Deck 6: Activity Analysis, Cost Behavior, and Cost Estimation

Question 1

In the least-squares regression method, the cost line is estimated so as to maximize the sum of the squared deviations between the cost line and the data points.

Answer 1

False

Question 2

A committed cost results from a management decision to spend a particular amount of money for some purpose.

Answer 2

False

Question 3

In regression analysis, the variable that is being predicted is known as the independent variable.

Answer 3

False

Question 4

The relationship between cost and activity is known as:

A) cost estimation.
B) cost prediction.
C) cost behavior.
D) cost analysis.
E) cost approximation.

Question 5

An example of a discretionary cost is the cost of research and development.

Question 6

Multiple regression is a statistical method that estimates a linear (straight-line) relationship between one dependent variable and one independent variable.

Question 7

Mismatched time periods are not issues in the collection of data for cost estimation.

Question 8

Cost estimation typically focuses on the future.

Question 9

A forecast of a cost at a particular level of activity is known as:

A) cost estimation.
B) cost prediction.
C) cost behavior.
D) cost analysis.
E) cost approximation.

Question 10

The relevant range is that range of activity where a company achieves its maximum efficiency.

Question 11

If the organization operates at an activity level outside the relevant range, any cost predictions based on data from the relevant range may not be very accurate.

Question 12

When the engineering method is applied to costs other than labor, it is referred to as the experience method.

Question 13

The least-squares regression method of cost estimation relies on only two data points.

Question 14

Outliers are a common data collection problem.

Question 15

Variable costs change in direct proportion to a change in the activity level.

Question 16

The slope of a regression line measures how steeply the cost line rises as activity increases.

Question 17

What type of cost exhibits the behavior shown below?

A) Variable cost.
B) Fixed cost.
C) Semivariable cost.
D) Discretionary fixed cost.
E) Step-fixed cost.

Question 18

Which of the following costs changes in direct proportion to a change in the activity level?

A) Variable cost.
B) Fixed cost.
C) Semivariable cost.
D) Step-variable cost.
E) Step-fixed cost.

Question 19

The determination of cost behavior is called a cost prediction.

Question 20

Cost that are nearly variable, but increase in small steps instead of continuously are called step-variable costs.

Question 21

A company observed a decrease in the cost per unit. All other things being equal, which of the following is most likely true?

A) The company is studying a variable cost, and total volume has increased.
B) The company is studying a variable cost, and total volume has decreased.
C) The company is studying a fixed cost, and total volume has increased.
D) The company is studying a fixed cost, and total volume has decreased.
E) The company is studying a fixed cost, and total volume has remained constant.

Question 22

Organize, Inc. has only variable costs and fixed costs. A review of the company's records disclosed that when 200,000 units were produced, fixed manufacturing costs amounted to $800,000 and the cost per unit manufactured totaled $11. On the basis of this information, how much cost would the firm anticipate at an activity level of 205,000 units?

A) $2,235,000.
B) $2,222,000.
C) $2,214,000.
D) $2,200,000.
E) None of the answers is correct.

Question 23

A review of Parson Corporation's accounting records found that at a volume of 90,000 units, the variable and fixed cost per unit amounted to $8 and $4, respectively. On the basis of this information, what amount of total cost would Parson anticipate at a volume of 85,000 units?

A) $1,020,000.
B) $1,040,000.
C) $1,060,000.
D) $1,080,000.
E) None of the answers is correct.

Question 24

A cost that has both a fixed and variable component is known as a:

A) step-fixed cost.
B) step-variable cost.
C) semivariable cost.
D) curvilinear cost.
E) discretionary cost.

Question 25

Norman Company pays a sales commission of 4% on each unit sold. If a graph is prepared, with the vertical axis representing per-unit cost and the horizontal axis representing units sold, how would a line that depicts sales commissions be drawn?

A) As a straight diagonal line, sloping upward to the right.
B) As a straight diagonal line, sloping downward to the right.
C) As a horizontal line.
D) As a vertical line.
E) As a curvilinear line.

Question 26

The relevant range is that range of activity:

A) where a company achieves its maximum efficiency.
B) where units produced equal units sold.
C) where management expects the firm to operate.
D) where the firm will earn a profit.
E) where expected results are abnormally high.

Question 27

Brock Morton has a fast-food franchise and must pay a franchise fee of $45,000 plus 4% of gross sales. In terms of cost behavior, the fee is known as a:

A) variable cost.
B) fixed cost.
C) step-fixed cost.
D) semivariable cost.
E) curvilinear cost.

Question 28

Which of the following costs exhibits both decreasing and increasing marginal costs over a specific range of activity?

A) Semivariable cost.
B) Curvilinear cost.
C) Step-fixed cost.
D) Step-variable cost.
E) Fixed cost.

Question 29

Ralston has the following budgeted costs at its anticipated production level (expressed in hours): variable overhead, $165,000; fixed overhead, $250,000. If Ralston now revises its anticipated production slightly upward, it would expect:

A) total fixed overhead of $250,000 and a lower hourly rate for variable overhead.
B) total fixed overhead of $250,000 and the same hourly rate for variable overhead.
C) total fixed overhead of $250,000 and a higher hourly rate for variable overhead.
D) total variable overhead of less than $165,000 and a lower hourly rate for variable overhead.
E) total variable overhead of less than $165,000 and a higher hourly rate for variable overhead.

Question 30

Sophie Corporation recently produced and sold 100,000 units. Fixed costs at this level of activity amounted to $50,000; variable costs were $100,000. How much cost would the company anticipate if during the next period it produced and sold 102,000 units?

A) $150,000.
B) $151,000.
C) $152,000.
D) $153,000.
E) None of the answers is correct.

Question 31

What type of cost exhibits the behavior shown below?

A) Variable cost.
B) Fixed cost.
C) Semivariable cost.
D) Step-variable cost.
E) Mixed cost.

Question 32

Which of the following is (are) example(s) of a mixed cost?
I) A building that is used for both manufacturing and sales activities.
II) An employee's compensation, which consists of a flat salary plus a commission.
III) Depreciation that relates to five different machines.
IV) Maintenance cost that must be split between sales and administrative offices.

A) I only.
B) II only.
C) I and III.
D) I, III, and IV.
E) I, II, III, and IV.

Question 33

Each of Boggart's production managers (annual salary cost, $45,000) can oversee 60,000 machine hours of manufacturing activity. Thus, if the company has 50,000 hours of manufacturing activity, one manager is needed; for 75,000 hours, two managers are needed; for 125,000 hours, three managers are needed; and so forth. Boggart's salary cost can best be described as a:

A) variable cost.
B) semivariable cost.
C) step-variable cost.
D) fixed cost.
E) step-fixed cost.

Question 34

When graphed, a typical fixed cost appears as:

A) a horizontal line.
B) a vertical line.
C) a u-shaped line.
D) a diagonal line that slopes downward to the right.
E) a diagonal line that slopes upward to the right.

Question 35

When graphed, a typical step-fixed cost appears as:

A) a horizontal line.
B) a vertical line.
C) a series of staggered horizontal lines
D) a diagonal line that slopes downward to the right.
E) a diagonal line that slopes upward to the right.

Question 36

Costs that remain the same over a wide range of activity, but jump to a different amount outside that range, are known as:

A) step-fixed costs.
B) step-variable costs.
C) semivariable costs.
D) curvilinear costs.
E) mixed costs.

Question 37

A mixed cost is also known as a:

A) semivariable cost.
B) step-fixed cost.
C) variable cost.
D) curvilinear cost.
E) discretionary cost.

Question 38

When graphed, a typical variable cost appears as:

A) a horizontal line.
B) a vertical line.
C) a u-shaped line.
D) a diagonal line that slopes downward to the right.
E) a diagonal line that slopes upward to the right.

Question 39

Paige Corporation observed that when 25,000 units were sold, a particular cost amounted to $75,000, or $3.00 per unit. When volume increased by 10%, the cost totaled $82,500 (i.e., $3.00 per unit). The cost that Paige is studying can best be described as a:

A) variable cost.
B) fixed cost.
C) semivariable cost.
D) discretionary fixed cost.
E) step-fixed cost.

Question 40

Straight-line depreciation is a typical example of a:

A) variable cost.
B) step-variable cost.
C) fixed cost.
D) mixed cost.
E) curvilinear cost.

Question 41

The nonstatistical method of cost estimation that calls for the creation of a scatter diagram is the:

A) least-squares regression method.
B) high-low method.
C) visual-fit method.
D) account analysis method.
E) multiple regression method.

Question 42

The high-low method and least-squares regression are used by accountants to:

A) evaluate divisional managers for purposes of raises and promotions.
B) choose among alternative courses of action.
C) maximize output.
D) estimate costs.
E) control operations.

Question 43

Use the following information to answer the following Questions
Barkoff Enterprises, which uses the high-low method to analyze cost behavior, has determined that machine hours best explain the company's utilities cost. The company's relevant range of activity varies from a low of 600 machine hours to a high of 1,100 machine hours, with the following data being available for the first six months of the year:

-Using the high-low method, the utilities cost for Barkoff associated with 980 machine hours would be:

A) $9,510.
B) $9,660.
C) $9,700.
D) $9,790.
E) None of the answers is correct.

Question 44

Committed fixed costs would include:

A) advertising.
B) research and development.
C) depreciation on buildings and equipment.
D) contributions to charitable organizations.
E) expenditures for direct labor.

Question 45

Within the relevant range, a curvilinear cost function can sometimes be graphed as a:

A) sloping straight line.
B) jagged line.
C) vertical straight line.
D) curved line.
E) horizontal straight line.

Question 46

Within the relevant range of activity, costs:

A) can be estimated with reasonable accuracy.
B) can be expected to change radically.
C) exhibit decreasing marginal cost patterns.
D) exhibit increasing marginal cost patterns.
E) cannot be estimated satisfactorily.

Question 47

Use the following information to answer the following Questions
Barkoff Enterprises, which uses the high-low method to analyze cost behavior, has determined that machine hours best explain the company's utilities cost. The company's relevant range of activity varies from a low of 600 machine hours to a high of 1,100 machine hours, with the following data being available for the first six months of the year:

-The fixed utilities cost per month for Barkoff is:

A) $3,764.
B) $4,400.
C) $4,760.
D) $5,100.
E) None of the answers is correct.

Question 48

Use the following information to answer the following Questions
Fulton and Sons, Inc. presently leases a copy machine under an agreement that calls for a fixed fee each month and a charge for each copy made. Fulton made 7,000 copies and paid a total of $360 in March; in May, the firm paid $280 for 5,000 copies. The company uses the high-low method to analyze costs.

-Fulton's monthly fixed fee is:

A) $80.
B) $102.
C) $106.
D) $112.
E) None of the answers is correct.

Question 49

Which of the following would not typically be classified as a discretionary fixed cost?

A) Equipment depreciation.
B) Employee development (education) programs.
C) Advertising.
D) Outlays for research and development.
E) Charitable contributions.

Question 50

Which of the following statements about the visual-fit method is (are) true?
I) The method results in the creation of a scatter diagram.
II) The method is not totally objective because of the manner in which the cost line is determined.
III) The method is especially helpful in the determination of outliers.

A) I only.
B) II only.
C) I and II.
D) I and III.
E) I, II, and III.

Question 51

Which of the following methods of cost estimation relies on only two data points?

A) Least-squares regression.
B) The high-low method.
C) The visual-fit method.
D) Account analysis.
E) Multiple regression.

Question 52

Property taxes are an example of a (n):

A) committed fixed cost.
B) committed variable cost.
C) discretionary fixed cost.
D) discretionary variable cost.
E) engineered cost.

Question 53

Amounts spent for charitable contributions are an example of a (n):

A) committed fixed cost.
B) committed variable cost.
C) discretionary fixed cost.
D) discretionary variable cost.
E) engineered cost.

Question 54

A variable cost that has a definitive physical relationship to the activity measure is called a (n):

A) discretionary cost.
B) engineered cost.
C) managed cost.
D) programmed cost.
E) committed cost.

Question 55

Use the following information to answer the following Questions
Fulton and Sons, Inc. presently leases a copy machine under an agreement that calls for a fixed fee each month and a charge for each copy made. Fulton made 7,000 copies and paid a total of $360 in March; in May, the firm paid $280 for 5,000 copies. The company uses the high-low method to analyze costs.

-How much would Fulton pay if it made 5,500 copies?

A) $382.50.
B) $322.
C) $300.
D) $292.50
E) None of the answers is correct.

Question 56

Use the following information to answer the following Questions
Fulton and Sons, Inc. presently leases a copy machine under an agreement that calls for a fixed fee each month and a charge for each copy made. Fulton made 7,000 copies and paid a total of $360 in March; in May, the firm paid $280 for 5,000 copies. The company uses the high-low method to analyze costs.

-Fulton's variable cost per copy is:

A) $0.040.
B) $0.051.
C) $0.053.
D) $0.056.
E) None of the answers is correct.

Question 57

Which of the following techniques is not used to analyze cost behavior?

A) Least-squares regression.
B) High-low method.
C) Visual-fit method.
D) Linear programming.
E) Multiple regression.

Question 58

Use the following information to answer the following Questions
Barkoff Enterprises, which uses the high-low method to analyze cost behavior, has determined that machine hours best explain the company's utilities cost. The company's relevant range of activity varies from a low of 600 machine hours to a high of 1,100 machine hours, with the following data being available for the first six months of the year:

- The variable utilities cost per machine hour for Barkoff is:

A) $0.18.
B) $4.50.
C) $5.00.
D) $5.50.
E) None of the answers is correct.

Question 59

Costs that result from a company's ownership or use of facilities and its basic organizational structure are known as:

A) discretionary fixed costs.
B) committed fixed costs.
C) discretionary variable costs.
D) committed variable costs.
E) engineered costs.

Question 60

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

A) Property taxes.
B) Depreciation on buildings.
C) Salaries of management personnel.
D) Outlays for advertising programs.
E) Equipment rental costs.

Question 61

Blaster, Inc. recently conducted a least-squares regression analysis to predict selling expenses. The company has constructed the following regression equation: Y = 329,000 + 7.80X. Which of the following statements is false if the primary cost driver is number of units sold?

A) The company anticipates $329,000 of fixed selling expenses.
B) "Y" represents total selling expenses.
C) The company expects both variable and fixed selling expenses.
D) For each unit sold, total selling expenses will increase by $7.80.
E) "X" represents the number of hours worked during the period.

Question 62

Vargis Corporation has a machining capacity of 200,000 hours per year. Utilization of capacity is normally 75%; it has been as low as 40% and as high as 90%. An analysis of the accounting records revealed the following selected costs:

Vargis uses the high-low method to analyze cost behavior.
Required:
A. Classify each of the costs as being either variable, fixed, or semivariable.
B. Calculate amounts for the two unknowns in the preceding table.
C.
C. Calculate the total amount that Vargis would expect at a 75% utilization rate for Cost A, Cost B, and Cost
D. Develop an equation that Vargis can use to predict total cost for any level of hours within its range of operation.

Question 63

Tallequah, Inc. uses the high-low method to analyze cost behavior. The company observed that at 20,000 machine hours of activity, total maintenance costs averaged $10.50 per hour. When activity jumped to 24,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $9.75. On the basis of this information, the company's fixed maintenance costs were:

A) $24,000.
B) $90,000.
C) $210,000.
D) $234,000.
E) None of the answers is correct.

Question 64

Use the following information to answer the following QuestionsSwan, Inc. uses the high-low method to analyze cost behavior. The company observed that at 22,000 machine hours of activity, total maintenance costs averaged $33.40 per hour. When activity jumped to 25,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $30.40.

-On the basis of this information, the variable cost per machine hour for Swan was:

A) $8.40.
B) $22.00.
C) $25.00.
D) $30.40.
E) $33.40.

Question 65

Bogata Enterprises has determined that three variables play a key role in determining company revenues. To arrive at an objective forecast of revenues for the next accounting period, Bogata should use:

A) simple regression.
B) multiple regression.
C) a scatter diagram.
D) complex regression.
E) the high-low method.

Question 66

Use the following information to answer the following QuestionsSwan, Inc. uses the high-low method to analyze cost behavior. The company observed that at 22,000 machine hours of activity, total maintenance costs averaged $33.40 per hour. When activity jumped to 25,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $30.40.

-On the basis of this information, the fixed cost for Swan was:

A) $184,800.
B) $210,000.
C) $550,000.
D) $734,800.
E) $760,000.

Question 67

Corrine Corporation, which uses least-squares regression analysis, has derived the following regression equation for estimates of manufacturing overhead: Y = 495,000 + 5.65X. Which of the following statements is true if the primary cost driver is machine hours?

A) Total manufacturing overhead is represented by the variable "X."
B) The company anticipates $495,000 of fixed manufacturing overhead.
C) "X" is commonly known as the dependent variable.
D) "X" represents the number of machine hours.
E) The company anticipates $495,000 of fixed manufacturing overhead and "X" represents the number of machine hours.

Question 68

A staff assistant at Warrington Corporation recently determined that the first five units completed in a new manufacturing process took 500 hours to complete, or an average of 100 hours per unit. The assistant also found that when the cumulative output produced doubles, the average labor time declines by 20%. On the basis of this information, how many total hours would Warrington use if it produces a cumulative amount of 40 units?

A) 128.
B) 160.
C) 1,280.
D) 2,048.
E) None of the answers is correct.

Question 69

The following data relate to the Torrence Company for May and August:


-
May and August were the lowest and highest activity levels, and Torrence uses the high-low method to analyze cost behavior. If maintenance hours are estimated to be 26,000 hours in October, which of the following statements is true?

A) The variable maintenance cost is $18 per hour.
B) The variable maintenance cost is $22 per hour.
C) The variable maintenance cost is $24 per hour.
D) The fixed maintenance cost is $72,000 per month.
E) More than one of the other answers is true.

Question 70

Rushmont, Inc. operates a small package delivery service in the Nashville suburbs. If the company uses a regression equation to forecast total operating costs, the coefficient of the equation's independent variable would correspond to the:

A) variable operating cost per delivery.
B) fixed operating costs.
C) number of deliveries.
D) total variable operating costs.
E) total operating costs.

Question 71

Which of the following tools is not associated with cost estimation?

A) Least-squares regression.
B) Multiple regression.
C) Inversion equations.
D) Time and motion (engineering) studies.
E) Learning curves.

Question 72

The following data relate to the Torrence Company for May and August of the current year:


-
May and August were the lowest and highest activity levels, and Torrence uses the high-low method to analyze cost behavior. Which of the following statements is true?

A) The variable maintenance cost is $43 per hour.
B) The variable maintenance cost is $45 per hour.
C) The variable maintenance cost is $47 per hour.
D) The fixed maintenance cost is $725,000 per month.
E) More than one of the other answers is true.

Question 73

Trey, Inc. is studying marketing cost and sales volume, and has generated the following information by use of a scatter diagram and a least-squares regression analysis:

Trey is now preparing an estimate for monthly sales of 18,000 units. On the basis of the data presented, compute the most accurate sales forecast possible.

A) $159,500.
B) $162,000.
C) $164,900.
D) $167,400.
E) None of the answers is correct.

Question 74

The following selected data were taken from the accounting records of Colorado Enterprises:

Question 75

Rolling Hills Bistro produces one of the best sausage products in Tennessee. The company's controller compiled the following information by analyzing the accounting records:
1. Meat costs the company $3.25 per pound of sausage produced.
2. Compensation of production employees is $2.25 per pound of sausage produced.
3. Supervisory salaries total $23,000 per month.
4. The company incurs utility costs of $9,000 per month plus $0.35 per pound of sausage produced.
5. Insurance and property taxes average $6,400 per month.
Required:
A. Classify each cost as variable, fixed, or semivariable.
B. Write a formula to express the behavior of the firm's production costs. (Use the form Y = a + bX, where X denotes the quantity of sausage produced.)

Question 76

Lichtenstein Imports needs to determine the variable utilities rate per machine hour in order to estimate cost for August. Relevant information is as follows.

Lichtenstein anticipates producing 5,000 units in August, each unit requiring 1.5 hours of machine time. The company uses the high-low method to analyze costs.
Required:
A. Calculate the variable and fixed components of the utilities cost.
B. Using the data calculated above, estimate the utilities cost for August.
C. Compare the high-low method versus the visual-fit method with respect to (1) number of data observations used in the analysis and (2) objectivity of the results.

Question 77

Which of the following is not an issue in the collection of data for cost estimation?

A) Outliers.
B) Missing data.
C) Mismatched time periods.
D) Inflation.
E) All of the answers are issues in data collection.

Question 78

Cheyenne Corporation operates a small medical lab in Wyoming that conducts minor medical procedures (including blood tests and x-rays) for a number of doctors. The lab consumes various medical supplies and is staffed by two technicians, both of whom are paid a monthly salary. In addition, there is an on-site office manager who is also paid by the month.
Required:
A. If the lab's patient count increases by 15%, will the lab's total operating costs increase by 15%? Explain.
B. Cheyenne is considering opening an additional lab in a new suburban medical building. What will likely happen to the lab's level of fixed cost incurrence? Why?
C. What analysis methods would be available to the office manager and/or Cheyenne management if a close look at the lab's cost behavior is desired?

Question 79

The following data relate to the Torrence Company for May and August:


-
May and August were the lowest and highest activity levels, and Torrence uses the high-low method to analyze cost behavior. If maintenance hours are estimated to be 26,000 hours in October, which of the following statements is true?

A) Total maintenance costs will be $1,175,000.
B) Total maintenance costs will be $1,182,000.
C) Total maintenance costs will be $1,193,000.
D) Total maintenance costs will be $1,221,000.
E) Total maintenance costs will be $1,247,000.

Question 80

Use the following information to answer the following QuestionsSwan, Inc. uses the high-low method to analyze cost behavior. The company observed that at 22,000 machine hours of activity, total maintenance costs averaged $33.40 per hour. When activity jumped to 25,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $30.40.

-On the basis of this information, what were total maintenance costs when Swan experienced 23,000 machine hours?

A) $193,200.
B) $550,000.
C) $734,800.
D) $743,200.
E) $760,000.