Deck 3: Determining How Costs Behave

Question 1

The cost function y = 80 + 4X:

A)has a slope coefficient of 4.
B)has a slope coefficient of -4.
C)will intersect the y-axis at 4.
D)is a curved line.

Answer 1

A

Question 2

For January,the cost components of a picture frame include $0.35 for the glass;$0.65 for the wooden frame,and $0.80 for assembly.The assembly desk and tools cost $600.Two thousand frames are expected to be produced in the coming year.What cost function best represents these costs?

A)y = 600 +1.80X
B)y = 1.80 + 600X
C)y = 2.20 + 2000X
D)y = 1.00 + 600X

Answer 2

A

Question 3

The cost function y = 8000 + 4X:

A)has a slope coefficient of 8000.
B)is a curved line.
C)will intersect the y-axis at 4.
D)represents a mixed cost.

Answer 3

D

Question 4

A linear cost function can represent:

A)variable cost behaviours.
B)fixed cost behaviours.
C)mixed cost behaviours.
D)All of these answers are correct.

Question 5

The cost components of an air conditioner include $35 for the compressor;$11.50 for the sheet moulded compound frame;and $80 per unit for assembly.The factory machines and tools cost is $55 000.The company expects to produce 1500 air conditioners in the coming year.What cost function best represents these costs?

A)y = 55 000 + 126.50X
B)y = 55 000 + 1500X
C)y = 1500 + 126.5X
D)y = 1500 + 55 000X

Question 6

A cost function is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost.

Question 7

Each indirect-cost pool of a manufacturing firm:

A)relates to one cost object.
B)utilises a separate cost-allocation rate.
C)is a subset of total indirect costs.
D)All of these answers are correct.

Question 8

Which of the following is an equation of a variable cost function?

A)y = a
B)y = a + bX
C)y = bX
D)y = b

Question 9

Knowing the proper relevant range is essential to properly classify costs.

Question 10

Any linear cost function can be graphed by knowing only the slope coefficient.

Question 11

Dougherty Company employs 20 individuals.Eight employees are paid $12 per hour and the rest are salaried employees paid $3000 a month.How would total costs of personnel be classified?

A)Variable
B)A variable cost within a relevant range
C)Mixed
D)A fixed cost within a relevant range

Question 12

The cost function y = 100 + 10X:

A)represents a fixed cost.
B)is a nonlinear.
C)has an intercept of 100.
D)has a slope coefficient of 100.

Question 13

All cost functions are linear.

Question 14

The cost function y = 1000 + 5X:

A)is a straight line.
B)has a slope coefficient of 1000.
C)has an intercept of 5.
D)represents a fixed cost.

Question 15

What are the two assumptions behind a simple linear cost function? Briefly explain the three ways that a linear cost function may behave.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 16

When estimating a cost function,cost behaviour can be approximated by a linear cost function within the relevant range.

Question 17

One assumption frequently made in cost behaviour estimation is that changes in total costs can be explained by changes in the level of a single activity.

Question 18

A ________ is a grouping of individual indirect cost items.

A)cost pool
B)cost assignment
C)job-costing system
D)cost allocation base

Question 19

Write a linear cost function equation for each of the following conditions.Use y for estimated costs and X for activity of the cost driver.
a.Direct manufacturing labour is $10 per hour.
b.Direct materials cost $9.20 per cubic metre.
c.Utilities have a minimum charge of $1000,plus a charge of $0.05 per kilowatt-hour.
d.Machine operating costs include $200 000 of machine depreciation per year,plus $75 of utility costs for each day the machinery is in operation.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 20

Write a linear cost function equation for each of the following conditions.Use y for estimated costs and x for activity of the cost driver.
a.Direct materials cost is $.75 per kilo.
b.Direct labour cost is $16.75 per hour.
c.Car rental has a fixed fee of $75.00 per day plus $.50 per kilometre driven.
d.Machine operating costs include $350 of maintenance per month,and $5.00 of coolant usage costs for each day the machinery is in operation.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 21

In a graphical display of a cost function,the steepness of the slope represents the total amount of fixed costs.

Question 22

Managers should use past data to create a cost function and then use the exact information provided by that cost function to create the budgetary forecast for the next year.

Question 23

The 'conference method' estimates cost functions:

A)using time-and-motion studies.
B)using quantitative methods that can be very time-consuming and costly.
C)based on analysis and opinions gathered from various departments.
D)by mathematically analysing the relationship between inputs and outputs in physical terms.

Question 24

Which of the following does NOT represent a cause-and-effect relationship?

A)A company is charged 40 cents for each brochure printed and mailed.
B)Utility costs increase at the same time that insurance costs increase.
C)Material costs increase as the number of units produced increases.
D)It makes sense that if a complex product has a large number of parts it will take longer to assemble than a simple product with fewer parts.

Question 25

The 'industrial engineering method' estimates cost functions:

A)using qualitative rather than quantitative analysis.
B)based on analysis and opinions gathered from various departments.
C)by analysing the relationship between inputs and outputs in physical terms.
D)quickly while incurring little cost.

Question 26

An example of a physical cause-and-effect relationship is when additional units of production increase total direct material costs.

Question 27

Each cost pool may have multiple cost allocation bases.

Question 28

Which cost estimation method analyses accounts in the subsidiary ledger as variable,fixed,or mixed using qualitative methods?

A)The account analysis method
B)The conference method
C)The industrial engineering method
D)The quantitative analysis method

Question 29

When plotted on a graph,cost functions are usually displayed by having the level of activity (machine-hours,etc. )plotted on the vertical axis (called the y-axis)and the amount of total costs corresponding to (or dependent on)the levels of that activity on the horizontal axis (called the x-axis).

Question 30

A high correlation between two variables s and t indicates that:

A)both may be affected by a third variable.
B)s may cause t,or t may cause s.
C)the correlation may be due to random chance.
D)All of these answers are correct.

Question 31

Which statement related to assumptions about estimating linear cost functions is FALSE?

A)A cost object is anything for which a separate measurement of costs is desired.
B)A linear function approximates cost behaviour within the relevant range of the cost driver.
C)Variations in a single cost driver explain variations in total costs.
D)A high correlation between two variables ensures that a cause-and-effect relationship exists.

Question 32

McDevitt Company employs six individuals.They are all paid $12.50 per hour.How would total costs of personnel be classified?

A)Mixed
B)A variable cost within a relevant range
C)A fixed cost within a relevant range
D)Variable

Question 33

The longer the time horizon,the more likely that a cost will have a fixed cost behaviour.

Question 34

A linear cost function can only represent fixed cost behaviour.

Question 35

Gathering cost information through observations and interviews from departments within an organisation is known as the:

A)account analysis method.
B)conference method.
C)industrial engineering method.
D)quantitative analysis method.

Question 36

Outside of the relevant range,variable and fixed cost-behaviour patterns may change.

Question 37

'Quantitative analysis methods' estimate cost functions:

A)based on analysis and opinions gathered from various departments.
B)which depend on the experience and judgement of the analyst for accuracy.
C)using the pooling of knowledge from each value chain function.
D)using significant amounts of historical data.

Question 38

y = a + bX represents the general form of the linear cost function.

Question 39

The 'account analysis method' estimates cost functions:

A)at a high cost,which renders it seldom used.
B)in a manner that cannot be usefully combined with any other cost estimation methods.
C)by classifying cost accounts as variable,fixed,or mixed based on qualitative analysis.
D)using time-and-motion studies.

Question 40

It can be inferred that when there is a high correlation between two variables,one is the cause of the other.

Question 41

Answer the following questions using the information below:
Stosur Courtside Caterers is a small company that has hired you to perform some management advisory services.The following information pertains to 2018 operations.
$$\begin{array} { l r } \text { Sales (5000 microwave ovens) } & \$ 1350000 \\\text { Cost of goods sold } & 540000 \\\text { Store manager's salary per year } & 75000 \\\text { Operating costs per year } & 225000 \\\text { Advertising and promotion per year } & 25000 \\\text { Commissions (4\% of sales) } & 67500\end{array}$$

-Which cost estimation method is being used by Stosur Courtside Caterers?

A)The quantitative analysis method
B)The industrial engineering method
C)The conference method
D)The account analysis method

Question 42

Answer the following questions using the information below:
Stosur Courtside Caterers is a small company that has hired you to perform some management advisory services.The following information pertains to 2018 operations.
$$\begin{array} { l r } \text { Sales (5000 microwave ovens) } & \$ 1350000 \\\text { Cost of goods sold } & 540000 \\\text { Store manager's salary per year } & 75000 \\\text { Operating costs per year } & 225000 \\\text { Advertising and promotion per year } & 25000 \\\text { Commissions (4\% of sales) } & 67500\end{array}$$

-What was the variable cost per unit sold for 2018?

A)$13.50
B)$186.50
C)$121.50
D)$108

Question 43

Answer the following questions using the information below:
Hewitt Sporting Goods Store is a small company that has hired you to perform some management advisory services.The following information pertains to 2018 operations.
$\begin{array}{lr}\text { Sales (2000 cricket bats) } & \$ 900000 \\\text { Cost of goods sold } & 400000 \\\text { Store manager's salary per year } & 70000 \\\text { Operating costs per year } & 157000 \\\text { Advertising and promotion per year } & 15000 \\\text { Commissions ( } 4 \% \text { of sales) } & 36000\end{array}$

-Which cost estimation method is being used by Hewitt Sporting Goods Store?

A)The conference method
B)The industrial engineering method
C)The account analysis method
D)The quantitative analysis method

Question 44

Answer the following questions using the information below:
At the Gregan Company,the cost of the personnel department has always been charged to production departments based upon number of employees.Recently,opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs.
Total personnel department costs are $320 000.
$$\begin{array} { l r r r } \text { Department } & \underline { \mathbf { A } } & \underline { \mathbf { B } } & \underline { \mathrm { C } } \\\text { Number of employees } & 30 & 270 & 100 \\\text { The number of new hires } & 8 & 12 & 5\end{array}$$

-If the number of new hires is considered the cost driver,what amount of personnel costs will be allocated to Department A?

A)$24 000
B)$40 000
C)$102 400
D)$10 666

Question 45

Answer the following questions using the information below:
At the Gregan Company,the cost of the personnel department has always been charged to production departments based upon number of employees.Recently,opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs.
Total personnel department costs are $320 000.
$$\begin{array} { l r r r } \text { Department } & \underline { \mathbf { A } } & \underline { \mathbf { B } } & \underline { \mathrm { C } } \\\text { Number of employees } & 30 & 270 & 100 \\\text { The number of new hires } & 8 & 12 & 5\end{array}$$

-Which cost estimation method is being used by Gregan Company?

A)The industrial engineering method
B)The quantitative analysis method
C)The account analysis method
D)The conference method

Question 46

Answer the following questions using the information below:
Stosur Courtside Caterers is a small company that has hired you to perform some management advisory services.The following information pertains to 2018 operations.
$$\begin{array} { l r } \text { Sales (5000 microwave ovens) } & \$ 1350000 \\\text { Cost of goods sold } & 540000 \\\text { Store manager's salary per year } & 75000 \\\text { Operating costs per year } & 225000 \\\text { Advertising and promotion per year } & 25000 \\\text { Commissions (4\% of sales) } & 67500\end{array}$$

-What were total fixed costs for 2018?

A)$250 000
B)$225 000
C)$325 000
D)$932 500

Question 47

Answer the following questions using the information below:
At the Holden Company,the cost of the library and information centre has always been charged to the various departments based upon number of employees.Recently,opinions gathered from the department managers indicate that the number of engineers within a department might be a better predictor of library and information centre costs.
Total library and information centre costs are $75 000.
$\begin{array}{lrrr}\text { Department } & \underline{\mathbf{A}} & \underline{\mathbf{B}} & \mathbf{C} \\\text { Number of employees } & 125 & 500 & 125 \\\text { Number of engineers } & 0 & 75 & 25\end{array}$

-Which cost estimation method is being used by Holden Company?

A)The account analysis method
B)The quantitative analysis method
C)The industrial engineering method
D)The conference method

Question 48

Answer the following questions using the information below:
Hewitt Sporting Goods Store is a small company that has hired you to perform some management advisory services.The following information pertains to 2018 operations.
$\begin{array}{lr}\text { Sales (2000 cricket bats) } & \$ 900000 \\\text { Cost of goods sold } & 400000 \\\text { Store manager's salary per year } & 70000 \\\text { Operating costs per year } & 157000 \\\text { Advertising and promotion per year } & 15000 \\\text { Commissions ( } 4 \% \text { of sales) } & 36000\end{array}$

-What are the estimated total costs if Hewitt expects to sell 3000 units next year?

A)$896 000
B)$1 017 000
C)$678 000
D)$799 000

Question 49

The industrial engineering method of cost estimation is based on opinions from various departments and is quick and of low cost to apply.

Question 50

The 'account analysis method' of cost estimation classifies account costs as fixed,mixed,or variable using qualitative judgements.

Question 51

The 'quantitative analysis method' uses a formal mathematical method to identify cause-and-effect relationships among past data observations.

Question 52

Answer the following questions using the information below:
Hewitt Sporting Goods Store is a small company that has hired you to perform some management advisory services.The following information pertains to 2018 operations.
$\begin{array}{lr}\text { Sales (2000 cricket bats) } & \$ 900000 \\\text { Cost of goods sold } & 400000 \\\text { Store manager's salary per year } & 70000 \\\text { Operating costs per year } & 157000 \\\text { Advertising and promotion per year } & 15000 \\\text { Commissions ( } 4 \% \text { of sales) } & 36000\end{array}$

-What was the variable cost per unit sold for 2018?

A)$18
B)$218
C)$200
D)$339

Question 53

Which cost estimation method may use time-and-motion studies to analyse the relationship between inputs and outputs in physical terms?

A)The account analysis method
B)The conference method
C)The industrial engineering method
D)The quantitative analysis method

Question 54

Which cost estimation method uses a formal mathematical method to develop cost functions based on past data?

A)The account analysis method
B)The conference method
C)The industrial engineering method
D)The quantitative analysis method

Question 55

Answer the following questions using the information below:
At the Gregan Company,the cost of the personnel department has always been charged to production departments based upon number of employees.Recently,opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs.
Total personnel department costs are $320 000.
$$\begin{array} { l r r r } \text { Department } & \underline { \mathbf { A } } & \underline { \mathbf { B } } & \underline { \mathrm { C } } \\\text { Number of employees } & 30 & 270 & 100 \\\text { The number of new hires } & 8 & 12 & 5\end{array}$$

-If the number of employees is considered the cost driver,what amount of personnel costs will be allocated to Department A?

A)$24 000
B)$102 400
C)$40 000
D)$10 666

Question 56

The 'industrial engineering method' uses a formal mathematical method to identify cause-and-effect relationships among past data observations.

Question 57

Answer the following questions using the information below:
At the Holden Company,the cost of the library and information centre has always been charged to the various departments based upon number of employees.Recently,opinions gathered from the department managers indicate that the number of engineers within a department might be a better predictor of library and information centre costs.
Total library and information centre costs are $75 000.
$\begin{array}{lrrr}\text { Department } & \underline{\mathbf{A}} & \underline{\mathbf{B}} & \mathbf{C} \\\text { Number of employees } & 125 & 500 & 125 \\\text { Number of engineers } & 0 & 75 & 25\end{array}$

-If the number of engineers is considered the cost driver,what amount of library and information centre costs will be allocated to Department A?

A)$56 250
B)$12 500
C)$0
D)$50 000

Question 58

Answer the following questions using the information below:
Hewitt Sporting Goods Store is a small company that has hired you to perform some management advisory services.The following information pertains to 2018 operations.
$\begin{array}{lr}\text { Sales (2000 cricket bats) } & \$ 900000 \\\text { Cost of goods sold } & 400000 \\\text { Store manager's salary per year } & 70000 \\\text { Operating costs per year } & 157000 \\\text { Advertising and promotion per year } & 15000 \\\text { Commissions ( } 4 \% \text { of sales) } & 36000\end{array}$

-What were total fixed costs for 2018?

A)$227 000
B)$678 000
C)$242 000
D)$436 000

Question 59

Answer the following questions using the information below:
Stosur Courtside Caterers is a small company that has hired you to perform some management advisory services.The following information pertains to 2018 operations.
$$\begin{array} { l r } \text { Sales (5000 microwave ovens) } & \$ 1350000 \\\text { Cost of goods sold } & 540000 \\\text { Store manager's salary per year } & 75000 \\\text { Operating costs per year } & 225000 \\\text { Advertising and promotion per year } & 25000 \\\text { Commissions (4\% of sales) } & 67500\end{array}$$

-What are the estimated total costs if Stosur expects to sell 6500 units next year?

A)$932 500
B)$1 104 750
C)$665 000
D)$1 017 500

Question 60

Answer the following questions using the information below:
At the Holden Company,the cost of the library and information centre has always been charged to the various departments based upon number of employees.Recently,opinions gathered from the department managers indicate that the number of engineers within a department might be a better predictor of library and information centre costs.
Total library and information centre costs are $75 000.
$\begin{array}{lrrr}\text { Department } & \underline{\mathbf{A}} & \underline{\mathbf{B}} & \mathbf{C} \\\text { Number of employees } & 125 & 500 & 125 \\\text { Number of engineers } & 0 & 75 & 25\end{array}$

-If the number of employees is considered the cost driver,what amount of library and information centre costs will be allocated to Department A?

A)$56 250
B)$12 500
C)$0
D)$50 000

Question 61

The most common forms of quantitative analysis are the 'conference method' and the 'account analysis method'.

Question 62

Regression analysis:

A)uses the constant to measure goodness of fit.
B)is simple to compute.
C)is mathematical so it does not require an understanding of operations.
D)measures the change in a dependent variable associated with one or more independent variables.

Question 63

The cost to be predicted is referred to as the:

A)regression.
B)dependent variable.
C)cost driver.
D)independent variable.

Question 64

Akama Allambee,controller,gathered data on overhead costs and direct labour-hours over the past 12 months.List and discuss the different approaches Akama can use to estimate a cost function for overhead costs using direct labour-hours as the cost driver.
_____________________________________________________________________________________________
____________________________________________________________________________________________

Question 65

Time-series data analysis includes:

A)using the highest and lowest observation.
B)comparing information in different cost pools.
C)observing different entities during the same time period.
D)using a variety of time periods to measure the dependent variable.

Question 66

When using the high-low method,the denominator of the equation that determines the slope is the:

A)independent variable.
B)difference between the high and low observations of the dependent variables.
C)dependent variable.
D)difference between the high and low observations of the cost driver.

Question 67

Cross-sectional data analysis includes:

A)comparing information in different cost pools.
B)using the highest and lowest observation.
C)observing different entities during the same time period.
D)using a variety of time periods to measure the dependent variable.

Question 68

All individual cost items included in the dependent variable should have:

A)an economically plausible relationship with the independent variable.
B)the same cost driver.
C)a cause-and-effect relationship with the independent variable.
D)All of these answers are correct.

Question 69

The high-low method:

A)easily handles estimating the relationship between the dependent variable and two or more independent variables.
B)uses the residual term to measure goodness of fit.
C)is more accurate than the regression method.
D)calculates the slope coefficient using only two observed values within the relevant range.

Question 70

The slope of the line of regression is the:

A)rate at which the dependent variable varies.
B)level of total variable costs.
C)level of total fixed costs.
D)rate at which the independent variable varies.

Question 71

A plot of data that results in one extreme observation MOST likely indicates that:

A)an unusual event such as a plant shutdown occurred during that month.
B)the cost-allocation base has been incorrectly identified.
C)more than one cost pool should be used.
D)individual cost items do not have the same cost driver.

Question 72

Place the following steps in order for estimating a cost function using quantitative analysis:
A = Plot the data
B = Estimate the cost function
C = Choose the dependent variable
D = Identify the cost driver

A)D C A B
B)D C B A
C)A D C B
D)C D A B

Question 73

Put the following steps in order for using the high-low method of estimating a cost function:
A = Identify the cost function
B = Calculate the constant
C = Calculate the slope coefficient
D = Identify the highest and lowest observed values

A)C D A B
B)D C A B
C)A D C B
D)D C B A

Question 74

A plot of data that results in bunched points with little slope generally indicates a:

A)negative relationship.
B)strong relationship.
C)weak relationship.
D)positive relationship.

Question 75

Simple regression differs from multiple regressions in that:

A)multiple regressions use all available data to estimate the cost function,whereas simple regression only uses simple data.
B)simple regression is limited to the use of only the dependent variables and multiple regressions can use both dependent and independent variables.
C)simple regression uses only one dependent variable and multiple regressions uses more than one dependent variable.
D)simple regression uses only one independent variable and multiple regressions uses more than one independent variable.

Question 76

When using the high-low method,the two observations used are the high and low observations of the:

A)residual term.
B)slope coefficient.
C)cost driver.
D)dependent variables.

Question 77

How many separate cost pools should be formed given the following information:

A)1 cost pool
$$\begin{array} { l l } \text { Cost } & \text { Cost driver } \\\text { Postage costs } & \text { \# of brochures mailed } \\\text { Printing and paper costs } & \text { \# of brochures mailed } \\\text { Quality control costs } & \text { \# of inspections } \\\text { Customer service costs } & \text { \# of customers served }\end{array}$$
B)2 cost pools
C)3 cost pools
D)4 cost pools

Question 78

Collecting data on the dependent variable and the cost driver may include:

A)collecting data from different entities over the same period of time.
B)interviews with managers.
C)collecting data over a long period of time.
D)All of these answers are correct.

Question 79

The 'independent variable':

A)is also referred to as the 'cost driver'.
B)should have an economically plausible relationship with the dependent variable.
C)may also be called the 'cost-allocation base' if referring to an indirect cost.
D)All of these answers are correct.

Question 80

The cost of the personnel department at the Miller Company has always been charged to the production departments based upon number of employees.Recently,opinions gathered from the department managers indicated that the number of new hires might also be a predictor of personnel costs to be assigned.Total personnel department costs are $360 000.

Required:
Using the above data,prepare a report that contrasts the different amounts of personnel department cost that would be allocated to each of the production departments if the cost driver used is:
a.number of employees
b.the number of new hires
c.Which cost estimation method is being used by Miller Company?
_____________________________________________________________________________________________
_____________________________________________________________________________________________