Deck 3: Cost Behavior

Question 1

Methods of estimating costs used by companies include the industrial engineering method, the account analysis method, and the instant decision method.

Answer 1

False

Question 2

The percentage of variability in the dependent variable explained by an independent variable (i.e. measure of activity output) is called the coefficient of correlation.

Answer 2

False

Question 3

The plot of data points showing the relationship between materials handling costs and activity output is called a scattergraph.

Answer 3

True

Question 4

Resources are categorized as flexible, which are supplied as needed, and committed, which are supplied in advance of usage.

Question 5

The high-low method preselects the two points that are used to compute the parameters F and X in the expression Y = F + VX

Question 6

Resources, such as direct materials, direct labor, electricity, equipment, and so on, are economic elements that enable one to perform activities.

Question 7

A feature of regression routines, not provided by the scatter plot of high-low methods, is to provide information to and in the assessment of reliability of the estimated costs formula.

Question 8

A cost that does not change as output changes is a variable cost, and one that changes is a fixed cost.

Question 9

The account analysis method can be used to estimate costs by classifying accounts in the general ledger as variable.

Question 10

Mixed costs are costs that have both a fixed and a variable component.

Question 11

The three widely used quantitative methods of separating a mixed cost into its fixed and variable components are the high-low method, the scatter plot method, and the method of least squares.

Question 12

In the method of least squares, each single measure of closeness is first squared. Squaring the deviations avoids problems caused by a mix of positive and negative numbers.

Question 13

Costs can display variable, fixed, or mixed behavior, and it important that they are classified accurately.

Question 14

Fixed costs are costs that, in total, are constant within the relevant range as the level of the associated driver varies.

Question 15

Activity-based use of resources can improve both managerial control and decision making because it encourages managers to pay more attention to controlling resource usage and spending.

Question 16

The industrial engineering method is used to determine which activities, and in what amounts, are necessary to complete a process.

Question 17

A cost object is the item for which managers want cost information, so the first step is to determine appropriate cost objects.

Question 18

Variable costs are defined as costs that, in total, are constant regardless of change in an activity driver.

Question 19

An alternative measure of goodness of fit is the coefficient of determination.

Question 20

The level of activity performance where the amount of activity capacity needed corresponds to the level of efficiency required is called the activity capacity.

Question 21

are assumed to be the sole drivers of a traditional cost management system.

Question 22

Multiple regression can be useful to assess cost behavior when dependent variable is affected by only one independent variable.

Question 23

result when organizations acquire many multiperiod service capacities by paying cash up front.

Question 24

Multiple regression is a dependable tool for identifying the behavior of activity costs.

Question 25

A number of cost behavior patterns do not follow a linear pattern, instead, they follow a nonlinear cost curve called the learning curve.

Question 26

analysis focuses on how costs react to changes in activity levels.

Question 27

Managers agree that the ideas behind the learning curve can extend to the service industry only.

Question 28

Whenever least squares is used to fit an equation involving two or more independent variables, the method is called multiple regression.

Question 29

The experience curve relates cost to increased efficiency, such that the more a task is performed, the lower the cost of doing will be.

Question 30

The most widely used method to determine cost behavior is managerial judgement.

Question 31

explain changes in cost factors other than changes in units produced.

Question 32

Managerial judgement includes the possibility of mixed costs.

Question 33

explain changes in costs as units produced change.

Question 34

Based on managerial judgement, the best predictor of manufacturing costs is the units available.

Question 35

The cumulative average-time learning curve model states that the cumulative average time per unit increases by a constant percentage.

Question 36

When Multiple regression is used, the user has a choice of using manual computation or using regression programs.

Question 37

Finding a strong statistical association between an activity cost and an activity driver can provide evidence to managers about the correctness of a driver selection.

Question 38

are those acquired from outside sources where the terms of acquisition do not require any long-term commitments.

Question 39

If a company changes from skilled labor to robots, the previous data are of little value in predicting future costs.

Question 40

The basis of the learning curve is that as we perform an action over and over, we improve, and each additional performance takes less time than the preceding ones.

Question 41

A correlation coefficient near +1 means that two variables are moving in the direction.

Question 42

The parameter is the point at which the mixed cost line intercepts the cost (vertical) axis.

Question 43

is useful when the dependent variable is affected by more than one independent variable.

Question 44

The three quantitative methods of separating a mixed cost into its fixed and variable components are: the high-low method, the scatter plot method and the method of .

Question 45

The method of least squares requires a in order to be utilized.

Question 46

are costs incurred that provide long-term activity capacity.

Question 47

Multiple regression has or independent variables.

Question 48

A correlation coefficient near -1 means that two variables are moving in the direction

Question 49

A function displays a constant level of cost for a range of output and then jumps to a higher level.

Question 50

and studies may be used in conjunction with the industrial engineering method.

Question 51

The graph showing the relationship between activity costs and drivers/outputs is called the __________ .

Question 52

A interval provides a range of values for the actual cost with a prespecified degree of confidence.

Question 53

The analysis method is a method of determining cost behavior.

Question 54

The hypothesis test of cost parameters indicates whether the parameters are different from __________ .

Question 55

The Y in the equation Y = F + VX represents the , the dependent variable

Question 56

The method is used whenever least squares is used to fit an equation involving two or more independent variables.

Question 57

A correlation coefficient near 0 means that two variables are .

Question 58

Costs that follow a step-cost behavior are defined as costs.

Question 59

The method may be used to determine the activities and amounts for cost behavior.

Question 60

When a cost behavior pattern does not follow a linear pattern, a non linear cost curve is used called the
__________ curve.

Question 61

Knowledge of cost and activity-level relationship is used by experienced .

Question 62

The drivers that explain changes in costs as units produced change are called:

A) Non-unit-level drivers
B) Activity based cost drivers
C) Unit-level drivers
D) All of these

Question 63

Costs in marketing, distribution, and service after the sale as number of units produced and sold
__________ .

Question 64

Cost behavior analysis focuses on how costs

A) react to changes in profit.
B) react to changes in activity level.
C)
C) change over time.
D) both a and

Question 65

Which of the following would be an example of a unit-based cost driver?

A) engineering orders
B) material moves
C) inspection hours
D) direct labor hours

Question 66

Cumulative average-time curve assumes the cumulative average time per unit decreases by a constant percentage each time the cumulative quantity of units produced doubles.

Question 67

When the volume of activity increases within the relevant range, the fixed cost per unit

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

Question 68

Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that is parallel to the horizontal axis?

A) total direct material costs
B) a consultant paid $75 per hour with a maximum fee of $1,200
C) employees who are paid $10 per hour and guaranteed a minimum weekly wage of $200
D) rent on exhibit space at a convention

Question 69

A $4,000 per month salary paid to a supervisor is an example of a:

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

Question 70

Drivers that explain changes in costs as factors other than changes in units produced are called:

A) Functional based cost drivers
B) Non-unit-based cost drivers
C) Unit-based cost drivers
D) None of these

Question 71

The range of activity within which a linear cost function is valid is called the

A) normal range.
B) relevant range.
C) activity range.
D) none of these.

Question 72

Fixed cost per unit is $7 when 25,000 units are produced and $5 when 35,000 units are produced. What is the total fixed cost when nothing is produced?

A) $130,000
B) $200,000
C) $12
D) $175,000

Question 73

Each time cumulative volume doubles, fall by a constant and predictable percentage.

Question 74

The direct material cost is $20,000 when 2,000 units are produced. What is the direct material cost for 2,500 units produced?

A) $15,000
B) $ 5,000
C) $20,000
D) $25,000

Question 75

As the volume of activity increases within the relevant range, the variable cost per unit

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

Question 76

Sandusky Corporation has the following costs for 1,000 units: What is the total cost of direct materials for 100 units?

A) $1.50
B) $ 3.00
C) $150.00
D) $225.00

Question 77

Given the following graphs, which graph represents fixed costs?

Question 78

In a traditional cost management system, cost behavior is assumed to be driven only by

A) unit based cost drivers.
B) non-unit level cost drivers.
C) activity-based cost drivers.
D) none of these.

Question 79

Which of the following costs is a variable cost?

A) materials used in production
B) research and development
C) supervisors' salaries
D) rent

Question 80

A manufacturing company pays an assembly line worker $12 per hour. What is the proper classification of this labor cost?

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