Deck 5: Cost Drivers and Cost Behavior

Question 1

The total cost (TC)of an item is calculated as TC = F + VX,where X is the

A)unexpected cost during the period.
B)unusual cost during the period.
C)units of activity during the period.
D)unknown cost during the period.

Answer 1

C

Question 2

Total costs that vary with activity levels in the short run are known as:

A)fixed costs.
B)variable costs.
C)sunk costs.
D)opportunity costs.

Answer 2

B

Question 3

Valley Company incurred a total cost of $5,000 to produce 300 units of output.A total of 450 hours was incurred for this effort.If the variable cost was $10 per direct labor hour,then the fixed cost was

A)$4,500.
B)$3,000.
C)$2,000.
D)$ 500.

Answer 3

D

Question 4

If revenues are $20 per unit,variable costs are $10 per unit,and fixed costs are $150,what is the operating profit when 100 units are sold?

A)$ 850
B)$ 1,740
C)($16,000)
D)($ 140)

Question 5

Costs that will not vary with activity levels in the short run are known as:

A)fixed costs.
B)variable costs.
C)sunk costs.
D)opportunity costs.

Question 6

Another terms for engineered costs is:

A)fixed costs.
B)variable costs.
C)sunk costs.
D)opportunity costs.

Question 7

When a fixed cost changes,which of the following will also generally change?

A)accounts receivable.
B)notes receivable.
C)marketable securities.
D)long-term assets.

Question 8

Which of the following statements is correct?

A)Fixed cost per unit increase as activity increases.
B)Fixed cost per unit decrease as activity increases.
C)Fixed cost per unit stay the same as activity increases.
D)Fixed cost per unit first increase,then decrease as activity increases.

Question 9

The total cost (TC)of an item is calculated as TC = F + VX,where V is the

A)estimated volume of production
B)variable cost per unit of activity.
C)total variable costs
D)actual volume of production

Question 10

Columbia Hospital for Women is planning to expand its labor and delivery room facilities.Although variable costs per patient will remain unchanged,fixed costs will increase by 20 percent.Last year's costs are below.

Calculate the future total cost assuming 100 patients are expected each month.

A)$25,000
B)$29,000
C)$20,500
D)$20,000

Question 11

Which of the following terms describes the range of activity over which the firm expects a set of cost behaviors to be consistent?

A)irrelevant range.
B)relevant range.
C)short-range.
D)long-range.

Question 12

Valley Company incurred a total cost of $17,000 to produce 500 units of output.A total of 800 hours was incurred for this effort.If the variable cost was $20 per direct labor hour,then the fixed cost was

A)$16,000
B)$17,000
C)$ 7,000
D)$ 1,000

Question 13

The total cost (TC)of an item is calculated as TC = F + VX,where F is the

A)fixed cost during the period.
B)full cost during the period.
C)final costs during the period.
D)finite cost during the period.

Question 14

Which of the following terms describe the level of activity over which the firm expects a set of cost behaviors to be consistent?

A)marginal activity.
B)range of opportunity.
C)relevant range.
D)margin of safety.

Question 15

Bluestone Company is planning to expand its warehouse distribution center.Variable costs will increase 5% and fixed costs will increase 20%.Last year's costs are below.

Calculate the future total cost assuming 1,000 units are shipped each month.

A)$74,000
B)$72,500
C)$75,000
D)$76,500

Question 16

Which of the following is a cost that changes as the level of activity changes?

A)fixed costs.
B)engineered costs.
C)sunk costs.
D)opportunity costs.

Question 17

If revenues are $25 per unit,variable costs are $15 per unit,and fixed costs are $400,what is the operating profit when 100 units are sold?

A)($600)
B)$600
C)($1,900)
D)$2,500

Question 18

Costs that do not change with changes in activity levels are known as:

A)fixed costs.
B)variable costs.
C)sunk costs.
D)opportunity costs.

Question 19

Which of the following characterizes a time period long enough to allow management to change the level of production within the constraints of current total productive capacity?

A)short run.
B)medium run.
C)long run.
D)relevant range.

Question 20

The total cost (TC)of an item is calculated as TC = F + VX.Which is the cost driver rate?

A)TC
B)F
C)V
D)X

Question 21

Capacity costs are certain __________ costs that provide a firm with the capacity to produce or sell or both.

A)fixed
B)variable
C)discretionary costs
D)opportunity costs

Question 22

Certain fixed costs that provide a firm with the capability to produce or sell or both are known as:

A)capacity costs.
B)committed costs.
C)discretionary costs.
D)opportunity costs.

Question 23

Which statement is true concerning curvilinear variable cost functions?

A)Curvilinear variable cost functions have both fixed and variable components which vary in constant proportion.
B)Curvilinear variable cost functions increase in logical steps which vary in constant proportion.
C)Curvilinear variable cost functions always involves long-term assets which vary in constant proportion.
D)Curvilinear variable cost functions are where costs vary with the volume of activity,but not in constant proportion.

Question 24

Which statement is true concerning capacity costs?

A)Capacity costs are certain fixed costs that provide a firm with the capacity to produce or sell or both.
B)Capacity costs need not be incurred in the short run to conduct business.
C)Capacity costs are uncontrollable in the long run.
D)Capacity costs are always non-value added.

Question 25

Property taxes,executive salaries,and security are examples of which of the following costs?

A)committed costs.
B)discretionary costs.
C)variable costs
D)All of the answers are correct.

Question 26

Which of the following is a function that shows how the amount of time required to perform a task goes down per unit as the number of units increases?

A)curvilinear fixed.
B)semi-variable.
C)semi-fixed.
D)learning curve.

Question 27

What does the experience curve function show?

A)The amount of time required to perform a task goes up per unit as the number of units increases.
B)The amount of time required to perform a task goes up per unit as the number of units decreases.
C)The amount of time required to perform a task goes down per unit as the number of units increases.
D)The amount of time required to perform a task goes down per unit as the number of units decreases.

Question 28

Which statement is true concerning committed costs?

A)Committed costs continue regardless of production level.
B)Committed costs are the same as discretionary costs.
C)Committed costs are always non-value added.
D)Committed costs are always fixed costs.

Question 29

Research,development,and advertising to generate new business are examples of which of the following costs?

A)discretionary costs.
B)committed costs.
C)required costs
D)Both b.and c.are correct

Question 30

Costs that will continue regardless of production level are

A)capacity costs.
B)committed costs.
C)discretionary costs.
D)opportunity costs.

Question 31

What does the learning curve function show?

A)The amount of time required to perform a task goes up per unit as the number of units increases.
B)The amount of time required to perform a task goes up per unit as the number of units decreases.
C)The amount of time required to perform a task goes down per unit as the number of units increases.
D)The amount of time required to perform a task goes down per unit as the number of units decreases.

Question 32

Even if a firm shuts down,the firm still incurs some capacity costs called

A)committed costs.
B)programmed costs.
C)managed costs
D)All of the answers are correct.

Question 33

Which of the following cost functions describes costs vary with the volume of activity,but not in constant proportion?

A)semi-variable.
B)semi-fixed.
C)curvilinear variable.
D)curvilinear fixed.

Question 34

The impact of learning curves on time and cost behavior is as follows:

A)Average labor hours per unit doesn't change,total labor hours decreases,and total labor costs decreases.
B)Average labor hours per unit increases,total labor hours increases,and total labor costs decreases.
C)Average labor hours per unit increases,total labor hours increases,and total labor costs increases.
D)Average labor hours per unit decreases,total labor hours increases,and total labor costs increases.

Question 35

Which statement is correct concerning the learning curve function?

A)This function shows how the amount of time required to perform a task goes up per unit as the number of units increases.
B)This function shows how the amount of time required to perform a task goes down per unit as the number of units increases.
C)This function shows how the amount of time required to perform a task goes up per unit as the number of units decreases.
D)This function shows how the amount of time required to perform a task goes down per unit as the number of units decreases.

Question 36

Which term describes costs that a firm does not have to incur in the short run to operate the business?

A)discretionary costs.
B)committed costs.
C)required costs
D)All of the answers are correct.

Question 37

Which of the following terms describes the cost of producing the next unit?

A)marginal cost.
B)programmed cost.
C)managed cost.
D)next cost.

Question 38

Which of the following statements is true concerning discretionary costs?

A)Discretionary costs cannot be avoided in the short run.
B)Discretionary costs are usually essential for achieving long-run goals.
C)Discretionary costs include payments to government agencies.
D)All of the answers are correct.

Question 39

The best use by managers of cost behavior patterns is to

A)estimate how activities affect costs and forecast costs.
B)estimate how activities affect subordinate behavior.
C)control subordinate behavior.
D)reward and punish subordinates.

Question 40

Which of the following represents costs that have both a fixed and variable component?

A)curvilinear variable.
B)curvilinear fixed.
C)semi-variable.
D)semi-fixed.

Question 41

PB Investigators LLC hires one private investigator for every 5 clients.The annual salary for each private investigator is $60,000 per year.The cost to PB Investigators LLC for investigators is known as which of the following?

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

Question 42

Narrative 5-1
The following question(s)refer to the this equation analyzing the relationship of total cost to changes in machine hours.The following relationship was determined:
TC = $2,200 + $3X
Refer to Narrative 5-1.The $3 in the above equation is an estimate of which of the following?

A)total fixed costs.
B)variable costs per machine hour.
C)total variable costs.
D)fixed costs per machine hour.

Question 43

Analysts often comment that

A)the results of an analysis can be better than the input data.
B)"garbage in,garbage out."
C)the results of an analysis cannot be better than the input data.
D)both "b" and "c"are correct.

Question 44

Which of the following statements is true?

A)Semi-fixed costs increase in steps.
B)Semi-fixed costs usually involve a change in long-term assets.
C)Semi-fixed costs are curvilinear functions.
D)Semi-fixed costs have both fixed and variable components.

Question 45

Which statement is true concerning mixed costs?

A)Mixed costs have both fixed and random components.
B)Mixed costs have both random and variable components.
C)Mixed costs have both fixed and variable components.
D)Mixed costs have either fixed or variable components.

Question 46

Narrative 5-1
The following question(s)refer to the this equation analyzing the relationship of total cost to changes in machine hours.The following relationship was determined:
TC = $2,200 + $3X
Refer to Narrative 5-1.The dependent variable is which of the following?

A)TC
B)$2,200
C)$3
D)X

Question 47

What is the term used to describe costs that increase in steps?

A)fixed costs.
B)variable costs.
C)mixed costs.
D)semi-fixed costs.

Question 48

Narrative 5-1
The following question(s)refer to the this equation analyzing the relationship of total cost to changes in machine hours.The following relationship was determined:
TC = $2,200 + $3X
Refer to Narrative 5-1.Which of the following terms best describes the equation?

A)parabolic.
B)curvilinear.
C)linear.
D)probabilistic.

Question 49

The major purpose of cost estimation is to break down total cost into which of the following components?

A)short-run and long-run components.
B)fixed and variable components.
C)controllable and noncontrollable components.
D)direct and indirect components.

Question 50

J-Mobile provides cellular phone and Internet services with a plan that provides up to 1,000 minutes of airtime usage for a flat rate of $99.99 per month plus a charge for any minutes used over this amount at the rate of $0.10 per minute in excess of the minimum 1,000 airtime minutes.Which of the following describes the cost of the J-Mobile service?

A)fixed cost,only.
B)variable cost,only.
C)semi-variable cost.
D)semi-fixed cost.

Question 51

Narrative 5-1
The following question(s)refer to the this equation analyzing the relationship of total cost to changes in machine hours.The following relationship was determined:
TC = $2,200 + $3X
Refer to Narrative 5-1.The above equation was probably found through the use of which of the following mathematical techniques?

A)Linear programming
B)Multiple regression analysis
C)Simple Regression analysis
D)Dynamic programming

Question 52

PB Investigators LLC hires one private investigator for every 5 clients.The annual salary for each private investigator is $60,000 per year.The cost to PB Investigators LLC for investigators is known as which of the following?

A)fixed cost.
B)variable cost.
C)mixed cost.
D)semi-fixed cost.

Question 53

To simplify the analysis of cost behavior,decision makers usually assume that costs are either

A)short-run or long-run.
B)fixed or variable.
C)controllable or noncontrollable.
D)direct or indirect.

Question 54

Which statement is true concerning semi-variable costs?

A)Semi-variable costs contain both fixed and random components.
B)Semi-variable costs contain both random and variable components.
C)Semi-variable costs contain both fixed and variable components.
D)Semi-variable costs contain either fixed or variable components.

Question 55

The experience curve effect is found

A)when unit product costs are increasing.
B)whenever there are experienced workers.
C)in newer products or processes.
D)All of the answers are correct.

Question 56

Narrative 5-1
The following question(s)refer to the this equation analyzing the relationship of total cost to changes in machine hours.The following relationship was determined:
TC = $2,200 + $3X
Refer to Narrative 5-1.The TC in the above equation is an estimate of which of the following?

A)total variable costs.
B)total costs.
C)total fixed costs.
D)total machine hours.

Question 57

Which of the following is true?

A)A change in fixed costs (other than for inflation or other price changes)usually involves a change in long-term assets,whereas a change in semi-fixed costs often does not.
B)A change in fixed costs (other than for inflation or other price changes)usually involves a change in short-term assets,whereas a change in semi-fixed costs often does not.
C)A change in semivariable costs (other than for inflation or other price changes)usually involves a change in long-term assets,whereas a change in semi-fixed costs often does not.
D)A change in semivariable costs (other than for inflation or other price changes)usually involves a change in short-term assets,whereas a change in semi-fixed costs often does not.

Question 58

Analysts use which of the following method(s)of cost estimation for decision-making?

A)Statistical regression analysis.
B)Account analysis.
C)Engineering estimation.
D)All of the answers are correct.

Question 59

J-Mobile provides cellular phone and Internet services with a plan that provides up to 1,000 minutes of airtime usage for a flat rate of $99.99 per month plus a charge for any minutes used over this amount at the rate of $0.10 per minute in excess of the minimum 1,000 airtime minutes.Which of the following describes the cost of the J-Mobile service?

A)fixed cost,only.
B)variable cost,only.
C)mixed cost.
D)semi-fixed cost.

Question 60

Which of the following statements best describes costs that increase in steps?

A)curvilinear variable.
B)curvilinear fixed.
C)semi-variable.
D)semi-fixed.

Question 61

The cost analyst must consider on a case-by-case basis whether assumptions made are

A)reasonable.
B)pedagogically correct.
C)theoretically correct.
D)correct under generally accepted accounting principles.

Question 62

Which of the following is a strength of the engineering method of cost estimation?

A)The method provides a detailed expert analysis of the cost behavior in each account.
B)The method is based on studies of what future costs should be rather than what past costs have been.
C)The method uses all the observations of cost data.
D)The method is relatively easy to use with computer and sophisticated calculators.

Question 63

To make the line the "best fit" to the data,the method of least squares fits a line to the data to minimize the sum of all the squared

A)residuals.
B)independent variables.
C)variances.
D)dependent variables.

Question 64

Which of the following is a weakness of the account analysis method of cost estimation?

A)The method is not particularly useful when the physical relation between inputs and outputs is indirect.
B)The method is subjective.
C)The method requires that several relatively strict assumptions be satisfied.
D)The method is based on studies of what future costs should be rather than what past costs have been.

Question 65

One of the weaknesses of the various cost estimation methods is a simplifying assumption that cost behavior patterns are

A)linear within the relevant range.
B)curvilinear within the relevant range.
C)semi-variable within the relevant range.
D)semi-fixed within the relevant range.

Question 66

The method of cost estimation which studies the physical relation between the quantities of inputs and output is known as:

A)regression.
B)account analysis.
C)engineering methods.
D)All of the answers are correct.

Question 67

Which of the following is a weakness of the regression method of cost estimation?

A)The method is not particularly useful when the physical relation between inputs and outputs is indirect.
B)The method is subjective.
C)The method requires that several relatively strict assumptions be satisfied.
D)The method is based on studies of what future costs should be rather than what past costs have been.

Question 68

Which of the following can complicate the collection of data to estimate costs?

A)inflation and deflation,missing data,and outliers.
B)allocated and discretionary costs.
C)mismatched time periods and trade-offs in choosing the time period.
D)All of the answers are correct.

Question 69

Which of the following is a statistical method that estimates the relation between cost drivers and costs?

A)regression analysis.
B)account analysis.
C)engineering methods.
D)All of the answers are correct.

Question 70

Which of the following is a major weakness of the engineering method of cost estimation?

A)The method is not particularly useful when the physical relation between inputs and outputs is indirect.
B)The method is subjective.
C)The method requires that several relatively strict assumptions be satisfied.
D)The method is based on studies of what future costs should be rather than what past costs have been.

Question 71

What are selling,general and administrative costs considered "sticky?"

A)These costs increase more when sales increase than they decrease when sales decrease by the same amount.
B)These costs increase less when sales increase than they decrease when sales decrease by the same amount.
C)These costs increase the at the same rate when sales increase and decrease at the same rate when sales decrease by the same amount.
D)None of the answers are correct.

Question 72

Analysts should take which step(s)in analyzing cost data?

A)Review alternative cost drivers.
B)Plot the data.
C)Examine the data and method of accumulation.
D)All of the answers are correct.

Question 73

Which of the following is a strength of the account analysis method of cost estimation?

A)The method provides a detailed expert analysis of the cost behavior in each account.
B)The method is based on studies of what future costs should be rather than what past costs have been.
C)The method uses all the observations of cost data.
D)The method is relatively easy to use with computer and sophisticated calculators.

Question 74

If all the data points were on a line,the r-square would be

A)zero.
B)one.
C)two.
D)impossible to interpret.

Question 75

The method of cost estimation where the accountant assigns costs to each of the inputs to estimate the cost of the outputs is known as:

A)regression.
B)account analysis.
C)engineering methods.
D)All of the answers are correct.

Question 76

Which of the following methods of estimating costs is most useful when input/output relationships are well defined and fairly stable over time.

A)Engineering method
B)Account analysis
C)Visual curve-fitting
D)Regression

Question 77

Narrative 5-1
The following question(s)refer to the this equation analyzing the relationship of total cost to changes in machine hours.The following relationship was determined:
TC = $2,200 + $3X
Refer to Narrative 5-1.The independent variable is which of the following?

A)TC
B)$2,200
C)$3
D)X

Question 78

Some data-recording method(s)could lead the analyst astray because they can make the data appear to exhibit incorrect cost behavior patterns;for example,

A)"unitizing" fixed costs.
B)firms sometimes do maintenance only when activity is slow.
C)firms peg advertising expenditures as a percentage of actual sales.
D)All of the answers are correct.

Question 79

In regression analysis,what is the term used to describe the vertical distance between the actual and fitted values?

A)residual.
B)unexplained difference.
C)variance.
D)error.

Question 80

Which of the following is a strength of the regression method of cost estimation?

A)The method provides a detailed expert analysis of the cost behavior in each account.
B)The method is based on studies of what future costs should be rather than what past costs have been.
C)The method requires that several relatively strict assumptions be satisfied.
D)The method is relatively easy to use with computer and sophisticated calculators.