Question 1

A p-value of 89% for the slope coefficient in a regression of a cost driver against a cost indicates
A) The true variable costs are statistically significantly different from zero
B) There is only an 11% chance the true variable costs are zero
C) The relationship between the cost and the cost driver is nonlinear
D) None of the above

Accepted Answer

A p-value of 89% indicates weak evidence against the null hypothesis, which is typically set as there being no relationship between the cost and the cost driver. Therefore, we fail to reject the null hypothesis, and there is no evidence to suggest that the slope coefficient is different from zero.

Question 2

In a regression equation, variable costs are represented by the
A) Slope
B) Intercept
C) Adjusted R-square coefficient
D) t-statistic

Accepted Answer

The slope in a regression equation represents the change in the dependent variable for a unit change in the independent variable. In the context of cost analysis, variable costs are those costs that change as a result of changes in the level of production or sales, so they are typically represented by the slope in a regression equation.

Question 3

The rent on a store, where the landlord charges $1,200 per month plus a percentage of sales revenue, is a
A) Fixed cost
B) Variable cost
C) Mixed cost
D) Stepwise linear cost

Accepted Answer

The rent includes both a fixed component of $1,200 per month and a variable component based on the store's sales revenue. Therefore, it is considered a mixed cost.

Question 4

The total cost of materials, where the supplier charges $9/lb if 0-1000 pounds are purchased, $8/lb if 1001-2000 pounds are purchased and $7 if 2001 or more pounds are purchased, is a
A) Fixed cost
B) Variable cost
C) Mixed cost
D) Stepwise linear cost

Accepted Answer

The answer of The total cost of materials, where the...

Question 5

The depreciation on a factory machine is a
A) Fixed cost
B) Variable cost
C) Mixed cost
D) Stepwise linear cost

Accepted Answer

Depreciation is a fixed cost because it does not vary with changes in volume or level of production. It is an ongoing expense that is incurred regardless of the level of activity in the factory.

Question 6

If we are determining costs for a particular case at a law office, the cost of rent for the office would be
A) A direct cost
B) An indirect cost
C) A mixed cost
D) An irrelevant cost

Accepted Answer

Rent for the office is an indirect cost because it cannot be directly attributed to a specific case. It is instead an overhead expense that is necessary for the overall functioning of the law office.

Question 7

If firm A has a learning curve with 90% learning and firm B has a learning curve with 80% learning, then
A) Firm A has more experienced workers
B) Firm B will be more cost efficient over time
C) Firm A workers learn more quickly
D) Firm B has less experienced workers

Accepted Answer

The learning curve with 80% learning for firm B is steeper than the learning curve with 90% learning for firm A. This means that over time, firm B will be able to produce output at a lower cost than firm A. It is not possible to determine which firm has more or less experienced workers or which workers learn more quickly based solely on their learning curves.

Question 8

A p-value of 1% for the intercept term in a regression of a cost driver against a cost indicates
A) The true fixed costs are statistically significantly different from zero
B) There is only a 1% chance the true fixed costs are zero
C) The variable costs are immaterial in this cost function
D) Both (a) and (b)

Accepted Answer

A p-value of 1% for the intercept term in a regression of a cost driver against a cost indicates that both the true fixed costs are statistically significantly different from zero and there is only a 1% chance the true fixed costs are zero. Therefore, both options (a) and (b) are correct. The p-value does not give information about the variable costs, so (c) is incorrect.

Question 9

Which of the following statements is true?
A) Opportunity costs are never relevant for decision making
B) Discretionary costs are never relevant for decision making
C) Marginal costs are never relevant for decision making
D) Sunk costs are never relevant for decision making

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered. Since they cannot be changed by current or future decisions, they should not be considered when making decisions. Opportunity costs, discretionary costs, and marginal costs, on the other hand, are relevant for decision making as they represent potential alternatives or incremental costs that could be affected by a decision. Therefore, options A, B, and C are incorrect.

Question 10

The difference between simple regression and multiple regression is that
A) Simple regression is easier to perform in Excel than multiple regression
B) Simple regression is only performed once when estimating a cost function, whereas multiple regression is performed more than once
C) Simple regression uses only one cost driver, whereas multiple regression uses more than one cost driver
D) Simple regression is for estimating only one cost, and multiple regression is for estimating more than one cost

Accepted Answer

The main difference between simple regression and multiple regression is the number of cost drivers used. Simple regression only uses one cost driver, while multiple regression uses more than one cost driver. This allows for a more complex and accurate estimation of costs based on multiple variables.

Question 11

Which of the following statements is false?
A) A cost can be defined as a direct cost if the bookkeeping system can keep track of how much of the cost was consumed by the cost object
B) Whether a cost is direct or indirect cannot be determined until the cost object has been defined
C) If the cost object is a batch of 1000 units of production, then factory property taxes could be a direct cost if the bookkeeping system is detailed enough
D) Some indirect costs might have been considered direct costs if a company had better technology for capturing information

Accepted Answer

Factory property taxes are an indirect cost and cannot be classified as a direct cost for a batch of 1000 units of production.

Question 12

Fixed costs
A) Do not vary in total within the relevant range
B) Do not vary on a per-unit basis within the relevant range
C) Vary on a per-unit basis in direct proportion to changes in the cost driver within the relevant range
D) Vary in total as the cost driver changes within the relevant range

Accepted Answer

Fixed costs do not vary in total within the relevant range. This means that regardless of changes in production or sales, the total fixed costs remain the same. However, fixed costs may vary on a per-unit basis as production levels change, which is why option B and C are incorrect. Option D describes variable costs, not fixed costs.

Question 13

A high adjusted R-square for the regression of a cost against a cost driver indicates
A) The predicted linear relationship between the cost and the cost driver is probably correct
B) The relationship between the cost and the cost driver is probably linear
C) The cost driver explains a high percentage of the variation of the cost
D) The cost driver is statistically significant

Accepted Answer

A high adjusted R-square indicates that a high percentage of the variation in the cost can be explained by the cost driver. It does not necessarily mean that the relationship is linear or that it is statistically significant. Therefore, option C is the best choice as it correctly interprets the meaning of a high adjusted R-square.

Question 14

The total cost of salaries of production supervisors, where 2 supervisors are needed for each 8-hour shift, where the relevant range is 0 units to the number of units that can be produced at full capacity using 2 8-hour shifts is a
A) Fixed cost
B) Variable cost
C) Mixed cost
D) Stepwise linear cost

Accepted Answer

The cost of salaries for production supervisors is a stepwise linear cost because it remains constant for a range of production levels (within each shift) and increases in steps when additional shifts are required.

Question 15

Which of the following could be defined as a cost object?
A) A single unit of product in a manufacturing process
B) A batch of products in a manufacturing process
C) A business process, such as managing accounts receivable
D) All of the above

Accepted Answer

All of the options could be defined as a cost object. A cost object is any item or activity for which costs are measured or assigned. Therefore, a single unit (option A), a batch of products (option B), and a business process (option C) could all be cost objects in different manufacturing or business settings.

Question 16

Variable costs
A) Do not vary in total within the relevant range
B) Do not vary on a per-unit basis within the relevant range
C) Vary on a per-unit basis within the relevant range
D) Both (a) and (c)

Accepted Answer

Variable costs remain constant on a per-unit basis within the relevant range, meaning the cost per unit does not change even though the total variable cost will vary with the level of production or activity.

Question 17

Which of the following is an alternative name for the cost being predicted in a regression analysis?
A) Dependent variable
B) Independent variable
C) Beta
D) Slope

Accepted Answer

The cost being predicted is the outcome variable, which is also referred to as the dependent variable in regression analysis. The independent variable(s) (also known as predictors or regressors) are used to explain or predict the outcome variable. Beta and slope are coefficients in the regression equation that help determine the relationship between the independent and dependent variables.

Question 18

Regression analysis works best when the relationship between costs and cost drivers is
A) Positive and linear
B) Linear and direct
C) Positive and indirect
D) Positive, linear, and indirect

Accepted Answer

Regression analysis assumes a linear relationship between costs and cost drivers, where an increase in the cost driver results in a proportional increase in costs. Additionally, a positive relationship means that as the cost driver increases, so do the costs. Therefore, choice A, positive and linear, is the best option.

Question 19

A firm's production is expected to show an 85% learning rate. The first unit took 200 hours to produce. The second unit will take
A) 170 hours
B) 140 hours
C) 200 hours
D) 289 hours

Accepted Answer

The second unit will take 85% of the time it took to produce the first unit, so 0.85 * 200 hours = 170 hours.

Question 20

In a regression equation, fixed costs are represented by the
A) Slope
B) Intercept
C) Error term
D) Adjusted R-square coefficient

Accepted Answer

In a regression equation, fixed costs are represented by the intercept. The intercept represents the value of the dependent variable when all independent variables are equal to zero, which in the case of fixed costs is the minimum cost that the company has to incur regardless of the level of output. The slope represents the change in the dependent variable for a unit change in the independent variable, the error term represents the difference between the actual and predicted values of the dependent variable, and the adjusted R-square coefficient is a measure of the goodness of fit of the regression model.

Quiz 2: The Cost Function

A p-value of 89% for the slope coefficient in a regression of a cost driver against a cost indicates

In a regression equation, variable costs are represented by the

The rent on a store, where the landlord charges $1,200 per month plus a percentage of sales revenue, is a

The total cost of materials, where the supplier charges $9/lb if 0-1000 pounds are purchased, $8/lb if 1001-2000 pounds are purchased and $7 if 2001 or more pounds are purchased, is a

The depreciation on a factory machine is a

If we are determining costs for a particular case at a law office, the cost of rent for the office would be

If firm A has a learning curve with 90% learning and firm B has a learning curve with 80% learning, then

A p-value of 1% for the intercept term in a regression of a cost driver against a cost indicates

Which of the following statements is true?

The difference between simple regression and multiple regression is that

Which of the following statements is false?

Fixed costs

A high adjusted R-square for the regression of a cost against a cost driver indicates

The total cost of salaries of production supervisors, where 2 supervisors are needed for each 8-hour shift, where the relevant range is 0 units to the number of units that can be produced at full capacity using 2 8-hour shifts is a

Which of the following could be defined as a cost object?

Variable costs

Which of the following is an alternative name for the cost being predicted in a regression analysis?

Regression analysis works best when the relationship between costs and cost drivers is

A firm's production is expected to show an 85% learning rate. The first unit took 200 hours to produce. The second unit will take

In a regression equation, fixed costs are represented by the