Deck 3: Cost Behavior and Estimation

Question 1

Which of the following is not a way to manage costs?

A)Predict costs under different future conditions.
B)Institute measures to control costs.
C)Plan and budget costs.
D)Compare actual costs to expected future costs.

Answer 1

Institute measures to control costs.

Question 2

In a professional services firm such as a medical doctor's practice, which of the following overhead costs most likely represents a mixed cost function?

A) Medical assistant salaries
B) Double-declining balance depreciation on office computers
C) Copy machine costs
D) Disposable patient gowns

Answer 2

Copy machine costs

Question 3

Which of the following is not a method of determining a cost driver?

A)Time-and-motion studies
B)Regression analysis
C)Classifying costs
D)Intuition

Answer 3

Classifying costs

Question 4

A cost driver is a(n)

A) system that tracks prior costs.
B) activity that causes a particular cost.
C) group of accumulated costs.
D) rate used to assign costs.

Question 5

Why is identification of a relevant range important?

A) Product costs are higher outside of the relevant range
B) Cost behavior outside of the relevant range is linear, which distorts CVP analysis.
C) It directly impacts the number of units of product a company must sell to be profitable.
D) It allows a company to rely on cost behavior for planning purposes.

Question 6

A mixed cost

A)can be fixed one period and then, change to variable in a subsequent period.
B)changes inversely with changes in volume.
C)includes both a variable cost and a fixed cost component.
D)is omitted from CVP analysis since it does not fit either a fixed or variable category.

Question 7

Which of the following would most likely be considered a mixed cost for an attorney's office?

A)Electricity costs for the attorney's office complex
B)Cost of the copy machine
C) Cost of wages of paralegal clerks
D)Cost of auto expenses for office vehicles driven to and from the courthouse.

Question 8

The relevant range is

A) a band of activity with a specific relationship between activity levels and the cost of being measured.
B) the slope of the cost line based on a cost equation.
C) the y-intercept of a cost line based on a cost equation.
D) the range in which a company earns a profit.

Question 9

A linear cost equation

A) is derived from two elements - the relevant range and the level of activity.
B) is used to estimate future costs.
C) includes three components - fixed costs, variable costs and mixed costs.
D) is fixed when the volume is zero and increases at a constant rate per activity level after that.

Question 10

If a company expands capacity by 40% or 40,000 units by increasing its fixed costs, and its unit selling price and unit variable cost remain the same, its total profit will

A) stay the same if no additional units are sold because the revenue remains the same.
B) increase if 2,000 additional units are sold.
C) decrease by the amount of the additional fixed costs if no additional units are sold.
D) increase by the selling price per unit if 2,000 additional units are sold.

Question 11

You are planning a retirement party and have rented space at a capacity of 80 people at a total cost of $800 for the evening. Food is expected to cost $34 per person. Drinks will be provided to attendees at a rate of $8 per drink and each attendee is expected to have on average, two drinks. By how much will the variable cost line rise on a graph for each additional attendee?

A)$42
B)$50
C)$52
D)$60

Question 12

You are planning a retirement party and have rented space at a capacity of 80 people at a total cost of $800 for the evening. Food is expected to cost $34 per person. Drinks will be provided to attendees at a rate of $8 per drink and each attendee is expected to have on average, two drinks. At capacity, how much total cost will you generate if you charge each attendee $62?

A)$3,360
B) $4,160
C) $4,000
D) $4,800

Question 13

Given the mixed cost graph below, what is the amount of the slope?

A)$1.00
B) $0.50
C) $2.00
D) $.040

Question 14

At 400 units, what is the total variable costs using the mixed cost graph shown below:

A) $50
B) $100
C) $700
D) $1,000

Question 15

Bentley Baskets is equipped to produce up to 240 basket per month. During June, the company produced as few as 180 baskets at a total cost of $5,400, and in May produced a high for the year of 225 baskets at a total cost of $7,200. What is the monthly relevant range for Bentley Baskets for the past two months?

A) 180 to 240
B) 225 to 240
C) 180 to 225
D) 540 to 575

Question 16

Delivery costs for Fast Delivery appears below for two months of operation. How should the delivery costs be classified?

A) Variable cost
B) Fixed cost
C)  Mixed cost
D) More information is needed to determine answer.

Question 17

Which of the following is not correct concerning the account analysis method?

A) It uses estimated costs to predict future costs.
B) It requires insight of the nature of the costs.
C)  It requires that mixed costs be separated into their variable and fixed components.
D) It is scalable.

Question 18

For which of the following can the account analysis method be used?
I. To identify the relevant range
II. To determine the cost equation for multiple periods of data.
III. To estimate costs at different levels of activity

A) I and II
B) II and III
C)  I and III
D) II only

Question 19

Wally World provided the following data concerning its costs of operating and the number of riders of its Scream ride and the related linear regression for selected operation months: Using the high-low method, what is the unit variable cost for the Scream ride?

A) $2.25
B) $2.42
C)  $2.47
D) $2.60

Question 20

Wally World provided the following data concerning its costs of operating and the number of riders of its Scream ride and the related linear regression for selected operation months: Using the high-low method, what is the amount of total fixed costs for the Scream ride?

A) $1,560
B) $1,575
C) $2,086
D) $2,770

Question 21

Lee Hardware produces bins. Each bin sells for $16. Information for June appears below. Which of the following represents Lee's cost equation?

A) Y = $16.00X + $28,728
B) Y = $4.40X + $28,728
C) Y = $6.84X + $18,480
D) Y = $4.40X + $18,480

Question 22

Mow Power produces and sells custom lawn mowers. Each lawn mower sells for $220 and has a contribution margin of $132 per unit. Monthly fixed costs are $35,200 The cost equation for Mow Power's lawn mowers is

A) Y = $132X + $35,200
B) Y = $88X + $35,200
C) Y = $220X - $35,200
D) Y = $88X - $35,200

Question 23

A line with a positive slope indicates that the

A) independent variable increases due to an increase in the dependent variable.
B) independent variable increases due to a decrease in the dependent variable.
C) dependent variable increases due to an increase in the independent variable.
D) dependent variable decreases due to a decrease in the independent variable.

Question 24

Which of the following is considered to be a risk of the high-low method?

A) The relevant range
B) Outliers
C) Requires judgment
D) Requires software to handle all the data points

Question 25

Use of a scatter-plot

A) mitigates the risk of using outliers as a basis for the cost equation.
B) depicts a line using the two high and low data points.
C) obscures extreme data points.
D) can help identify the most important data point.

Question 26

Visualizing data on a scatter-plot

A) requires the selection of the highest and lowest data points.
B) results in a single cost equation line.
C) allows the user to see actual data points.
D) presents a plot of the expected data points.

Question 27

In creating a scatter plot using Excel, which of the following is true?

A) Upon selecting the data then scatter chart icon, the scatter chart is displayed with the data.
B) After the scatter chart icon is selected, the date selected.
C) The cost driver is graphed on the horizontal axis.
D) The chart title is selected at the same time the data is selected to ensure the chart contains the proper title once created.

Question 28

A leak in the roof ruined part of the data needed to complete the high-low method calculation. The high point related to 50 units indicates a total cost of $1,840. Total fixed costs are estimated at $1,200. The plans are to produce 60 units in the current month. How much is the variable cost per unit?

A) $11.20
B) $12.80
C) $20.00
D) $64.00

Question 29

DMX anticipates producing 500 license plates during his stay in a Miami jail during July. The budgeted costs for July are $5,600 with $4,200 being related to variable costs. How much will the total cost be if DMX produces 600 license plates?

A) $3,500
B) $4,200
C) $5,600
D) $6,440

Question 30

Given the graph shown below, what is the variable cost per unit to be used in the cost equation for the line at 400 units?

A) $1.00
B) $1.25
C) $2.00
D) $2.25

Question 31

Anwar Industries has the following activity and cost data for the past year: What will the total cost be when 615 units are produced?

A) $7,010
B) $10,455
C) $15,620
D) $16,385

Question 32

The regression method

A) uses only two actual data points to estimate a cost line.
B) can estimate a cost line but cannot separate total costs into variable and fixed costs.
C) uses every point in a data set to create a straight-line equation to estimate future costs.
D) uses the same methodology as the high-low method.

Question 33

The "line of best fit" created in the regression method to generate a straight-line equation

A) is used to estimate future costs.
B) determines variability in estimated and actual costs for a given period.
C) helps to analyze the cause-and-effect relationship of actual costs.
D) allows the estimate of costs to be exactly the same as those costs actually incurred.

Question 34

In graphing the "line of best fit" in the regression method

A) one would expect to not see any residuals scattered around the cost line.
B) none of the data points have to touch the cost line.
C) some of the data points must touch the cost line.
D) a straight line will not exist within the relevant range.

Question 35

What is the common goal of the high-low method and the regression method?

A) To accurately predict future costs with no variation.
B) To compare and analyze future and past costs for predictive purposes.
C) To separate total costs into their fixed and variable cost components to help in predicting future costs with a derived equation.
D) To determine a cause-and-effect relationship between various costs.

Question 36

When using cost prediction methods, output

A) always establishes a cause-and-effect relationship if positively correlated.
B) reliability depends on thoughtful, rational relationships between cost drivers and their costs.
C) Is dependable regardless of the input as long as a regression method is use.
D) Is less reliable if a regression method is used instead of a high-low or account analysis method.

Question 37

In the regression method, residual refers to the

A) data points that are not used in creating the line of best fit.
B) number of data points that do not fall directly on the line of best fit.
C) vertical distance between each known data point and the line of best fit.
D) slope of the cost-line .

Question 38

If the (X,Y) relationship is purely variable,

A) regression analysis must be used.
B) the equation of a line becomes Y = m(X).
C) the equation of a line that must be used is Y = m(X) + b
D) account analysis must be used.

Question 39

If costs are purely fixed in determining the cost line equation,

A) regression analysis must be used.
B) the equation of the line becomes Y = m(X).
C) the equation of the line becomes Y = b.
D) the equation of the line remains Y= m(X) + b.

Question 40

Which of the following metrics would not be used to evaluate the validity of the regression model?

A) Economic plausibility
B) Statistical significance of the slope
C) Cause-and-effect negative relationships
D) Goodness of fit

Question 41

In evaluating the economic plausibility of a regression model, the analyst is determining

A) the statistical significance of the relationship of the independent variable, X with the dependent variable, Y.
B) whether the chosen independent variable, X, is a viable, sensible predictor of the dependent variable, Y, using judgment and understanding of cause-and-effect relationships.
C) the degree to which the regression line fits the actual observations.
D) the correlation of variable costs to fixed costs in the total cost line determination.

Question 42

In using a regression method, and determining the statistical significance of the slope of the cost line, the larger the t-statistic,

A) the stronger or more significant the relationship between the independent variable, X and the dependent variable, Y.
B) the weaker or less significant the relationship between the independent variable, X and the dependent variable, Y.
C) the more relevant the intercept is in the cost equation.
D) the less relevant the intercept is in the cost equation.

Question 43

The fixed portion of the cost equation is called the

A) p value.
B) Intercept coefficient.
C) t statistic.
D) standard deviation.

Question 44

Which of the following is not an assumption of the regression method?

A) Abnormality of the residuals
B) Independence of the residuals
C) Constant variance of the residuals
D) Linearity

Question 45

What is meant by a multiple regression?

A) The same variables (both independent and dependent) are simply run multiple times in the same regression to ensure statistical significance.
B) The same regression is run as was previously run, but with multiple independent variables (X) to estimate one cost function.
C) The same regression is run with the same variables, but with supporting analyses such as account analysis and high-low method.
D) The use of the same regression run multiple times to eliminate the need for the evaluation criteria for the validity of the input and output.

Question 46

When evaluating the output of a multiple regression model, one needs to check

A) the validity of the entire model using the criteria of economic plausibility, goodness of fit, and significance of slope.
B) the validity of the entire model using the criteria of economic plausibility only since the goodness of fit and significance of slope validity have been addressed in the multiple regression runs of data.
C) the validity of the last data set run using the criteria of economic plausibility, goodness of fit, and significance of slope.
D) the validity of the model using the first and last set of data run using the criteria of economic plausibility, goodness of fit, and significance of slope.

Question 47

The essence of the learning curve is that

A) as the number of units of output increases, the labor hours per unit increase in a corresponding, observable, linear relationship.
B) as the number of units of output decreases, the labor hours per unit decline in a corresponding, observable, linear relationship.
C) as the number of units of output increases, the labor hours per unit decline in a corresponding, observable, nonlinear relationship.
D) as the number of units of output decreases, the labor hours per unit increase in a corresponding, observable, nonlinear relationship.

Question 48

Greta's Gadgets has a learning curve of 90%. The time observed to complete the first gadget was 1 hour (60 minutes). What is the expected time to complete the 5^th unit assuming the learning curve of 90%?

A) 36.3 minutes
B) 47.98 minutes
C) 48.6 minutes
D) 54 minutes

Question 49

If one were to apply a linear cost function to labor, the implication would be that

A) the time to make an additional unit increases over time.
B) the time to make each additional unit decreased over time.
C) each unit requires the same amount of time to produce.
D) there is an inverse relationship between cost and the cost driver.

Question 50

The learning curve approach assumes a

A) linear cost function.
B) nonlinear cost function.
C) that each unit will take the same amount of time to produce.
D) regardless of training, production time per unit cannot be reduced.

Question 51

In applying a linear cost approach as compared to a nonlinear approach results in

A) labor costs being higher.
B) labor costs being lower.
C) labor costs being the same.
D) operating income being higher.

Question 52

Chandra Corporation has an observed and documented a learning curve of 90%, and production of units has increased from 10 to 20 units per week. If it is known that it takes 60 minutes to produce the 10^th unit, what amount of time will it take to product the 20^th unit?

A)45 minutes
B)50 minutes
C)54 minutes
D)60 minutes

Question 53

Which of the following statements is true regarding the concept of a learning curve?

A) As additional units are produced, it will require the same amount of time, but cost per unit will decrease.
B) As additional units are produced, each additional unit will require less time, and thus, will result in cost savings.
C) As additional units are produced, the amount of time required may increase or decrease depending on the training of the production worker.
D) As additional units are produced, each additional unit will require less time, but the cost will increase per unit due to increased training costs for the production worker.

Question 54

Which of the following is the ultimate limitation of the concept of a learning curve?

A) It typically requires additional training and education of production workers.
B) Innovation such as when a company creates a new product or production process, the learning curve requires a new learning curve to be started.
C) It cuts operating costs by saving time.
D) It improves skill improvement and learning for production employees.

Question 55

You and another company are currently bidding on a construction project. Your competitor is an experienced construction company with an observed learning curve of 90%. You are a new company with no observed learning curve. Assuming the company with the lowest bid will be granted the contract and both companies determined their bid based on a 40% markup on cost, who will most likely get the construction contract?

A) You will get the contract since you are new and most likely offered a low bid.
B) Your competitor will most likely get the bid since its costs are probably lower than those of a new company because of the learning curve of 90%.
C) Each company is equally likely to receive the contract since a learning curve does not affect costs or the related contract pricing.
D) Not enough information is given to make this determination.

Question 56

If a company was to plot its learning curve on a graph with the time per unit and number of units on each axis, one would expect the curve to be

A) downward sloping.
B) upward sloping.
C) a horizontal straight line.
D) a vertical straight line.

Question 57

When computing the time required for the production of each additional unit with a learning curve, one would

A) multiply the time to produce the immediately preceding unit by the learning curve percentage.
B) divide the time of the immediately preceding unit by the learning curve percentage.
C) multiply the time to produce one unit by the cumulative number of units at this point by the learning rate [ln learning rate %/ ln 2]
D) divide the time of the immediately preceding unit by the one minus the learning curve percentage.

Question 58

Which of the following methods would be the most comprehensive and reliable predictor of future costs for linear cost functions?

A) Account analysis method.
B) High-low method.
C) Regression method.
D) Learning curve method.

Question 59

Alpine Corporation has been manufacturing the same model of snowboards for several years. The original time to produce one snowboard was 2 hours (120 minutes). Over the last year, the production line has steam-lined the production process with a learning curve of 80%. Recently, the company has introduced a new model of snowboard which now requires 3 hours of production time, but with a 90% learning curve. How much time will it take to produce the third unit of the new snowboard?

A) 146 minutes
B) 152 minutes
C) 162 minutes
D) 180 minutes

Question 60

Futuristic Fashions reports the following cost information for the period: Determine the linear cost function equation of a line using the data provide for Futuristic Fashions.

Question 61

Sustainable Solutions, Inc. incurred the following costs during the previous month: Determine which of the costs in the table are variable, fixed or mixed and give an explanation for your classification for each cost.

Question 62

Makito Manufacturers incurs the following costs in manufacturing computers. Match the cost driver with the related cost which would most likely cause the cost to change.

-Production workers Wages

A) Labor hours
B) Machine hours
C) Units produced

Question 63

Makito Manufacturers incurs the following costs in manufacturing computers. Match the cost driver with the related cost which would most likely cause the cost to change.

-Power Costs

A) Labor hours
B) Machine hours
C) Units produced

Question 64

Makito Manufacturers incurs the following costs in manufacturing computers. Match the cost driver with the related cost which would most likely cause the cost to change.

-Computer chips, Memory boards, Keyboard assemblies

A) Labor hours
B) Machine hours
C) Units produced

Question 65

Makito Manufacturers incurs the following costs in manufacturing computers. Match the cost driver with the related cost which would most likely cause the cost to change.

-Indirect production materials

A) Labor hours
B) Machine hours
C) Units produced

Question 66

Makito Manufacturers incurs the following costs in manufacturing computers. Match the cost driver with the related cost which would most likely cause the cost to change.

-Indirect production labor wages

A) Labor hours
B) Machine hours
C) Units produced

Question 67

You have recently decided to open a miniature golf course on a tract of land that you inherited. You have estimated that your monthly fixed costs will be $150 and your variable cost per customer will be $4. Prepare a graph showing your fixed cost line, total variable costs, and total cost line for 10 customers.

Question 68

The finance manager has provided you with the following overhead cost function in a Y = m(X) + b format: Total monthly overhead costs = $2.50 (machine hours used) + $4,300. Given this cost function, identify the (a) variable cost; (b) the cost driver; (c) the fixed costs; and whether these monthly overhead costs are considered variable, fixed, or mixed in total.

Question 69

Ahmed Company had a high level of activity in June of 7,000 machine hours and related electrical costs of $20,000. In February had a month of low activity of 2,000 machine hours with electrical costs of $10,000. Using the high-low method, what are the variable cost per unit and the estimated fixed cost element of electrical costs?

Question 70

Sanchez Manufacturing Company collected the following production data for the past year: If the high-low method is used, what is cost equation for the year?

Question 71

Nina and Marco having been working their accounting internship at Pino's Pizzeria. The owner of Pino's has provided them with the following information for the month of July, and has asked them to compute a cost equation for the pizzeria.

Question 72

Brianna Wellington is the new accountant at Advanced Auto Corporation. She has been assigned the task of determining the next month's costs for her department. She only has partial information available from the previous month as follows: high activity level of 350 units at a total cost of $3,280. She also knows from the accounting records, that the total fixed costs are estimated at $970. Determine the amount of the variable cost per unit and the estimated total costs for next month assuming that 330 units are going to be produced.

Question 73

The controller of MGX Industries is trying to estimate the upcoming quarter's cell phone costs for the company. The phone cost has been determined to be a mixed cost, of which $100 is the monthly base fee, and the total bill for the last quarter for employee cell phone usage was $780. Assume that 2 additional employees were given company cell phones to use for the upcoming quarter which should increase usage-related charges to increase by 20%. Using an account analysis approach, what do you expect the total cost to be for the company cell phones for the upcoming quarter?

Question 74

Carl's Canine Cuts has just recently opened for business offering grooming services for all breeds of dogs. Carl has just finished his first day of service and has noted a remarkable improvement in the amount of time that it takes him to complete a grooming service for each dog. Currently, he managed to groom the 4^th dog by the end of the day in 2 hours (120 minutes) time. If Carl has an 80% learning curve, how much time should it take him to groom the 8^th dog? The 16^th dog?

Question 75

If Baxter's Barber Shop is able to cut the 1^st customer's hair in 30 minutes, the 2^nd customer's hair in 28.5 minutes, the 4^th customer's hair in 27.08 minutes, and the 8^th customer's hair in 25.72 minutes, what is Baxter's learning curve?

Question 76

Jaimin reported the following amount of time to production of the MCG products:

Question 77

Mario Finzelli has just learned how to make his grandfather's famous pizza recipe. To make his first pizza, it took him 15 minutes. It should take him only 10 minutes to make a pizza. What learning curve percentage will he need to experience in order to get to the 10 minute mark by the time he makes his 4 pizzas?

Question 78

Imani is studying for her first accounting exam. She is unsure of what the teacher will ask on the exam or the material covered, so she plans to study for 4 hours. On the second exam, Imani feels more comfortable with the exam format and material, and given that she believes she has an 85% learning curve, how long should she have to study in order to achieve the same results as she received on the first exam?

Question 79

Ventner Manufacturing manufactures a single product. Monthly costs incurred in the production process of 1,000 units are shown below. Compute the expected costs to be incurred when production is 3,000 units using your understanding of cost classifications to determine which of the costs are fixed or variable.

Question 80

ZZZZ Best Accounting and Tax Services pays $300 per month for a tax software license. In addition, for each tax return prepared, the business incurs variable costs of $65 per return. The relevant range for ZZZZ Best Accounting and Tax Services is 100 - 400 tax returns per month. What is the total monthly cost and per unit cost if the business prepares
a. 150 returns?
b. 200 returns?
c. 300 returns?