Deck 3: Cost Behaviour

Question 1

Calculation of the cost line using the high-low method tests the lowest cost period to see if it is an outlier.

Answer 1

False

Question 2

The relevant range is the range of activity for which the assumed cost relationships are valid.

Answer 2

True

Question 3

A variable cost decreases in total and per-unit when output decreases.

Answer 3

False

Question 4

Computing fixed costs per unit may result in misleading information.

Question 5

The cost of advertising is usually a discretionary fixed cost.

Question 6

Mixed costs have both a fixed and a variable component.

Question 7

The cost of raw materials used is usually a variable cost.

Question 8

Determining cost behaviour is essential to planning, controlling, and decision making.

Question 9

A committed fixed cost can be changed relatively easily at management discretion.

Question 10

Cost relationships may change at output levels outside of the relevant range.

Question 11

Fixed costs are costs that vary in total within the relevant range as the level of output increases or decreases.

Question 12

Discretionary fixed costs often involve a long-term contract.

Question 13

A driver is a factor that causes or leads to a change in a cost.

Question 14

The slope of a mixed cost line is equal to the variable cost per unit element of the cost.

Question 15

Using the high-low method, the calculation of the cost line uses the highest and lowest cost periods.

Question 16

A cost that changes in total as output changes is a variable cost.

Question 17

The high-low method is the most accurate method to separate the cost behaviour of a mixed cost.

Question 18

As output decreases, variable cost per unit will also decrease.

Question 19

As output increases, fixed costs per unit will also increase.

Question 20

Total variable costs = variable rate/amount of output.

Question 21

What is characteristic of discretionary fixed costs?

A) They cannot be easily changed.
B) They increase as output increases.
C) They often involve a long-term contract.
D) They can be easily changed by management.

Question 22

What is the focus of cost behaviour analysis?

A) the reaction of costs to changes in time
B) the reaction of costs to changes in profit
C) the reaction of costs to changes in benefit
D) the reaction of costs to changes in activity level

Question 23

Which of the following is the best example of a fixed cost?

A) insurance
B) electricity
C) commissions
D) direct materials

Question 24

Which of the following is the best example of a discretionary fixed cost?

A) advertising
B) factory rent
C) direct materials
D) factory insurance

Question 25

Using the least squares (regression) method, the term intercept refers to the fixed cost.

Question 26

Using the least squares (regression) method, the value of X Variable 2 equals the slope of the line.

Question 27

Managerial judgment is a factor in determining cost behaviour.

Question 28

Which processes require one to know how costs change as output changes?

A) planning, controlling
B) recalling and summarizing
C) examining and interpreting
D) analyzing, reporting, and decision making

Question 29

Which of the following is the best example of a discretionary fixed cost?

A) advertising
B) factory rent
C) direct materials
D) factory insurance

Question 30

Which of the following is the best example of a discretionary fixed cost?

A) executive travel costs
B) the cost of leasing machinery
C) licence fees for fleet of vehicles
D) depreciation on a factory building

Question 31

Which statement best describes a committed fixed cost?

A) It can be easily changed.
B) It includes direct materials.
C) It changes when output changes.
D) It often involves a long-term contract.

Question 32

Which of the following is the best example of a fixed cost in a fast-food restaurant?

A) monthly electric bill
B) shift manager's salary
C) cost of flour for pizza crust
D) cost of pepperoni for pizza topping

Question 33

Using the least squares (regression) method, the term X Variable 1 refers to the dependent variable.

Question 34

Which of the following is the best example of a discretionary fixed cost for a doctor's office?

A) advertising
B) cost of bandages
C) salary of receptionist
D) office insurance

Question 35

Which of the following is the best example of a discretionary fixed cost?

A) executive travel costs
B) the cost of leasing machinery
C) licence fees for fleet of vehicles
D) depreciation on a factory building

Question 36

Which statement best describes the relationship between per-unit fixed costs and output?

A) Per-unit fixed costs decrease as output increases.
B) Per-unit fixed costs increase as output increases.
C) Per-unit fixed costs decrease as output decreases.
D) Per-unit fixed costs stay the same as output changes.

Question 37

Using Microsoft Excel, the function REGRESSION returns the parameters of the least squares (regression) method.

Question 38

"Outliers" are points that do NOT seem to fit the general pattern of behaviour.

Question 39

Using Microsoft Excel, the function INTERCEPT returns the variable rate of the independent variable.

Question 40

Which factor causes or leads to a change in a cost or activity?

A) cost driver
B) y-intercept
C) cost formula
D) regression line

Question 41

Which of the following is the best example of a variable cost at an equestrian (horse riding) facility?

A) rent on the buildings
B) cost of registration forms
C) salary of the horse trainer
D) salary of the farm manager

Question 42

Which of the following is characteristic of step costs?

A) remain the same within the relevant range
B) increase in direct proportion to increases in output
C) decrease in direct proportion to increases in output
D) have an increased fixed component at specified intervals

Question 43

Which of the following is the best example of a committed fixed cost for a coffee shop?

A) wages
B) coffee cups
C) coffee beans
D) property taxes

Question 44

When the level of activity increases within the relevant range, what is the effect on the fixed cost per unit?

A) It increases.
B) It decreases.
C) It remains the same.
D) It increases at first then decreases.

Question 45

Which of the following is the best example of a variable cost for a medical lab?

A) bandages
B) salary of receptionist
C) leasing lab equipment
D) advertising on local radio station

Question 46

If output decreases, what will result?

A) Total mixed costs will increase.
B) Total variable costs will increase.
C) Total fixed costs will remain the same.
D) Total mixed costs will remain the same.

Question 47

Which statement best describes the relationship between total variable costs and output?

A) Total variable costs increase as output decreases.
B) Total variable costs decrease as output increases.
C) Total variable costs stay the same as output changes.
D) Total variable costs = variable rate × amount of output.

Question 48

If output increases by 60% and is still within the relevant range, what will be the most likely result?

A) Total variable costs will increase by 60%.
B) Per-unit fixed cost will remain unchanged.
C) Total committed fixed costs will increase by 60%.
D) Total discretionary fixed costs will decrease by 60%.

Question 49

Suppose the cost formula for monthly depreciation cost in a factory is as follows: Total cost = $20,000
Which type of cost does this formula represent?

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

Question 50

Which relationship is characteristic of per-unit variable costs?

A) increase as output increases
B) increase as output decreases
C) decrease as output decreases
D) remain constant within the relevant range

Question 51

If output increases, what will result?

A) Total mixed costs will decrease.
B) Per-unit fixed cost will decrease.
C) Total variable costs will decrease.
D) Total mixed costs will stay the same.

Question 52

What is characteristic of variable costs within the relevant range?

A) decrease in total as output increases
B) stay constant in total as output increases
C) decrease on a per unit basis as output increases
D) stay constant on a per unit basis as output changes

Question 53

Suppose a cost's step-cost behaviour follows very narrow steps. What assumptions can be used to approximate the costs?

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

Question 54

Which of the following is the best example of a mixed cost?

A) utilities
B) sugar at a bakery
C) rent on machinery
D) depreciation on production equipment

Question 55

Which of the following is the best example of a variable cost in a factory?

A) factory building rent
B) lubricant for machinery
C) product advertising costs
D) factory supervisor's salary

Question 56

What will be the result if production volume increases from 4,000 to 5,000 units?

A) Total costs will increase by 20%.
B) Total costs will increase by 25%.
C) Total variable costs will increase by 25%.
D) Mixed and variable costs will increase by 25%.

Question 57

Which statement best describes a fixed cost within the relevant range?

A) It does not change in total as output changes.
B) It has both a variable and a fixed component.
C) It increases in total as level of activity increases.
D) It decreases in total as level of activity decreases.

Question 58

What is the relevant range?

A) the normal range of inputs
B) the range of output where total costs do not change
C) the range of output where cost relationships are valid
D) the range of output where total variable costs do not change

Question 59

What is the formula to calculate a mixed cost?

A) total cost = fixed rate × amount of output
B) total cost = variable rate × amount of output
C) total cost = total fixed cost - (variable rate × amount of output)
D) total cost = total fixed cost + (variable rate × amount of output)

Question 60

Which term refers to the range of activity within which a cost function is valid?

A) normal range
B) activity range
C) relevant range
D) discretionary range

Question 61

Which of the following is characteristic of a mixed cost?

A) contains only variable costs
B) will increase as output decreases
C) will decrease as output increases
D) contains both a fixed and variable component

Question 62

Which statement best describes the scattergraph method?

A) It shows a visual fit of data points.
B) It is complex and time consuming.
C) It uses only the high and low points.
D) It does not reveal the presence of outliers.

Question 63

What is an advantage of using the scattergraph method over the high-low method to estimate costs?

A) A cost analyst can review the data visually and eliminate outliers.
B) It uses statistics to determine a "best fit" line through a set of data points.
C) The cost formula can be determined simply by looking at two points of data.
D) It provides a superior quality cost formulae because it relies on the objective judgement of the analysts.

Question 64

Which formula calculates the variable rate of a mixed cost when using the high-low method?

A)
$\frac{\text {high point output - low point output }}{\text {high point cost - low point cost }}$
B)
$\frac{\text { high point cost - low point cost }}{\text { high point output - low point output }}$
C) total cost at high point - (variable rate × output at low point)
D) total cost at high point - (variable rate × output at high point)

Question 65

Why is managerial judgment critically important in gathering information about costs?

A) It is necessary to understand revenues.
B) It is important in determining cost behaviour.
C) Costs are enhanced by only by new managers.
D) It helps to broaden statistical estimation results.

Question 66

Refer to Crazy Toys, Inc. What is the most appropriate classification of the cost behaviour of the materials cost?

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

Question 67

Which statement best describes mixed costs?

A) They stay the same regardless of output.
B) They decrease in total when output decreases.
C) They have the same cost behaviour as a step cost.
D) They vary in direct proportion to changes in output.

Question 68

Refer to Drumheller Company. Which element is the intercept?

A) output
B) total cost
C) fixed cost
D) variable rate

Question 69

What is a characteristic of the scattergraph method?

A) uses two data points
B) may reveal outliers
C) is the most accurate method
D) has the advantage of objectivity

Question 70

Refer to Drumheller Company. Which element is the independent variable?

A) output
B) total cost
C) fixed cost
D) variable rate

Question 71

Whistler Company makes downhill skis. The company controller wants to calculate the fixed and variable costs associated with janitorial services incurred by the factory. Data for the past six months were collected. Janitorial Labour
Month cost hours
July $9,200 10,120
August 8,800 9,500
September 9,350 10,500
October 9,620 11,100
November 8,400 8,660
December 9,400 10,650
What is the set of high and low months?
High Low

A) July August
B) October November
C) December October
D) December November

Question 72

Refer to Drumheller Company. Which element is the slope?

A) output
B) total cost
C) fixed cost
D) variable rate

Question 73

When a mixed cost is graphed, what does the slope of the line represent?

A) the total cost per unit
B) the sales price per unit
C) the fixed cost per unit of output
D) the variable cost per unit of the activity driver

Question 74

Refer to Crazy Toys, Inc. What is the total materials cost at a production level of 220,000 toys?

A) $22,000
B) $66,000
C) $88,000
D) $132,000

Question 75

Suppose that at a given volume, total costs and fixed costs are known. How are the variable costs per unit calculated?

A) (total costs - fixed costs)/unit volume
B) (total costs/unit volume) - fixed costs
C) total costs - (fixed costs/unit volume)
D) (total costs × unit volume) - (fixed costs/unit volume)

Question 76

When a mixed cost is graphed, what does the Y-intercept correspond to?

A) the fixed cost
B) the variable rate
C) the number of units sold
D) total fixed cost + total variable cost

Question 77

Which statement best describes the high-low method?

A) It is the most accurate method.
B) It has the disadvantage of objectivity.
C) It is mathematically easy to calculate.
D) It cannot be affected by the presence of outliers.

Question 78

Lindsay Company had utilities cost of $105,000 at an output level of 30,000 units. The utilities cost was a mixed cost, and the fixed portion was $60,000. What would be the best estimate of total utilities cost at an output level of 50,000 units?

A) $50,000
B) $110,000
C) $125,000
D) $135,000

Question 79

Refer to the Crazy Toys, Inc. What is the materials cost per unit of output?

A) $0.10
B) $0.30
C) $0.40
D) $0.60

Question 80

Refer to Drumheller Company. Which element is the dependent variable?

A) output
B) total cost
C) fixed cost
D) variable rate