Deck 3: Measurement of Cost Behaviour

Question 1

Activity analysis is one method of approximating cost functions.

Answer 1

False

Question 2

Cost measurement is the first step in estimating or predicting costs as a function of appropriate cost drivers.

Answer 2

True

Question 3

The rental of a car, which includes a fixed daily rate plus an extra fee for each mile driven, is an example of a step cost.

Answer 3

False

Question 4

Measuring cost behaviour involves understanding and quantifying how activities of an organization affect levels of costs.

Question 5

A cost driver, sometimes referred to as the independent variable, is part of the cost function relationship.

Question 6

The high-low method is a reliable method of cost estimation.

Question 7

Plausibility and reliability are two relevant factors to consider in order to ensure accurate and useful cost functions.

Question 8

The following three data points appear to be

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

Question 9

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

Question 10

Capacity costs are large, indivisible chunks of cost that the organization is obligated to incur or usually would not consider avoiding.

Question 11

Cost behaviour can be graphed with a straight line when a cost changes proportionately with changes in a cost driver.

Question 12

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

Question 13

The following three data points appear to be

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

Question 14

Linear-cost behaviour

A) is linear over the entire range of production.
B) cannot be graphed as a straight line.
C) exists when a cost changes proportionately with changes in a cost driver.
D) can be used to graph a step cost.

Question 15

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

Question 16

When graphing a cost function, the total variable cost is the intercept, which is the point on the vertical axis where the cost function begins.

Question 17

Each cost in a manufacturing operation must be either fixed or variable and must be identified with a single cost driver.

Question 18

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 19

Account analysis is the process of selecting a volume-related cost driver and classifying each account as a variable or fixed cost.

Question 20

An example of a volume-driven cost in a book publishing enterprise is

A) wages of editorial staff.
B) paper and ink.
C) rent on the factory.
D) accounts payable clerk's wages.

Question 21

________ are costs that have no obvious relationship to levels of output activity but are determined as part of the periodic planning process.

A) Capacity costs
B) Committed fixed costs
C) Discretionary fixed costs
D) None of the above

Question 22

Research and development costs are an example of

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

Question 23

An algebraic equation used by managers to describe the relationship between a cost and its cost driver(s) is called a

A) cost behaviour.
B) cost function.
C) budget.
D) cost analysis.

Question 24

The following three data points appear to be

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

Question 25

The first step in estimating or predicting costs is

A) planning.
B) control.
C) cost measurement.
D) mixing costs.

Question 26

A cost function

A) need not have a cause-and-effect relationship.
B) should include only personal observations of costs and activities.
C) does not explain past cost behaviour.
D) should be a reliable predictor of future costs.

Question 27

________ is the first step in estimating or predicting costs as a function of appropriate cost drivers.

A) Cost measurement
B) Cost determination
C) Cost behaviour
D) Cost driver

Question 28

In the mixed-cost function, Y = F + VX, the X stands for

A) total fixed cost.
B) total cost.
C) variable cost per unit of cost driver.
D) number of units of the cost driver.

Question 29

________ are costs arising from the possession of facilities, equipment, and a basic organization.

A) Capacity costs
B) Committed fixed costs
C) Discretionary fixed costs
D) None of the above

Question 30

Which symbol in the mixed-cost function, Y = F + VX, represents the slope?

A) V
B) F
C) X
D) Y

Question 31

The fixed costs required to achieve a desired level of production or to provide a desired level of service, while maintaining product or service attributes such as quality, are referred to as

A) committed costs.
B) mixed costs.
C) capacity costs.
D) engineered costs.

Question 32

________ are the fixed costs of being able to achieve a desired level of production or to provide a desired level of service, while maintaining product or service attributes, such as quality.

A) Capacity costs
B) Committed fixed costs
C) Discretionary fixed costs
D) None of the above

Question 33

Advertising cost is an example of a

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

Question 34

Costs determined by management as part of the periodic planning process in order to meet the organization's goals are

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

Question 35

Strategic decisions about the scale and scope of an organization's activities generally result in fixed levels of

A) capacity costs.
B) discretionary costs.
C) mixed costs.
D) engineered costs.

Question 36

In the mixed-cost function, Y = F + VX, the V stands for

A) total fixed cost.
B) total cost.
C) variable cost per unit of cost driver.
D) number of units of the cost driver.

Question 37

Which symbol in the mixed-cost function, Y = F + VX, indicates the intercept?

A) F
B) V
C) Y
D) X

Question 38

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 39

In the mixed-cost function, Y = F + VX, the F stands for

A) total fixed cost.
B) total cost.
C) variable cost per unit of cost driver.
D) number of units of the cost driver.

Question 40

A property tax is an example of a

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

Question 41

Which method of approximating cost functions does NOT involve the analysis of past costs?

A) High-low analysis
B) Visual-fit analysis
C) Engineering analysis
D) Simple least-squares regression

Question 42

Which of the following methods of measuring cost functions is the most subjective?

A) High-low.
B) Visual-fit.
C) Least-squares regression.
D) Engineering.

Question 43

________ is a method in which the cost analyst draws a straight line through a plot of all the available data.

A) Engineering analysis
B) Account analysis
C) The visual-fit method
D) The least-squares regression method

Question 44

The process of identifying appropriate cost drivers and their effects on the costs of making a product or providing a service is called

A) cost prediction.
B) cost measurement.
C) activity analysis.
D) budgeting.

Question 45

The application of cost measures to expected future activity levels to forecast future costs is

A) activity analysis.
B) cost prediction.
C) budgeting.
D) cost measurement.

Question 46

________ selects a volume-related cost driver and classifies each account as a variable or fixed cost.

A) Engineering analysis
B) Account analysis
C) The high-low method
D) The least-squares regression method

Question 47

Engineering cost analysis

A) measures cost behaviour according to what cost should be.
B) measures cost behaviour according to what costs have been.
C) involves very little cost to perform.
D) is accurate and timely.

Question 48

________ is a simple method for measuring a linear cost function from past cost data, focusing on two representative points.

A) Engineering analysis
B) Account analysis
C) The high-low method
D) The least-squares regression method

Question 49

________ measures a cost function objectively (with statistics rather than human eyesight) using all the data available.

A) Engineering analysis
B) Account analysis
C) The visual-fit method
D) The least-squares regression method

Question 50

Presented below is the production data for the last six months of the year for the mixed costs incurred by Vignovich Company.
Vignovich Company uses the high-low method to analyze mixed costs.
The total cost at an operating level of 10,000 units would be

A) $31,136.
B) $30,200.
C) $21,416.
D) $42,550.

Question 51

________ measures cost behaviour according to what costs should be, NOT by what costs have been.

A) Engineering analysis
B) Account analysis
C) The high-low method
D) The least-squares regression method

Question 52

The Vern Corporation has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Vern Corporation has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.

The variable cost per unit is

A) $0.38.
B) $0.46.
C) $2.60.
D) $2.16.

Question 53

Presented below is the production data for the last six months of the year for the mixed costs incurred by Vignovich Company.
Vignovich Company uses the high-low method to analyze mixed costs.
The variable cost per unit is

A) $3.06.
B) $2.80.
C) $0.36.
D) $0.33.

Question 54

Presented below is the production data for the last six months of the year for the mixed costs incurred by Vignovich Company.
Vignovich Company uses the high-low method to analyze mixed costs.
The total fixed cost is

A) $39,250.
B) $17,816.
C) $2,200.
D) $536.

Question 55

The process of completing a final product or service

A) can have only one cost driver.
B) may involve a number of separate activities.
C) can have only one cause-and-effect relationship.
D) can have multiple cost drivers, but they must be of equal importance.

Question 56

The Vern Corporation has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Vern Corporation has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.

The total fixed cost is

A) $13,386.
B) $10,680.
C) $5,056.
D) $1,800.

Question 57

One of the simplest methods to measure a linear cost function from past data is the

A) account method.
B) high-low method.
C) least-squares regression method.
D) mixed cost method.

Question 58

Presented below is the production data for the last six months of the year for the mixed costs incurred by Vignovich Company.
Vignovich Company uses the high-low method to analyze mixed costs.
The cost function would be stated as

A) Y = $ 2,200 + $2.80X.
B) Y = $17,816 + $0.36X.
C) Y = $ 536 + $3.06X.
D) Y = $39,250 + $0.33X.

Question 59

Account analysis

A) is subjective, requiring judgment by the analyst.
B) is more expensive than engineering analysis.
C) cannot be used for mixed costs.
D) does not require recording relevant cost accounts and cost drivers.

Question 60

Which of the following is NOT a method of approximating cost functions?

A) Engineering analysis
B) Account analysis
C) Product analysis
D) High-low analysis

Question 61

The Schmidt Company used regression analysis to predict the annual cost of indirect materials. The results were as follows:
The total fixed cost is

A) 912.
B) $4,378.
C) $918.
D) $4,020.

Question 62

The Stewart Company used regression analysis to predict the annual cost of utilities. The results were as follows:
The coefficient of determination is

A) 0.458329.
B) 22.
C) 7.16.
D) 0.9436.

Question 63

Use the following information to answer the next question(s).
The method of least squares produced the following computer printout using direct labour hours as the activity.

The estimate of the variable component for maintenance costs is

A) $37.80.
B) $42.00.
C) $46.67.
D) $47.00.

Question 64

Use the following information to answer the next question(s).
The following information was collected regarding maintenance costs at different activity levels measured in machine hours:

Using the high-low method, an estimate of the variable component for maintenance costs is

A) $50.00.
B) $52.50.
C) $64.28.
D) $75.00.

Question 65

The Schmidt Company used regression analysis to predict the annual cost of indirect materials. The results were as follows:
The independent variable (activity) selected should have a high degree of correlation with the dependent variable (cost) as indicated by a coefficient of determination that is:

A) close to -1
B) close to +1
C) equal to 0
D) none of the above

Question 66

The Stewart Company used regression analysis to predict the annual cost of utilities. The results were as follows:
The total fixed cost is

A) $16,650.
B) $15,711.
C) $ 6,652.
D) $ 3,726.

Question 67

The Vern Corporation has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Vern Corporation has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.

The cost function would be stated as

A) Y = $13,386 + $0.46X.
B) Y = $10,680 + $0.38X.
C) Y = $ 5,056 + $2.16X.
D) Y = $ 1,800 + $2.60X.

Question 68

The Schmidt Company used regression analysis to predict the annual cost of indirect materials. The results were as follows:
The variable cost per unit of product is:

A) $1.03.
B) $0.92.
C) $2.35.
D) $0.44.

Question 69

Use the following information to answer the next question(s).
The following information was collected regarding maintenance costs at different activity levels measured in machine hours:

Using the high-low method, an estimate of the fixed portion of maintenance costs is

A) $165,000.
B) $200,000.
C) $224,000.
D) $300,000.

Question 70

The Stewart Company used regression analysis to predict the annual cost of utilities. The results were as follows:
The linear cost function is

A) Y = $16,650 + $7.16X.
B) Y = $15,711 + $1.86X.
C) Y = $ 3,726 + $0.96X.
D) Y = $ 6,562 + $0.46X.

Question 71

Activity that can be graphed with a straight line when a cost changes proportionately with changes in a cost driver.

Question 72

Use the following information to answer the next question(s).
The following information was collected regarding maintenance costs at different activity levels measured in machine hours:

Using the cost formula developed under the high-low method, what would be the estimate of maintenance costs if 13,000 machine hours are scheduled for next month

A) $650,000.
B) $950,000.
C) $850,000.
D) $882,000.

Question 73

The Schmidt Company used regression analysis to predict the annual cost of indirect materials. The results were as follows:
The linear cost function is

A) Y = $4,378 + $2.35X.
B) Y = $ 912 + $1.03X.
C) Y = $4,020 + $0.92X.
D) Y = $ 918 + $0.44X.

Question 74

The Schmidt Company used regression analysis to predict the annual cost of indirect materials. The results were as follows:
The coefficient of determination is

A) 0.437525.
B) 12.
C) 2.35.
D) 0.9183.

Question 75

The coefficient of determination indicates

A) the percentage of change in the dependent variable explained by changes in the independent variable.
B) the percentage of change in the dependent variable caused by changes in the independent variable.
C) the percentage of change in the independent variable explained by changes in the dependent variable.
D) the percentage of change in the independent variable caused by changes in the dependent variable.

Question 76

The Stewart Company used regression analysis to predict the annual cost of utilities. The results were as follows:
The variable cost per machine hour is

A) $1.86.
B) $0.96.
C) $7.16.
D) $0.46.

Question 77

Understanding and quantifying how activities of an organization affect levels of costs.

Question 78

Use the following information to answer the next question(s).
The method of least squares produced the following computer printout using direct labour hours as the activity.

The coefficient of determination costs is

A) 0.73.
B) 0.81.
C) 0.90.
D) 1.00.

Question 79

Use the following information to answer the next question(s).
The method of least squares produced the following computer printout using direct labour hours as the activity.

If 5,000 machine hours are scheduled, an estimate of maintenance costs is

A) $253,318.
B) $230,726.
C) $230,360.
D) $230,318.

Question 80

Use the following information to answer the next question(s).
The method of least squares produced the following computer printout using direct labour hours as the activity.

The estimate of the fixed component for maintenance costs is

A) $18,286.
B) $20,276.
C) $20,318.
D) $20,360.