Deck 5: Cost Behavior

Question 1

In the cost equation, y = $500 + $5.40x, $500 represents:

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

Answer 1

B

Question 2

Which of the following costs is least likely to be classified as a fixed cost?

A) Factory rent
B) Plant manager salary
C) Direct materials
D) Depreciation on factory building

Answer 2

C

Question 3

Which of the following is most likely to be classified as a fixed cost?

A) Factory utilities
B) Factory supplies
C) Direct labor
D) Factory insurance

Answer 3

D

Question 4

____ are costs that change in total when production volume increases or decreases within the relevant range.

A) Variable costs
B) Facility-level costs
C) Fixed costs
D) Period costs

Question 5

You are given the following cost and volume information: Which type of cost is given?

A) Variable
B) Fixed
C) Step
D) Mixed

Question 6

Which of the following is least likely to be classified as a variable cost?

A) Direct materials
B) Factory supplies
C) Direct labor
D) Administrative building rent

Question 7

In the cost equation, y = $500 + $5.40x, $5.40 represents:

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

Question 8

As production increases, variable costs per unit ____.

A) increase
B) decrease
C) remain the same
D) can not be predicted

Question 9

As production goes up, total variable costs ____.

A) decrease
B) increase
C) remain the same
D) cannot be predicted

Question 10

As production decreases, variable costs per unit ____.

A) increase
B) decrease
C) remain the same
D) can not be predicted

Question 11

As production increases, fixed costs per unit ____.

A) increase
B) decrease
C) remain the same
D) cannot be predicted

Question 12

You are given the following cost and volume information: Which type of cost is given?

A) Semi variable
B) Fixed
C) Variable
D) Mixed

Question 13

When predicting cost behavior, the volume of production for which the fixed and variable cost relationships are assumed to hold true is called the:

A) true range.
B) regression area.
C) dependent variable area.
D) relevant range.

Question 14

The cost equation, y = $500 + $5.40x, x represents:

A) variable cost.
B) step cost.
C) units produced.
D) mixed cost.

Question 15

You are given the following cost and volume information: Which type of cost is given?

A) Variable
B) Fixed
C) Mixed
D) Cannot be determined

Question 16

Which of the following is most likely to be classified as a variable cost?

A) Factory rent
B) Factory insurance
C) Direct materials
D) Depreciation of factory building

Question 17

You are given the following cost and volume information: Which type of cost is given?

A) Variable
B) Fixed
C) Mixed
D) Can not be determined

Question 18

____ are costs that do not change in total when production volume increases or decreases within the relevant range.

A) Variable costs
B) Relevant costs
C) Fixed costs
D) Period costs

Question 19

As production decreases, fixed costs per unit ____.

A) increase
B) decrease
C) remain the same
D) cannot be predicted

Question 20

As production goes up, total fixed costs ____.

A) decrease
B) increase
C) remain the same
D) cannot be predicted

Question 21

Regression Analysis 2 You run a regression analysis and receive the following results:
Refer to the Regression Analysis 2 above. To the nearest dollar, what would be the estimated total costs if 500 units were produced?

A) $ 544
B) $4,236
C) $3,692
D) $3,147

Question 22

Chadwick Ski Lodge Chadwick Ski Lodge decides how many housekeepers it needs to hire based on expected hotel occupancy. The following shows the budgeted housekeeping costs per month at various occupancies:
Refer to the information provided for Chadwick Ski Lodge. What type of cost is housekeeping?

A) Semi variable
B) Variable
C) Step
D) Mixed

Question 23

Bob's Burgers Bob's Burgers currently produces and sells 12,000 burgers per month with the following costs:
Bob has recently switched food suppliers and anticipates that variable costs will decrease by $0.35 per unit. In addition, Bob has renegotiated his store lease and fixed costs will be dropping by $8,000 per month.
Refer to the information provided for Bob's Burgers. What will be Bob's new cost equation?

A) Total costs = $60,000 + $2.75x
B) Total costs = $60,000 + $2.05x
C) Total costs = $8,000 + $0.35x
D) Total costs = $52,000 + $2.05x

Question 24

Which of the following statements is true regarding regression analysis?

A) It is usually the most accurate technique used to determine equivalent units.
B) It is usually the most accurate technique used to determine net income.
C) It is usually the most accurate technique used to determine the total units of production.
D) It is usually the most accurate technique used to determine mixed cost behavior.

Question 25

Which of the following statements is true regarding regression analysis?

A) It is often less accurate than the high/low method.
B) It is a better predictor of fixed costs than variable costs.
C) It can not be used to predict the effect that a change in volume of production has on net income.
D) It uses statistical methods to fit a cost line through a number of data points.

Question 26

Bob's Burgers Bob's Burgers currently produces and sells 12,000 burgers per month with the following costs:
Bob has recently switched food suppliers and anticipates that variable costs will decrease by $0.35 per unit. In addition, Bob has renegotiated his store lease and fixed costs will be dropping by $8,000 per month.
Refer to the information provided for Bob's Burgers. Bob anticipates selling 12,300 burgers during the month of July. What will be estimated total costs during July?

A) $77,215
B) $88,800
C) $76,600
D) $85,825

Question 27

Regression Analysis 2 You run a regression analysis and receive the following results:
Refer to the Regression Analysis 2 above. What would be the equation to predict total mixed costs?

A) Y = $1.27 + $3,056.58x
B) Y = $454.25 + $.18x
C) Y = $360.007 + $1.27x
D) Y = $3,056.58 + $1.27x

Question 28

Regression analysis is a technique used to:

A) estimate the step and mixed components of total cost.
B) estimate the fixed and variable components of a mixed cost.
C) estimate the fixed and variable components of a step cost.
D) estimate the fixed and mixed components of step cost.

Question 29

Which of the following statements is false regarding regression analysis?

A) It is used to predict the fixed and variable components of a mixed cost.
B) It is used to predict whether a cost is a product or a period cost.
C) It is usually more accurate than the high/low method.
D) It uses statistical methods to fit a cost line through a number of data points.

Question 30

When using regression analysis to predict mixed cost behavior, which of the following would be the independent variable?

A) The highest level of activity.
B) The lowest level of activity.
C) The mixed cost at a given level of production.
D) The volume of production that drives a particular amount of mixed cost.

Question 31

Regression Analysis 1 You run a regression analysis and receive the following results:
Refer to the Regression Analysis 1 above. To the nearest dollar, what would be the estimated total costs if 15,000 units were produced?

A) $51,846
B) $16,148
C) $19,117
D) $35,700

Question 32

When using regression analysis to predict mixed cost behavior, which of the following would be the dependent variable?

A) The highest level of activity.
B) The lowest level of activity.
C) The mixed cost at a given level of production.
D) The variable cost per unit.

Question 33

Regression Analysis 1 You run a regression analysis and receive the following results:
Refer to the Regression Analysis 1 above. What would be the equation to predict mixed cost behavior?

A) Y = $2.38 + $16,146.37x
B) Y = $1,165.19 + $.88x
C) Y = $16,146.37 + $2.38x
D) Y = $8,167.49 + $.73x

Question 34

Jansen Inc. currently produces and sells 9,000 units per year with the following cost data: Next year, Jansen plans to increase its advertising budget, which will increase fixed costs by 7%. With increased advertising, the company expects the number of units produced and sold to increase by 12%. Determine the budgeted total cost for next year.

A) $70,500
B) $78,060
C) $78,585
D) $71,025

Question 35

Bixby Inc. expects total costs to be $75,000 when 500 units are sold and the variable cost is $18 per unit. Bixby expects to sell 750 units in July. What will be expected total costs in July?

A) $75,000
B) $79,500
C) $66,000
D) $88,500

Question 36

Quality Products Inc. incurred total costs of $50,000 to produce 1,400 units. Variable costs are $15 per unit. What are estimated fixed costs?

A) $21,000
B) $71,000
C) $48,600
D) $29,000

Question 37

Howard Inc. provides temporary clerical services to local businesses. The company has determined that total costs for a given month can be predicted by using the following formula: Total costs = $2,500 + $20x
Where "x" equals total direct labor hours for the month. If total direct labor hours for June are expected to be 600, what are total costs expected to be?

A) $ 9,500
B) $14,500
C) $12,000
D) $ 2,520

Question 38

A cost that has both a fixed and variable component is called a(n):

A) step cost.
B) mixed cost.
C) irrelevant cost.
D) relevant cost.

Question 39

Chadwick Ski Lodge Chadwick Ski Lodge decides how many housekeepers it needs to hire based on expected hotel occupancy. The following shows the budgeted housekeeping costs per month at various occupancies:
Refer to the information provided for Chadwick Ski Lodge. The number of occupied rooms during the month of January is expected to be between 41 and 55 at all times. For the month of January, what type of cost does housekeeping effectively become?

A) Fixed
B) Variable
C) Step
D) Mixed

Question 40

Logan Inc. plans to double its rental space next year which will increase its fixed costs by 30% while variable costs will remain the same. Current year costs are as follows: If next year production is expected to be 13,500 units, estimated total costs will be:

A) $289,500.
B) $270,000.
C) $285,000.
D) $250,500.

Question 41

Cool Creams Cool Creams provided the following data for number of ice creams produced and its total overhead costs for past five months:
Refer to the information provided for Cool Creams. Using the high/low method, what is the overhead cost equation?

A) Y = $6,000 + $4.75x
B) Y = $1,500 + $4.50x
C) Y = $7,630 + $4.32x
D) Y = $1,500 + $4.32x

Question 42

In regression analysis, an R square (R²) of 1.0 would indicate:

A) that 1 percent of the data points are on the regression line.
B) that 1 percent of the total mixed costs can be attributable to fixed costs.
C) that 1 percent of the total mixed costs can be attributable to variable costs.
D) that there is a perfect correlation between the independent and dependent variables.

Question 43

The manager of a company is considering a special project that will increase sales revenue by $27,500 without affecting costs. If the company has a tax rate of 40%, what will be the after-tax income?

A) $16,500
B) $11,000
C) $27,500
D) $38,500

Question 44

Putnam Distributors is contemplating whether or not to accept a special order. Putnam wishes to have after-tax cash receipts of $54,000 if they accept the order. If Putnam has a tax rate of 40%, what is the price the customer should be charged for their order?

A) $32,400
B) $21,600
C) $90,000
D) $54,000

Question 45

Cool Creams Cool Creams provided the following data for number of ice creams produced and its total overhead costs for past five months:
Refer to the information provided for Cool Creams. Using the high/low method, what is the variable cost per unit?

A) $4.50
B) $5.50
C) $4.75
D) $4.32

Question 46

After-tax income can be calculated as follows:

A) After-tax income = Pretax income ´ tax rate
B) After-tax income = Pretax income ¸ (1 - tax rate)
C) After-tax income = Pretax income ´ (1 + tax rate)
D) After-tax income = Pretax income ´ (1 - tax rate)

Question 47

When comparing a "pre-tax cost" and an "after-tax cost", which of the following is true?

A) The after-tax cost will be greater than the pretax cost.
B) They will be the same amount.
C) The pre-tax cost will be greater than the after-tax cost.
D) The higher the tax rate, the lower the difference in the amount between them.

Question 48

The high/low method:

A) considers only the highest and lowest costs for a given time period.
B) is superior to regression analysis.
C) considers all data points available.
D) uses the data points for only the high and low levels of activity.

Question 49

When using the high/low method, the change in cost divided by the change in volume is:

A) the fixed cost per unit.
B) the mixed cost per unit.
C) the variable cost per unit.
D) the total cost per unit.

Question 50

Cardinal Cleaners Cardinal Cleaners documented the gallons of cleaning solvent it used as well as total overhead costs for the past five months as follows:
Refer to the Cardinal Cleaners information above. Using the high/low method, what is the variable cost per unit?

A) $25.00
B) $0.03
C) $900.00
D) $36.00

Question 51

Hill Top Products has run a regression analysis for utilities costs and the total production for the past six months. The regression analysis shows an R square (R²) of .86. Which of the following statements best describes the meaning of R²?

A) 86 percent of the company's total costs are utilities costs.
B) 14 percent of the variation in utilities costs is explained by the increase or decrease in production.
C) 86 percent of the variation in utilities costs is explained by the increase or decrease in production.
D) 86 percent of the company's total costs are fixed costs and the remaining 14 percent are variable costs.

Question 52

Blossom Products is considering a special project that will increase sales revenue by $127,000 without affecting costs. If the company has a tax rate of 40%, what will be the after-tax income?

A) $ 50,800
B) $ 76,200
C) $127,000
D) $203,200

Question 53

Denver Manufacturing Denver Manufacturing would like to do a better job budgeting for maintenance costs and, consequently, they have prepared a schedule showing maintenance costs and units produced for the past five months as follows:
Refer to the Denver Manufacturing information above. Using the high/low method, what is the cost equation to predict total maintenance costs?

A) Y = $90 + $.90x
B) Y = $2,540 + $.40x
C) Y = $1,646 + $.5824x
D) Y = $2.50x - $11,320

Question 54

Cardinal Cleaners Cardinal Cleaners documented the gallons of cleaning solvent it used as well as total overhead costs for the past five months as follows:
Refer to the Cardinal Cleaners information above. Cardinal uses the high/low method to predict total overhead costs. If Cardinal anticipates using 162 gallons of solvent in December, what are expected total overhead costs?

A) $6,500
B) $6,532
C) $5,832
D) $700

Question 55

The after-tax benefit of a taxable cash receipt can be calculated as follows:

A) After-tax benefit = Pretax receipt ´ tax rate
B) After-tax benefit = Pretax receipt ´ (1 - tax rate)
C) After-tax benefit = Pretax receipt ´ (1 + tax rate)
D) After-tax benefit = Pretax receipt ¸ tax rate

Question 56

George's Ice Cream Shop believes most of its utilities costs are mixed. George has collected the following data on gallons of ice cream used and related utilities costs for the past six months: George has run a regression analysis on the above information and has come up with the following data:
Using regression analysis, which of the following formulas would be the best predictor of total estimated mixed costs?

A) Y = $300 + $20x
B) Y = $329.50 + $19.57x
C) Y = $900 + $30x
D) Y = $19.56 + $329.50x

Question 57

Cardinal Cleaners Cardinal Cleaners documented the gallons of cleaning solvent it used as well as total overhead costs for the past five months as follows:
Refer to the Cardinal Cleaners information above. Using the high/low method, what is equation to predict total overhead costs?

A) Y = $700 + $36x
B) Y = $900 + $25x
C) Y = $175 + $41x
D) Y = $100 + $40x

Question 58

Speedy Couriers Speedy Couriers documented the miles driven and total vehicle costs for the past five months as follows:
Refer to the Speedy Couriers information above. Using the high/low method, if Speedy expects to drive 1,750 miles in June, what will be expected total vehicle costs?

A) $3,825.00
B) $4,585.00
C) $8,087.50
D) $3,855.00

Question 59

Speedy Couriers Speedy Couriers documented the miles driven and total vehicle costs for the past five months as follows:
Refer to the Speedy Couriers information above. Using the high/low method, what is the cost equation to predict total vehicle costs?

A) Y = $985 + $1.64x
B) Y = $4,500 + $2.05x
C) Y = $560 + $2.30x
D) Y = $1,200 + $1.50x

Question 60

Denver Manufacturing Denver Manufacturing would like to do a better job budgeting for maintenance costs and, consequently, they have prepared a schedule showing maintenance costs and units produced for the past five months as follows:
Refer to the Denver Manufacturing information above. Using the high/low method, if Denver expects to produce 5,000 units in June, what will be budgeted total maintenance costs?

A) $4,590
B) $4,558
C) $4,540
D) $4,363

Question 61

Tyson Manufacturing has the following information available for 2012: During 2012, Tyson produced 10,000 units out of which 9,100 units were sold for $50 each.
Refer to the information provided for Tyson Manufacturing. What is the net operating income under variable costing?

A) $251,250
B) $254,850
C) $285,000
D) $291,250

Question 62

Which of the following descriptions would not be found on an income statement prepared using variable costing?

A) Sales
B) Fixed costs
C) Cost of goods sold
D) Net operating income

Question 63

The primary difference between variable and absorption costing is the treatment of:

A) fixed selling and administrative costs.
B) variable selling and administrative costs.
C) fixed manufacturing overhead.
D) variable manufacturing overhead.

Question 64

Portia's Salon is contemplating an increase in their rental space that will result in a before-tax rent increase of $14,500 per month. If their tax rate is 40%, what is the after-tax monthly increase in rent cost?

A) $ 5,800
B) $ 8,700
C) $20,300
D) $14,500

Question 65

Blue Ridge Resorts has the following pretax information available for the current year: Assuming all receipts are taxable and all costs are tax-deductible, what will be Blue Ridge's after-tax net income for the year if their tax rate is 30%?

A) $330,000
B) $150,000
C) $350,000
D) $770,000

Question 66

Beauregard Imports has pretax income of $75,000. If their tax rate is 35%, what will be their after-tax income?

A) $ 48,750
B) $123,750
C) $ 26,250
D) $101,250

Question 67

Under variable costing, which of the following is not considered a product cost?

A) Direct materials
B) Direct labor
C) Fixed manufacturing overhead
D) Variable manufacturing overhead

Question 68

Which of the following line descriptions would not be found on an income statement prepared using absorption costing?

A) Sales
B) Contribution margin
C) Cost of goods sold
D) Net operating income

Question 69

Cornell Products has the following information available for 2012: During 2012, Cornell produced 6,000 units out of which 5,400 units were sold for $20 each.
Refer to the information provided for Cornell Products. What is the net operating income under absorption costing?

A) $23,000
B) $29,000
C) $26,000
D) $35,000

Question 70

Triangle Associates is contemplating making a large charitable contribution. If their tax rate is 40%, what is the after-tax cost of making a $150,000 contribution?

A) $210,000
B) $ 60,000
C) $150,000
D) $ 90,000

Question 71

B & B Manufacturing produces a single product. Last year, the company produced 10,000 units out of which 9,500 were sold. There were no units in beginning inventory. The company had the following costs: Refer to the information provided for B & B Manufacturing. What is the unit product cost using variable costing?

A) $ 8.00
B) $ 6.00
C) $ 7.50
D) $10.50

Question 72

Which of the following statements is false regarding absorption costing?

A) Variable overhead is treated as a product cost.
B) Absorption costing is required for external financial statements prepared in accordance with generally accepted accounting principles (GAAP).
C) Fixed manufacturing overhead is treated as a product cost.
D) Fixed manufacturing overhead is expensed in the period incurred.

Question 73

Assuming that the number of units produced is greater than the number of units sold, which of the following statements is true when comparing net operating income using absorption and variable costing?

A) Absorption costing will yield a higher net operating income.
B) Variable costing will yield a higher net operating income.
C) Net operating income will be the same under both methods.
D) Sales revenue will be less using absorption costing.

Question 74

Assuming the number of units sold and produced are the same, which of the following statements is true when comparing net operating income using absorption and variable costing?

A) Absorption costing will yield a higher net operating income.
B) Variable costing will yield a higher net operating income.
C) Net operating income will be the same under both methods.
D) Variable costing will have higher sales revenue.

Question 75

Manning Inc. is contemplating the rental of a special tool for $45,000 per month. If their tax rate is 40%, what is the after-tax monthly cost of renting the tool?

A) $27,000
B) $18,000
C) $63,000
D) $45,000

Question 76

Cornell Products has the following information available for 2012: During 2012, Cornell produced 6,000 units out of which 5,400 units were sold for $20 each.
Refer to the information provided for Cornell Products. What is the net operating income under variable costing?

A) $35,000
B) $29,000
C) $26,000
D) $23,000

Question 77

Under absorption costing, which of the following is not considered a product cost?

A) Direct labor
B) Fixed manufacturing overhead
C) Variable manufacturing overhead
D) Administrative costs

Question 78

Tyson Manufacturing has the following information available for 2012: During 2012, Tyson produced 10,000 units out of which 9,100 units were sold for $50 each.
Refer to the information provided for Tyson Manufacturing. What is the net operating income under absorption costing?

A) $251,250
B) $254,850
C) $285,000
D) $299,850

Question 79

Which of the following statements is false regarding variable costing?

A) Variable overhead is treated as a product cost.
B) Variable costing is required for external financial statements prepared in accordance with generally accepted accounting principles (GAAP).
C) Fixed manufacturing overhead is treated as a period cost.
D) Period costs are expensed as they are incurred.

Question 80

Assuming that the number of units produced is less than the number of units sold, which of the following statements is true when comparing net operating income using absorption and variable costing?

A) Absorption costing will yield a higher net operating income.
B) Variable costing will yield a higher net operating income.
C) Net operating income will be the same under both methods.
D) The sales price per unit will be less using absorption costing.