Deck 10: Analysis of Cost Behaviour

Question 1

Compute the estimated costs for each of the following equations assuming the following costs for July:

In addition,state whether each is for a variable,fixed,or mixed cost.
a.Total estimated costs = intercept
b.Total estimated costs = constant
c.Total estimated costs = constant + (slope × cost driver)
d.Total estimated costs = slope coefficient × cost driver
In addition,state whether each is for a variable,fixed,or mixed cost.

Answer 1

a.fixed,$80,000
b.fixed,$80,000
c.mixed,$80,000 + ($6 × 2,000)= $92,000
d.variable,$6 × 2,000 = $12,000

Question 2

A mixed cost has a fixed element.

Answer 2

True

Question 3

Correctly identifying the cost driver and separating fixed from variable costs are important inputs for many management decisions.

Answer 3

True

Question 4

Write a linear cost function equation for each of the following conditions.Use y for estimated costs and X for activity of the cost driver.
a.Direct manufacturing labour is $20 per hour.
b.Direct materials cost $8.00 per cubic metre.
c.Utilities have a minimum charge of $2,000 plus a charge of $0.05 per kilowatt hour.
d.Factory supplies average $10 per day plus $1.00 for each machine-hour per day.
e.Total manufacturing amortization includes $5,000 for straight-line plant amortization plus machinery amortization of $100 for each day operated.

Question 5

The cost components of a heater include $35 for the compressor,$12 for the sheet molded compound frame,and $80 per unit for assembly.The factory machines and tools fixed cost is $55,000.The company expects to produce 1,500 heaters in the coming year.What cost function best represents these costs?

A)y = 1,500 + 127X
B)y = 1,500 + 55,000X
C)y = 55,000 + 1,500X
D)y = 55,000 + 127X
E)y = 55,080 + 47X

Question 6

Compute the estimated costs for each of the following equations,assuming the following costs for July:

In addition,state whether each is for a variable,fixed,or mixed cost.
a.Total estimated costs = intercept
b.Total estimated costs = constant
c.Total estimated costs = constant + (slope × cost driver)
d.Total estimated costs = slope coefficient × cost driver

Question 7

Write a linear cost function equation for each of the following conditions.Use y for estimated costs and X for activity of the cost driver.
a.Direct materials cost is $1.50 per kilogram.
b.Direct labor cost is $33.50 per hour.
c.Auto rental has a fixed fee of $150.00 per day plus $1.00 per kilometre driven.
d.Machine operating costs include $700 of maintenance per month,and $10.00 of coolant usage costs for each day the machinery is in operation.

Question 8

When estimating a cost function,cost behavior can be approximated by a linear cost function within the relevant range.

Question 9

For April,the month just ended,the cost components to make tapes were $2 per tape plus fixed costs of $10,000.One thousand tapes were produced.For May the cost to make tapes will be $2.20 per tape plus fixed costs of $10,000.Fifteen hundred tapes are expected to be produced.What are the estimates for the intercept and slope coefficient for May,respectively?

A)$2.00 and $10,000.00
B)$2.20 and $10,000.00
C)$10,000.00 and $2.00
D)$10,000.00 and $2.20
E)$22,000 and $10,000

Question 10

Describe the two assumptions upon which managers often estimate cost functions.

Question 11

When estimating linear cost functions,it is assumed that variations in total cost of a cost object cannot be explained by variations in a single cost driver.

Question 12

Write a linear cost function equation for each of the following conditions.Use y for estimated costs and X for activity of the cost driver.
a.Direct manufacturing labour is $10 per hour.
b.Direct materials cost $9.20 per cubic yard.
c.Utilities have a minimum charge of $1,000,plus a charge of $0.05 per kilowatt-hour.
d.Machine operating costs include $200,000 of machine depreciation per year,plus $75 of utility costs for each day the machinery is in operation.

Question 13

Which of the following statements related to assumptions about estimating linear cost functions is TRUE?

A)Variations in a single cost driver explain variations in total costs.
B)A cost object is anything for which a separate measurement of costs is desired.
C)A linear function approximates cost behaviour at all ranges of production.
D)Correlation refers to the relationship between fixed and variable costs.
E)The graph of total costs does not form a straight line within the relevant range because of variable costs.

Question 14

For February,the cost components of a picture frame include $0.25 for the glass,$.65 for the wooden frame,and $0.80 for assembly.The assembly desk and tools cost $400.1,000 frames are expected to be produced in the coming year.What cost function best represents these costs?

A)y = 1.70 + 400X
B)y = 400 + 1.70X
C)y = 2.10 + 1,000X
D)y = .90 + 400X
E)y = 400 + 0.90X

Question 15

Which of the following describes the intercept in a linear cost function?

A)the component of fixed costs that,within the relevant range,does not vary with changes in the level of the cost driver
B)the component of fixed costs that,within the relevant range,does vary with changes in the level of the cost driver
C)the component of variable costs that,within the relevant range,does not vary with changes in the level of the cost driver
D)the component of variable costs that,within the relevant range,does vary with changes in the level of the cost driver
E)the sum of the components of both fixed and variable costs that,within the relevant range,do not vary with changes in the level of the cost driver

Question 16

The cost function y = 1,000 + 5X

A)has a slope coefficient of 1,000.
B)is curvilinear because of the 5X.
C)is a straight line.
D)represents a fixed cost.
E)is missing the slope coefficient.

Question 17

Which of the following is an equation of a variable cost function?

A)Y = ax + bx
B)Y = a + bx
C)Y = b
D)Y = a
E)Y = bx

Question 18

Brandt Cheque Encoders employs 30 individuals.Ten employees are paid $10 per hour for 173 hours a month and the rest are salaried employees paid $6,000 a month.How would total costs of personnel be classified?

A)variable and fixed
B)a fixed cost within a relevant range
C)a variable cost within a relevant range
D)a mixed cost
E)a fixed cost

Question 19

A linear cost function is a function in which the graph of total costs versus a single cost driver forms a straight line,within the relevant range.

Question 20

Write a linear cost function equation for each of the following conditions.Use y for estimated costs and X for activity of the cost driver.
a.Direct materials cost is $.75 per kilogram.
b.Direct labour cost is $16.75 per hour.
c.Auto rental has a fixed fee of $75.00 per day plus $.50 per kilometre driven.
d.Machine operating costs include $350 of maintenance per month,and $5.00 of coolant usage costs for each day the machinery is in operation.

Question 21

A cause-and-effect relationship,relative to cost drivers and resulting costs,may develop because of physical relationships,contractual relationships,or implicit relationships.

Question 22

All of the following are approaches to cost estimation EXCEPT

A)the account analysis method.
B)the conference method.
C)the flexible cost analysis method.
D)the industrial engineering method.
E)quantitative analysis.

Question 23

Answer the following question(s)using the information below.
Penny's TV and Appliance Store is a small company that has the following information pertaining to current year operations.

What are the estimated total costs if Penny's expects to sell 3,000 units next year?

A)$896,000
B)$678,000
C)$1,259,000
D)$269,000
E)$542,000

Question 24

Use the information below to answer the following question(s).
Raymaster is a small computer software company which uses the account analysis method and has hired you to perform some management advisory services.The company sold 2,500 high quality payroll programs last year.

What is the variable cost per unit sold?

A)$180,000
B)$320
C)$312
D)$240
E)$72

Question 25

Answer the following question(s)using the information below.
Penny's TV and Appliance Store is a small company that has the following information pertaining to current year operations.

What were total fixed costs at Penny's TV for the current year?

A)$242,000
B)$436,000
C)$678,000
D)$227,000
E)$278,000

Question 26

Answer the following question(s)using the information below.
Penny's TV and Appliance Store is a small company that has the following information pertaining to current year operations.

Which cost estimation method is being used by Penny's TV and Appliance Store?

A)the industrial engineering method
B)the conference method
C)the high-low method
D)the quantitative analysis method
E)the account analysis method

Question 27

Which cost estimation method would be described as a formal method to fit linear cost functions to past data observations?

A)the account analysis method
B)the conference method
C)the industrial-engineering method
D)the quantitative analysis method
E)the departmental analysis method

Question 28

The account analysis method estimates cost functions by classifying various cost accounts as variable,fixed,or mixed with respect to the identified level of activity.

Question 29

Which cost estimation method typically uses qualitative analysis rather than quantitative analysis?

A)the account analysis method
B)the conference method
C)the industrial-engineering method
D)the quantitative analysis method
E)the departmental analysis method

Question 30

Use the information below to answer the following question(s).
Raymaster is a small computer software company which uses the account analysis method and has hired you to perform some management advisory services.The company sold 2,500 high quality payroll programs last year.

What is the total cost per unit sold?

A)$240.00
B)$288.00
C)$358.40
D)$362.40
E)$462.40

Question 31

The selection of the best measure of benefit will depend upon the corresponding change in the cost pool.

Question 32

Which of the following does NOT represent a cause-and-effect relationship?

A)Material costs increase as the number of units produced increases.
B)A company is charged 40 cents for each brochure printed and mailed.
C)Utility costs increase at the same time that insurance costs increase.
D)It makes sense that if a complex product has a large number of parts it will take longer to assemble than a simple product with fewer parts.
E)The amount of direct labour used.

Question 33

Which of the following statements about the cost estimation methods is FALSE?

A)With the conference method,the accuracy of the cost estimates largely depends on the accuracy and details of the inputs.
B)The methods require more historical data than most quantitative analysis.
C)The methods are not mutually exclusive.
D)There are four methods generally used for cost estimation.
E)Many organizations use a combination of the approaches.

Question 34

Which of the following statements regarding a linear cost function is TRUE?

A)When there are only fixed costs,total material costs increase as the number of units produced increases.
B)The slope coefficient of a mixed cost line intersects the vertical axis at zero.
C)The relationship between the cost driver and the fixed cost is represented by the cost-benefit relationship.
D)It is easier to identify a single measure of benefit in a more heterogeneous cost pool.
E)A linear cost function for manufacturing overhead can be graphed when their is a cause-and-effect relationship between the level of activity and the costs related to that level of activity.

Question 35

There is a homogeneous relationship between the individual cost items in the dependent variable pool and the cost driver when each activity whose costs are included in the dependent variable has the same cost driver.

Question 36

Understanding the drivers of costs is crucially important for managing costs.Provide two causes that create a cause-and-effect relationship between a cost driver and a cost.

Question 37

Answer the following question(s)using the information below.
Penny's TV and Appliance Store is a small company that has the following information pertaining to current year operations.

What was the Penny's TV variable cost per unit sold?

A)$18
B)$235
C)$339
D)$200
E)$218

Question 38

The collection of information on costs and their drivers,gathered through observations and interviews,from departments within an organization is known as the

A)account analysis method.
B)conference method.
C)industrial-engineering method.
D)quantitative analysis method.
E)departmental analysis method.

Question 39

Managers should use past data to create a cost function and then use the exact information provided by that cost function to create the budgetary forecast for the next year.

Question 40

The industrial-engineering method is

A)for analyzing relationships between inputs and outputs in physical terms.
B)for significant costs which cannot be easily traced.
C)used only for governmental contracts which are cost plus based.
D)used with qualitative rather than quantitative information.
E)used with both qualitative and quantitative information.

Question 41

Answer the following question(s)using the information below:
At the Todd Company,the cost of the personnel department has always been charged to the various departments based upon the number of employees.Recently,opinions gathered from the department managers indicated that the number of new hires might also be a predictor of personnel costs to be assigned.Total personnel costs are $320,000.

If the number of new hires is considered the cost driver,what amount of personnel costs will be allocated to Department A?

A)$24,000
B)$10,667
C)$102,400
D)$40,000
E)$50,000

Question 42

Use the information below to answer the following question(s).
The Skip Corporation has assembled the following data pertaining to certain costs which cannot be easily identified as either fixed or variable.Skip 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 + $2.16x.
E)y = $1,800 + $2.60x.

Question 43

Cross-sectional data pertain to the same entity over successive past periods.

Question 44

Use the information below to answer the following question(s).
Presented below is the production data for the last six months of the year for the mixed costs incurred by Wagner Company.

Using the high-low method,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 = $24,450 + $0.33x.
E)y = $39,250 + $0.33x.

Question 45

There is poor goodness of fit if the predicted values do not match actual cost observation.

Question 46

Use the information below to answer the following question(s).
The Skip Corporation has assembled the following data pertaining to certain costs which cannot be easily identified as either fixed or variable.Skip 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 cost at an operating level of 2,850 hours would be

A)$19,210.
B)$11,763.
C)$14,697.
D)$11,212.
E)$9,210.

Question 47

Use the information below to answer the following question(s).
The Monroe Company uses the high-low method to estimate the cost function.The information for the current year is provided below.

What is the constant for the estimating cost equation?

A)$2,080
B)$2,960
C)$3,970
D)$4,000
E)$8,000

Question 48

Answer the following question(s)using the information below:
At the Todd Company,the cost of the personnel department has always been charged to the various departments based upon the number of employees.Recently,opinions gathered from the department managers indicated that the number of new hires might also be a predictor of personnel costs to be assigned.Total personnel costs are $320,000.

If the number of employees is considered the cost driver,what amount of personnel costs will be allocated to Department A?

A)$24,000
B)$10,667
C)$102,400
D)$40,000
E)$50,000

Question 49

Use the information below to answer the following question(s).
Presented below is the production data for the last six months of the year for the mixed costs incurred by Wagner Company.

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.
E)$46,625.

Question 50

For cost estimation purposes data must be collected using both time-series data and cross-sectional data.

Question 51

Time-series data analysis includes

A)using a variety of time periods to measure the independent variable.
B)using the highest and lowest observation.
C)observing different entities during the same time period.
D)comparing information in different cost pools.
E)analyzing cost drivers at different levels of production.

Question 52

The advantage of the high-low method when compared to regression analysis is that it considers multiple data points.

Question 53

Munir Hassan,controller,gathered data on overhead costs and direct labour-hours over the past 12 months.List and discuss the different approaches Munir can use to estimate a cost function for overhead costs using direct labour-hours as the cost driver.

Question 54

Miller's Good Value Appliance Store is a small company that has hired you to perform some management advisory services.The following information pertains to 2016 operations.

Required:
Determine the operating costs using the account analysis method if Miller's expects to sell 6,500 units next year.

Question 55

Use the information below to answer the following question(s).
Raymaster is a small computer software company which uses the account analysis method and has hired you to perform some management advisory services.The company sold 2,500 high quality payroll programs last year.

What is the predicted indirect manufacturing labour cost if 160 machine-hours are budgeted and 170 are actually worked,assuming the estimated cost function is y = $81.04 + 5.32x?

A)$985.44
B)$932.24
C)$904.40
D)$851.20
E)$81.04

Question 56

At the Christopher Company,the cost of the library and information centre has always been charged to the various departments based upon the number of employees.Recently,opinions gathered from the department managers indicated that the number of engineers might also be a predictor of personnel costs to be assigned.Total library and information costs are $150,000.

Required:
Using the above data,prepare a report that contrasts the different amounts of the library and information centre cost that would be allocated to each of the departments if the cost driver used is:
a.number of employees.
b.the number of engineers.
c.Which cost estimation method is being used by Christopher Company?

Question 57

The cost of the personnel department at the Miller Company has always been charged to the production departments based upon number of employees.Recently,opinions gathered from the department managers indicated that the number of new hires might also be a predictor of personnel costs to be assigned.Total personnel department costs are $120,000.

Required:
Using the above data,prepare a report that contrasts the different amounts of personnel department cost that would be allocated to each of the production departments if the cost driver used is:
a.number of employees.
b.the number of new hires.
c.Which cost estimation method is being used by Miller Company?

Question 58

Use the information below to answer the following question(s).
The Monroe Company uses the high-low method to estimate the cost function.The information for the current year is provided below.

What is Monroe Company's slope coefficient per machine hour?

A)$26.91
B)$18.00
C)$16.67
D)$10.00
E)$8.00

Question 59

Cross-sectional data analysis includes

A)using a variety of time periods to measure the dependent variable.
B)using the highest and lowest observation.
C)analyzing different cost drivers.
D)comparing information in different cost pools.
E)observing different entities during the same time period.

Question 60

Use the information below to answer the following question(s).
Raymaster is a small computer software company which uses the account analysis method and has hired you to perform some management advisory services.The company sold 2,500 high quality payroll programs last year.

What would be their estimated cost per unit if Raymaster expects to sell 2,000 units next year?

A)$300
B)$312
C)$370
D)$498
E)$500

Question 61

Use the information below to answer the following question(s).
The Barnett Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable.Barnett Company has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.

What is the cost function derived from using the high-low method?

A)y = $43,191 + $0.19x
B)y = $4,875 + $4.28x
C)y = $41,900 + $0.23x
D)y = $2,430 + $4.28x
E)y = -$4,875 + $5.25x

Question 62

Use the information below to answer the following question(s).
The Barnett Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable.Barnett Company has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.

What is the estimated total cost at an operating level of 8,000 hours?

A)$39,115
B)$36,670
C)$44,711
D)$43,470
E)$37,125

Question 63

Answer the following question(s)using the information below.
The Taranto Company uses the high-low method to estimate it's cost function.The information for the current year is provided below:

What is the estimate of the total cost when 1,100 machine-hours are used?

A)$125,000
B)$135,000
C)$150,000
D)$200,000
E)$136,000

Question 64

The Wildcat Company has provided the following information for the factory overhead cost pool:

Required:
Using the high-low method and the information provided above,
a.identify the linear cost function equation and
b.estimate the total cost at 36,000 units of output.

Question 65

Wimmer's Storage ran its freezer in February,a slow month,for 360 hours for a total cost of $57,600.In July,a peak month,the freezer ran for 720 hours for a total cost of $82,080.
Required:
a.Using the high-low method,determine the overhead cost equation for the department if hours of freezer use are used as the cost driver?
b.What is the estimated total cost at an operating level of 500 hours?

Question 66

Use the information below to answer the following question(s).
The Monroe Company uses the high-low method to estimate the cost function.The information for the current year is provided below.

What is the estimate of Monroe's cost function when 200 machine hours are used?

A)$1,840.00
B)$1,997.50
C)$2,280.00
D)$3,333.33
E)$3,680.00

Question 67

Cari's Locker Service ran its freezer in January,a slow month,for 200 hours for a total cost of $60,000.In June,a peak month,the freezer ran for 1,000 hours for a total cost of $92,000.
Required:
Using the high-low method determine the average cost of running the machine one hour in a month were the freezer ran for 800 hours?

Question 68

Birch Canvas and Tarp manufactures canvas products in a highly automated assembly plant in Edmonton,Alberta.Their automated system is in its first year of operation,and management is still unsure of the best way to estimate the overhead costs of operations for budgetary purposes.For the first six months of operations the following data were collected:

Required:
a.Compute a cost estimating equation for each independent variable (machine-hours and kilowatt-hours)using the high-low method.
b.For July the company ran the machines for 1,600 hours and used 2,075,000 kilowatt hours of power.The overhead costs totalled $95,000.Which driver was the best predictor for July?

Question 69

Use the information below to answer the following question(s).
At the high point of the relevant range,labour hours at Bradco Restoration were 10,000 and wages were $22,500.At the low point of the relevant range,labour hours were 7,500 and wages were $17,500.
Using the high-low method determine the slope coefficient per labour hour at Bradco Restoration?

A)$5.25
B)$4.00
C)$2.00
D)$0.50
E)$0.25

Question 70

Use the information below to answer the following question(s).
At the high point of the relevant range,labour hours at Bradco Restoration were 10,000 and wages were $22,500.At the low point of the relevant range,labour hours were 7,500 and wages were $17,500.
When using the high-low method,the two observations used are the high and low observations of the

A)cost driver.
B)dependent variables.
C)outliers.
D)mixed costs.
E)total pool cost.

Question 71

As part of his job as cost analyst,Max Thompson collected the following information concerning the operations of the Machining Department:

Required:
a.Use the high-low method to determine the estimating cost function with machine-hours as the cost driver.
b.If June's estimated machine-hours total 4,200,what are the total estimated costs of the Machining Department?

Question 72

Answer the following question(s)using the information below.
The Taranto Company uses the high-low method to estimate it's cost function.The information for the current year is provided below:

What is the slope coefficient per machine-hour?

A)$125.00
B)$12.50
C)$10.00
D)$100.00
E)$0.50

Question 73

Answer the following question(s)using the information below.
The Taranto Company uses the high-low method to estimate it's cost function.The information for the current year is provided below:

What is the constant for the estimating cost equation?

A)$125,000
B)$225,000
C)$25,000
D)$0
E)$12,500

Question 74

Patrick Ross,the president of Ross's Wild Game Company,has asked for information about the cost behaviour of manufacturing overhead costs.Specifically,he wants to know how much overhead cost is fixed and how much is variable.The following data are the only records available:

Required:
Using the high-low method,determine the overhead cost equation.Use machine-hours as your cost driver.

Question 75

The managers of the production department have decided to use the production levels of 2013 and 2016 as examples of the highest and lowest years of operating levels.During 2013 the department used 280,000 litres of chemicals and during 2016 it used 240,000 litres.The department's costs for 2013 were $460,000,but only $400,000 in 2016.
Required:
Using the high-low method determine the cost estimating equation for the department if litres of direct material are used as the cost driver?

Question 76

A cost analyst collected the following information for the Machining Department:

Required:
a.Determine the estimating cost function with machine-hours as the cost driver using the high-low method.
b.If December's estimated machine-hours total 8,400,what is the estimated cost of the Machining Department?

Question 77

Use the information below to answer the following question(s).
At the high point of the relevant range,labour hours at Bradco Restoration were 10,000 and wages were $22,500.At the low point of the relevant range,labour hours were 7,500 and wages were $17,500.
Using the high-low method determine the constant at Bradco Restoration?

A)$17,500
B)$13,750
C)$2,500
D)$1,250
E)$750

Question 78

Use the information below to answer the following question(s).
At the high point of the relevant range,labour hours at Bradco Restoration were 10,000 and wages were $22,500.At the low point of the relevant range,labour hours were 7,500 and wages were $17,500.
What is the high-low estimate of the labour costs at Bradco Restoration when 8,000 hours are used?

A)$21,500
B)$18,500
C)$17,750
D)$17,250
E)$17,125

Question 79

Use the information below to answer the following question(s).
At the high point of the relevant range,labour hours at Bradco Restoration were 10,000 and wages were $22,500.At the low point of the relevant range,labour hours were 7,500 and wages were $17,500.
When using the high-low method,the denominator in the equation that determines the slope is the

A)dependent variable.
B)independent variable.
C)difference between the high and low observations of the cost driver.
D)difference between the high and low observations of the dependent variables.
E)the intercept.

Question 80

Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in Windsor,Ontario.The automated system is in its first year of operation and management is still unsure of the best way to estimate the overhead costs of operations for budgetary purposes.For the first six months of operations,the following data were collected:

Required:
a.Use the high-low method to determine the estimating cost function with machine-hours as the cost driver.
b.Use the high-low method to determine the estimating cost function with kilowatt-hours as the cost driver.
c.For July,the company ran the machines for 3,150 hours and used 4,180,000 kilowatt-hours of power.The overhead costs totaled $114,000.Which cost driver was the best predictor for July?