Deck 2: Cost Behavior, Activity Analysis, and Cost Estimation

Question 1

Mixed cost behavior pattern is unrelated to unit activity level.

Answer 1

False

Question 2

The wheels on an automobile are classified as a variable cost with respect to the volume of cars produced in an automobile assembly plant.

Answer 2

True

Question 3

The depreciation cost for a manufacturing building is an example of a committed fixed cost:

Answer 3

True

Question 4

The number of units sold is a better independent variable than square feet of all manufacturing facilities in estimating the cost function of a headphone manufacturer.

Question 5

The primary advantage of the high-low method of cost estimation over the least-squares regression method is its Limited data requirements.

Question 6

The high-low method is likely to produce an inaccurate cost estimating equation when the organization has mixed costs.

Question 7

Periods of highest and lowest activity in a scatter diagram are always assumed to be representative of all cost observations.

Question 8

Changes in technology during the period of cost observations should not be a concern in estimating cost.

Question 9

The longer the time period of each observation, the higher the probability of error in matching costs and activity,

Question 10

Over the past century cost structures in the typical company have shifted significantly as a consequence of breakthroughs in technology, resulting in a major downward shift in direct labor as a percentage of total manufacturing costs.

Question 11

Preparing the engineering design and preparing tools to make a new product added to a company's product line would be a good example of a batch level activity.

Question 12

Advertising a new health beverage is an example of a product-level activity.

Question 13

Which of the following costs is best classified as fixed costs with respect to volume?

A) Parts used in manufacturing digital cameras
B) Electricity used to heat, light, and cool a hospital
C) Depreciation of a copy machine in the Human Resource Department
D) Salaries of quality inspectors in a production facility

Question 14

Step costs:

A) Are constant within certain ranges of activity but differ outside those ranges of activity
B) Are variable within narrowly defined ranges of activity, but constant over wider ranges of activity
C) Increase with each additional unit produced
D) Have no relation to number of units produced

Question 15

Fixed costs do not respond to:

A) Capital expenditures made by the company
B) Short-term changes in the amount of activity
C) Changes in committed expenditures
D) Discretionary investments in the company

Question 16

The range of operations that falls within the capacity of the current level of fixed costs is referred to as the:

A) Linear average
B) Relevant range
C) Marginal range
D) Operating range

Question 17

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

A) Depreciation of manufacturing facilities
B) Donations to charitable organizations
C) Salaries of production supervisors
D) Property taxes on manufacturing facilities

Question 18

The determination of the mathematical relationship between activity level and cost is known as:

A) Cost control
B) Cost estimation
C) Cost prediction
D) Regression analysis

Question 19

The scatter diagram method of cost estimation:

A) Is influenced by extreme observations
B) Is superior to other methods in its ability to distinguish between discretionary and committed fixed costs
C) Requires the use of judgment
D) Provides a measure of the goodness of fit

Question 20

John Anderson uses gas to heat his home. He has accumulated the following information regarding his monthly gas bill and monthly heating degree-days. The heating degree-days value for a month is found by first subtracting the average temperature for each day from 65 degrees and then summing these daily amounts together for the month.
What will be the increase in John's monthly gas bill per heating degree-day using the high-low method?

A) $0.14
B) $6.59
C) $0.17
D) $5.77

Question 21

Marci Johnson uses gas to heat her home. She has accumulated the following information regarding her monthly gas bill and monthly heating degree-days. The heating degree-days value for a month is found by first subtracting the average temperature for each day from 65 degrees and then summing these daily amounts together for the month.
The equation representing the relationship between the gas bill (Y) and heating degree-days (X) is:

A) Y = $0.14
B) Y =$10 + $0.14X
C) Y =$10 - $0.14X
D) Y =$60 + $0.14X

Question 22

The Heartland Delivery Service has the following information about its truck fleet miles and operating costs:
What is the best estimate of fixed costs for fleet operating expenses in 2017 using the high-low method?

A) $50,000
B) $17,000
C) $17,500
D) $25,000

Question 23

The Illinois Tools Machine Shop wants to develop a cost estimating equation for its monthly cost of electricity. It has the following data:
What would be the best equation using the high-low method?

A) Y = $2,000 + $4X
B) Y = $2,500 + $6X
C) Y = $1,500 + $8X
D) Y = $500 + $6X

Question 24

The following information pertains to Nichole Company's weekly activity and total costs:
What are Nichole's weekly fixed costs?

A) $ -0-
B) $ 150
C) $ 160
D) $ 800

Question 25

Comparing least-squares regression to high-low estimation:

A) Least-squares regression is preferred to high-low estimation because with this method, the computer can make all the decisions after data entry
B) Least-squares regression provides superior estimates to high-low estimation when using unreliable data
C) Least-squares regression provides a means of estimating how well the data fit the model
D) All of the above

Question 26

Comparing least-squares regression to high-low estimation:

A) Least-squares regression better predicts costs outside the range of past observations
B) Least-squares regression makes fuller use of the data
C) Least-squares regression requires fewer calculations
D) All of the above

Question 27

Which one of the following statements about difficulties in cost estimation is true?

A) Changes in the company's production technology make estimating the company's production costs easier
B) The shorter the time period, the higher the probability of inappropriately matching activity and cost
C) The stronger the economy, the harder it is to accurately match activity and cost
D) When prices of a company's raw materials or labor are rapidly increasing, cost estimations based on previous periods will overestimate future costs

Question 28

Which one of the following statements about difficulties of cost estimation is true?

A) Data may not be based on normal operating conditions
B) Linear relationships between total costs and activity levels may exist
C) Both A and B
D) None of the above

Question 29

This creates difficulties in cost estimations:

A) Changes in technology or prices
B) Identifying cost drivers
C) Matching activity and cost within each observation
D) All of the above

Question 30

In cost estimation:

A) Care must be taken to make sure that data used in developing cost estimates are based on currently employed technology
B) Changes in technology and prices make cost estimation difficult
C) Only data reflecting a single price level should be used in cost estimation
D) All of the above

Question 31

In cost estimation:

A) Old price data of cost elements should be used cautiously, if at all
B) Only data reflecting historical price levels should be used in cost estimation
C) The prices of various cost elements are likely to change at the same rates and at the same times
D) All of the above

Question 32

The development of accurate cost-estimating equations requires the matching of the activity to:

A) Changes in technology and prices
B) Production
C) Related costs within each observation
D) All of the above

Question 33

As a consequence of automation and product diversity, in cost estimation:

A) A facility level approach to estimating costs is increasingly important
B) Companies no longer need to pay attention to estimating overhead
C) Cost estimation is improved with the inclusion of non-unit cost drivers
D) Direct labor is playing an increasingly important role in cost determination

Question 34

Facility level activities of an organization would not include:

A) Building maintenance
B) Machine set up
C) Property taxes
D) The production supervisor's salary

Question 35

The following procedure performed at the United States mint is not a batch level activity:

A) Inspecting the first units produced to verify proper set-up
B) Movement of manufactured coins to finishing stations
C) Setting up machinery for the stamping process
D) Stamping each individual coin

Question 36

The following procedure performed by a dairy is the best example of a unit level activity within a manufacturing cost hierarchy:

A) Delivering dairy products to a grocery store
B) Filling milk into half-gallon cartons
C) Homogenizing milk in specially designed tanks
D) Receiving milk from farms

Question 37

The following procedure performed by a candy manufacturer is the best example of a product level activity within a manufacturing cost hierarchy:

A) Cleaning the mixing machine for the next production run of candy, a special Halloween candy
B) Developing an advertising campaign for a special Halloween candy
C) Inspecting the quality of the candy produced during one of the special Halloween package production runs
D) Resetting the packaging equipment to wrap a special 36-count Halloween package

Question 38

The following procedure performed by a food wholesaler is the best example of a unit level activity within a customer cost hierarchy:

A) Calling a retail customer to inquire if the customer is satisfied with the wholesaler's service
B) Driving the delivery truck to the retail customer's store
C) Sending the retail customer a bill for a recent order
D) Stacking items on the shelf of a retail customer's store

Question 39

The following procedure performed by a home oil delivery company is the best example of a unit level activity within a customer cost hierarchy:

A) Opening an account for a new customer
B) Processing monthly customer billings
C) Pumping home heating oil into a customer's oil tank
D) Purchasing a new delivery truck

Question 40

Depreciation of a copy machine in the Human Resource Department would best be classified as what type of cost?

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

Question 41

Parts used in manufacturing digital cameras would best be classified as what type of cost?

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

Question 42

Electricity used to heat, light, and cool a manufacturing facility would best be classified as what type of cost?

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

Question 43

A cost that is constant within a relevant range but differs outside the relevant range of activity is best classified as what type of cost?

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

Question 44

Which of the following mathematical expressions best describes a mixed cost?

A) Y = bX
B) Y = a
C) Y = a + bX
D) Y = a_i

Question 45

Over the short term, which type of costs is indifferent to activity level changes?

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

Question 46

In the following equation for total cost, Y = a + bX, the slope of the total cost line is an approximation of which of the following?

A) Total Cost
B) Fixed Cost
C) Variable Cost
D) Volume

Question 47

When developing a cost model for a firm or segment of a firm, the cost model is only applicable within the __________ range of capacity of fixed costs.

A) Operating
B) Average
C) Marginal
D) Relevant

Question 48

As volume increases, which of the following statements is not correct?

A) Variable cost per unit will remain the same.
B) Total fixed will remain the same.
C) Average cost per unit will increase.
D) Total variable costs will increase.

Question 49

Which of the following would be classified as a discretionary fixed cost?

A) Depreciation
B) Research and Development
C) Property Taxes
D) Interest on Bonds

Question 50

Committed fixed costs are also known as:

A) Capacity costs
B) Managed fixed costs
C) Mixed costs
D) Step costs

Question 51

As volume increases, average cost per unit decreases because:

A) Total fixed costs increase
B) Total variable costs increase
C) Total fixed costs stay the same
D) Total variable costs stay the same

Question 52

Which of the following methods of cost estimation utilizes all observations and relies on statistical measures to determine the cost estimation model?

A) High-Low Method
B) Scatter Diagram
C) Least-Squares Regression
D) Linear Programming

Question 53

Which of the following methods of cost estimation utilizes judgment to determine the cost estimation model?

A) High-Low Method
B) Scatter Diagram
C) Least-Squares Regression
D) Linear Programming

Question 54

Really Fast Delivery Services has the collected the following information about operating expenditures for its delivery truck fleet for the past five years:


-Using the high-low method, what is the cost estimate for variable costs for 2018?

A) $1.29
B) $2.00
C) $1.60
D) $1.50

Question 55

Really Fast Delivery Services has the collected the following information about operating expenditures for its delivery truck fleet for the past five years:


-Using the high-low method, what is the cost estimate for fixed costs for 2018?

A) $100,000
B) $ 70,000
C) $115,500
D) $109,650

Question 56

Really Fast Delivery Services has the collected the following information about operating expenditures for its delivery truck fleet for the past five years:


-What is the best estimate of total operating expenses for 2018 using the high-low method based on total expected miles of 60,000?

A) $192,900
B) $195,000
C) $196,000
D) $201,000

Question 57

The following information pertains to Joe Coffee Company's monthly activity and total costs:
What would be the best equation for predicting total costs using the high-low method?

A) Y = $3 + $2,100X
B) Y = $3,550 + $3X
C) Y = $3 + $1,500X
D) Y = $2,250 + $3X

Question 58

George Rentals offers machine rental services for concrete cutting. Consider the following costs of the company over the relevant range of 4,000 to 10,000 hours of operating time for its concrete cutting equipment.


-What are the estimated total costs at a volume of 5,000 hours?

A) $ 94,000
B) $107,000
C) $108,000
D) $100,000

Question 59

George Rentals offers machine rental services for concrete cutting. Consider the following costs of the company over the relevant range of 4,000 to 10,000 hours of operating time for its concrete cutting equipment.


-What is the estimated total cost per hour at a volume of 8,000 hours?

A) $12.50
B) $14.25
C) $18.00
D) $15.25

Question 60

George Rentals offers machine rental services for concrete cutting. Consider the following costs of the company over the relevant range of 4,000 to 10,000 hours of operating time for its concrete cutting equipment.


-What are the estimated total fixed costs at a volume of 10,000 hours?

A) $100,000
B) $94,000
C) $95,000
D) $82,000

Question 61

George Rentals offers machine rental services for concrete cutting. Consider the following costs of the company over the relevant range of 4,000 to 10,000 hours of operating time for its concrete cutting equipment.


-What is the estimated total fixed cost per hour at a volume 8,000 hours?

A) $10.25
B) $28.00
C) $24.00
D) $37.60

Question 62

The primary advantage of the High-Low method over other cost estimation methods is that:

A) It utilizes only two data points rather all data points within a relevant range
B) It relies on judgment to determine the cost estimation model
C) It is a more straightforward approach to determining the variable and fixed elements of mixed costs
D) It can only be applied within the relevant range of observations of the independent variable

Question 63

The following data was input into a spreadsheet program to determine the Intercept, Slope and R² (RSQ) for Patient Days and Maintenance Costs for a local hospital:


-The estimated fixed maintenance cost for the hospital is:

A) $5,468
B) $2,734
C) $0.793
D) $0.541

Question 64

The following data was input into a spreadsheet program to determine the Intercept, Slope and R² (RSQ) for Patient Days and Maintenance Costs for a local hospital:


-The estimated variable maintenance cost per patient day for the hospital is:

A) $5,468
B) $2,734
C) $0.541
D) $0.793

Question 65

The following data was input into a spreadsheet program to determine the Intercept, Slope and R² (RSQ) for Patient Days and Maintenance Costs for a local hospital:


-The estimated total maintenance cost for August based on an estimated 4,000 patient days is:

A) $4,898
B) $3,092
C) $2,734
D) $4,509

Question 66

The following data was input into a spreadsheet program to determine the Intercept, Slope and R² (RSQ) for Patient Days and Maintenance Costs for a local hospital:


-The coefficient of determination for the estimated cost model for maintenance is represented by:

A) Slope
B) Intercept
C) The dependent variable (Y)
D) R²

Question 67

The coefficient of determination for estimating packaging costs for a local shipper was determined to be 0.84. Which of the following statement is not correct?

A) The coefficient of determination is a measure of the percent of variation in the independent variable that is explained by variations in the dependent variable.
B) Coefficient of determination is often referred to as R-squared by statisticians.
C) The coefficient of determination can have values between zero and one.
D) Coefficient of determination values close to zero suggesting that the equation is not very useful.

Question 68

An increase in volume within the relevant range will cause:

A) Unit fixed costs to increase.
B) Unit variable costs to decrease.
C) Total fixed costs to stay the same.
D) Total variable costs to decrease.

Question 69

The graph of an estimated cost represented by cost equation, Y = a + bX, would be best described by which of the following descriptions:

A) A positive slope starting at the point of origin
B) A positive slope starting at the y-intercept
C) A horizontal line starting at the y-intercept
D) A negative slope starting at the y-intercept

Question 70

The introduction of production technology to replace labor in a manufacturing process would likely result in which of the following?

A) A shift in costs from variable costs to fixed costs.
B) A shift in costs from fixed costs to variable costs.
C) An increase in total manufacturing costs.
D) A decrease in total manufacturing costs.

Question 71

The introduction of production technology in a manufacturing process would:

A) Decrease the probability of inappropriately matching activity and costs in the short run
B) Make cost estimation and prediction easier
C) Require the identification of the most appropriate activity that matches costs
D) Increase the probability that the coefficient of determination will decrease in the short run

Question 72

Over the past decade, the composition of total manufacturing costs has resulted in which of the following?

A) Manufacturing overhead decreasing as a percent of total manufacturing costs.
B) Direct labor decreasing as a percent of total manufacturing costs.
C) Direct materials decreasing as a percent of total manufacturing costs.
D) Direct labor increasing as a percent of total manufacturing costs.

Question 73

The cost of raw materials would best be classified as what type of activity?

A) A unit-level activity
B) A batch-level activity
C) A product-level activity
D) A facility-level activity

Question 74

The cost of issuing and tracking a work order would best be classified as what type of activity?

A) A unit-level activity
B) A batch-level activity
C) A product-level activity
D) A facility-level activity

Question 75

The cost of product marketing such as advertising would best be classified as what type of activity?

A) A unit-level activity
B) A batch-level activity
C) A product-level activity
D) A facility-level activity

Question 76

Rock Bottom's Brew is a successful brewery engaged in the development and production of specialty micro brews. It uses manufacturing cost hierarchy to allocate costs to various activities. During the past year, it has incurred:


-Using the manufacturing cost hierarchy, what is the total cost that would be classified as unit-level activity costs?

A) $ 425,000
B) $1,250,000
C) $1,975,000
D) $1,945,000

Question 77

Rock Bottom's Brew is a successful brewery engaged in the development and production of specialty micro brews. It uses manufacturing cost hierarchy to allocate costs to various activities. During the past year, it has incurred:


-Using the manufacturing cost hierarchy, what is the total cost that would be classified as batch-level activity costs?

A) $ 450,000
B) $ 350,000
C) $ 600,000
D) $ 625,000

Question 78

Rock Bottom's Brew is a successful brewery engaged in the development and production of specialty micro brews. It uses manufacturing cost hierarchy to allocate costs to various activities. During the past year, it has incurred:


-Using the manufacturing cost hierarchy, what is the total cost that would be classified as product-level activity costs?

A) $ 460,000
B) $1,250,000
C) $1,825,000
D) $ 725,000

Question 79

Rock Bottom's Brew is a successful brewery engaged in the development and production of specialty micro brews. It uses manufacturing cost hierarchy to allocate costs to various activities. During the past year, it has incurred:


-Using the manufacturing cost hierarchy, what is the total cost that would be classified as facility-level activity costs?

A) $ 500,000
B) $1,750,000
C) $ 875,000
D) $2,000,000

Question 80

Number of employees is most appropriate as a cost driver for which of the following types of activity costs?

A) Machining
B) Purchasing
C) Assembly
D) Payroll