Question 1

Which of the following is not a way to manage costs?

Accepted Answer

B

Question 2

In a professional services firm such as a medical doctor's practice, which of the following overhead costs most likely represents a mixed cost function?

Accepted Answer

Copy machine costs often include a fixed component (lease or rental fee) and a variable component (cost per copy), making them a mixed cost.

Question 3

Which of the following is not a method of determining a cost driver?

Accepted Answer

Classifying costs is not a method for determining a cost driver; it is a process of categorizing costs.

Question 4

A cost driver is a(n)

Accepted Answer

A cost driver is an activity that causes a particular cost.

Question 5

Why is identification of a relevant range important?

Accepted Answer

The relevant range is important because it is the range of activity within which the assumptions about cost behavior (fixed and variable costs) are valid. This allows a company to rely on these assumptions for accurate planning and decision-making.

Question 6

A mixed cost

Accepted Answer

A mixed cost includes both a variable cost component, which changes with the level of activity, and a fixed cost component, which remains constant regardless of the level of activity.

Question 7

Which of the following would most likely be considered a mixed cost for an attorney's office?

Accepted Answer

The answer of Which of the following would most likely...

Question 8

The relevant range is

Accepted Answer

The relevant range is the range of activity within which the assumptions about fixed and variable cost behavior are valid. It is a band of activity where there is a specific relationship between activity levels and the cost being measured.

Question 9

A linear cost equation

Accepted Answer

A linear cost equation is used to estimate future costs by expressing total costs as a function of fixed and variable costs.

Question 10

If a company expands capacity by 40% or 40,000 units by increasing its fixed costs, and its unit selling price and unit variable cost remain the same, its total profit will

Accepted Answer

If no additional units are sold, the increase in fixed costs will decrease total profit by the amount of the additional fixed costs, as revenue remains unchanged.

Question 11

You are planning a retirement party and have rented space at a capacity of 80 people at a total cost of $800 for the evening. Food is expected to cost $34 per person. Drinks will be provided to attendees at a rate of $8 per drink and each attendee is expected to have on average, two drinks. By how much will the variable cost line rise on a graph for each additional attendee?

Accepted Answer

Food cost + Drink cost = Total Variable cost per attendee; $34 + (2 x $8) = $50

Question 12

You are planning a retirement party and have rented space at a capacity of 80 people at a total cost of $800 for the evening. Food is expected to cost $34 per person. Drinks will be provided to attendees at a rate of $8 per drink and each attendee is expected to have on average, two drinks. At capacity, how much total cost will you generate if you charge each attendee $62?

Accepted Answer

Food cost + Drink cost = Total Variable cost per attendee; $34 + (2 x $8) = $50; Total cost = Total fixed cost + Total variable cost = $800 + (80 x $50) = $4,800

Question 13

Given the mixed cost graph below, what is the amount of the slope?

Accepted Answer

Slope is the difference in the x-axis amounts divided into the difference in the y-axis amounts.Choose any point on the total cost line: ($700 - $600) ÷ (250 - 200) = $2.00

Question 14

At 400 units, what is the total variable costs using the mixed cost graph shown below:

Accepted Answer

Locate 400 units on the vertical axis. At this point, the variable cost is the difference between the total cost of $1,000 and the fixed cost of $300, or $700.

Question 15

Bentley Baskets is equipped to produce up to 240 basket per month. During June, the company produced as few as 180 baskets at a total cost of $5,400, and in May produced a high for the year of 225 baskets at a total cost of $7,200. What is the monthly relevant range for Bentley Baskets for the past two months?

Accepted Answer

The relevant range is the range of activity within which the company has operated in the past two months, which is from 180 baskets (June) to 225 baskets (May).

Question 16

Delivery costs for Fast Delivery appears below for two months of operation. How should the delivery costs be classified?

Accepted Answer

May cost per unit = $4,608 ÷ 960 = $4.80 and June cost per unit = $5,130 ÷ 1,140 = $4.50. If the cost was to be a variable cost, the unit cost amount would have to be the same at both levels, which it is not. Also, for the cost to be a fixed cost, the total delivery cost would have to be the same at both levels, which it is not. The cost does increase with the increase in the number of packages delivered, and the unit cost changes with the activity level, thus, the cost is a mixed cost, since both the per unit cost changes and the total cost changes.

Question 17

Which of the following is not correct concerning the account analysis method?

Accepted Answer

It uses actual costs to predict future costs, not estimated costs.

Question 18

For which of the following can the account analysis method be used?
I. To identify the relevant range
II. To determine the cost equation for multiple periods of data.
III. To estimate costs at different levels of activity

Accepted Answer

The answer of For which of the following can the...

Question 19

Wally World provided the following data concerning its costs of operating and the number of riders of its Scream ride and the related linear regression for selected operation months:  Using the high-low method, what is the unit variable cost for the Scream ride?

Accepted Answer

Using January as the high activity point, and April as the low activity point, we can compute the unit variable cost as (High cost - Low cost) / (High activity - Low activity) = ($11,320 - $9,745) / (3,800 - 3,100) = $1,575 / 700 = $2.25.

Question 20

Wally World provided the following data concerning its costs of operating and the number of riders of its Scream ride and the related linear regression for selected operation months:  Using the high-low method, what is the amount of total fixed costs for the Scream ride?

Accepted Answer

Using January as the high activity point, and April as the low activity point, we can compute the unit variable cost as (High cost - Low cost) / (High activity - Low activity) = ($11,320 - $9,745) / (3,800 - 3,100) = $1,575 / 700 = $2.25. Total fixed costs (at high) = $11,320 - (3,800 x $2.25) = $2,770.

Quiz 3: Cost Behavior and Estimation