Question 1

The cost function y = 80 + 4X:

Accepted Answer

The slope coefficient in the given cost function is 4, indicating that for every unit increase in X, the cost will increase by 4 units. This suggests a positively sloped straight line graph, which means option A is correct. Option B is incorrect since the coefficient is positive, not negative, while option C is incorrect since the y-intercept is 80, not 4. Finally, option D is incorrect since the given function gives a straight line, not a curved one.

Question 2

For January,the cost components of a picture frame include $0.35 for the glass;$0.65 for the wooden frame,and $0.80 for assembly.The assembly desk and tools cost $600.Two thousand frames are expected to be produced in the coming year.What cost function best represents these costs?

Accepted Answer

The cost function is y = 600 + 1.80X, where 600 represents the fixed cost for the assembly desk and tools, and 1.80 is the variable cost per frame (0.35 for glass + 0.65 for the frame + 0.80 for assembly).

Question 3

The cost function y = 8000 + 4X:

Accepted Answer

The given cost function has both a fixed cost component (8000) and a variable cost component (4X), which represent a mixed cost. The slope coefficient of 4 represents the rate of change in cost per unit of X, and the function is a straight line, not curved. It does not intersect the y-axis at 4, so choice C is incorrect.

Question 4

A linear cost function can represent:

Accepted Answer

A linear cost function can represent variable costs, fixed costs, and mixed costs because it can be structured to include a fixed component (the intercept) and a variable component (the slope), thus covering all these cost behaviors.

Question 5

The cost components of an air conditioner include $35 for the compressor;$11.50 for the sheet moulded compound frame;and $80 per unit for assembly.The factory machines and tools cost is $55 000.The company expects to produce 1500 air conditioners in the coming year.What cost function best represents these costs?

Accepted Answer

The cost function combines both fixed costs and variable costs. The fixed cost is the one-time cost for factory machines and tools, which is $55,000. The variable costs are those that change with the number of units produced, which in this case are the costs of the compressor ($35), the frame ($11.50), and assembly ($80) per unit, adding up to $126.50 per unit. Therefore, the cost function is $55,000 (fixed cost) + $126.50X (variable cost per unit times the number of units).

Question 6

A cost function is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost.

Accepted Answer

A cost function is a function that takes numbers and computes a cost. Often, the cost depends on the level of an activity, such as the number of units produced or the number of labor hours worked. The cost function can be used to estimate the cost of producing different levels of output or to find the level of output that minimizes the cost.

Question 7

Each indirect-cost pool of a manufacturing firm:

Accepted Answer

Each indirect-cost pool of a manufacturing firm is a subset of total indirect costs and relates to one cost object. In order to allocate the costs accurately, each pool is assigned a separate cost-allocation rate. Therefore, all of the given options are correct.

Question 8

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

Accepted Answer

A variable cost function is a function that varies with the change in the quantity produced or sold. It can be represented as y = bX, where y is the total variable cost, X is the quantity produced or sold, and b is the variable cost per unit. Choice C, y=bX, represents a variable cost function as it shows the relationship between y (total variable cost) and X (quantity produced or sold) with a constant variable cost per unit.

Question 9

Knowing the proper relevant range is essential to properly classify costs.

Accepted Answer

The relevant range is the range of activity over which the assumptions about cost behavior are valid. It is important to identify the proper relevant range in order to accurately classify costs as fixed, variable, or mixed.

Question 10

Any linear cost function can be graphed by knowing only the slope coefficient.

Accepted Answer

A linear cost function requires both the slope coefficient and the y-intercept to be fully graphed, as it is represented by the equation y = mx + b, where m is the slope and b is the y-intercept.

Question 11

Dougherty Company employs 20 individuals.Eight employees are paid $12 per hour and the rest are salaried employees paid $3000 a month.How would total costs of personnel be classified?

Accepted Answer

The total costs of personnel are classified as mixed because they include both variable costs (hourly wages for eight employees) and fixed costs (salaries for the remaining employees).

Question 12

The cost function y = 100 + 10X:

Accepted Answer

The intercept of the cost function is 100, which means that even when X (the level of production) is zero, there is still a fixed cost of 100. The function has a linear relationship, with a slope coefficient of 10 indicating that the cost increases by 10 units for each additional unit of production.

Question 13

All cost functions are linear.

Accepted Answer

Not all cost functions are linear. Some may have non-linear components, such as squared or exponential terms, which would make the overall function non-linear.

Question 14

The cost function y = 1000 + 5X:

Accepted Answer

The cost function is in the form y = mx + b, which is the equation of a straight line. The slope coefficient is 5, which means that for every increase in X by 1 unit, the cost increases by 5 units. The intercept of 1000 represents the fixed cost.

Question 15

What are the two assumptions behind a simple linear cost function? Briefly explain the three ways that a linear cost function may behave.
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Accepted Answer

The answer of What are the two assumptions behind a...

Question 16

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

Accepted Answer

Within the relevant range, the cost behaviour can be approximated by a linear cost function. This means that for factors that affect the cost within a certain range, the change in the cost is proportional to the change in the factor. However, outside of the relevant range, this relationship may not hold true and the cost may exhibit non-linear behaviour.

Question 17

One assumption frequently made in cost behaviour estimation is that changes in total costs can be explained by changes in the level of a single activity.

Accepted Answer

This assumption is known as the assumption of linearity and is commonly used in cost-volume-profit analysis and other cost behaviour models. It assumes that costs can be explained by a linear relationship with a single activity measure, such as units produced, labor hours worked, or machine hours used. However, this assumption may not always hold true in real-world situations where multiple activities may affect total costs.

Question 18

A ________ is a grouping of individual indirect cost items.

Accepted Answer

A cost pool is a grouping of individual indirect cost items. These items can then be allocated or assigned to specific cost objects such as products, services, or departments. Cost pools help simplify the allocation process by consolidating indirect costs into a manageable number of categories.

Question 19

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 metre.
c.Utilities have a minimum charge of $1000,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.
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Accepted Answer

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

Question 20

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 kilo.
b.Direct labour cost is $16.75 per hour.
c.Car 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.
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Accepted Answer