Deck 3: Measurement of Cost Behavior

Question 1

Committed fixed costs usually arise from the possession of facilities, equipment, and basic organization.

Answer 1

True

Question 2

Discretionary fixed costs have obvious relationships with levels of capacity or output activity.

Answer 2

False

Question 3

The use of high-technology methods rather than labor usually means a much greater fixed-cost component to the total cost.

Answer 3

True

Question 4

The use of high-technology methods rather than labor usually creates lesser risks for companies with wide variations in demand.

Question 5

Managers cannot alter discretionary fixed costs easily.

Question 6

A telephone bill, which includes a monthly base rate plus an extra fee for each minute of long-distance service, is an example of a variable cost.

Question 7

One of the reasons why cost functions are important is to help managers make proper long-run decisions.

Question 8

Volume-driven costs can be easily traced to products or services.

Question 9

Managers can vary spending levels broadly in the short run.

Question 10

Step costs change abruptly at intervals of activity.

Question 11

Most companies make a capacity decision frequently.

Question 12

Capacity costs are the mixed costs of being able to achieve a desired level of production or service while maintaining product or service attributes.

Question 13

An example of a committed fixed cost is insurance.

Question 14

An example of a volume-driven cost in making a textbook is the salaries of the editorial staff.

Question 15

Committed fixed costs can be altered by management if management decides that different levels of spending are desirable.

Question 16

Companies cannot recover fixed capacity costs when demand falls during an economic downturn.

Question 17

Linear-cost behavior is graphed using a straight or curved line.

Question 18

Mixed costs contain elements of only fixed-cost behavior.

Question 19

By their decisions, managers influence cost behavior throughout the entire value chain.

Question 20

Measurement of cost behavior means understanding and quantifying how activities of an organization affect its levels of costs.

Question 21

In the mixed cost equation, Y = F + VX, the F is the slope.

Question 22

Each cost in a manufacturing operation must be either fixed or variable.

Question 23

Least-squares regression is the easiest method to approximate a cost function.

Question 24

Activity analysis is used to identify appropriate cost drivers and their effects on the costs of making a product or providing a service.

Question 25

In the mixed cost equation, Y = F + VX, the Y is the predicted total cost.

Question 26

In the mixed cost equation, Y = F + VX, the X is the cost driver.

Question 27

Pertaining to a useful cost function, plausibility means whether you can rely upon the cost function.

Question 28

Variable cost per unit is the slope of a total cost line.

Question 29

Goodness of fit pertains to how well a cost function predicts cost behavior.

Question 30

Cost measurement is estimating or predicting costs as a function of appropriate cost drivers.

Question 31

In the mixed cost equation, Y = F + VX, the X is the slope.

Question 32

The visual-fit method is more objective than the engineering analysis method.

Question 33

Identifying the appropriate cost drivers) is the most critical aspect of any method for measuring cost behavior.

Question 34

A final product or service has only one cost driver.

Question 35

The first step in estimating or predicting costs is cost measurement.

Question 36

Pertaining to a useful cost function, plausibility refers to a cause-and-effect relationship.

Question 37

A cost function is an algebraic equation used to describe the relationship between a cost and its cost drivers).

Question 38

Account analysis is one method of approximating cost functions.

Question 39

Managers should apply plausibility and reliability to obtain accurate and useful cost functions.

Question 40

In the equation, Y = $30,000 + $9X, the $30,000 represents fixed costs per unit.

Question 41

Palmer Inc.currently produces 110,000 units at a cost of $440,000.Next year Palmer Inc.expects to produce 115,000 units.Palmer's relevant range is 100,000 to 120,000 units.If the cost is variable and 115,000 units are produced, the cost _____.

A)will stay the same
B)will increase to $460,000
C)will decrease
D)will be indeterminate

Question 42

A lower coefficient of determination is better than a higher one.

Question 43

The account analysis method of measuring cost behavior is objective.

Question 44

An engineering cost analysis is often not timely.

Question 45

Costs that change abruptly at intervals of activity because the resources and their costs come in indivisible chunks are called _____.

A)mixed costs
B)variable costs
C)fixed costs
D)step costs

Question 46

The cost of using the telephone, which involves a flat rate per month plus a fee for extra usage, would be considered a _____.

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

Question 47

A concern with using historical data to measure cost behavior is the possibility that historical data may hide past inefficiencies that the company could reduce if it could identify them.

Question 48

In a regression analysis, the constant is a measure of reliability.

Question 49

When performing an engineering analysis, one must be careful because the observed time period may be abnormal.

Question 50

The high-low method of measuring cost behavior uses estimated costs.

Question 51

The visual-fit method is highly subjective and is more reliable when the cost function of the data is linear.

Question 52

Least-squares regression is a reliable method of cost estimation.

Question 53

During an engineering cost analysis, knowledge about new costs may be obtained from experiments with prototypes and the experience of competitors.

Question 54

The visual-fit method of measuring cost behavior only uses two points of data.

Question 55

Least-squares regression measures a cost function more objectively with statistics rather than human eyesight) using the same data.

Question 56

If regression analysis is used when measuring cost behavior, plotting the cost against each of the potential cost drivers is not necessary.

Question 57

It may be difficult to trace cost to products and services if the costs are ?____.

A)volume-driven
B)affected by activities not related to volume
C)affected by multiple cost drivers
D)affected by activities not related to volume and by multiple cost drivers

Question 58

Accountants sometimes use a linear cost model for nonlinear costs because_____.

A)a nonlinear model is too difficult for managers to interpret
B)a nonlinear model is too difficult to develop
C)the cost of using models that are more accurate may exceed the benefit of greater accuracy
D)all of these answers are correct

Question 59

In a cost function equation, the cost to be explained is the independent variable.

Question 60

In regression analysis, the fixed-cost measure is labeled the constant or intercept.

Question 61

_____ contain elements of both fixed- and variable-cost behavior.

A)Mixed costs
B)Step costs
C)Committed fixed costs
D)Discretionary fixed costs

Question 62

The following three data points appear to be _____. $\begin{array}{lr}\text { Units }&{\text { Costs }}{} \\100 & \$ 500 \\130 & 550 \\160 & 600\end{array}$

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

Question 63

_____ have no obvious relationship to levels of output activity, but are determined as part of the periodic planning process.

A)Discretionary fixed costs
B)Committed fixed costs
C)Capacity costs
D)Engineered costs

Question 64

A company could temporarily reduce or eliminate _____.

A)depreciation
B)bond interest payment
C)property taxes
D)advertising and promotion

Question 65

A company could not temporarily eliminate _____.

A)employee training
B)depreciation
C)research and development
D)management salaries

Question 66

Snead Inc.currently produces 120,000 units at a cost of $400,000.Next year Snead Inc.expects to produce 145,000 units.Snead's relevant range is 100,000 to 150,000 units.If the cost is fixed and 145,000 units are produced, the fixed cost _____.

A)will stay the same
B)will increase to $460,000
C)will decrease
D)will be indeterminate

Question 67

The following three data points appear to be _____. $\begin{array}{lr}\text { Units } &\text { Costs }\\100 & \$ 400 \\120 & 480 \\140 & 560\end{array}$

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

Question 68

A compensation plan where the sales force is paid salary plus commission is a _____.

A)purely variable cost
B)discretionary fixed cost
C)committed fixed cost
D)mixed cost

Question 69

Costs that may be essential to the long-run achievement of the organization's goals, but that managers can almost reduce to zero in the short-run, are called _____.

A)engineered costs
B)mixed costs
C)committed fixed costs.
D)discretionary fixed costs

Question 70

_____ change abruptly at intervals of activity because the resources and their costs are only available in indivisible chunks.

A)Mixed costs
B)Step costs
C)Committed fixed costs
D)Discretionary fixed costs

Question 71

A car lease payment computed by the number of miles driven can be identified as a _____.

A)purely variable cost
B)discretionary fixed cost
C)committed fixed cost
D)mixed cost

Question 72

The following three data points appear to be _____. $\begin{array}{lr}\text { Units }&{\text { Costs }}{} \\{600} &\$ 500\\800 & 500 \\1,000 & 500\end{array}$

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

Question 73

A lump sum amount of research and development planned for Senko Corporation would most likely be identified as a_____.

A)purely variable cost
B)discretionary fixed cost
C)step cost
D)mixed cost

Question 74

A mortgage payment would most likely be identified as a _____.

A)purely variable cost
B)discretionary fixed cost
C)committed fixed cost
D)mixed cost

Question 75

A property tax is an example of an) _____.

A)mixed cost
B)committed fixed cost
C)discretionary cost
D)engineered cost

Question 76

Costs arising from the possession of facilities, equipment, and a basic organization are ____.

A)capacity costs
B)discretionary costs
C)committed fixed costs
D)engineered costs

Question 77

A thorough knowledge of cost behavior helps managers to _____.

A)plan costs
B)obtain feedback
C)decide on the efficient use of resources
D)all of these answers are correct

Question 78

In a small construction firm, another crew supervisor is added for every 10 workers employed.This is an example of a _____.

A)purely variable cost
B)discretionary fixed cost
C)step cost
D)mixed cost

Question 79

Which statement regarding committed and discretionary fixed costs is true?

A)Discretionary fixed costs preserve management's flexibility.
B)Committed fixed costs preserve management's flexibility.
C)Both discretionary and committed fixed costs preserve flexibility.
D)Both discretionary and committed fixed costs limit flexibility.

Question 80

_____ arise as a result of strategic decisions about the scale and scope of an organization's activities.

A)Capacity costs
B)Discretionary costs
C)Mixed costs
D)Engineered costs