Deck 3: Cost Behavior

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Mixed costs have both a fixed and a variable component.

Answer 3

True

Question 4

Discretionary fixed costs often involve a long-term contract.

Question 5

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

Question 6

The high-low method is an objective method to separate the cost behavior of a mixed cost.

Question 7

Computing unit fixed costs may result in misleading information.

Question 8

Managerial judgment is critically important in determining cost behavior.

Question 9

A variable cost increases in total when output increases but the per-unit costs remains the same.

Question 10

The relevant range is the range of output which the assumed cost relationship is valid for the normal operations of the firm.

Question 11

The slope of a mixed cost line is equal to the fixed element of the cost.

Question 12

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

Question 13

As output increases variable cost per unit will also increase.

Question 14

"Outliers" are points that seem to fit the general pattern of behavior.

Question 15

Total variable costs = Variable rate ´ amount of output.

Question 16

As output decreases fixed costs per unit will increase.

Question 17

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

Question 18

The cost of advertising is usually a discretionary fixed cost.

Question 19

Determining cost behavior is not essential to planning,controlling,and decision making.

Question 20

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

Question 21

Using a regression program,the term 'X Variable 1' refers to the dependent variable.

Question 22

__________________ is the general term for describing whether a cost changes when the level of output changes.

Question 23

A fixed cost that management can easily decide to increase or decrease is known as a _________________.

Question 24

___________________ are costs that in total vary in direct proportion to changes in output within the relevant range.

Question 25

A _______________ displays a constant level of cost for a range of output and then jumps to a higher level of cost at some point.

Question 26

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

Question 27

Using regression,the value of 'X Variable 1' equals the slope of the line.

Question 28

Rental expense for a warehouse is an example of a ___________ cost.

Question 29

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

Question 30

Select the best description for the following:

Question 31

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

Question 32

Fixed costs that cannot be easily changed and typically involve a long-term contract are known as ___________________.

Question 33

Using a linear regression program,the term 'Intercept' refers to the variable cost.

Question 34

The ______________________________ is a statistical way to find the best-fitting line through a set of data points.
or

Question 35

Depreciation on factory equipment would be an example of a _________.

Question 36

A type of cost behavior where the true total cost function is increasing at a decreasing rate is called ______________.

Question 37

The ________________ is the range of output over which the assumed cost relationship is valid for the normal operations of a firm.

Question 38

__________________________ is critically important in determining cost behavior and is by far the most widely used method in practice.

Question 39

The fabric used to manufacture curtains is an example of a ____________ cost.

Question 40

A cost __________ is a casual factor that measures the output of the activity that leads costs to change.

Question 41

Knowing how costs change as output changes is essential to

A)planning and controlling.
B)controlling and decision making.
C)planning,controlling and decision making.
D)none of these are correct

Question 42

The spreadsheet regression program supplies more than the estimates of the coefficients; it also provides information that can be used to see how ________ the cost equation is which is a feature not available for the high-low method.

Question 43

Which of the following would not be an example of a fixed cost?

A)glue used to put together tables
B)insurance on factory building
C)depreciation on factory building
D)property taxes

Question 44

Discretionary fixed costs

A)cannot be easily changed.
B)often involve a long-term contract.
C)can be changed relatively easy at management discretion.
D)increase as output increases.

Question 45

The _________________________ is a way to see the cost relationship by plotting the data points on a graph.

Question 46

Which of the following would be a variable cost for a dentist's office?

A)depreciation on equipment
B)cost of renting office space
C)cost of teeth cleaning material
D)salary of dentist

Question 47

A committed fixed cost

A)can easily be changed.
B)often involves a long-term contract.
C)changes when the level of output changes.
D)all of these are correct

Question 48

A factor that causes or leads to a change in a cost or activity is a(n)

A)cost formula.
B)step cost.
C)mixed cost.
D)driver.

Question 49

Which of the following would be an example of a fixed cost?

A)wages for an assembly line worker
B)electric bill
C)depreciation on equipment
D)materials used

Question 50

Which of the following would probably be a fixed cost in a fast-food restaurant?

A)cost of hamburger
B)cost of french fries
C)shift manager's salary
D)utility cost

Question 51

A fixed cost within the relevant range

A)increases in total as output decreases.
B)does not change in total as output changes.
C)decreases in total as output increases.
D)all of these are correct

Question 52

Variable costs within the relevant range

A)stay constant on a per unit basis as output changes.
B)increase in total as output increases.
C)decrease in total as output decreases.
D)all of these are correct

Question 53

An advantage of the high-low method is that it is ___________.
or
or

Question 54

Graphically,the ______________ is the point at which the cost line intercepts the cost (vertical)axis.

Question 55

Which of the following is not an example of a discretionary fixed cost?

A)research and development
B)training costs
C)lease on office space
D)direct materials

Question 56

Total variable costs

A)increases as output increases.
B)decreases as output decreases.
C)equal a variable rate ´ amount of output.
D)all of these are correct.

Question 57

The percentage of variability in the dependent variable explained by an independent variable is called the ____________________________________.

Question 58

Which of the following would probably be a variable cost at a college?

A)salary of the head janitor
B)cost of registration forms
C)salary of the college president
D)none of these options

Question 59

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

A)depreciation of equipment
B)advertising costs
C)rental of machinery
D)insurance on automobiles

Question 60

The ________________________ is a variable whose value depends on the value of another variable.

Question 61

Which of the following would probably be a discretionary fixed cost for a law firm?

A)salary of receptionist
B)advertising
C)depreciation on furniture and equipment
D)cost of legal forms

Question 62

Figure 3-2. Refer to Figure 3-2.What is the materials cost per unit of output?

A)$.10
B)$.20
C)$.60
D)$.40

Question 63

Which of the following would probably be a committed fixed cost for an accounting firm?

A)lease of computers
B)rent on the office building
C)property taxes on building
D)all of these are correct

Question 64

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

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

Question 65

Figure 3-2. Refer to Figure 3-2.The cost behavior of the materials cost is

A)fixed
B)variable
C)committed
D)discretionary

Question 66

Figure 3-6. Taran Company incurred the following costs for the months of January and February.
Refer to Figure 3-6.Assume that output was 5,000 units in January and 10,000 units in February,utility cost is a mixed cost,and the fixed cost of utilities was $3,000.What was the variable rate per unit of output for utilities cost?

A)$.60
B)$.40
C)$.20
D)$.30

Question 67

If production volume increases from 8,000 to 10,000 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 68

Figure 3-6. Taran Company incurred the following costs for the months of January and February.
Refer to Figure 3-6.From the information above we can assume that

A)insurance and depreciation are fixed costs.
B)output decreased from January to February.
C)output stayed the same from January to February.
D)insurance is a mixed cost.

Question 69

If output increases

A)per-unit fixed cost will increase.
B)total variable costs will increase.
C)per-unit variable costs will increase.
D)per-unit variable costs will decrease.

Question 70

The cost formula for monthly depreciation cost in a factory is: Total cost = $10,000
This cost

A)is strictly variable.
B)is strictly fixed.
C)is a mixed cost.
D)is a step cost.

Question 71

Per-unit fixed costs

A)can be misleading and lead to poor decisions.
B)stay the same as output changes.
C)decrease as output decreases.
D)increase as output increases.

Question 72

The range of output over which the assumed cost relationship is valid for normal operations of a firm is called the

A)mixed range.
B)relevant range.
C)linear range.
D)dependent range.

Question 73

Fixed cost per unit is $9 when 20,000 units are produced and $6 when 30,000 units are produced. What is the total fixed cost when nothing is produced?

A)$180,000
B)$360,000
C)$150,000
D)$240,000

Question 74

The relevant range

A)is the normal range of output.
B)is the range of output where cost relationships are valid.
C)may change from period to period.
D)all of these are correct

Question 75

Figure 3-2. Refer to Figure 3-2.What should the total materials cost be at a production level of 220,000 toys?

A)$44,000
B)$88,000
C)$22,000
D)$132,000

Question 76

Per-unit variable costs

A)can be misleading and lead to poor decisions.
B)increase as output increases.
C)decrease as output decreases.
D)remain constant within the relevant range.

Question 77

If output decreases

A)total fixed costs will remain the same.
B)total variable costs will increase.
C)per-unit fixed costs will decrease.
D)all of these are correct

Question 78

Cost behavior analysis focuses on

A)how costs react to increases in activity levels only.
B)how costs will change in the future.
C)how costs react to changes in activity level.
D)none of these are correct

Question 79

Figure 3-6. Taran Company incurred the following costs for the months of January and February.
Refer to Figure 3-6.If output was 5,000 units in January and 10,000 units in February we can assume that

A)utilities and materials are variable costs.
B)utilities,insurance,and depreciation are fixed costs.
C)insurance and depreciation are mixed costs.
D)materials is the only variable cost.

Question 80

If output increases by 50% and is still within the relevant range

A)total fixed costs will increase by 50%.
B)per-unit fixed cost will remain the same.
C)total variable costs will increase by 50%.
D)net income will increase by 50%.