Question 1

Write a linear cost function equation for each of the following conditions.Use y for estimated costs and X for activity of the cost driver.a.Direct manufacturing labour is $10 per hour.
b.Direct materials cost $9.20 per cubic yard.
c.Utilities have a minimum charge of $1,000, plus a charge of $0.05 per kilowatt-hour.
d.Machine operating costs include $200,000 of machine depreciation per year, plus $75 of utility costs for each day the machinery is in operation.

Accepted Answer

a.y = $10X
b.y = $9.20X
c.y = $1,000 + $0.05X
d.y = $200,000 + $75X

Question 2

Compute the estimated costs for each of the following equations assuming the following costs for July:
  In addition, state whether each is for a variable, fixed, or mixed cost.a.Total estimated costs = intercept
b.Total estimated costs = constant
c.Total estimated costs = constant + (slope × cost driver)
d.Total estimated costs = slope coefficient × cost driver
In addition, state whether each is for a variable, fixed, or mixed cost.

Accepted Answer

a.fixed, $80,000
b.fixed, $80,000
c.mixed, $80,000 + ($6 × 2,000)= $92,000
d.variable, $6 × 2,000 = $12,000

Question 3

A mixed cost has a fixed element.

Accepted Answer

A mixed cost is a cost that has both fixed and variable components. The fixed element represents the portion of the cost that does not vary with changes in activity, while the variable element represents the portion of the cost that does vary with changes in activity. Therefore, by definition, a mixed cost has a fixed element.

Question 4

The cost components of a heater include $35 for the compressor, $12 for the sheet molded compound frame, and $80 per unit for assembly.The factory machines and tools fixed cost is $55,000.The company expects to produce 1,500 heaters in the coming year.What cost function best represents these costs?
A)y = 1,500 + 127X
B)y = 1,500 + 55,000X
C)y = 55,000 + 1,500X
D)y = 55,000 + 127X
E)y = 55,080 + 47X

Accepted Answer

The cost function includes the fixed cost of $55,000 and the variable cost per unit, which is the sum of $35, $12, and $80, totaling $127 per unit.

Question 5

Write a linear cost function equation for each of the following conditions.Use y for estimated costs and X for activity of the cost driver.a.Direct materials cost is $1.50 per kilogram.
b.Direct labor cost is $33.50 per hour.
c.Auto rental has a fixed fee of $150.00 per day plus $1.00 per kilometre driven.

Accepted Answer

The answer of Write a linear cost function equation for...

Question 6

Write a linear cost function equation for each of the following conditions.Use y for estimated costs and X for activity of the cost driver.a.Direct materials cost is $1.30 per kilogram.
b.Direct labour cost is $19.20 per hour.
c.Auto rental has a fixed fee of $20.00 per day plus $.40 per kilometre driven.
d.Machine operating costs include $500 of maintenance per month, and $2 of coolant usage costs for each day the machinery is in operation.

Accepted Answer

The answer of Write a linear cost function equation for...

Question 7

Which of the following is an equation of a variable cost function?
A)Y = ax + bx
B)Y = a + bx
C)Y = b
D)Y = a
E)Y = bx

Accepted Answer

A variable cost function is one where the cost changes based on the level of production or output. The equation Y = bx represents a variable cost function where Y is the total cost, b is the variable cost per unit, and x is the number of units produced or sold. This equation shows that the total cost increases in proportion to the number of units produced or sold, which is the defining characteristic of a variable cost.

Question 8

For April, the month just ended, the cost components to make tapes were $2 per tape plus fixed costs of $10,000.One thousand tapes were produced.For May the cost to make tapes will be $2.20 per tape plus fixed costs of $10,000.Fifteen hundred tapes are expected to be produced.What are the estimates for the intercept and slope coefficient for May, respectively?
A)$2.00 and $10,000.00
B)$2.20 and $10,000.00
C)$10,000.00 and $2.00
D)$10,000.00 and $2.20
E)$22,000 and $10,000

Accepted Answer

Intercept is the fixed cost of producing the tapes, which is the same for both April and May, i.e. $10,000.

Slope coefficient is the incremental cost of producing one additional tape, which has increased from $2 in April to $2.20 in May. Therefore, the slope coefficient for May is $2.20.

Question 9

Write a linear cost function equation for each of the following conditions.Use y for estimated costs and X for activity of the cost driver.a.Direct materials cost is $.75 per kilogram.
b.Direct labour cost is $16.75 per hour.
c.Auto rental has a fixed fee of $75.00 per day plus $.50 per kilometre driven.
d.Machine operating costs include $350 of maintenance per month, and $5.00 of coolant usage costs for each day the machinery is in operation.

Accepted Answer

The answer of Write a linear cost function equation for...

Question 10

Correctly identifying the cost driver and separating fixed from variable costs are important inputs for many management decisions.

Accepted Answer

Correctly identifying cost drivers and separating fixed from variable costs allows managers to accurately analyze the cost behavior of their business and make informed decisions about pricing strategies, production levels, and resource allocation.

Question 11

When estimating a cost function, cost behavior can be approximated by a linear cost function within the relevant range.

Accepted Answer

Within the relevant range of activity, cost behavior can often be approximated by a linear cost function, meaning that the change in total cost is proportional to the change in the level of activity. However, outside of the relevant range, cost behavior may become non-linear and may require a different cost function to accurately estimate costs.

Question 12

Which of the following describes the intercept in a linear cost function?
A)the component of fixed costs that, within the relevant range, does not vary with changes in the level of the cost driver
B)the component of fixed costs that, within the relevant range, does vary with changes in the level of the cost driver
C)the component of variable costs that, within the relevant range, does not vary with changes in the level of the cost driver
D)the component of variable costs that, within the relevant range, does vary with changes in the level of the cost driver
E)the sum of the components of both fixed and variable costs that, within the relevant range, do not vary with changes in the level of the cost driver

Accepted Answer

The intercept in a linear cost function represents the fixed costs, which do not vary with changes in the level of the cost driver. It is the cost incurred even at zero level of activity or production. Therefore, the correct choice is A.

Question 13

Write a linear cost function equation for each of the following conditions.Use y for estimated costs and X for activity of the cost driver.a.Direct manufacturing labour is $20 per hour.
b.Direct materials cost $8.00 per cubic metre.
c.Utilities have a minimum charge of $2,000 plus a charge of $0.05 per kilowatt hour.
d.Factory supplies average $10 per day plus $1.00 for each machine-hour per day.
e.Total manufacturing amortization includes $5,000 for straight-line plant amortization plus machinery amortization of $100 for each day operated.

Accepted Answer

The answer of Write a linear cost function equation for...

Question 14

Compute the estimated costs for each of the following equations, assuming the following costs for July:
  In addition, state whether each is for a variable, fixed, or mixed cost.a.Total estimated costs = intercept
b.Total estimated costs = constant
c.Total estimated costs = constant + (slope × cost driver)
d.Total estimated costs = slope coefficient × cost driver

Accepted Answer

The answer of Compute the estimated costs for each of...

Question 15

For February, the cost components of a picture frame include $0.25 for the glass, $.65 for the wooden frame, and $0.80 for assembly.The assembly desk and tools cost $400.1,000 frames are expected to be produced in the coming year.What cost function best represents these costs?
A)y = 1.70 + 400X
B)y = 400 + 1.70X
C)y = 2.10 + 1,000X
D)y = .90 + 400X
E)y = 400 + 0.90X

Accepted Answer

The cost function should include both fixed costs and variable costs. The fixed costs are the assembly desk and tools costing $400, which do not vary with the number of frames produced. The variable costs include the costs per frame, which are 0.25 for glass, 0.65 for the wooden frame, and 0.80 for assembly. Therefore, the cost function can be expressed as:
y = fixed cost + variable cost per unit * number of units produced
Substituting the values given in the question, we get:
y = 400 + (0.25 + 0.65 + 0.80) * X
Simplifying, we get:
y = 400 + 1.70X
Therefore, the best choice is B.

Question 16

Which of the following statements related to assumptions about estimating linear cost functions is TRUE?
A)Variations in a single cost driver explain variations in total costs.
B)A cost object is anything for which a separate measurement of costs is desired.
C)A linear function approximates cost behaviour at all ranges of production.
D)Correlation refers to the relationship between fixed and variable costs.
E)The graph of total costs does not form a straight line within the relevant range because of variable costs.

Accepted Answer

The assumption that variations in a single cost driver explain variations in total costs is true for estimating linear cost functions. This is because linear relationships assume that the output or volume of activity is the sole determinant of cost changes, which is reflected in variations in a single cost driver. The other options are either incorrect or not applicable to assumptions about estimating linear cost functions.

Question 17

The cost function y = 1,000 + 5X
A)has a slope coefficient of 1,000.
B)is curvilinear because of the 5X.
C)is a straight line.
D)represents a fixed cost.
E)is missing the slope coefficient.

Accepted Answer

The cost function y = 1,000 + 5X has a constant slope of 5, which makes it a straight line.

Question 18

Brandt Cheque Encoders employs 30 individuals.Ten employees are paid $10 per hour for 173 hours a month and the rest are salaried employees paid $6,000 a month.How would total costs of personnel be classified?
A)variable and fixed
B)a fixed cost within a relevant range
C)a variable cost within a relevant range
D)a mixed cost
E)a fixed cost

Accepted Answer

The costs of personnel at Brandt Cheque Encoders are a mixed cost. This is because the company has both hourly and salaried employees, resulting in a combination of fixed costs (salaried employees) and variable costs (hourly employees).

Question 19

A linear cost function is a function in which the graph of total costs versus a single cost driver forms a straight line, within the relevant range.

Accepted Answer

A linear cost function is defined as a function where the graph of total costs versus a single cost driver is a straight line, indicating a constant rate of cost per unit of the cost driver.

Question 20

When estimating linear cost functions, it is assumed that variations in total cost of a cost object cannot be explained by variations in a single cost driver.

Accepted Answer

When estimating linear cost functions, it is assumed that variations in total cost of a cost object can be explained by variations in a single cost driver.

Quiz 10: Analysis of Cost Behaviour

A mixed cost has a fixed element.

The cost components of a heater include $35 for the compressor, $12 for the sheet molded compound frame, and $80 per unit for assembly.The factory machines and tools fixed cost is $55,000.The company expects to produce 1,500 heaters in the coming year.What cost function best represents these costs?

Which of the following is an equation of a variable cost function?

Correctly identifying the cost driver and separating fixed from variable costs are important inputs for many management decisions.

When estimating a cost function, cost behavior can be approximated by a linear cost function within the relevant range.

Which of the following describes the intercept in a linear cost function?

For February, the cost components of a picture frame include $0.25 for the glass, $.65 for the wooden frame, and $0.80 for assembly.The assembly desk and tools cost $400.1,000 frames are expected to be produced in the coming year.What cost function best represents these costs?

Which of the following statements related to assumptions about estimating linear cost functions is TRUE?

The cost function y = 1,000 + 5X

Brandt Cheque Encoders employs 30 individuals.Ten employees are paid $10 per hour for 173 hours a month and the rest are salaried employees paid $6,000 a month.How would total costs of personnel be classified?

A linear cost function is a function in which the graph of total costs versus a single cost driver forms a straight line, within the relevant range.

When estimating linear cost functions, it is assumed that variations in total cost of a cost object cannot be explained by variations in a single cost driver.