Question 1

Activity analysis is one method of approximating cost functions.

Accepted Answer

False

Question 2

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

Accepted Answer

Cost measurement is the initial step in understanding and estimating costs by determining the cost drivers that have an impact on the cost of a product or service.

Question 3

The rental of a car, which includes a fixed daily rate plus an extra fee for each mile driven, is an example of a step cost.

Accepted Answer

A step cost is one where the cost is fixed up to a certain level of usage, and then increases as usage crosses that threshold. In the case of a rental car where the cost is a fixed daily rate plus an extra fee per mile driven, the cost per mile may vary but it does not increase at a specific threshold, hence it is not an example of a step cost.

Question 4

Measuring cost behaviour involves understanding and quantifying how activities of an organization affect levels of costs.

Accepted Answer

Measuring cost behaviour involves identifying how changes in activity levels impact costs, therefore it is true that understanding and quantifying the relationship between activities and costs is necessary to measure cost behaviour.

Question 5

A cost driver, sometimes referred to as the independent variable, is part of the cost function relationship.

Accepted Answer

A cost driver is indeed a variable that has a cause-and-effect relationship with the costs incurred by an organization. It helps in identifying the factors that influence the changes in costs and aids in cost management and control.

Question 6

The high-low method is a reliable method of cost estimation.

Accepted Answer

The high-low method is not always reliable as it only considers the highest and lowest points of data and can overlook other factors that could impact the cost. It also assumes a linear relationship between cost and activity level, which may not always be the case. Therefore, it should be used with caution and complemented with other methods of cost estimation for more accurate results.

Question 7

Plausibility and reliability are two relevant factors to consider in order to ensure accurate and useful cost functions.

Accepted Answer

Plausibility refers to whether the cost function makes sense in terms of the underlying economic theory and the specific industry or market being analyzed. Reliability refers to the consistency and accuracy of the data used to estimate the cost function. Both factors are important in ensuring that the cost function accurately reflects the relationship between cost and production factors, and can be used to make informed business decisions.

Question 8

The following three data points appear to be 
A) a variable cost.
B) a mixed cost.
C) a fixed cost.
D) a step cost.

Accepted Answer

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

Question 9

Committed fixed costs can be altered by management if management decides that different levels of spending are desirable.

Accepted Answer

The answer of Committed fixed costs can be altered by...

Question 10

Capacity costs are large, indivisible chunks of cost that the organization is obligated to incur or usually would not consider avoiding.

Accepted Answer

The answer of Capacity costs are large, indivisible chunks of...

Question 11

Cost behaviour can be graphed with a straight line when a cost changes proportionately with changes in a cost driver.

Accepted Answer

When a cost changes proportionally with changes in a cost driver, it exhibits linear cost behavior, which can be graphed with a straight line. Therefore, the statement is true.

Question 12

The visual-fit method is highly subjective and is more reliable when the cost function of the data is linear.

Accepted Answer

The answer of The visual-fit method is highly subjective and...

Question 13

The following three data points appear to be 
A) a variable cost.
B) a mixed cost.
C) a fixed cost.
D) a step cost.

Accepted Answer

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

Question 14

Linear-cost behaviour
A) is linear over the entire range of production.
B) cannot be graphed as a straight line.
C) exists when a cost changes proportionately with changes in a cost driver.
D) can be used to graph a step cost.

Accepted Answer

Linear-cost behaviour exists when a cost changes proportionately with changes in a cost driver, meaning the cost increases or decreases in a straight, linear fashion. It is different from step cost, which has a fixed cost over a certain range of production before jumping or "stepping up" to a higher cost for the next range of production. Linear-cost behaviour can be graphed as a straight line.

Question 15

Activity analysis is the process of identifying appropriate cost drivers and their effects on the costs of making a product or providing a service.

Accepted Answer

Activity analysis involves identifying the factors that drive the costs of producing a product or providing a service, such as labor, materials, and overhead expenses. By analyzing these drivers, businesses can gain insights into the most effective ways to manage costs and improve profitability.

Question 16

When graphing a cost function, the total variable cost is the intercept, which is the point on the vertical axis where the cost function begins.

Accepted Answer

The intercept on the vertical axis represents the total fixed cost, not the total variable cost. Total variable cost changes with the level of output and does not start at the intercept.

Question 17

Each cost in a manufacturing operation must be either fixed or variable and must be identified with a single cost driver.

Accepted Answer

This statement is false. Some costs in a manufacturing operation may be semi-variable, meaning they have both fixed and variable components. Additionally, some costs may have multiple cost drivers.

Question 18

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

Accepted Answer

Step costs change abruptly at specific intervals of activity because resources and their costs come in indivisible chunks. This is different from fixed costs, which remain constant regardless of changes in activity, and variable costs, which change proportionally to changes in activity. Mixed costs have both fixed and variable components and do not change abruptly.

Question 19

Account analysis is the process of selecting a volume-related cost driver and classifying each account as a variable or fixed cost.

Accepted Answer

Account analysis involves identifying variable and fixed costs by selecting a volume-related cost driver and determining the cost behavior of each account.

Question 20

An example of a volume-driven cost in a book publishing enterprise is
A) wages of editorial staff.
B) paper and ink.
C) rent on the factory.
D) accounts payable clerk's wages.

Accepted Answer

Paper and ink are directly related to the volume of books being published. The more books that are published, the more paper and ink are required, leading to higher costs. Wages of editorial staff and accounts payable clerk's wages are not directly related to the volume of books being published, while rent on the factory may be a fixed cost that does not vary with volume.

Quiz 3: Measurement of Cost Behaviour