B) fixed cost per unit
C) total variable cost
D) None of these answers is correct.

Question 52

The following data has been assembled for Groundhog Company. Use the high- low method. $$\begin{array} { l l } \text { Cost } & \text { Hours } \\\$ 24,400 & 2,000 \\39,000 & 3,600 \\37,280 & 3,450 \\36,400 & 3,000 \\44,160 & 3,900\end{array}$$ The variable cost per hour is:

A) $1.52
B) $8.64
C) $1.84
D) $10.40

Question 53

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

A) will stay the same
B) will decrease
C) will be indeterminate
D) will increase to $480,000

Question 54

is a method of approximating cost functions.

A) Cost driver analysis
B) Account analysis
C) Cost- benefit analysis
D) Product analysis

Question 55

Palmer, Inc., currently produces 140,000 units at a cost of $440,000. Next year Palmer, Inc., expects to produce 150,000 units. Palmer's relevant range is 100,000 to 150,000 units. If the cost is fixed and 150,000 units are produced, the fixed cost:

A) will increase to $480,000
B) will decrease
C) will be indeterminate
D) will stay the same

Question 56

The Brady Corporation used regression analysis to predict the annual cost of indirect materials. The results were as follows: Indirect M aterials Cost
Explained by Units Produced
$\begin{array}{cc}\text { Constant } & \$ 21,885 \\\text { Standard error of Y estimate } & \$ 4,560 \\\text { R - s quared } & 0.4932 \\\text { No. of ob servations } & 22 \\\text { Degrees of freedom } & 20\\X \text { coefficient }(s) & 3.75 \\\text { Standard error of coefficient(s) } & 8.1876\end{array}$ the coefficient of deterinationis:

A) 20
B) 3.75
C) 0.4932
D) 8.1876

Question 57

Insomniac Hotel's cost function based on guest- days of occupancy for custodial cost is given as: Y = $50,000 + $10.00X. Insomniac Hotel expects an occupancy level of 12,000 guest days. Insomniac Hotel's expected total cost is:

A) $120,000
B) $10.00
C) $170,000
D) $50,000

Question 58

Account analysis:

A) does not require recording relevant cost accounts and cost drivers
B) is subjective, requiring judgment by the analyst
C) is more expensive than engineering analysis
D) cannot be used for mixed costs

Question 59

A cost function:

A) does not explain past cost behavior
B) need not have a cause- and- effect relationship
C) should be a reliable predictor of future costs
D) should include only personal observations of costs and activities

Question 60

The method of measuring cost functions is the least reliable.

A) multiple least- squares regression
B) visual- fit
C) high- low
D) simple least- squares regression

Question 61

A disadvantage of engineering cost analysis is that:

A) its failure to produce a cost function
B) the information produced may not be reliable
C) it is not acceptable under GAAP
D) the information produced may not be timely

Question 62

These costs are determined by management as part of the periodic planning process to meet the organization's goals

Question 63

In a linear regression, the x coefficient is the:

A) total cost
B) number of units produced
C) fixed cost per unit
D) variable cost per unit

Question 64

The following data has been assembled for VaVaVoom Company. Use the high- low method. $$\begin{array} { l l } \text { Cost } & \text { Hours } \\\$ 24,400 & 2,000 \\34,000 & 2,600 \\31,280 & 2,450 \\36,400 & 3,000 \\44,160 & 3,900\end{array}$$
The total fixed cost is:

A) $\$ 21,360$
B) $\$ 3,600$
C) $\$ 10,112$
D) $\$ 26,672$

Question 65

The following three data points appear to be: $$\begin{array} { l l } \text { Units } & \text { Costs } \\600 & \$ 700 \\650 & 700 \\700 & 700\end{array}$$

A) a mixed
B) a step cost
C) a fixed cost
D) a variable cost

Question 66

The following three data points appear to be: $$\begin{array} { l l } \text { Units } & \text { Costs } \\100 & \$ 400 \\110 & 440 \\120 & 480\end{array}$$

A) a mixed
B) a step cost
C) a fixed cost
D) a variable cost

Question 67

An activity analysis is used to:

A) identify relevant costs for decision making
B) choose an appropriate cost driver
C) classify costs
D) predict future costs

Question 68

In a small construction firm, another crew supervisor is added for every 10 workers employed. This is an example of a:

A) step cost
B) purely variable cost
C) mixed cost
D) discretionary fixed cost

Question 69

A company could temporarily reduce or eliminate:

A) property taxes
B) bond interest payment
C) depreciation
D) advertising and promotion

Question 70

is the application of cost measures to expected future activity levels to forecast future costs.

A) Measurement of cost behavior
B) Cost prediction
C) A cost function
D) Activity analysis

Question 71

Bates Motel's cost function based on guest- days of occupancy for custodial cost is given as: Y = $30,000 + $7.50X. Bates Motel expects an occupancy level of 10,000 guest days. Bates Motel's expected total fixed cost is:

A) $30,000
B) $7.50
C) $75,000
D) $105,000

Question 72

have no obvious relationship to levels of output activity, but are determined as part of the periodic planning process.

A) Capacity costs
B) Engineered costs
C) Discretionary fixed costs
D) Committed fixed costs

Question 73

Managers should apply two principles to obtain accurate and useful cost functions. These principles are:

A) plausibility and believability
B) believability and validity
C) reliability and validity
D) plausibility and reliability

Question 74

contain elements of both fixed- and variable- cost behavior.

A) Mixed costs
B) Discretionary fixed costs
C) Step costs
D) Committed fixed costs

Question 75

In the mixed- cost function, Y = $59,000 + $7.70X, the $7.70 stands for:

A) number of units of the cost driver
B) total fixed cost
C) total cost
D) variable cost per unit of cost driver

Question 76

Examples of this type of cost are mortgage payments, property taxes, and insurance

Question 77

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

A) cost measurement
B) activity analysis
C) cost prediction
D) budgeting

Question 78

is a method in which the cost analyst draws a straight line through a plot of all the available data.

A) Engineering analysis
B) The least- squares regression method
C) Account analysis
D) The visual- fit method

Question 79

The following data has been assembled for Zowie Company. Use the high- low method. $$\begin{array} { l l } \text { Cost } & \text { Hours } \\\$ 24,400 & 2,000 \\34,000 & 2,600 \\31,280 & 2,450 \\36,400 & 3,000 \\44,160 & 3,900\end{array}$$ The total cost at an operating level of 2,850 hours is:

A) $25,692
B) $34,736
C) $32,016
D) $33,240

Question 80

Cost prediction is used to:

A) calculate annual gains and losses
B) estimate future costs
C) negotiate with supplies
D) calculate management compensation