Deck 8: Determining How Costs Behave

Question 1

A mixed cost is also called a semivariable cost because it has both fixed and variable elements.

Answer 1

True

Question 2

In the cost function y = $10,000,the fixed cost of $10,000 is called a/an ________.

A)mixed
B)constant
C)variable
D)estimation
E)prediction

Answer 2

B

Question 3

The accounting manager at the Globe Factory reported telephone charges of $2,500 per month plus $1.50 per minute.Write a linear cost function equation to represent the cost.

Answer 3

y = $2,500 + $1.50X

Question 4

The vertical axis is called the ________.

A)a-axis
B)b-axis
C)x-axis
D)y-axis
E)z-axis

Question 5

A/an ________ is a function that measures the decline in cost per unit in various business functions of the value chain as the amount of activities increase.

A)learning curve
B)experience curve
C)variable-cost function
D)step cost function
E)nonlinear cost function

Question 6

The Viola Shoppe has 25 employees that work full time.Twenty of the employees are salaried employees paid $5,000 per month.How does the manager at the Viola Shoppe classify the total costs?

A)Fixed.
B)Mixed.
C)Variable.
D)Estimation.
E)Cost function.

Question 7

The cost function y = $10,000:

A)represents a mixed cost.
B)represents a fixed cost.
C)represents a variable cost.
D)is a constant that does not account for costs.
E)is a variance that has changes in activities.

Question 8

In a/an ________,the graph of total costs is not a straight line within the relevant range.

A)cost object
B)learning curve
C)experience curve
D)step cost function
E)nonlinear cost function

Question 9

In a step variable-cost function,the cost remains the same over various ranges of the level of activity in each relevant range.

Question 10

A/an ________ is a function that measures how labor-hours per unit decline as units of production increase because workers are learning and becoming better at their jobs.

A)learning curve
B)experience curve
C)variable-cost function
D)step cost function
E)nonlinear cost function

Question 11

The cost function y = $3,000 + $2X:

A)represents a fixed cost.
B)represents a mixed cost.
C)represents a variable cost.
D)has a constant of $3002X.
E)has a constant of intercept 2X.

Question 12

The Parker Cellular Company is charged a total cost that changes in proportion to the number of minutes used.The number of minutes used is the only factor that causes a change in total cost.How would the managerial accountant classify total costs of phone charges?

A)Fixed.
B)Mixed.
C)Variable.
D)Fixed cost in the relevant range.
E)Mixed cost in the relevant range.

Question 13

The horizontal axis is called the ________.

A)a-axis
B)b-axis
C)x-axis
D)y-axis
E)z-axis

Question 14

A mathematical description of how a cost changes with changes in the level of an activity relating to that cost is a ________.

A)cost function
B)mixed cost
C)semivariable cost
D)nonlinear cost function
E)step cost function

Question 15

Cost behavior is not approximated by a linear cost function within the relevant range.

Question 16

The accounting manager at the Peanut Factory reported direct manufacturing labor cost of $14 per hour.Write a linear cost function equation to represent the cost.Use y for estimated costs and X to represent the activity of the cost driver.

Question 17

Direct material costs are not always linear variable costs as a result of quantity discounts on direct material purchases.

Question 18

A/an ________ is the component of total cost that does not vary with changes in levels of activity.

A)constant
B)intercept
C)mixed cost
D)variable cost
E)cost estimation

Question 19

Variations in the level of a single activity explain variations in the related ________.

A)total costs
B)mixed costs
C)linear costs
D)nonlinear costs
E)regression analysis

Question 20

Step-cost functions are examples of nonlinear cost functions.

Question 21

Which of the following estimation methods estimates cost functions by analyzing the relationship between inputs and outputs in physical terms?

A)Industrial Engineering Method.
B)Conference Method.
C)Account Analysis Method.
D)Quantitative Analysis Method.
E)Mixed Approach Method.

Question 22

In which step of the decision process does a manager gather potential information about the cost driver?

A)Step 1: Identify the Problem and Uncertainties.
B)Step 2: Obtain Information.
C)Step 3: Make Predictions about the Future.
D)Step 4: Make Decisions by Choosing among the Alternatives.
E)Step 5: Implement the Decision,Evaluate Performance,and Learn.

Question 23

Only a cause-and-effect relationship,not merely correlation,establishes an economically plausible relationship between the level of an activity and its costs.

Question 24

What does a managerial accountant do when he or she can't classify costs into a fixed or variable cost?

Question 25

What is the impact of price breaks on direct material costs?

Question 26

Managers use cost estimation to measure a relationship based on data from past costs.

Question 27

Which of the following estimation methods is used by managers to estimate cost functions on the basis of opinions about costs and their drivers of a company gathered from various departments?

A)Industrial Engineering Method.
B)Conference Method.
C)Account Analysis Method.
D)Quantitative Analysis Method.
E)Work-Measurement Method.

Question 28

Which of the following is not a representation of a cause-and-effect relationship?

A)A physical relationship between the level of activity and costs.
B)Units of production are used as the activity that affects direct material costs.
C)A contractual agreement.
D)Knowledge of operations.
E)A contract that fails to specify the number of parts used as the activity measure of ordering costs.

Question 29

Which of the following estimation method is used by managers to estimate cost functions when they classify various cost accounts as variable,fixed,or mixed in regard to the identified level of activity?

A)Industrial Engineering Method.
B)Conference Method.
C)Account Analysis Method.
D)Quantitative Analysis Method.
E)Work-Measurement Method.

Question 30

Variable and fixed cost behavior patterns are not valid for linear cost functions within a given relevant range.

Question 31

Better cost predictions do not help managers make informed planning and control decisions,such as preparing next year's customer-service budget.

Question 32

Why are learning curves important to managers?

Question 33

In which step of the decision process would managers use the regression analysis estimate of indirect manufacturing costs of alternative products,and choose to introduce the most profitable styles?

A)Step 1: Identify the Problem and Uncertainties.
B)Step 2: Obtain Information.
C)Step 3: Make Predictions about the Future.
D)Step 4: Make Decisions by Choosing among the Alternatives.
E)Step 5: Implement the Decision,Evaluate Performance,and Learn.

Question 34

In which step of the decision process do managers use past data to estimate the relationship of cost drivers compared to costs?

A)Step 1: Identify the Problem and Uncertainties.
B)Step 2: Obtain Information.
C)Step 3: Make Predictions about the Future.
D)Step 4: Make Decisions by Choosing among the Alternatives.
E)Step 5: Implement the Decision,Evaluate Performance,and Learn.

Question 35

In which step of the decision process are managers fairly confident about the direct material and direct manufacturing labor costs associated with a product or service?

A)Step 1: Identify the Problem and Uncertainties.
B)Step 2: Obtain Information.
C)Step 3: Make Predictions about the Future.
D)Step 4: Make Decisions by Choosing among the Alternatives.
E)Step 5: Implement the Decision,Evaluate Performance,and Learn.

Question 36

In which step of the decision process do managers compare predicted costs to determine the accuracy of predictions?

A)Step 1: Identify the Problem and Uncertainties.
B)Step 2: Obtain Information.
C)Step 3: Make Predictions about the Future.
D)Step 4: Make Decisions by Choosing among the Alternatives.
E)Step 5: Implement the Decision,Evaluate Performance,and Learn.

Question 37

The longer the time horizon,all other things being equal,the more likely that the cost will be variable.

Question 38

Managers must be careful not to interpret a high correlation,or connection,in the relationship between two variables to mean that either variable causes the other.

Question 39

Why do managers identify cost drivers on a long-time horizon?

Question 40

Costs in a step cost function increase by discrete amounts as the level of activity increases from one range to the next.

Question 41

Many organizations use the industrial engineering method to estimate direct manufacturing costs but find it too costly or impractical for analyzing their entire cost structure.

Question 42

The manager at the Center of Research encourages interdepartmental coordination among the staff,and the pooling of expert knowledge from different business functions.The manager is concerned because the costing method implemented at the company is based on opinions rather than systematic estimation.This creates issues because the accuracy of the cost estimates is based on the skill of the employees that provide inputs.What cost estimation is implemented at the Center of Research?

A)Industrial Engineering Method.
B)Conference Method.
C)Account Analysis Method.
D)Quantitative Analysis Method.
E)Work Measurement Method.

Question 43

In which step of estimating a cost function using quantitative analysis do managers realize the relationship between the driver and costs is approximately linear,or there was an error in recording the data?

A)Step 1: Choose the Dependent Variable.
B)Step 2: Identify the Independent Variable,or Cost Driver.
C)Step 3: Collect Data of the Dependent Variable and the Cost Driver.
D)Step 4: Plot the Data.
E)Step 5: Estimate the Cost Driver of the Estimated Cost Function.

Question 44

The manager at Mymic,LLC,a government contracting firm,uses a cost-estimation method to estimate direct manufacturing costs.The manager complained to the managerial accountant because the relationship between inputs and outputs are difficult to specify for the items related to indirect manufacturing costs and R&D costs.Which cost estimation method do they use at the company?

A)Industrial Engineering Method.
B)Conference Method.
C)Account Analysis Method.
D)Quantitative Analysis Method.
E)High-Low Method.

Question 45

Which of the following cost-estimation methods uses a formal mathematical method to fit cost functions to past data and observations?

A)Industrial Engineering Method.
B)Conference Method.
C)Account Analysis Method.
D)Quantitative Analysis Method.
E)Work-Measurement Method.

Question 46

In which step of estimating a cost function using quantitative analysis would a manager estimate a cost function with the high-low method,or regression analysis?

A)Step 1: Choose the Dependent Variable
B)Step 2: Identify the Independent Variable,or Cost Driver.
C)Step 3: Collect Data of the Dependent Variable of the Cost Driver.
D)Step 4: Plot the Data.
E)Step 5: Estimate the Cost Driver of the Estimated Cost Function.

Question 47

The Clean Manufacturing Company reported the following information in November:

Indirect manufacturing labor hours = $3,750 + ($15 per machine hour × 925 machine hours).
Required:
Use the account analysis method and choose the linear cost equation to represent this data.

A)x = a × bX
B)y = b × aX
C)x = b + aX
D)y = a + bX
E)z = a - bX

Question 48

The managerial accountant at the Candle Shoppe uses the high-low method to estimate its cost function.The managerial accountant reported the following information in 2012:

Required:
Compute the slope coefficient per machine-hour.

A)$100
B)$200
C)$300
D)$400
E)$500

Question 49

The Photography Shoppe uses the high-low method and reported the following information to estimate the cost function.The managerial accountant provided the following information in 2012:

Required:
Compute the slope coefficient per machine-hour.

A)$10
B)$20
C)$30
D)$40
E)$50

Question 50

Excel is a useful tool for performing quantitative analysis.

Question 51

The quantitative analysis method is the most rigorous approach to estimate costs.

Question 52

In which step of estimating a cost function using quantitative analysis would a manager determine the dependent variable to use in a cost relationship?

A)Step 1: Choose the Dependent Variable.
B)Step 2: Identify the Independent Variable,or Cost Driver.
C)Step 3: Collect Data on the Dependent Variable and the Cost Driver.
D)Step 4: Plot the Data.
E)Step 5: Estimate the Cost Driver of the Estimated Cost Function.

Question 53

The managerial accountant at Hampson Company reported the following information:

Required:
Use the high-low method to compute the difference of the Cost Driver: Machine Hours,the Difference of the Indirect Manufacturing Labor,and the slope coefficient b for each machine hour.

A)55;$855;$13.68
B)65;$905;$13.92
C)75;$910;$14.85
D)85;$925;$15.65
E)95;$950;$16.22

Question 54

The ________ uses only the highest and lowest observed values of the cost driver within the relevant range and their respective costs to estimate the slope coefficient and the constant of the cost function.

A)cost function
B)relevant range
C)high-low method
D)dependent variable
E)independent variable

Question 55

The managerial accountant at Hampson Company reported the following information:

Use the high-low method to and use the highest observation of the cost driver to compute the constant a,using a slope coefficient of $13.92 per machine hour.
A = y - BX
At the highest observation of the cost driver,the constant,a,is:

A)$75.60
B)$76.80
C)$75.62
D)$79.60
E)$81.24

Question 56

Which of the following is the statistical method used by managers to measure the average amount of change in the dependent variable associated with a unit change in one or more independent variables?

A)Cost function.
B)Relevant range.
C)Account analysis.
D)High-low method.
E)Regression analysis.

Question 57

Which step of estimating a cost function using quantitative analysis is the most difficult step for a manager to implement in cost analysis?

A)Step 1: Choose the Dependent Variable.
B)Step 2: Identify the Independent Variable,or Cost Driver.
C)Step 3: Collect Data of the Dependent Variable and the Cost Driver.
D)Step 4: Plot the Data.
E)Step 5: Estimate the Cost Driver of the Estimated Cost Function.

Question 58

In which step of estimating a cost function using quantitative analysis would a manager realize all items of costs in the dependent variable have different cost drivers?

A)Step 1: Choose the Dependent Variable.
B)Step 2: Identify the Independent Variable,or Cost Driver.
C)Step 3: Collect Data of the Dependent Variable and the Cost Driver.
D)Step 4: Plot the Data.
E)Step 5: Estimate the Cost Drive of the Estimated Cost Function.

Question 59

The pooling of expert knowledge from different business functions of the value chain gives the conference method credibility.

Question 60

Supplementing the account analysis method with the conference method reduces credibility.

Question 61

When all items of costs in the dependent variable do not have the same cost driver,the management accountant should consider creating homogeneous cost pools.

Question 62

Which of the following analyses estimates the relationship between the dependent variable and two or more independent variables?

A)Function.
B)Relevant range.
C)High-low method.
D)Simple regression.
E)Multiple regression.

Question 63

What is goodness-of-fit?

Question 64

The cost function y = 40 + 7X has a slope coefficient of 7.

Question 65

In the fuel service retail industry,two economically plausible cost drivers are gasoline and convenience store sales.

Question 66

What is r²,the coefficient of determination?

Question 67

The methods that use subjective assessments to choose a cost driver and to estimate the fixed and variable components of the cost function are:

A)conference and quantitative.
B)conference and regressions.
C)conference and simple regression.
D)conference and account analysis.
E)conference and industrial engineering.

Question 68

What forms of quantitative analysis do managers implement to estimate the cost function?

Question 69

Which of the following is the analysis that estimates the relationship between the dependent variable and one independent variable?

A)Cost function.
B)Relevant range.
C)High-low method.
D)Simple regression.
E)Multiple regression.

Question 70

The independent variable is the factor used to predict the dependent variable.

Question 71

There is a better fit between actual cost observations and estimated costs when the ________ is small.

A)residual term
B)fixed costs
C)machine hours
D)regression analysis
E)activity-based costing

Question 72

Why do managers plot data on graphs?

Question 73

A flat,or slightly sloped,regression line indicates:

A)a strong relationship between the cost driver and costs.
B)a weak relationship between the cost driver and costs.
C)an economically plausible relationship exists.
D)management should increase costs.
E)there is no relationship between the cost driver and costs.

Question 74

What is the ideal time-series database?

Question 75

The regression analysis approach illustrates how to evaluate different ________.

A)cost drivers
B)decision trees
C)high-low methods
D)detection systems
E)homogeneous relationships

Question 76

Why are a stable economy and technology important to managers?

Question 77

The vertical difference that is a measurement of the distance between actual cost and estimate cost for each observation of a cost driver is called the ________.

A)cost function
B)residual term
C)relevant range
D)high-low method
E)simple regression

Question 78

The method that relies on analyzing physical relationships between cost drivers and costs is ________.

A)conference
B)quantitative
C)account analysis
D)regression analysis
E)industrial engineering

Question 79

What is the difference between time-series data and cross-sectional data?

Question 80

The regression equation,y = $744.67 + $7.72X,could represent indirect manufacturing labor costs based on the number of direct manufacturing labor hours.