Question 1

Cost estimation is the process of estimating the relationship between costs and the cost drivers that cause those costs.

Accepted Answer

Cost estimation involves analyzing how different factors, known as cost drivers, influence the overall costs, allowing for more accurate budgeting and financial planning.

Question 2

In the formula, "TC = F + VX", X is considered to be the cost driver.

Accepted Answer

In the formula "TC = F + VX", TC represents the total cost, F represents fixed costs, V represents the variable cost per unit of activity, and X represents the level of activity or the cost driver, which influences the total variable cost.

Question 3

A step or semifixed cost increases in a linear pattern as activity levels decrease.

Accepted Answer

A step or semifixed cost typically remains constant over a range of activity levels and then jumps to a higher level once the upper limit of the current range is exceeded. It does not increase in a linear pattern as activity levels decrease.

Question 4

Step costs are common wherever people are hired in time increments, such as hourly, daily or monthly.

Accepted Answer

Step costs remain fixed for a certain level of activity, but once that level is exceeded, they jump to a higher level. Hiring people in time increments like hourly, daily, or monthly is a common scenario where step costs occur, as labor costs will increase in steps with the need for more personnel.

Question 5

All costs can be divided into variable and fixed costs

Accepted Answer

Some costs, known as mixed or semi-variable costs, have both fixed and variable components and cannot be classified strictly as one or the other.

Question 6

In multiple regression analysis, we assume only one variable may impact the dependent variable

Accepted Answer

The answer of In multiple regression analysis, we assume only...

Question 7

A cellular telephone plan that charges $45 per month for up to 1000 minutes per month of airtime and then charges $0.50 per minute for each minute used over 1000 is an example of a step cost.

Accepted Answer

This is an example of a mixed cost, which includes a fixed component ($45 per month) and a variable component ($0.50 per minute over 1000 minutes). Step costs change at certain levels of activity, but not for every unit of change.

Question 8

Learning curve is the mathematical or graphic representation of the systematic relationship between the amount of experience in performing a task and the time required to perform it.

Accepted Answer

The learning curve theory posits that as individuals or organizations gain experience in performing a task, the time required to perform that task decreases in a predictable manner, often represented mathematically or graphically.

Question 9

If the learning curve for a production process is 80 percent, the time required to produce each unit is 80 percent of the time to produce the first unit.

Accepted Answer

The learning curve concept implies that the time required to produce the second unit is 80 percent of the time it took to produce the first unit. As production continues, the time required to produce each subsequent unit decreases at a predetermined rate, but it does not mean that all units are produced at 80 percent of the time it took to produce the first unit.

Question 10

The learning curve formula "Y = aX raised to b"
is a linear relationship.

Accepted Answer

The learning curve formula "Y = aX^b" represents a power relationship, not a linear one, because of the exponent on X.

Question 11

In regression analysis, X is considered to be an independent variable.

Accepted Answer

In regression analysis, X typically represents the independent variable, which is the variable that is manipulated or selected by the researcher to observe its effect on the dependent variable, often denoted as Y.

Question 12

The high-low method is not considered as technically equal to the regression method.

Accepted Answer

The high-low method is a simpler form of estimating fixed and variable costs in accounting and is not as accurate or technically sophisticated as the regression method, which uses statistical techniques to estimate the relationship between variables.

Question 13

In the cost equation, TC = F + VX, the intercept is represented by "V".

Accepted Answer

In the cost equation TC = F + VX, the intercept is represented by "F," which stands for fixed costs, while "V" represents the variable cost per unit.

Question 14

Multiple regression is a regression equation with more than one independent variable.

Accepted Answer

The answer of Multiple regression is a regression equation with...

Question 15

The first step in performing multiple regression is to identify the activities that are logical cost drivers.

Accepted Answer

Identifying logical cost drivers is crucial as they are the independent variables that will be used to predict the dependent variable in multiple regression analysis.

Question 16

The account analysis and regression approaches will cost approximately the same amount to analyze a company's costs.

Accepted Answer

The account analysis approach typically involves less complex analysis and can be less costly compared to the regression approach, which requires statistical software and expertise to analyze data for cost behavior patterns.

Question 17

The fixed cost per unit increases as the activity level increases within the relevant range.

Accepted Answer

Fixed costs per unit decrease as the activity level increases within the relevant range because the total fixed costs are spread over more units, reducing the cost per unit.

Question 18

Engineering estimates are cost estimates based on measurement and pricing of the work involved in the activities that go into a product.

Accepted Answer

Engineering estimates involve detailed analysis of the materials, labor, equipment, and other resources required for a project, allowing for precise measurement and pricing of the work involved in creating a product or completing a project.

Question 19

The cost estimation method of "statistical methods"
uses regression analysis.

Accepted Answer

Statistical methods for cost estimation often involve regression analysis to predict the cost of a project based on historical data and variables that influence project costs.

Question 20

The engineering estimates method is less costly than the other cost estimation methods.

Accepted Answer

The engineering estimates method can be more costly because it requires detailed analysis and expertise to assess the technical aspects of production processes.

Quiz 11: Cost Estimation