Deck 3: Cost Behavior

Question 1

Which of the following statements is TRUE about relevant range?

A) When costs reach a level above the relevant range, they are considered appropriate for analysis.
B) Linear estimates of an economist's curvilinear cost function is only valid within the relevant range.
C) When costs reach a level below the relevant range, they are considered appropriate for analysis.
D) The nonlinear relevant range is ignored, and only those costs outside of this range may be considered.

Answer 1

B

Question 2

A manufacturing company pays an assembly line worker $10 per hour.What is the proper classification of this labor cost?

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

Answer 2

C

Question 3

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.

Answer 3

B

Question 4

Cost behavior analysis focuses on how costs

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

Question 5

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 6

Direct materials are an example of a

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

Question 7

__________ explain changes in costs as units produced change.

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

Question 8

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

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

Question 9

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

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

Question 10

Fixed cost per unit is $9 when 20,000 units are produced and $6 when 30,000 units are produced.What is the total fixed cost when nothing is produced?

A) $120,000
B) $270,000
C) $15
D) $180,000

Question 11

Given the following graphs, which graph represents fixed costs?

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

Question 12

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

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

Question 13

__________ explain changes in costs as factors other than changes in units produced.

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

Question 14

Which of the following costs is a variable cost?

A) supervisors' salaries
B) research and development
C) materials used in production
D) rent

Question 15

Which of the following statements is TRUE about fixed and variable costs?

A) Both costs are constant when considered on a per-unit basis.
B) Both costs are constant when considered on a total basis.
C) Fixed costs are constant in total and variable costs are constant per unit.
D) Variable costs are constant in total and fixed costs are constant per unit.

Question 16

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 17

A steep slope in the variable cost line indicates a

A) low variable cost per unit.
B) high influence of activity on total variable costs.
C) low influence of activity on total variable costs.
D) large amount of fixed costs.

Question 18

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 19

A supervisor's salary of $2,000 per month is an example of a

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

Question 20

The direct material cost is $10,000 when 2,000 units are produced.What is the direct material cost for 2,500 units produced?

A) $10,000
B) $ 8,000
C) $15,000
D) $12,500

Question 21

If production volume increases from 8,000 to 10,000 units,

A) total costs will increase by 20 percent.
B) total costs will increase by 25 percent.
C) total variable costs will increase by 25 percent.
D) mixed and variable costs will increase by 25 percent.

Question 22

Committed resources

A) are supplied as needed.
B) are acquired by a contract for the exact amount of their usage.
C) may exceed the demand for their usage.
D) all of these.

Question 23

_______________ are those that are acquired from outside sources, where the terms of acquisition do NOT require any long-term commitment for any given amount of the resource.

A) Flexible resources
B) Committed resources
C) Discretionary fixed expenses
D) Committed fixed expenses

Question 24

Mixed costs, by definition, contain both

A) product and period costs.
B) fixed and variable costs.
C) direct and indirect costs.
D) controllable and noncontrollable costs.

Question 25

Which of the following is an example of a committed fixed expense?

A) depreciation on a factory building
B) supervisor's salary
C) direct labor
D) insurance on a building

Question 26

Boss Company currently leases a delivery van from Check Enterprises for a fee of $250 per month plus $0.40 per mile.Management is evaluating the desirability of switching to a modern, fuel-efficient van, which can be leased from David, Inc., for a fee of $600 per month plus $0.05 per mile.All operating costs and fuel are included in the rental fees.In general, a lease from

A) David, Inc., is economically preferable to a lease from Check Enterprises regardless of the monthly use.
B) Check Enterprises is economically preferable below 1,000 miles per month.
C) Check Enterprises is economically preferable to a lease from David, Inc., regardless of the monthly use.
D) Check Enterprises is economically preferable above 1,000 miles per month.

Question 27

Flexible resources

A) are supplied as needed.
B) are acquired from outside sources, not requiring a long-term commitment.
C) have no unused capacity.
D) all of these.

Question 28

Figure 3-1 ALF Systems undertakes its own machine maintenance.The depreciation on the equipment is $20,000 per year and operating cost is $2 per machine hour.Last year 275,000 machine hours were used to produce 100,000 units.

-
Refer to Figure 3-1.Compute the total variable machine maintenance cost last year.

A) $275,000
B) $240,000
C) $220,000
D) $550,000

Question 29

_______________ result when organizations acquire many multiperiod service capacities by paying cash up front or by entering into an explicit contract that requires periodic cash payments.

A) Managed fixed expenses
B) Committed fixed expenses
C) Discretionary fixed expenses
D) Period expenses

Question 30

Figure 3-1 ALF Systems undertakes its own machine maintenance.The depreciation on the equipment is $20,000 per year and operating cost is $2 per machine hour.Last year 275,000 machine hours were used to produce 100,000 units.

-
See Figure 3-1.Develop a cost equation for the total machine maintenance cost.

A) Y= $275,000
B) Y = $20,000
C) Y = $20,000 + $2 MHR
D) Y = $2 MHR

Question 31

Figure 3-1 ALF Systems undertakes its own machine maintenance.The depreciation on the equipment is $20,000 per year and operating cost is $2 per machine hour.Last year 275,000 machine hours were used to produce 100,000 units.

-
See Figure 3-1.If 300,000 machine hours had been worked last year, what would be the total machine maintenance cost?

A) $600,000
B) $620,000
C) $420,000
D) $220,000

Question 32

The linearity assumption is most likely to be a close approximation for an underlying nonlinear cost function

A) within a relevant range of activity.
B) over the long run.
C) for short-run periods.
D) both a and c.

Question 33

Figure 3-1 ALF Systems undertakes its own machine maintenance.The depreciation on the equipment is $20,000 per year and operating cost is $2 per machine hour.Last year 275,000 machine hours were used to produce 100,000 units.

-
See Figure 3-1.Compute the total machine maintenance cost for last year.

A) $570,000
B) $550,000
C) $420,000
D) $20,000

Question 34

Adams Corporation rents a truck for a flat fee plus an additional charge per mile.What type of cost is the rent?

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

Question 35

Figure 3-1 ALF Systems undertakes its own machine maintenance.The depreciation on the equipment is $20,000 per year and operating cost is $2 per machine hour.Last year 275,000 machine hours were used to produce 100,000 units.

-
See Figure 3-1.What is the total maintenance cost per unit produced?

A) $0.55
B) $4.20
C) $5.50
D) $5.70

Question 36

The efficient level of activity performance is called

A) activity capacity.
B) practical capacity.
C) unused capacity.
D) acquired capacity.

Question 37

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 starts at the origin and reaches a maximum value beyond which the line is parallel to the horizontal axis?

A) total direct material costs
B) a consultant paid $100 per hour with a maximum fee of $2,000
C) employees who are paid $15 per hour and guaranteed a minimum weekly wage of $300
D) rent on exhibit space at a convention.

Question 38

If all the activity capacity acquired is not used, this is an example of

A) practical capacity.
B) activity capacity.
C) unused capacity.
D) ideal capacity.

Question 39

An equipment lease that specifies a payment of $5,000 per month plus $8 per machine hour used is an example of a

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

Question 40

Which of the following is NOT a correct statement concerning cost behavior?

A) In the long run, all costs are variable.
B) Variable costs increase in total in relation to the activity driver.
C) Unit fixed costs increase or decrease inversely in relation to the activity driver.
D) All of these

Question 41

_______________ are costs incurred for the acquisition of short-run activity capacity, usually as the result of yearly planning.

A) Discretionary fixed expenses
B) Committed fixed expenses
C) Mixed costs
D) Step-variable costs

Question 42

A hospital requires one nurse for each eight patients.This is an example of a

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

Question 43

The method for analyzing cost behavior that generally classifies general ledger accounts is

A) account analysis method.
B) multiple regression method.
C) industrial engineering method.
D) learning curve method.

Question 44

When a firm acquires the resources needed to perform an activity, it is obtaining

A) practical capacity.
B) resource usage.
C) activity capacity.
D) unused capacity.

Question 45

Which of the following is an example of a step-fixed cost?

A) cost of disposable surgical scissors, which are purchased in increments of 100
B) cost of soaking solution to clean jewelry (Each jar can soak 50 rings before losing effectiveness.)
C) cost of tuition at $300 per credit hour up to 15 credit hours (Hours taken in excess of 15 hours are free.)
D) cost of disposable gowns used by patients in a hospital

Question 46

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

A) direct labor
B) depreciation on a factory building
C) insurance on a building
D) property taxes on a factory building

Question 47

Which of the following decision-making tools would NOT be useful in determining the slope and intercept of a mixed cost?

A) linear programming
B) least-squares method
C) high-low method
D) scattergraphs

Question 48

Which of the following is NOT a method of determining cost behavior?

A) industrial engineering method
B) account analysis method
C) statistical and quantitative methods
D) confidence interval model

Question 49

The cost behavior method that may use time and motion studies to determine the activities and amounts for cost behavior analysis is

A) account analysis method.
B) industrial engineering method.
C) regression analysis.
D) high-low method.

Question 50

In the formula Y = F + VX, Y refers to the

A) slope.
B) intercept.
C) dependent variable.
D) independent variable.

Question 51

In the formula Y = F + VX, V refers to the

A) slope.
B) intercept.
C) dependent variable.
D) total variable costs.

Question 52

In the formula Y = F + VX, VX refers to the

A) total variable costs.
B) intercept.
C) dependent variable.
D) independent variable.

Question 53

_______________ are costs incurred that provide long-term activity capacity, usually as the result of strategic planning.

A) Discretionary fixed expenses
B) Committed fixed expenses
C) Mixed costs
D) Step-variable costs

Question 54

Figure 3-2 A company usually processes 20,000 orders at a total cost of $300,000.During the year, only 16,000 orders were processed.

-
Refer to Figure 3-2.What is the cost of resource usage?

A) $300,000
B) $240,000
C) $30
D) $60,000

Question 55

Figure 3-3 Mork Company has four process engineers that are each able to process 1,500 design changes.Last year 5,250 design changes were produced by the four engineers.Each engineer is paid $60,000 per year.

-
Refer to Figure 3-3.What is the unused capacity in dollars?

A) $60,000
B) $30,000
C) $240,000
D) $15,000

Question 56

Figure 3-3 Mork Company has four process engineers that are each able to process 1,500 design changes.Last year 5,250 design changes were produced by the four engineers.Each engineer is paid $60,000 per year.

-
Refer to Figure 3-3.Calculate the activity rate per change order.

A) $4 per change order
B) $10 per change order
C) $40 per change order
D) $15 per change order

Question 57

Figure 3-3 Mork Company has four process engineers that are each able to process 1,500 design changes.Last year 5,250 design changes were produced by the four engineers.Each engineer is paid $60,000 per year.

-
Refer to Figure 3-3.Calculate the unused capacity.

A) 750 change orders
B) 1,375 change orders
C) 4,000 change orders
D) 2,000 change orders

Question 58

The activity-based resource usage model improves managerial control and decision making such as

A) the best way to use excess activity capacity in the system.
B) maximization of individual unit performance.
C) increasing the allocation of costs.
D) focusing on managing costs rather than activities.

Question 59

Salaries paid to shift supervisors are an example of a

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

Question 60

Figure 3-2 A company usually processes 20,000 orders at a total cost of $300,000.During the year, only 16,000 orders were processed.

-
Refer to Figure 3-2.What is the cost of unused activity?

A) $300,000
B) $240,000
C) $30
D) $60,000

Question 61

Kane Corporation found its maintenance cost and sales dollars to be somewhat correlated.Last year's high and low observations were as follows: What is the fixed portion of the maintenance cost?

A) $24,000
B) $42,000
C) $30,000
D) $12,000

Question 62

Weaknesses of the high-low method include all of the following EXCEPT

A) only two observations are used to develop the cost function.
B) the high and low activity levels may not be representative.
C) the method does not detect if the cost behavior is nonlinear.
D) the method is relatively complex and difficult to apply.

Question 63

In the formula Y = F + VX, X refers to the

A) slope.
B) intercept.
C) dependent variable.
D) independent variable.

Question 64

Hook Company wants to develop a cost estimating equation for its monthly cost of electricity.It has the following data: Using the high-low method, which of the following is the best equation?

A) Y = $900 + $12.00X
B) Y = $900 + $8.40X
C) Y = $1,800 + $8.40X
D) Y = $2,400 + $8.40X

Question 65

Assume the following information: What is the variable cost per unit?

A) $15.00
B) $14.78
C) $13.75
D) $12.50

Question 66

The following information was available about supplies cost for the second quarter of the year: Using the high-low method, the estimate of supplies cost at 1,000 units of production is

A) $2,700.
B) $4,460.
C) $4,900.
D) $7,100.

Question 67

Figure 3-5 Lee Corporation manufactures and sells party items.The following representative direct labor hours and production costs are provided for a four-month period:


- Refer to Figure 3-5.Predict a cost for 5,000 labor hours.

A) $17,900
B) $17,700
C) $16,667
D) $30,400

Question 68

Advantages of the method of least squares over the high-low method include all of the following EXCEPT

A) a statistical method is used to mathematically derive the cost function.
B) only two points are used to develop the cost function.
C) the squared differences between actual observations and the line (cost function) are minimized.
D) all the observations have an effect on the cost function.

Question 69

Greene Enterprises has the following information about its truck fleet miles and operating costs: What is the best estimate of total costs using the high-low method if the expected fleet mileage for 2008 is 500,000 miles?

A) $288,000
B) $296,000
C) $256,000
D) $320,000

Question 70

Total costs may be computed as follows:

A) Fixed costs + (Variable costs per unit ´ Unit volume)
B) (Fixed costs per unit ´ Unit volume) + Variable costs
C) Fixed costs per unit + (Variable costs per unit ´ Unit volume)
D) (Fixed costs per unit ´ Unit volume) + Variable costs per unit

Question 71

If at a given volume total costs and fixed costs are known, the variable costs per unit may be computed as follows:

A) (Total costs - Fixed costs)/Unit volume
B) (Total costs/Unit volume) - Fixed costs
C) (Total costs ´ Unit volume) - (Fixed costs/Unit volume)
D) Total costs - (Fixed costs/Unit volume)

Question 72

The following cost functions were developed for manufacturing overhead costs: If June production is expected to be 2,000 units requiring 3,000 direct labor hours, estimated manufacturing overhead costs would be

A) $218,600.
B) $198,000.
C) $152,600.
D) $20,733.

Question 73

The high-low method may give unsatisfactory results if

A) the data points all fall on a line.
B) volume of activity is heavy.
C) volume of activity is light.
D) the points are unrepresentative.

Question 74

Figure 3-4 The following information is available for electricity costs for the last six months of the year:


-Refer to Figure 3-4.What are the fixed costs?

A) $420
B) $100
C) $200
D) none of these

Question 75

Figure 3-4 The following information is available for electricity costs for the last six months of the year:


- Refer to Figure 3-4.Using the high-low method, estimated variable cost per unit of production is

A) $1.26.
B) $1.53.
C) $1.65.
D) $1.75.

Question 76

Figure 3-5 Lee Corporation manufactures and sells party items.The following representative direct labor hours and production costs are provided for a four-month period:


-Refer to Figure 3-5.The monthly production cost can be expressed as

A) X = aY + b
B) Y = a + bX
C) X = a + bY
D) Y = b + aX

Question 77

In the formula Y = F + VX, F refers to the

A) slope.
B) intercept.
C) dependent variable.
D) independent variable.

Question 78

Figure 3-5 Lee Corporation manufactures and sells party items.The following representative direct labor hours and production costs are provided for a four-month period:


-Refer to Figure 3-5.Using the high-low method, what is the cost formula for estimating costs?

A) Total cost = $20,000 + $2.08X
B) Total cost = $2.08X
C) Total cost = $5,000 + 2.08X
D) Total cost = $7,500 + $2.08X

Question 79

Baker Enterprises developed a cost function for manufacturing overhead costs of Y = $8,000 + $1.60X.Estimated manufacturing overhead costs at 10,000 units of production are

A) $16,000.
B) $17,600.
C) $24,000.
D) $26,000.

Question 80

English Corporation analyzed the relationship between total factory overhead and changes in direct labor hours.It found the following:
Y = $6,000 + $6X
The Y in the equation is an estimate of

A) total variable costs.
B) total direct labor hours.
C) total factory overhead.
D) total fixed costs.