Deck 3: Cost Behavior

Question 1

Resources, such as direct materials, direct labor, electricity, equipment, and so on, are economic elements that enable one to perform activities.

Answer 1

True

Question 2

Mixed costs are costs that have both a fixed and a variable component.

Answer 2

True

Question 3

Variable costs are defined as costs that, in total, are constant regardless of change in an activity driver.

Answer 3

False

Question 4

In the method of least squares, each single measure of closeness is first squared. Squaring the deviations avoids problems caused by a mix of positive and negative numbers.

Question 5

The plot of data points showing the relationship between materials handling costs and activity output is called a scattergraph.

Question 6

The high-low method preselects the two points that are used to compute the parameters F and X in the expression Y = F + VX

Question 7

A cost object is the item for which managers want cost information, so the first step is to determine appropriate cost objects.

Question 8

Methods of estimating costs used by companies include the industrial engineering method, the account analysis method, and the instant decision method.

Question 9

The industrial engineering method is used to determine which activities, and in what amounts, are necessary to complete a process.

Question 10

Resources are categorized as flexible, which are supplied as needed, and committed, which are supplied in advance of usage.

Question 11

The percentage of variability in the dependent variable explained by an independent variable (i.e. measure of activity output) is called the coefficient of correlation.

Question 12

Activity-based use of resources can improve both managerial control and decision making because it encourages managers to pay more attention to controlling resource usage and spending.

Question 13

A cost that does not change as output changes is a variable cost, and one that changes is a fixed cost.

Question 14

The account analysis method can be used to estimate costs by classifying accounts in the general ledger as variable.

Question 15

The level of activity performance where the amount of activity capacity needed corresponds to the level of efficiency required is called the activity capacity.

Question 16

An alternative measure of goodness of fit is the coefficient of determination.

Question 17

A feature of regression routines, not provided by the scatter plot of high-low methods, is to provide information to and in the assessment of reliability of the estimated costs formula.

Question 18

Fixed costs are costs that, in total, are constant within the relevant range as the level of the associated driver varies.

Question 19

Costs can display variable, fixed, or mixed behavior, and it important that they are classified accurately.

Question 20

The three widely used quantitative methods of separating a mixed cost into its fixed and variable components are the high-low method, the scatter plot method, and the method of least squares.

Question 21

__________ explain changes in cost factors other than changes in units produced.
or

Question 22

The basis of the learning curve is that as we perform an action over and over, we improve, and each additional performance takes less time than the preceding ones.

Question 23

Based on managerial judgement, the best predictor of manufacturing costs is the units available.

Question 24

__________ are assumed to be the sole drivers of a traditional cost management system.

Question 25

When Multiple regression is used, the user has a choice of using manual computation or using regression programs.

Question 26

A number of cost behavior patterns do not follow a linear pattern, instead, they follow a nonlinear cost curve called the learning curve.

Question 27

Finding a strong statistical association between an activity cost and an activity driver can provide evidence to managers about the correctness of a driver selection.

Question 28

Whenever least squares is used to fit an equation involving two or more independent variables, the method is called multiple regression.

Question 29

__________ explain changes in costs as units produced change.

Question 30

The experience curve relates cost to increased efficiency, such that the more a task is performed, the lower the cost of doing will be.

Question 31

If a company changes from skilled labor to robots, the previous data are of little value in predicting future costs.

Question 32

Multiple regression is a dependable tool for identifying the behavior of activity costs.

Question 33

The most widely used method to determine cost behavior is managerial judgement.

Question 34

__________ result when organizations acquire many multiperiod service capacities by paying cash up front.

Question 35

Managerial judgement includes the possibility of mixed costs.

Question 36

Managers agree that the ideas behind the learning curve can extend to the service industry only.

Question 37

Before opting to use managerial judgment, management should make sure that each cost is predominantly fixed or variable.

Question 38

Multiple regression can be useful to assess cost behavior when dependent variable is affected by only one independent variable.

Question 39

__________ analysis focuses on how costs react to changes in activity levels.

Question 40

The cumulative average-time learning curve model states that the cumulative average time per unit increases by a constant percentage.

Question 41

The three quantitative methods of separating a mixed cost into its fixed and variable components are: the high-low method, the scatter plot method and the method of __________ .

Question 42

Multiple regression has __________ or __________ independent variables.

Question 43

A correlation coefficient near -1 means that two variables are moving in the __________ direction

Question 44

__________ are costs incurred that provide long-term activity capacity.

Question 45

The Y in the equation Y = F + VX represents the __________, the dependent variable

Question 46

The __________ method may be used to determine the activities and amounts for cost behavior.

Question 47

__________ is useful when the dependent variable is affected by more than one independent variable.

Question 48

The __________ analysis method is a method of determining cost behavior.

Question 49

Costs that follow a step-cost behavior are defined as __________ costs.
or

Question 50

The method of least squares requires a __________ in order to be utilized.

Question 51

The __________ parameter is the point at which the mixed cost line intercepts the cost (vertical) axis.

Question 52

A __________ interval provides a range of values for the actual cost with a prespecified degree of confidence.

Question 53

The graph showing the relationship between activity costs and drivers/outputs is called the __________ .

Question 54

The hypothesis test of cost parameters indicates whether the parameters are different from __________ .

Question 55

__________ and __________ studies may be used in conjunction with the industrial engineering method.
or

Question 56

A correlation coefficient near +1 means that two variables are moving in the __________ direction.

Question 57

A correlation coefficient near 0 means that two variables are __________ .

Question 58

A __________ function displays a constant level of cost for a range of output and then jumps to a higher level.
or

Question 59

__________ are those acquired from outside sources where the terms of acquisition do not require any long-term commitments.

Question 60

The __________ method is used whenever least squares is used to fit an equation involving two or more independent variables.

Question 61

Drivers that explain changes in costs as factors other than changes in units produced are called:

A) Functional based cost drivers
B) Non-unit-based cost drivers
C) Unit-based cost drivers
D) None of these

Question 62

Which of the following would be an example of a unit-based cost driver?

A) engineering orders
B) material moves
C) inspection hours
D) direct labor hours

Question 63

When the volume of activity increases within the relevant range, the fixed cost per unit

A) decreases at first, then increases.
B) remains the same.
C) decreases.
D) increases.

Question 64

Cumulative average-time __________ curve assumes the cumulative average time per unit decreases by a constant percentage each time the cumulative quantity of units produced doubles.

Question 65

Given the following graphs, which graph represents fixed costs?

A) I
B) II
C) III
D) none of these

Question 66

The drivers that explain changes in costs as units produced change are called:

A) Non-unit-level drivers
B) Activity based cost drivers
C) Unit-level drivers
D) All of these

Question 67

As the volume of activity increases within the relevant range, the variable cost per unit

A) decreases.
B) decreases at first, then increases.
C) remains the same.
D) increases.

Question 68

The range of activity within which a linear cost function is valid is called the

A) normal range.
B) relevant range.
C) activity range.
D) none of these.

Question 69

Fixed cost per unit is $7 when 25,000 units are produced and $5 when 35,000 units are produced. What is the total fixed cost when nothing is produced?

A) $130,000
B) $200,000
C) $12
D) $175,000

Question 70

In a traditional cost management system, cost behavior is assumed to be driven only by

A) unit based cost drivers.
B) non-unit level cost drivers.
C) activity-based cost drivers.
D) none of these.

Question 71

Each time cumulative volume doubles, __________ fall by a constant and predictable percentage.

Question 72

Cost behavior analysis focuses on how costs

A) react to changes in profit.
B) react to changes in activity level.
C) change over time.
D) both a and c.

Question 73

Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that is parallel to the horizontal axis?

A) total direct material costs
B) a consultant paid $75 per hour with a maximum fee of $1,200
C) employees who are paid $10 per hour and guaranteed a minimum weekly wage of $200
D) rent on exhibit space at a convention

Question 74

When a cost behavior pattern does not follow a linear pattern, a non linear cost curve is used called the __________ curve.

Question 75

A manufacturing company pays an assembly line worker $12 per hour. What is the proper classification of this labor cost?

A) variable cost
B) semivariable cost
C) fixed cost
D) mixed cost

Question 76

A $4,000 per month salary paid to a supervisor is an example of a:

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

Question 77

Knowledge of cost and activity-level relationship is used by experienced __________ .

Question 78

Costs in marketing, distribution, and service after the sale __________ as number of units produced and sold __________ .

Question 79

Sandusky Corporation has the following costs for 1,000 units: What is the total cost of direct materials for 100 units?

A) $ 1.50
B) $ 3.00
C) $150.00
D) $225.00

Question 80

The direct material cost is $20,000 when 2,000 units are produced. What is the direct material cost for 2,500 units produced?

A) $15,000
B) $ 5,000
C) $20,000
D) $25,000