Deck 3: Cost Behavior

Question 1

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

Answer 1

True

Question 2

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.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

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

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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 13

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

Question 14

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 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 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 17

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

Question 18

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

Question 19

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 20

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.

Question 21

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

Question 22

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

Question 23

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

Question 24

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 25

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

Question 26

Managerial judgement includes the possibility of mixed costs.

Question 27

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

Question 28

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 29

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

Question 30

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

Question 31

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 32

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

Question 33

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

Question 34

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

Question 35

Before opting to use managerial judgment, management should make sure that each cost is predominantly fixed or variable.

Question 36

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

Question 37

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

Question 38

_________ explain changes in costs as units produced change.

Question 39

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

Question 40

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

Question 41

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

Question 42

A correlation coefficient near 0 means that two variables are _________.

Question 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

Multiple regression has _________ or _________ independent variables.

Question 50

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

Question 51

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

Question 52

The _________ analysis method is a method of determining cost behavior.

Question 53

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

Question 54

_________ are costs incurred that provide long-term activity capacity.

Question 55

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

Question 56

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

Question 57

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 58

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

Question 59

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

Question 60

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

Question 61

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

Question 62

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

Question 63

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

Question 64

Direct material cost is $15,000 when 3,000 units are produced. What is the direct material cost when 1,500 units produced?

A)$3,000
B)$3,500
C)$6,000
D)$7,500

Question 65

Sandusky Corporation has the following costs for 1,000 units: $\begin{array}{lrr}&\text { Total Cost } & \text { Cost per Unit }\\\hline\text { Direct materials } & \$ 1,500 & \$ 1.50 \\\text { Direct labor } & 7,500 & 7.50 \\\text { Depreciation on building } & 30,000 & 30.00\end{array}$ What is the total cost of direct materials for 100 units?

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

Question 66

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 67

Rent of $10,000 paid per month for renting a building is an example of a(n):

A)fixed cost.
B)variable cost.
C)opportunity cost.
D)marginal cost.

Question 68

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

Question 69

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 70

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 71

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 72

Given the following graphs, which graph represents fixed costs?
I II III

A)I
B)II
C)III
D)none of these

Question 73

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 74

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 75

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 76

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

Question 77

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 78

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 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

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.