Question 1

Presented below is the production data for the first six months of the year for the mixed costs incurred by Strongsville Company. $$\begin{array} { l l l } 
\text { Month } & \text { Cost } & \text { Units } \
\text { January } & \$ 7,500 & 4,000 \
\text { February } & 10,250 & 6,500 \
\text { March } & 10,500 & 8,000 \
\text { April } & 12,700 & 10,500 \
\text { M ay } & 13,500 & 12,000 \
\text { June } & 10,850 & 9,000
\end{array}$$ Strongsville Company uses the high- low method to analyze mixed costs. The total fixed cost (rounded to the nearest dollar) is:
A) $10,500
B) $10,417
C) $4,000
D) $4,500

Accepted Answer

Using the high-low method, the variable cost per unit is calculated as (13,500 - 7,500) / (12,000 - 4,000) = $0.75. The total fixed cost is then calculated using either the high or low point: $13,500 - ($0.75 * 12,000) = $4,500.

Question 2

A mortgage payment would most likely be identified as a:
A) mixed cost
B) discretionary fixed cost
C) purely variable cost
D) committed fixed cost

Accepted Answer

A mortgage payment is a committed fixed cost because it is a contractual obligation that must be paid regularly, regardless of business activity levels.

Question 3

An algebraic equation used by managers to describe the relationship between a cost and its cost driver(s) is called a:
A) budget
B) cost analysis
C) cost behavior
D) cost function

Accepted Answer

A cost function is an algebraic equation that describes the relationship between a cost and its cost driver(s), often used by managers for cost analysis and budgeting.

Question 4

Costs arising from the possession of facilities, equipment, and a basic organization are:
A) engineered costs
B) discretionary costs
C) capacity costs
D) committed fixed costs

Accepted Answer

Committed fixed costs are costs that are incurred regardless of the level of activity. They include the costs of facilities, equipment, and a basic organization.

Question 5

Roach Motel's cost function based on guest- days of occupancy for custodial cost is given as: Y = $60,000 + $5.50X. Roach Motel expects an occupancy level of 10,000 guest days. Roach Motel's expected total variable cost is:
A) $115,000
B) $60,000
C) $55,000
D) $5.50

Accepted Answer

The total variable cost is calculated by multiplying the variable cost per unit ($5.50) by the expected occupancy level (10,000 guest days), which equals $55,000.

Question 6

In the mixed- cost function, Y = $59,000 + $7.70X, the Y signifies:
A) total cost
B) variable cost per unit of cost driver
C) total fixed cost
D) number of units of the cost driver

Accepted Answer

The Y in the mixed-cost function represents the total cost, which includes both the fixed cost ($59,000) and the variable cost ($7.70X) based on the number of units (X).

Question 7

Peace 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 Peace Company makes. $\begin{array}{lll}&\text { Small Sign }&\text { Large Sign }\
\text { Materials cost } & \$ 200 & \$ 500 \
\text { Direct labor hours } & 5 & 9 \
\text { Support costs } & ? & ?
\end{array}$ The amount of support costs assigned to a large sign using direct labor hours as the cost driver is:
A) $80
B) $90
C) $50
D) $200

Accepted Answer

The support costs are calculated by multiplying the direct labor hours by the cost per labor hour. For the large sign, 9 direct labor hours x $10 per hour = $90.

Question 8

The Partridge Corporation used regression analysis to predict the annual cost of indirect materials. The results were as follows: Indirect $ M $ aterials Cost
Explained by Units Produced
$\begin{array}{ll}
\text { Constant } & \$ 21,885 \
\text { Standard err or of Y estimate } & \$ 4,560 \
\text { R - squared } & 0.7832 \
\text { No. of obs ervations } & 22 \
\text { Degrees of freedom } & 20 \
\text { X coefficient(s) } & 9.75 \
\text { Standard error of coefficient(s) } & 4.1876
\end{array}$ The variable cost per unit of product is:
A) $0.78
B) $4.19
C) $2.20
D) $9.75

Accepted Answer

The variable cost per unit is represented by the X coefficient, which is $9.75.

Question 9

In relation to a cost function, the term reliability means:
A) whether the cost function conforms to a given mathematical model
B) how well the cost function predicts future costs
C) how well the cost function explains past cost behavior
D) whether the costs and activities can be easily observed

Accepted Answer

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

Question 10

In a mixed- cost function, the slope is the:
A) number of units of the cost driver
B) fixed cost
C) total cost
D) variable cost

Accepted Answer

The slope in a mixed-cost function represents the variable cost per unit of the cost driver.

Question 11

It may be difficult to trace cost to products and services if the costs are:
A) affected by activities not related to volume and by multiple cost drivers
B) volume- driven
C) affected by multiple cost drivers
D) affected by activities not related to volume

Accepted Answer

When costs are affected by activities not related to volume and by multiple cost drivers, it becomes complex to trace them directly to products and services, as they do not vary directly with production volume.

Question 12

Peace 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 Peace Company makes. $\begin{array}{lll}&\text { Small Sign }&\text { Large Sign }\
\text { Materials cost } & \$ 100 & \$ 300 \
\text { Direct labor hours } & 5 & 7 \
\text { Support costs } & 8 & 9
\end{array}$ The amount of support costs assigned to a small sign using direct labor hours as the cost driver is:
A) $80
B) $200
C) $50
D) $90

Accepted Answer

The support cost is calculated as $10 per direct labor hour. For the small sign, with 5 direct labor hours, the support cost is 5 hours * $10/hour = $50.

Question 13

The Kojak Company used regression analysis to predict the annual cost of utilities. The results were as follows: Utilities Cost
Explained by Direct Labor Hours
$\begin{array}{ll}
\text { Constant } & \$ 9,650 \
\text { Standard error of Y estimate } & \$ 875.20 \
R \text { - squared } & 0.7650 \
\text { No. of obs ervations } & 33\\text { Degrees of freedom } & 31 \
\text { X coefficient(s) } & 4.43 \
\text { Standard error of coefficient(s) } & 0.917
\end{array}$ The variable cost per direct labor hour is:
A) $4.437
B) $875.20
C) $0.917
D) $0.765

Accepted Answer

The variable cost per direct labor hour is represented by the X coefficient, which is $4.43.

Question 14

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

Accepted Answer

Discretionary fixed costs are costs that can be adjusted or eliminated in the short term without significantly impacting the organization's long-term goals. They are often related to activities that management can choose to fund or not, such as advertising or research and development.

Question 15

Costs that change abruptly at intervals of activity because the resources and their costs come in indivisible chunks are called:
A) step costs
B) mixed costs
C) variable costs
D) fixed costs

Accepted Answer

Step costs change abruptly at intervals of activity because they are associated with resources that come in indivisible chunks, leading to sudden increases in cost when activity levels reach certain thresholds.

Question 16

A thorough knowledge of cost behavior helps managers to:
A) decide on the efficient use of resources
B) obtain feedback
C) plan costs
D) All of these answers are correct.

Accepted Answer

A thorough knowledge of cost behavior helps managers in deciding on the efficient use of resources, obtaining feedback, and planning costs, making all the options correct.

Question 17

measures how much of the fluctuation of a cost is explained by changes in the cost driver.
A) Regression analysis
B) The visual- fit method
C) The high- low method
D) The coefficient of determination

Accepted Answer

The coefficient of determination measures how well changes in the cost driver explain the fluctuations in cost, indicating the proportion of variance in the dependent variable predictable from the independent variable(s).

Question 18

The following three data points appear to be: $$\begin{array} { l l } 
\text { Units } & \text { Costs } \
100 & \$ 500 \
130 & 550 \
160 & 600
\end{array}$$ 
A) a fixed cost
B) a variable cost
C) a step cost
D) a mixed cost

Accepted Answer

The answer of The following three data points appear to...

Question 19

A company could not temporarily eliminate:
A) management salaries
B) depreciation
C) research and development
D) employee training

Accepted Answer

Depreciation is a non-cash expense that represents the allocation of the cost of tangible assets over their useful lives and cannot be temporarily eliminated.

Question 20

Peace 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 Peace Company makes. $\begin{array}{lll}&\text { Small Sign }&\text { Large Sign }\
\text { Labor cost (p er hour) } & \$ 200 & \$ 500 \
\text { Direct labor hours } & 5 & 9 \
\text { Number of components } & 8 & 10
\end{array}$ The amount of support costs assigned to a small sign using number of components as the cost driver is:
A) $90
B) $50
C) $200
D) $80

Accepted Answer

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

Quiz 3: Measurement of Cost Behavior

A mortgage payment would most likely be identified as a:

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

Costs arising from the possession of facilities, equipment, and a basic organization are:

Roach Motel's cost function based on guest- days of occupancy for custodial cost is given as: Y = $60,000 + $5.50X. Roach Motel expects an occupancy level of 10,000 guest days. Roach Motel's expected total variable cost is:

In the mixed- cost function, Y = $59,000 + $7.70X, the Y signifies:

In relation to a cost function, the term reliability means:

In a mixed- cost function, the slope is the:

It may be difficult to trace cost to products and services if the costs are:

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:

Costs that change abruptly at intervals of activity because the resources and their costs come in indivisible chunks are called:

A thorough knowledge of cost behavior helps managers to:

measures how much of the fluctuation of a cost is explained by changes in the cost driver.

The following three data points appear to be: $\begin{array} { l l } \text { Units } & \text { Costs } \\100 & \$ 500 \\130 & 550 \\160 & 600\end{array}$

A company could not temporarily eliminate: