Question 1

Discretionary costs reflect:
A)The costs that managers incur to purchase new production machines when the old machines need replacing.
B)Decisions about the maximum amount that will be spent next period for activities such as travel and marketing.
C)Decisions about the amount of variable costs that will be incurred next period.
D)The costs that managers incur to pay overtime when production levels are high.

Accepted Answer

Discretionary costs are costs that are not directly related to production, but rather reflect management's decisions about discretionary expenses such as travel, marketing, and other non-essential activities. It is a management decision as to how much money (within a certain range) will be spent on these activities.

Question 2

Managers at Art's Custom Saddle Manufacturers believe that the learning rate for new employees is about 90%. If it takes a new employee 10 hours to make the first saddle, estimate the cumulative average time per saddle for a new employee to make four saddles. Use the following values as needed to respond:
Ln(95%)/ ln(2)= -0.074
Ln(90%)/ ln(2)= -0.152
Ln(85%)/ ln(2)= -0.234
Ln(80%)/ ln(2)= -0.322
Ln(75%)/ ln(2)= -0.415
Ln(70%)/ ln(2)= -0.515
A)8)1 hours per saddle
B)5)3 hours per saddle
C)7)6 hours per saddle
D)Cannot be determined

Accepted Answer

The learning rate is 90%, which means that each time the employee doubles their output, the time it takes to produce each unit decreases by 10%. So, to make the second saddle, it will take 90% of the time it took to make the first saddle, or 9 hours. To make the third saddle, it will take 90% of the time it took to make the second saddle, or 8.1 hours. To make the fourth saddle, it will take 90% of the time it took to make the third saddle, or 7.29 hours. The cumulative average time per saddle is the total time it takes to make all four saddles divided by the number of saddles, or (10 + 9 + 8.1 + 7.29) / 4 = 8.1 hours per saddle.

Question 3

The cumulative average-time learning curve can be represented mathematically as: A)ln(percent learning)/ ln(2) Use the following values as needed to respond: Ln(95%)/ ln(2)= -0.074 Ln(90%)/ ln(2)= -0.152 Ln(85%)/ ln(2)= -0.234 Ln(80%)/ ln(2)= -0.322 Ln(75%)/ ln(2)= -0.415 Ln(70%)/ ln(2)= -0.515 B)Y = αX^r C)Y = αXr D)α = YX^r

Accepted Answer

The answer of The cumulative average-time learning curve can be...

Question 4

Estimating a cost function using past cost data to help determine future costs is useful if:
A)Past costs are irrelevant and highly discretionary
B)Past costs are irrelevant and not discretionary
C)Past costs are relevant and highly discretionary
D)Past costs are relevant and not discretionary

Accepted Answer

Estimating a cost function using past cost data is useful only if past costs are relevant and not discretionary. If costs are not relevant, they will not help in determining future costs, and if they are highly discretionary, they may not provide an accurate representation of future costs. Therefore, D is the best choice.

Question 5

In most accounting information systems, costs are often recorded and coded so they can be summarized based on different:
A)Cost drivers
B)Cost objects
C)Volumes of activity
D)Independent variables

Accepted Answer

Costs are typically recorded and coded based on cost objects, which are anything for which costs can be measured and assigned, such as products, services, departments, or projects. Cost drivers, volumes of activity, and independent variables may also be used to analyze and summarize costs, but these are not typically how costs are initially recorded and coded in accounting information systems.

Question 6

The best source for determining historical costs is usually:
A)The Internet
B)Interviews with managers
C)The company's accounting information system
D)Financial statements

Accepted Answer

The company's accounting information system is the best source for determining historical costs as it maintains a record of all financial transactions and provides access to the historical data. Financial statements may provide an overview of the historical costs, but they are not as detailed as the accounting information system. Interviews with managers may provide some insights, but they may not have access to all the necessary information, and their recollection may not always be accurate. The internet may provide useful information, but it may not always be reliable or applicable to a specific company's situation.

Question 7

A firm will build 8 units of a product. All costs are subject to an 85% learning curve. The first unit cost $75,000 to build. If the firm values inventory and cost of goods sold at the average cost for all units in the production run, what will be the cost to produce the second unit? Use the following values as needed to respond:
Ln(95%)/ ln(2)= -0.074
Ln(90%)/ ln(2)= -0.152
Ln(85%)/ ln(2)= -0.234
Ln(80%)/ ln(2)= -0.322
Ln(75%)/ ln(2)= -0.415
Ln(70%)/ ln(2)= -0.515
A)$63,750
B)$69,375
C)$75,000
D)Some other amount

Accepted Answer

Using the 85% learning curve, we can calculate the cost to produce the second unit as follows:

Second unit cost = First unit cost * (2^(Log(1/L)/Log(2)^x))
where L is the learning rate (0.85) and x is the number of units produced after the first one (1).

Second unit cost = $75,000 * (2^(Log(1/0.85)/Log(2)^1)) 
Second unit cost = $75,000 * (2^0.234) 
Second unit cost = $69,375

Therefore, the cost to produce the second unit is $69,375. Choice B is the correct answer.

Question 8

The major disadvantage of the high-low method is that:
A)It uses the two most extreme data points in determining a cost function
B)It is difficult to calculate
C)It is difficult to understand
D)It involves more judgmental factors than do other methods

Accepted Answer

The high-low method only uses the highest and lowest data points to determine a cost function, which can lead to an inaccurate representation of the cost behavior. It may not account for outliers or other data points that could impact the cost function.

Question 9

Past cost information, although accurate in predicting future costs, may be:
I. Unavailable
II. Irrelevant
III. Outdated
A)I and II only
B)II and III only
C)II only
D)I, II, and III

Accepted Answer

Past cost information can be unavailable, irrelevant, or outdated, making it not always reliable for predicting future costs.

Question 10

Liva Company wants to develop a cost function for its maintenance costs to estimate such costs for the coming year. The following data are available: Direct Maintenance
Month Labour Hours Costs Incurred
January 4,000 $ 900
February 6,500 1,325
March 7,000 1,500
April 5,500 1,150
Using the high-low method, what is the cost function for maintenance costs?
A)$500 + $1.00 per direct labour hour
B)$300 + $1.50 per direct labour hour
C)$100 + $0.20 per direct labour hour
D)$200 + $0.10 per direct labour hour

Accepted Answer

The answer of Liva Company wants to develop a cost...

Question 11

Cosby Company is attempting to develop the cost function for repair costs. The following past data are available: Machine Hours Repair Costs
4,800 $6,385
3,400 4,585
4,000 5,285
5,900 7,085
Using the high-low method, what is the variable repair cost per machine hour?
A)$0.15
B)$1.00
C)$4.00
D)$5.00

Accepted Answer

The high-low method calculates the variable cost per unit by taking the difference in costs between the highest and lowest activity levels and dividing by the difference in activity levels. Here, the difference in repair costs is $7,085 - $4,585 = $2,500, and the difference in machine hours is 5,900 - 3,400 = 2,500. Thus, the variable cost per machine hour is $2,500 / 2,500 = $1.00.

Question 12

Assume an 80% learning curve and that the first unit takes 6 hours. How long does it take to produce the second unit? Use the following values as needed to respond:
Ln(95%)/ ln(2)= -0.074
Ln(90%)/ ln(2)= -0.152
Ln(85%)/ ln(2)= -0.234
Ln(80%)/ ln(2)= -0.322
Ln(75%)/ ln(2)= -0.415
Ln(70%)/ ln(2)= -0.515
A)4)1 hours
B)3)6 hours
C)4)8 hours
D)Some other amount

Accepted Answer

The answer of Assume an 80% learning curve and that...

Question 13

Liva Company wants to develop a cost function for its maintenance costs to estimate such costs for the coming year. The following data are available: Direct Maintenance
Month Labour Hours Costs Incurred
January 4,000 $ 900
February 6,500 1,325
March 7,000 1,500
April 5,500 1,150
Using the high-low method, what is the variable maintenance cost per direct labour hour?
A)$1.00
B)$0.10
C)$0.20
D)$1.50

Accepted Answer

Using the high-low method, we need to identify the highest and lowest data points and calculate the variable cost per unit based on the difference in costs and hours between these two points.

Highest data point: March, 7,000 labour hours, $1,500 maintenance cost
Lowest data point: January, 4,000 labour hours, $900 maintenance cost

Variable cost per direct labour hour = (Highest cost - Lowest cost)/(Highest labour hours - Lowest labour hours)

= ($1,500 - $900)/(7,000 - 4,000)

= $0.20

Therefore, the variable maintenance cost per direct labour hour is $0.20. The answer is C.

Question 14

Managers go through a series of questions to decide whether to use past costs to estimate future costs. Which of the following questions is least likely to be one of them?
A)Is the cost relevant to the decision?
B)Is the cost highly discretionary?
C)Is the cost an engineered estimate?
D)Is the cost expected to change?

Accepted Answer

The answer of Managers go through a series of questions...

Question 15

After estimating a past cost function, managers:
I. May need to update it for future changes.
II. Have all of the information they need to predict future costs
III. May or may not use it to estimate future costs.
A)I only
B)II only
C)II and III only
D)I and III only

Accepted Answer

After estimating a past cost function, managers may need to update it for future changes. Therefore, statement I is true. However, having a past cost function does not necessarily provide all the information needed to predict future costs, so statement II is false. Finally, managers may choose to use the past cost function to estimate future costs, or they may use other methods, so statement III is true.

Question 16

Which of the following statements is false?
A)Information for some costs cannot easily be obtained from the accounting information system.
B)Useful cost information is rarely available from the accounting information system.
C)The accounting system design affects the availability of useful cost information.
D)The nature of cost information affects its usefulness for decision-making.

Accepted Answer

This statement is false because useful cost information can be obtained from the accounting information system. While there may be some costs that cannot easily be obtained, the accounting system can provide valuable information on various costs such as direct costs and indirect costs. The other statements are true as the design of the accounting system can affect cost information availability and the nature of cost information can affect its usefulness for decision-making.

Question 17

Bob and James are installing new flooring in their home. The house has 5 rooms of approximately equal size where the flooring will be replaced. Bob and James spent 3 hours removing the old flooring from the first room. If Bob and James are operating with an 85% learning curve, what is the estimated average time to remove the flooring from all 5 rooms? Note: ln(85%)/ ln(2)= -0.234.
A)2)05 hours total
B)2)05 hours per room
C)2)55 hours total
D)2)55 hours per room

Accepted Answer

The learning curve suggests that each time the cumulative production doubles, the time per unit decreases by a consistent percentage. With an 85% learning curve, the time to complete each subsequent room decreases. The average time per room is calculated using the learning curve formula, resulting in approximately 2.05 hours per room.

Question 18

Which of the following statements is true?
A)Past costs are always relevant for decisions and are often useful in estimating future cost behaviour.
B)Past costs are always relevant for decisions, but are rarely useful in estimating future cost behaviour.
C)Past costs are never relevant for decisions, nor are they useful in estimating future cost behaviour.
D)Past costs are never relevant for decisions, but are often useful in estimating future cost behaviour.

Accepted Answer

Past costs may not always be relevant for making current decisions as they are sunk costs that cannot be changed. However, past costs can often provide useful information for estimating future cost behavior such as trends in cost increases or decreases. Therefore, option D stating that past costs are never relevant for decisions but often useful in estimating future cost behavior is the best choice.

Question 19

A learning curve is the rate at which:
A)Students learn material for an exam
B)Direct labour employees are provided training by their organizations
C)Labour hours decrease as production increases when a new product is manufactured
D)Profitability decreases because employees have become less efficient.

Accepted Answer

A learning curve refers to the phenomenon where labor hours decrease as production increases due to increased efficiency and experience gained by workers. It's a common effect in manufacturing where repetition of tasks leads to faster and more efficient completion.

Question 20

Liva Company wants to develop a cost function for its maintenance costs to estimate such costs for the coming year. The following data are available: Direct Maintenance
Month Labour Hours Costs Incurred
January 4,000 $ 900
February 6,500 1,325
March 7,000 1,500
April 5,500 1,150
Using the high-low method, what is the fixed maintenance cost?
A)$500
B)$300
C)$200
D)$100

Accepted Answer

The answer of Liva Company wants to develop a cost...

Quiz 2: Cost Concepts, Behaviour, and Estimation

Discretionary costs reflect:

The cumulative average-time learning curve can be represented mathematically as:

Estimating a cost function using past cost data to help determine future costs is useful if:

In most accounting information systems, costs are often recorded and coded so they can be summarized based on different:

The best source for determining historical costs is usually:

The major disadvantage of the high-low method is that:

Past cost information, although accurate in predicting future costs, may be: I. Unavailable II. Irrelevant III. Outdated

Cosby Company is attempting to develop the cost function for repair costs. The following past data are available: Machine Hours Repair Costs 4,800 $6,385 3,400 4,585 4,000 5,285 5,900 7,085 Using the high-low method, what is the variable repair cost per machine hour?

Managers go through a series of questions to decide whether to use past costs to estimate future costs. Which of the following questions is least likely to be one of them?

After estimating a past cost function, managers: I. May need to update it for future changes. II. Have all of the information they need to predict future costs III. May or may not use it to estimate future costs.

Which of the following statements is false?

Which of the following statements is true?

A learning curve is the rate at which: