Question 1

A cost function _____.

Accepted Answer

A cost function should be a reliable predictor of future costs. It is used to estimate future costs based on past data and relationships between costs and activities. It is not necessary for a cost function to have a cause-and-effect relationship, and it should not be based solely on personal observations. Although it does not explain past cost behavior, it can be used to make predictions about future cost behavior.

Question 2

Righteous Company makes metal signs for businesses and residences.These signs are made of sheet metal, which the owner paints by hand.The owner has a good sense of his labor and materials cost behavior, but he is concerned that he does not have good measure of other support costs.Currently, he predicts support costs to be 40% of the cost of materials.Close investigation of the business reveals that $10 per direct labor hour is a more plausible and reliable support cost relationship. Consider estimated support costs of the following two signs that Righteous Company makes. $\begin{array}{llr}&\text { Small Sign } & \text { Large Sign } \
\text { Materials cost } & \$ 200 & \$ 500 \
\text { Direct labor hours } & 5 & 11 \
\text { Support costs } & 8 & 15
\end{array}$ The amount of support costs assigned to a large sign using number of components as the cost driver is _____.

Accepted Answer

The answer of Righteous Company makes metal signs for businesses...

Question 3

Cost prediction is used to _____.

Accepted Answer

Cost prediction is used to estimate future costs, allowing companies to plan and budget accordingly. It is a proactive measure that helps companies prepare for potential financial challenges and make informed decisions about investments and expenditures. While cost prediction can indirectly impact annual gains and losses, it is not its primary purpose; negotiating with suppliers and calculating management compensation are also not directly related to cost prediction.

Question 4

In relation to a cost function, the term reliability means _____.

Accepted Answer

The answer of In relation to a cost function, the...

Question 5

Insomniac Hotel's cost function based on guest-days of occupancy for custodial cost is given as: Y = $60,000 + $10.00X.Insomniac Hotel expects an occupancy level of 15,000 guest days.Insomniac Hotel's expected total cost is _____.

Accepted Answer

The expected total cost is calculated by substituting the expected occupancy level into the cost function: Y = $60,000 + $10.00(15,000) = $60,000 + $150,000 = $210,000.

Question 6

A cost function for a mixed cost includes_____.

Accepted Answer

The answer of A cost function for a mixed cost...

Question 7

Bush Motel's cost function based on guest-days of occupancy for custodial cost is given as: Y = $60,000 + $4.50X.Bush Motel expects an occupancy level of 8,000 guest days.Bush Motel's expected total variable cost is:

Accepted Answer

The expected total variable cost is calculated by multiplying the variable cost per unit ($4.50) by the number of units (8,000 guest days), which equals $36,000.

Question 8

Merkey Motel's cost function based on guest-days of occupancy for custodial cost is given as: Y = $50,000 + $7.50X.Merkey Motel expects an occupancy level of 10,000 guest days.Merkey Motel's expected total fixed cost is _____.

Accepted Answer

The fixed cost is the constant term in the cost function, which is $50,000. This is the expected total fixed cost for Merkey Motel.

Question 9

An algebraic equation used by managers to describe the relationship between a cost and its cost drivers) is called a _____.

Accepted Answer

The term "cost function" specifically refers to an algebraic equation that managers use to describe the relationship between a cost and its cost drivers. Cost behavior refers to how a cost changes as a result of changes in the level of activity, while a budget is a financial plan for a future period. Cost analysis is a broader term that can refer to any analysis of costs, including examining cost behavior or using a cost function. However, the specific term used to describe the equation is a "cost function."

Question 10

In the mixed?cost function, Y = $72,000 + $7.70X, the $72,000 stands for _____.

Accepted Answer

The $72,000 in the mixed-cost function represents the total fixed cost, which remains constant regardless of the amount of X used.

Question 11

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

Accepted Answer

The answer of _____ is the first step in estimating...

Question 12

Skoda Company makes metal signs for businesses and residences.These signs are made of sheet metal, which the owner paints by hand.The owner has a good sense of his labor and materials cost behavior, but he is concerned that he does not have good measure of other support costs.Currently, he predicts support costs to be 30% of the cost of materials.Close investigation of the business reveals that $10 per direct labor hour is a more plausible and reliable support cost relationship. Consider estimated support costs of the following two signs that Skoda Company makes. $\begin{array}{llr}
&\text { Small Sign }& \text { Large Sign }\
\text { Materials cost } & \$ 300 & \$ 700 \
\text { Direct labor hours } & 5 & 11 \
\text { Number of components } & 8 & 13
\end{array}$ The amount of support costs assigned to a small sign using number of components as the cost driver is _____.

Accepted Answer

The support cost per component is calculated by dividing the total support costs by the total number of components. For the small sign, with 8 components, the support cost is $90.

Question 13

In the mixed?cost function, Y = $88,000 + $7.20X, the $7.20 stands for_____.

Accepted Answer

The $7.20 represents the variable cost per unit of the cost driver, X. The fixed cost is represented by the $88,000, and the number of units of the cost driver is represented by X.

Question 14

An activity analysis is used to _____.

Accepted Answer

An activity analysis is a method used to identify appropriate cost drivers for different activities, which can then be used to allocate costs and determine the cost of products or services. It is used as a tool for cost management and cost control. Identifying relevant costs for decision making, classifying costs, and predicting future costs are not the primary purposes of activity analysis.

Question 15

Managers should apply two principles to obtain accurate and useful cost functions.These principles are _____.

Accepted Answer

Managers should ensure that cost functions are both plausible, meaning they make logical sense, and reliable, meaning they consistently produce accurate results.

Question 16

In the mixed?cost function, Y = $77,000 + $9.70X, the X signifies _____.

Accepted Answer

In the given mixed-cost function, the variable Y represents the total cost, $77,000 represents the fixed cost component, and $9.70 represents the variable cost per unit of the cost driver X. Therefore, X represents the number of units of the cost driver, which is the variable that drives the total cost.

Question 17

In a mixed-cost function, the slope is the _____.

Accepted Answer

The slope of a mixed-cost function represents the variable cost per unit of the cost driver. The fixed cost is represented by the intercept, and the number of units of the cost driver is not directly related to the slope. Therefore, the best choice is C) variable cost.

Question 18

Sam Company makes metal signs for businesses and residences.These signs are made of sheet metal, which the owner paints by hand.The owner has a good sense of his labor and materials cost behavior, but he is concerned that he does not have good measure of other support costs.Currently, he predicts support costs to be 40% of the cost of materials.Close investigation of the business reveals that $8 per direct labor hour is a more plausible and reliable support cost relationship. Consider estimated support costs of the following two signs that Sam Company makes. $\begin{array}{llr}&\text { Small Sign } & \text { Large Sign } \
\text { Materials cost } & \$ 150 & \$ 500 \
\text { Direct labor hours } & 5 & 7 \
\text { Support costs } & 9 & 11
\end{array}$ The amount of support costs assigned to a small sign using direct labor hours as the cost driver is _____.

Accepted Answer

The answer of Sam Company makes metal signs for businesses...

Question 19

In a mixed-cost function, the intercept is _____.

Accepted Answer

The intercept of a mixed-cost function represents the fixed cost, which is the cost that remains constant regardless of changes in the level of activity.

Question 20

In the mixed?cost function, Y = $66,000 + $8.70X, the Y signifies _____.

Accepted Answer

The Y in the mixed-cost function represents the total cost, which includes both fixed and variable components. Therefore, option B is the correct answer as it represents the total cost.

Quiz 3: Measurement of Cost Behavior