```Cost Accounting, 13e (Horngren et al.) Chapter 10   Determining How Costs Behave1) One assumption frequently made in cost behavior estimation is that changes in total costs can be explained by changes in the level of a single activity.  Answer:  TRUE Diff: 1 Terms:  cost estimation Objective:  1 AACSB:  Analytical skills2) A cost function is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost. Answer:  TRUE Diff: 1 Terms:  cost function Objective:  1 AACSB:  Reflective thinking3) All cost functions are linear.  Answer:  FALSE Explanation:  All cost functions are not linear, but for cost-behavior estimation we assume some are linear within a relevant range. Diff: 1 Terms:  cost function Objective:  1 AACSB:  Reflective thinking4) When plotted on a graph, cost functions are usually displayed by having the level of activity (machine hours, etc.) plotted on the vertical axis (called the y-axis ) and the amount of total costs corresponding to (or dependent on) the levels of that activity on the horizontal axis (called the x-axis).  Answer:  FALSE Explanation:  When plotted on a graph, cost functions are usually displayed by having the level of activity (machine hours, etc.) plotted on the horizontal axis (called the x-axis ) and the amount of total costs corresponding to (or dependent on) the levels of that activity on the vertical axis (called the y-axis).  Diff: 1 Terms:  cost function Objective:  1 AACSB:  Reflective thinking5) When estimating a cost function, cost behavior can be approximated by a linear cost function within the relevant range.  Answer:  TRUE Diff: 2 Terms:  cost estimation, cost function Objective:  1 AACSB:  Reflective thinking6) y = a + bX represents the general form of the linear cost function.  Answer:  TRUE Diff: 1 Terms:  cost function, linear cost function Objective:  2 AACSB:  Reflective thinking 7) A linear cost function can only represent fixed cost behavior.  Answer:  FALSE Explanation:  A linear cost function can represent fixed, mixed, or variable cost behavior. Diff: 1 Terms:  cost function, linear cost function Objective:  2 AACSB:  Reflective thinking8) In a graphical display of a cost function, the steepness of the slope represents the total amount of fixed costs.  Answer:  FALSE Explanation:  In a graphical display of a cost function, the constant or the y-intercept represents the amount of fixed costs. Diff: 1 Terms:  cost function, linear cost function Objective:  2 AACSB:  Reflective thinking9) The longer the time horizon, the more likely that a cost will have a fixed cost behavior.  Answer:  FALSE Explanation:  The longer the time horizon, the more likely a cost will be variable. Diff: 2 Terms:  cost function, linear cost function Objective:  2 AACSB:  Reflective thinking10) Outside of the relevant range, variable and fixed cost-behavior patterns may change.  Answer:  TRUE Diff: 2 Terms:  cost function, linear cost function Objective:  2 AACSB:  Reflective thinking11) Any linear cost function can be graphed by knowing only the slope coefficient.  Answer:  FALSE Explanation:  A linear function can be graphed if the slope coefficient and the intercept are known. Diff: 1 Terms:  cost function, linear cost function Objective:  2 AACSB:  Reflective thinking12) Knowing the proper relevant range is essential to properly classify costs.  Answer:  TRUE Diff: 1 Terms:  cost function Objective:  2 AACSB:  Reflective thinking13) It can be inferred that when there is a high correlation between two variables, one is the cause of the other.  Answer:  FALSE Explanation:  It cannot be inferred that a high correlation between two variables indicates that one is the cause of the other. A high correlation simply indicates that the variables move together. Diff: 2 Terms:  cost function Objective:  2 AACSB:  Analytical skills 14) An example of a physical cause-and-effect relationship is when additional units of production increase total direct material costs.  Answer:  TRUE Diff: 2 Terms:  cost function Objective:  2 AACSB:  Analytical skills15) Managers should use past data to create a cost function and then use the exact information provided by that cost function to create the budgetary forecast for the next year. Answer:  FALSE Explanation:  Managers are interested in estimating past cost-behavior functions because the estimates can help them make more accurate cost predictions, or forecasts, about future costs. But better management decisions, cost predictions, and estimation of cost functions can be achieved only if managers correctly identify the factors that affect costs. Diff: 2 Terms:  cost function Objective:  2 AACSB:  Reflective thinking16) The industrial engineering method of cost estimation is based on opinions from various departments and is quick and of low cost to apply.  Answer:  FALSE Explanation:  The conference method of cost estimation is based on opinions from various departments and is quick and of low cost to apply. Diff: 1 Terms:  cost estimation, industrial engineering method Objective:  3 AACSB:  Communication17) The account analysis method of cost estimation classifies account costs as fixed, mixed, or variable using qualitative judgments.  Answer:  TRUE Diff: 1 Terms:  cost estimation, account analysis method Objective:  3 AACSB:  Reflective thinking18) The industrial engineering method uses a formal mathematical method to identify cause-and-effect relationships among past data observations.  Answer:  FALSE Explanation:  Quantitative analysis methods use a formal mathematical method to identify cause-and-effect relationships among past data observations. Diff: 1 Terms:  industrial engineering method Objective:  3 AACSB:  Reflective thinking19) The quantitative analysis method uses a formal mathematical method to identify cause-and-effect relationships among past data observations.  Answer:  TRUE Diff: 1 Terms:  quantitative analysis method Objective:  3 AACSB:  Reflective thinking 20) Individual cost items included in the dependent variable should have the same cost driver or more than one cost function should be estimated.  Answer:  TRUE Diff: 2 Terms:  cost function, dependent variable Objective:  4 AACSB:  Reflective thinking21) The first step in estimating a cost function using quantitative analysis is to identify the independent variable.  Answer:  FALSE Explanation:  The first step in estimating a cost function using quantitative analysis is to identify the dependent variable.  Diff: 2 Terms:  cost function, dependent variable Objective:  4 AACSB:  Reflective thinking22) In estimating a cost function using quantitative analysis, the independent variable is the factor used to predict the dependent variable. Answer:  TRUE Diff: 2 Terms:  cost function, dependent variable, independent variable Objective:  4 AACSB:  Reflective thinking23) An example of time-series data is to compile maintenance costs of twelve different manufacturing plants incurred during 20X5.  Answer:  FALSE Explanation:  An example of cross-sectional data is to compile maintenance costs of twelve different manufacturing plants incurred during 20X5. Diff: 1 Terms:  cost estimation, cost function Objective:  4 AACSB:  Reflective thinking24) Evidence of relationships and extreme observations are highlighted when costs and their cost drivers are plotted graphically.  Answer:  TRUE Diff: 2 Terms:  cost estimation, cost function Objective:  4 AACSB:  Reflective thinking25) The most common forms of quantitative analysis are the conference method and the account analysis method.  Answer:  FALSE Explanation:  The most common forms of quantitative analysis are the high-low method and regression analysis. Diff: 1 Terms:  conference, account analysis, high-low method; regression analysis Objective:  4 AACSB:  Reflective thinking 26) Regression analysis relies on only two observations to estimate a linear cost function.  Answer:  FALSE Explanation:  The high-low method relies on only two observations to estimate a linear cost function. Diff: 1 Terms:  regression analysis, linear cost function Objective:  4 AACSB:  Reflective thinking27) The y-intercept of a linear cost function is an accurate cost assessment of using zero machine-hours, even if zero machine-hours is outside of the relevant range.  Answer:  FALSE Explanation:  The y-intercept of a linear cost function is an accurate cost assessment of using zero machine-hours, only if zero machine-hours are within the relevant range. Diff: 2 Terms:  linear cost function Objective:  4 AACSB:  Reflective thinking28) A positive slope of a regression line indicates that total costs are lower for higher values of the cost driver.  Answer:  FALSE Explanation:  A positive slope of a regression line indicates that costs are higher for higher values of the cost driver. Diff: 2 Terms:  regression analysis Objective:  4 AACSB:  Reflective thinking29) The high-low method is more accurate than the regression method of estimating a cost function.  Answer:  FALSE Explanation:  The regression method is more accurate than the high-low method since it uses all available data to estimate a cost function. Diff: 1 Terms:  high-low method, regression analysis Objective:  4 AACSB:  Reflective thinking30) If inaccurate cost estimates are too high, then a company may unknowingly reward a manager for poor performance.  Answer:  TRUE Diff: 3 Terms:  cost estimation Objective:  4 AACSB:  Ethical reasoning31) Simple regression is known as "simple" because it is much less complex than the high-low method.  Answer:  FALSE Explanation:  Simple regression is known as "simple" because it includes only one cost driver. Diff: 2 Terms:  simple regression Objective:  4 AACSB:  Reflective thinking 32) The high-low method involves choosing the period of highest cost driver activity and the period of lowest cost driver activity.  Answer:  TRUE Diff: 2 Terms:  high-low method Objective:  4 AACSB:  Reflective thinking33) A strength of the high-low method of cost estimation is that the high point and the low point are representative of all data points.  Answer:  FALSE Explanation:  A weakness of the high-low method of cost estimation is that the high point and the low point are not representative of all data points. Diff: 2 Terms:  high-low method Objective:  4 AACSB:  Reflective thinking34) In regression analysis, the term "goodness of fit" indicates the strength of the relationship between the cost driver and the costs.  Answer:  TRUE Diff: 2 Terms:  regression analysis Objective:  4 AACSB:  Reflective thinking35) Accurate cost estimation is useful both in understanding past cost relationships and as a means of predicting costs.  Answer:  TRUE Diff: 2 Terms:  cost estimation, cost predictions Objective:  4 AACSB:  Communication36) Machine-hours is a more economically plausible cost driver of machine maintenance than number of direct manufacturing labor-hours.  Answer:  TRUE Diff: 2 Terms:  cost function Objective:  5 AACSB:  Reflective thinking37) The smaller the vertical difference between actual costs and predicted costs the better the goodness of fit.  Answer:  TRUE Diff: 2 Terms:  residual term, regression analysis Objective:  5 AACSB:  Reflective thinking 38) Choosing an economically plausible cost driver for indirect costs is fairly simple and knowledge of operations is unnecessary.  Answer:  FALSE Explanation:  Finding an economically plausible cost driver is not always simple and many times knowledge of operations is necessary. Diff: 2 Terms:  cost function Objective:  5 AACSB:  Reflective thinking39) A flat or slightly sloped regression line indicates a strong relationship.  Answer:  FALSE Explanation:  A flat or slightly sloped regression line indicates a weak relationship. Diff: 3 Terms:  regression analysis Objective:  5 AACSB:  Reflective thinking40) When using an activity-based costing system, a batch-level cost must have a batch-level cost driver.  Answer:  TRUE Diff: 2 Terms:  cost function, cost driver Objective:  5 AACSB:  Reflective thinking41) Activity-based costing systems use the quantitative analysis method exclusively for cost estimation because of its accuracy. Answer:  FALSE Explanation:  Because ABC systems have a great number and variety of cost drivers and cost pools it requires many cost relationships to be estimated. ABC systems use a variety of estimation methods - industrial engineering, conference, and quantitative analysis. In making the choice of method to use, managers trade off detail, accuracy, feasibility, and costs of estimating cost functions. Diff: 2 Terms:  cost function, cost driver Objective:  5 AACSB:  Reflective thinking42) Economic plausibility is an important criterion for choosing a cost driver.  Answer:  TRUE Diff: 1 Terms:  cost function Objective:  5 AACSB:  Reflective thinking43) An "economy of scale" function is an example of a linear cost function.  Answer:  FALSE Explanation:  A nonlinear cost function is a cost function for which the graph of total costs is not a strait line within the relevant range. In an economy of scale situation, where there is a possibility of producting double the product for less than double the cost; the function would be nonlinear. Diff: 1 Terms:  nonlinear cost function Objective:  6 AACSB:  Reflective thinking 44) A step cost function is an example of a nonlinear cost function.  Answer:  TRUE Diff: 1 Terms:  nonlinear cost function Objective:  6 AACSB:  Reflective thinking45) Step fixed-cost functions are variable over the long run.  Answer:  TRUE Diff: 2 Terms:  nonlinear cost function, step cost function Objective:  6 AACSB:  Reflective thinking46) An example of a step variable-cost function is the cost of material-handling labor when inputs are acquired in discrete quantities.  Answer:  TRUE Diff: 2 Terms:  nonlinear cost function, step cost function Objective:  6 AACSB:  Reflective thinking47) A learning curve measures the effect of learning on efficiency.  Answer:  TRUE Diff: 1 Terms:  learning curve Objective:  6 AACSB:  Reflective thinking48) Plotting learning curve observations is helpful in selecting the appropriate learning curve model.  Answer:  TRUE Diff: 1 Terms:  learning curve Objective:  7 AACSB:  Reflective thinking49) When new products are introduced, learning-curve effects can have a major influence on production scheduling.  Answer:  TRUE Diff: 2 Terms:  learning curve Objective:  7 AACSB:  Reflective thinking50) It is appropriate to incorporate expected learning-curve efficiencies when evaluating performance.  Answer:  TRUE Diff: 1 Terms:  learning curve Objective:  7 AACSB:  Ethical reasoning 51) The cumulative average-time learning model with a 90% learning curve indicates that if it takes 100 minutes to manufacture the first unit of a new model, then the second unit will take only 90 minutes to manufacture.  Answer:  FALSE Explanation:  100 × .90 = 90; (100 + X)/2 = 90; X = 80 minutes Diff: 3 Terms:  learning curve, cumulative average-time learning model Objective:  7 AACSB:  Reflective thinking52) The incremental unit-time learning model with a 90% learning curve indicates that if it takes 100 minutes to manufacture the first unit of a new model, then the second unit will take only 90 minutes to manufacture.  Answer:  TRUE Diff: 2 Terms:  incremental unit-time learning model Objective:  7 AACSB:  Reflective thinking53) A learning curve is a function that measures how labor-hours per unit decrease, as units of production increase.  Answer:  TRUE Diff: 2 Terms:  learning curve Objective:  7 AACSB:  Reflective thinking54) Data collection problems can arise when data is recorded manually rather than electronically.  Answer:  TRUE Diff: 1 Terms:  cost estimation Objective:  8 AACSB:  Use of Information Technology55) Misinterpretation of data can arise when fixed costs are reported on a per unit basis.  Answer:  TRUE Diff: 2 Terms:  cost estimation Objective:  8 AACSB:  Reflective thinking56) Inflation is a fact, and therefore its influence should not be removed from the data.  Answer:  FALSE Explanation:  Inflation can distort data that are compared over time so purely inflationary effects should be removed. Diff: 2 Terms:  cost estimation Objective:  8 AACSB:  Reflective thinking 57) Fixed costs are sometimes allocated to individual products as part of the standard costing system. When this is the case, they should be treated as variable costs for purposes of future cost estimation. Answer:  FALSE Explanation:  The danger is to regard these costs as variable rather than fixed. The analyst should distinguish carefully  fixed costs from variable costs and not treat allocated fixed cost per unit as a variable cost. Diff: 2 Terms:  cost estimation Objective:  8 AACSB:  Reflective thinking58) The coefficient of determination (r2) measures the percentage of variation in Y explained by X (the independent variable).  Answer:  TRUE Diff: 1 Terms:  coefficient of determination (r2), regression analysis Objective:  A AACSB:  Reflective thinking59) Generally a coefficient of determination (r2) that is less than 0.30 indicates a goodness of fit.  Answer:  FALSE Explanation:  Generally a coefficient of determination (r2) that is 0.30 or higher indicates a goodness of fit. Diff: 2 Terms:  coefficient of determination (r2), regression analysis Objective:  A AACSB:  Reflective thinking60) Multicollinearity is NOT a concern in simple regression.  Answer:  TRUE Diff: 2 Terms:  simple regression, multicollinearity Objective:  A AACSB:  Reflective thinking61) Multicollinearity exists in multiple regression when two or more independent variables are highly correlated with each other.  Answer:  TRUE Diff: 2 Terms:  multiple regression, multicollinearity Objective:  A AACSB:  Reflective thinking62) Which of the following statements related to assumptions about estimating linear cost functions is FALSE?  A) Variations in a single cost driver explain variations in total costs.  B) A cost object is anything for which a separate measurement of costs is desired.  C) A linear function approximates cost behavior within the relevant range of the cost driver.  D) A high correlation between two variables ensures that a cause-and-effect relationship exists.  Answer:  D Diff: 2 Terms:  cost estimation, linear cost function Objective:  1 AACSB:  Reflective thinking 63) A high correlation between two variables s and t indicates that:  A) s may cause t, or t may cause s  B) both may be affected by a third variable  C) the correlation may be due to random chance  D) All of these answers are correct.  Answer:  D Diff: 2 Terms:  cost function Objective:  2 AACSB:  Reflective thinking64) Which of the following does NOT represent a cause-and-effect relationship?  A) Material costs increase as the number of units produced increases.  B) A company is charged 40 cents for each brochure printed and mailed.  C) Utility costs increase at the same time that insurance costs increase.  D) It makes sense that if a complex product has a large number of parts it will take longer to assemble than a simple product with fewer parts.  Answer:  C Diff: 3 Terms:  cost function Objective:  2 AACSB:  Reflective thinking65) Dougherty Company employs 20 individuals. Eight employees are paid \$12 per hour and the rest are salaried employees paid \$3,000 a month. How would total costs of personnel be classified?  A) variable  B) mixed  C) a variable cost within a relevant range  D) a fixed cost within a relevant range  Answer:  B Diff: 2 Terms:  mixed cost Objective:  2 AACSB:  Analytical skills66) McDevitt Company employs 6 individuals. They are all paid \$12.50 per hour. How would total costs of personnel be classified?  A) variable  B) mixed  C) a variable cost within a relevant range  D) a fixed cost within a relevant range  Answer:  A Diff: 2 Terms:  variable cost Objective:  2 AACSB:  Analytical skills 67) For January, the cost components of a picture frame include \$0.35 for the glass, \$.65 for the wooden frame, and \$0.80 for assembly. The assembly desk and tools cost \$400. 1,000 frames are expected to be produced in the coming year. What cost function best represents these costs?  A) y = 1.80 + 400X  B) y = 400 +1.80X  C) y = 2.20 + 1,000X  D) y = 1.00 + 400X  Answer:  B Diff: 2 Terms:  linear cost function Objective:  2 AACSB:  Analytical skills68)  The cost components of an air conditioner include \$35 for the compressor, \$11.50 for the sheet molded compound frame, and \$80 per unit for assembly. The factory machines and tools cost is \$55,000. The company expects to produce 1,500 air conditioners in the coming year. What cost function best represents these costs?  A) y = 1500 + 126.5X  B) y = 1,500 +55,000X  C) y = 55,000 + 1,500X  D) y = 55,000 +126.50X  Answer:  D Diff: 2 Terms:  linear cost function Objective:  2 AACSB:  Analytical skills69) A linear cost function can represent:  A) mixed cost behaviors  B) fixed cost behaviors  C) variable cost behaviors  D) All of these answers are correct.  Answer:  D Diff: 2 Terms:  linear cost function Objective:  2 AACSB:  Reflective thinking70) The cost function y = 1,000 + 5X: A) has a slope coefficient of 1,000  B) has an intercept of 5  C) is a straight line  D) represents a fixed cost  Answer:  C Diff: 2 Terms:  linear cost function Objective:  2 AACSB:  Analytical skills 71) The cost function y = 100 + 10X: A) has a slope coefficient of 100  B) has an intercept of 100  C) is a nonlinear  D) represents a fixed cost  Answer:  B Diff: 2 Terms:  linear cost function Objective:  2 AACSB:  Analytical skills72) The cost function y = 8,000 + 4X: A) represents a mixed cost  B) will intersect the y-axis at 4  C) has a slope coefficient of 8,000  D) is a curved line  Answer:  A Diff: 2 Terms:  linear cost function Objective:  2 AACSB:  Analytical skills73) The cost function y = 80 + 4X: A) has a slope coefficient of -4 B) will intersect the y-axis at 4  C) has a slope coefficient of 4 D) is a curved line  Answer:  C Diff: 2 Terms:  linear cost function Objective:  2 AACSB:  Analytical skills74) Which of the following is an equation of a variable cost function?  A) y = b  B) y = a + bX  C) y = bX  D) y = a  Answer:  C Diff: 2 Terms:  linear cost function Objective:  2 AACSB:  Analytical skills75) The industrial engineering method estimates cost functions:  A) based on analysis and opinions gathered from various departments  B) quickly while incurring little cost  C) using qualitative rather than quantitative analysis  D) by analyzing the relationship between inputs and outputs in physical terms  Answer:  D Diff: 2 Terms:  cost estimation, industrial engineering method Objective:  3 AACSB:  Reflective thinking 76) The conference method estimates cost functions:  A) using quantitative methods that can be very time consuming and costly  B) based on analysis and opinions gathered from various departments  C) using time-and-motion studies  D) by mathematically analyzing the relationship between inputs and outputs in physical terms Answer:  B Diff: 2 Terms:  conference method, cost estimation Objective:  3 AACSB:  Communication77) The account analysis method estimates cost functions:  A) by classifying cost accounts as variable, fixed, or mixed based on qualitative analysis  B) using time-and-motion studies  C) at a high cost, which renders it seldom used  D) in a manner that cannot be usefully combined with any other cost estimation methods  Answer:  A Diff: 2 Terms:  account analysis method Objective:  3 AACSB:  Reflective thinking78) Quantitative analysis methods estimate cost functions:  A) which depend on the experience and judgment of the analyst for accuracy  B) based on analysis and opinions gathered from various departments  C) using significant amounts of historical data  D) using the pooling of knowledge from each value chain function  Answer:  C Diff: 2 Terms:  cost estimation, cost function Objective:  3 AACSB:  Reflective thinking79) Gathering cost information through observations and interviews from departments within an organization is known as the:  A) account analysis method  B) conference method  C) industrial engineering method  D) quantitative analysis method  Answer:  B Diff: 1 Terms:  account analysis method Objective:  3 AACSB:  Communication80) Which cost estimation method analyzes accounts in the subsidiary ledger as variable, fixed, or mixed using qualitative methods?  A) the account analysis method  B) the conference method  C) the industrial engineering method  D) the quantitative analysis method  Answer:  A Diff: 1 Terms:  account analysis method Objective:  3 AACSB:  Reflective thinking 81) Which cost estimation method uses a formal mathematical method to develop cost functions based on past data?  A) the account analysis method  B) the conference method  C) the industrial engineering method  D) the quantitative analysis method  Answer:  D Diff: 1 Terms:  cost function Objective:  3 AACSB:  Reflective thinking82) Which cost estimation method may use time-and-motion studies to analyze the relationship between inputs and outputs in physical terms?  A) the account analysis method  B) the conference method  C) the industrial engineering method  D) the quantitative analysis method  Answer:  C Diff: 1 Terms:  cost estimation, industrial engineering method Objective:  3 AACSB:  Reflective thinkingAnswer the following questions using the information below: At the Jordan Company, the cost of the personnel department has always been charged to production departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs.	Total personnel department costs are \$160,000.	Department	A	B	C	Number of employees	30	270	100	The number of new hires	8	12	5 83) If the number of employees is considered the cost driver, what amount of personnel costs will be allocated to Department A?  A) \$12,000  B) \$5,333  C) \$51,200  D) \$20,000  Answer:  A Explanation:  A) [30 / (30 + 270 + 100)] × \$160,000 = \$12,000  Diff: 2 Terms:  cost estimation Objective:  3 AACSB:  Communication 84) If the number of new hires is considered the cost driver, what amount of personnel costs will be allocated to Department A?  A) \$12,000  B) \$5,333  C) \$51,200  D) \$20,000  Answer:  C Explanation:  C) [8 / (8 + 12 + 5)] × \$160,000 = \$51,200 Diff: 2 Terms:  cost estimation Objective:  3 AACSB:  Analytical skills85) Which cost estimation method is being used by Jordan Company?  A) the industrial engineering method  B) the conference method  C) the account analysis method  D) the quantitative analysis method  Answer:  B Diff: 2 Terms:  cost estimation Objective:  3 AACSB:  Analytical skillsAnswer the following questions using the information below: At the Holden Company, the cost of the library and information center has always been charged to the various departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of engineers within a department might be a better predictor of library and information center costs.	Total library and information center costs are \$75,000.	Department	A	B	C	Number of employees	125	500	125	The number of engineers	0	75	25 86) Which cost estimation method is being used by Holden Company?  A) the quantitative analysis method   B) the industrial engineering method C) the conference method  D) the account analysis method Answer:  C Diff: 2 Terms:  cost estimation Objective:  3 AACSB:  Communication 87) If the number of employees is considered the cost driver, what amount of library and information center costs will be allocated to Department A?  A) \$50,000  B) \$12,500  C) \$0 D) \$56,250  Answer:  B Explanation:  B) [125/ (125 + 500 + 125)] × \$75,000 = \$12,500Diff: 2 Terms:  cost estimation Objective:  3 AACSB:  Analytical skills88) If the number of engineers is considered the cost driver, what amount of library and information center costs will be allocated to Department A?  A) \$50,000  B) \$12,500  C) \$0 D) \$56,250  Answer:  C Explanation:  C) [0 / (0 + 75 + 25)] × \$75,000 = \$0Diff: 2 Terms:  cost estimation Objective:  3 AACSB:  Analytical skillsAnswer the following questions using the information below: Penny's TV and Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 20X8 operations.	Sales (2,000 televisions)	\$ 900,000	Cost of goods sold	400,000	Store manager's salary per year	70,000	Operating costs per year	157,000	Advertising and promotion per year	15,000	Commissions (4% of sales)	36,000 89) What was the variable cost per unit sold for 20X8?  A) \$18  B) \$218  C) \$339  D) \$200  Answer:  B Explanation:  B) (\$400,000 + \$36,000) / 2,000 = \$218 per unit Diff: 2 Terms:  cost estimation, slope coefficient Objective:  3 AACSB:  Analytical skills 90) What were total fixed costs for 20X8?  A) \$678,000  B) \$436,000  C) \$242,000  D) \$227,000  Answer:  C Explanation:  C) \$70,000 + \$157,000 + \$15,000 = \$242,000 Diff: 2 Terms:  cost estimation, cost function Objective:  3 AACSB:  Analytical skills91) What are the estimated total costs if Penny's expects to sell 3,000 units next year?  A) \$896,000  B) \$678,000  C) \$1,017,000  D) \$799,000  Answer:  A Explanation:  A) \$896,000 = \$70,000 + \$157,000 + \$15,000 + [(\$400,000 + \$36,000) / 2,000 ] × 3,000 Diff: 3 Terms:  cost predictions Objective:  3 AACSB:  Analytical skills92) Which cost estimation method is being used by Penny's TV and Appliance Store?  A) the industrial engineering method  B) the conference method  C) the account analysis method  D) the quantitative analysis method  Answer:  C Diff: 2 Terms:  cost estimation, account analysis method Objective:  3 AACSB:  Analytical skills Answer the following questions using the information below: Miller's Good Value Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2008 operations.	Sales (5,000 microwave ovens)	\$ 1,350,000	Cost of goods sold	540,000	Store manager's salary per year	75,000	Operating costs per year	225,000	Advertising and promotion per year	25,000	Commissions (4% of sales)	67,500 93) Which cost estimation method is being used by Miller's Good Value Appliance Store?  A) the account analysis method B) the conference method  C) the quantitative analysis method   D) the industrial engineering method  Answer:  A Diff: 2 Terms:  cost estimation, account analysis method Objective:  3 AACSB:  Analytical skills94) What was the variable cost per unit sold for 2008?  A) \$13.50 B) \$108  C) \$121.50 D) \$186.50 Answer:  C Explanation:  C) (\$540,000 + \$67,500) / 5,000 = \$121.50 per unit Diff: 2 Terms:  cost estimation, slope coefficient Objective:  3 AACSB:  Analytical skills95) What were total fixed costs for 2008?  A) \$932,500  B) \$325,000  C) \$250,000  D) \$225,000  Answer:  B Explanation:  C) \$75,000 + \$225,000 + \$25,000 = \$325,000 Diff: 2 Terms:  cost estimation, cost function Objective:  3 AACSB:  Analytical skills 96) What are the estimated total costs if Miller's expects to sell 6,500 units next year?  A) \$932,500 B) \$1,104,750  C) \$1,017,500  D) \$665,000 Answer:  B Explanation:  B) \$1,104,750 = \$75,000 + \$225,000 + 15,000 + [(\$540,000 + \$67,500) / 5,000 ]× 6,500 Diff: 3 Terms:  cost predictions Objective:  3 AACSB:  Analytical skills97) The cost to be predicted is referred to as the:  A) independent variable  B) dependent variable  C) cost driver  D) regression  Answer:  B Diff: 2 Terms:  dependent variable, cost function Objective:  4 AACSB:  Reflective thinking98) The independent variable:  A) is also referred to as the cost driver  B) may also be called the cost-allocation base if referring to an indirect cost  C) should have an economically plausible relationship with the dependent variable  D) All of these answers are correct.  Answer:  D Diff: 2 Terms:  independent variable, cost function Objective:  4 AACSB:  Reflective thinking99) How many separate cost pools should be formed given the following information:	Cost	Cost driver	Postage costs	# of brochures mailed	Printing and paper costs	# of brochures mailed	Quality control costs	# of inspections	Customer service costs	# of customers served  A) 1 cost pool  B) 2 cost pools  C) 3 cost pools  D) 4 cost pools  Answer:  C Diff: 2 Terms:  cost function, cost estimation Objective:  4 AACSB:  Analytical skills 100) Place the following steps in order for estimating a cost function using quantitative analysis:	A = Plot the data	B = Estimate the cost function	C = Choose the dependent variable	D = Identify the cost driver  A) D C A B  B) C D A B  C) A D C B  D) D C B A  Answer:  B Diff: 2 Terms:  cost function Objective:  4 AACSB:  Analytical skills101) All individual cost items included in the dependent variable should have:  A) the same cost driver  B) a cause-and-effect relationship with the independent variable  C) an economically plausible relationship with the independent variable  D) All of these answers are correct.  Answer:  D Diff: 2 Terms:  dependent variable Objective:  4 AACSB:  Reflective thinking102) Collecting data on the dependent variable and the cost driver may include:  A) interviews with managers  B) collecting data over a long period of time  C) collecting data from different entities over the same period of time  D) All of these answers are correct.  Answer:  D Diff: 2 Terms:  cost function, dependent variable Objective:  4 AACSB:  Reflective thinking103) A plot of data that results in bunched points with little slope generally indicates:  A) a strong relationship  B) a weak relationship  C) a positive relationship  D) a negative relationship  Answer:  B Diff: 3 Terms:  cost estimation, cost function Objective:  4 AACSB:  Reflective thinking 104) A plot of data that results in one extreme observation MOST likely indicates that:  A) more than one cost pool should be used  B) an unusual event such as a plant shutdown occurred during that month  C) the cost-allocation base has been incorrectly identified  D) individual cost items do not have the same cost driver  Answer:  B Diff: 2 Terms:  cost estimation, cost function Objective:  4 AACSB:  Reflective thinking105) Cross-sectional data analysis includes:  A) using a variety of time periods to measure the dependent variable  B) using the highest and lowest observation  C) observing different entities during the same time period  D) comparing information in different cost pools  Answer:  C Diff: 2 Terms:  cost estimation Objective:  4 AACSB:  Reflective thinking106) Time-series data analysis includes:  A) using a variety of time periods to measure the dependent variable  B) using the highest and lowest observation  C) observing different entities during the same time period  D) comparing information in different cost pools  Answer:  A Diff: 2 Terms:  cost estimation Objective:  4 AACSB:  Reflective thinking107) When using the high-low method, the two observations used are the high and low observations of the:  A) cost driver  B) dependent variables  C) slope coefficient  D) residual term  Answer:  A Diff: 2 Terms:  high-low method Objective:  4 AACSB:  Reflective thinking108) When using the high-low method, the denominator of the equation that determines the slope is the:  A) dependent variable  B) independent variable  C) difference between the high and low observations of the cost driver  D) difference between the high and low observations of the dependent variables  Answer:  C Diff: 2 Terms:  high-low method Objective:  4 AACSB:  Reflective thinking 109) The high-low method:  A) easily handles estimating the relationship between the dependent variable and two or more independent variables  B) is more accurate than the regression method  C) calculates the slope coefficient using only two observed values within the relevant range  D) uses the residual term to measure goodness of fit  Answer:  C Diff: 3 Terms:  high-low method Objective:  4 AACSB:  Reflective thinking110) Put the following steps in order for using the high-low method of estimating a cost function:	A = Identify the cost function	B = Calculate the constant	C = Calculate the slope coefficient	D = Identify the highest and lowest observed values  A) D C A B  B) C D A B  C) A D C B  D) D C B A  Answer:  D Diff: 2 Terms:  cost estimation, cost function Objective:  4 AACSB:  Analytical skills111) Regression analysis:  A) is simple to compute  B) measures the change in a dependent variable associated with one or more independent variables  C) is mathematical so it does not require an understanding of operations  D) uses the constant to measure goodness of fit  Answer:  D Diff: 3 Terms:  regression analysis Objective:  4 AACSB:  Reflective thinking112) Simple regression differs from multiple regression in that:  A) multiple regression uses all available data to estimate the cost function, whereas simple regression only uses simple data  B) simple regression is limited to the use of only the dependent variables and multiple regression can use both dependent and independent variables  C) simple regression uses only one independent variable and multiple regression uses more than one independent variable  D) simple regression uses only one dependent variable and multiple regression uses more than one dependent variable  Answer:  C Diff: 2 Terms:  simple regression Objective:  4 AACSB:  Reflective thinking 113) The slope of the line of regression is the:  A) rate at which the dependent variable varies  B) rate at which the independent variable varies  C) level of total fixed costs  D) level of total variable costs  Answer:  A Diff: 2 Terms:  regression analysis, slope coefficient Objective:  4 AACSB:  Reflective thinkingAnswer the following questions using the information below: The Hunter Company uses the high-low method to estimate the cost function. The information for 20X5 is provided below:	Machine-hours	Labor Costs	Highest observation of cost driver	400	\$10,000	Lowest observation of cost driver	240	\$ 6,800 114) What is the slope coefficient per machine-hour?  A) \$28.33  B) \$0.05  C) \$20.00  D) \$25.00  Answer:  C Explanation:  C) Slope = (\$10,000 - \$6,800) / (400 - 240) = \$20 Diff: 2 Terms:  high-low method, slope coefficient Objective:  4 AACSB:  Analytical skills115) What is the constant for the estimating cost equation?  A) \$2,000  B) \$6,800  C) \$8,000  D) \$10,000  Answer:  A Explanation:  A) EITHER: Constant = \$10,000 - (\$20.00 × 400 hours) = \$2,000OR: Constant = \$6,800 - (\$20.00 × 240 hours) = \$2,000  Diff: 2 Terms:  high-low method, cost estimation Objective:  4 AACSB:  Analytical skills116) What is the estimate of the total cost when 300 machine-hours are used?  A) \$2,000  B) \$4,000  C) \$6,000  D) \$8,000  Answer:  D Explanation:  D) y = \$2,000 + (\$20 × 300) = \$8,000 Diff: 3 Terms:  cost predictions, high-low method Objective:  4 AACSB:  Analytical skills Answer the following questions using the information below: The Taranto Company uses the high-low method to estimate it's cost function. The information for 2008 is provided below:	Machine-hours	 Costs	Highest observation of cost driver	2,000	\$225,000	Lowest observation of cost driver	1,000	\$ 125,000 117) What is the slope coefficient per machine-hour?  A) \$125.00 B) \$12.50 C) \$10.00 D) \$100.00 Answer:  D Explanation:  D) Slope = (\$225,000 - \$125,000) / (2,000 - 1,000) = \$100Diff: 2 Terms:  high-low method, slope coefficient Objective:  4 AACSB:  Analytical skills118) What is the constant for the estimating cost equation?  A) \$125,000  B) \$225,000 C) \$25,000 D) \$0 Answer:  C Explanation:  C) EITHER: Constant = \$225,000 - (\$100.00 × 2,000 hours) = \$25,000OR: Constant = \$125,000 - (\$100.00 × 1,000 hours) = \$25,000Diff: 2 Terms:  high-low method, cost estimation Objective:  4 AACSB:  Analytical skills119) What is the estimate of the total cost when 1,100 machine-hours are used?  A) \$125,000  B) \$135,000 C) \$150,000 D) \$200,000 Answer:  B Explanation:  B) y = \$25,000 + (\$100 × 1,100) = \$135,000Diff: 3 Terms:  cost predictions, high-low method Objective:  4 AACSB:  Analytical skills Answer the following questions using the information below: For Carroll Company, labor-hours are 12,500 and wages \$47,000 at the high point of the relevant range, and labor-hours are 7,500 and wages \$35,000 at the low point of the relevant range. 120) What is the slope coefficient per labor-hour?  A) \$4.67  B) \$3.76  C) \$2.40  D) \$0.42  Answer:  C Explanation:  C) Slope = (\$47,000 - \$35,000) / (12,500 - 7,500) = \$2.40 per labor-hour Diff: 2 Terms:  high-low method, slope coefficient Objective:  4 AACSB:  Analytical skills121) What is the constant?  A) \$17,000  B) \$12,000  C) \$5,000  D) \$41,750  Answer:  A Explanation:  A) Constant = \$47,000 - (\$2.40 × 12,500) = \$17,000OR: Constant = \$35,000 - (\$2.40 × 7,500) = \$17,000  Diff: 2 Terms:  high-low method Objective:  4 AACSB:  Analytical skills122) What is the estimate of total labor costs at Carroll Company when 10,000 labor-hours are used?  A) \$17,000  B) \$41,000  C) \$21,167  D) \$27,000  Answer:  B Explanation:  B) y = \$17,000 + (\$2.40 × 10,000) = \$41,000 Diff: 3 Terms:  high-low method, cost predictions Objective:  4 AACSB:  Analytical skills Answer the following questions using the information below: The Barnett Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Barnett Company has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.	Cost	Hours	\$24,900	5,250	24,000	5,500	36,400	7,500	44,160	9,750	45,000	9,500 123) What is the cost function?  A) y = \$43,191 + \$0.19X  B) y = \$4,875 + \$5.25X  C) y = \$41,900 + \$0.23X  D) y = \$2,430 + \$4.28X  Answer:  D Explanation:  D) b = (\$44,160 - \$24,900) / (9,750 - 5,250) = \$4.28 for the highest and lowest values of the cost driver\$44,160 = a + (\$4.28 × 9.750)a = \$2,430 Diff: 3 Terms:  cost function, high-low method Objective:  4 AACSB:  Analytical skills124) What is the estimated total cost at an operating level of 8,000 hours?  A) \$43,740  B) \$36,670  C) \$46,875  D) \$37,125  Answer:  B Explanation:  B) b = (\$44,160 - \$24,900) / (9,750 - 5,250) = \$4.28 for the highest and lowest values of the cost driver\$44,160 = a + (\$4.28 × 9.750)a = \$2,430 \$36,670 = \$2,430 + (\$4.28 × 8,000) Diff: 3 Terms:  high-low method, cost predictions Objective:  4 AACSB:  Analytical skills Answer the following questions using the information below: Presented below are the production data for the first six months of the year for the mixed costs incurred by Gallup Company.	Month	Cost	Units	January	\$4,890	4,100	February	4,024	3,200	March	6,480	5,300	April	8,840	7,500	May	5,800	4,800	June	7,336	6,600Gallup Company uses the high-low method to analyze mixed costs. 125) How would the cost function be stated?  A) y = \$440 + \$1.12X  B) y = \$3,562.30 + \$0.144X  C) y = \$107.20 + \$1.224X  D) y = \$7,850 + \$0.132X  Answer:  A Explanation:  A) b = (\$8,840 - \$4,024) / (7,500 - 3,200) = \$1.12\$8,840 = a + \$1.12 × 7,500a = \$440  Diff: 3 Terms:  high-low method, cost function Objective:  4 AACSB:  Analytical skills126) What is the estimated total cost at an operating level of 5,000 units?  A) \$6,227.20  B) \$6,040.00  C) \$4,283.20  D) \$8,510.00  Answer:  B Explanation:  B) b = (\$8,840 - \$4,024) / (7,500 - 3,200) = \$1.12\$8,840 = a + \$1.12 × 7,500a = \$440 y = \$440 + \$1.12 × 5,000 = \$6,040Diff: 3 Terms:  high-low method, cost predictions Objective:  4 AACSB:  Analytical skills Answer the following questions using the information below: The Gangwere Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Gangwere Company has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.	Month	Cost	Hours	January	\$40,000	3,500	February	24,400	2,000	March	31,280	2,450	April	36,400	3,000	May	44,160	3,900	June	42,400	3,740 127) How is the cost function stated?  A) y = \$26,672 + \$1.84X  B) y = \$21,360 + \$1.52X  C) y = \$10,112 + \$8.64X  D) y = \$3,600 + \$10.40X  Answer:  D Explanation:  D) b = (\$44,160 - \$24,400) / (3,900 - 2,000) = \$10.40\$44,160 = a + \$10.40 × 3,900a = \$3,600 Diff: 3 Terms:  cost function, high-low method Objective:  4 AACSB:  Analytical skills128) What is the estimated total cost at an operating level of 2,850 hours?  A) \$25,692  B) \$33,240  C) \$32,016  D) \$34,736  Answer:  B Explanation:  B) b = (\$44,160 - \$24,400) / (3,900 - 2,000) = \$10.40\$44,160 = a + \$10.40 × 3,900a = \$3,600 y = \$3,600 + \$10.40 × 2,850 = \$33,240Diff: 3 Terms:  high-low method, cost predictions Objective:  4 AACSB:  Analytical skills129) An inaccurate cost function with a slope coefficient that is estimated too low may MOST likely result in:  A) predicting total costs that are too high  B) initiating cost cutting measures when they are unnecessary  C) evaluating a weak manager as having strong performance  D) promoting a product that is actually more profitable than budgeted  Answer:  B Diff: 3 Terms:  cost function, slope coefficient Objective:  5 AACSB:  Analytical skills 130) An inaccurate cost function with a constant that is estimated too high may MOST likely result in:  A) evaluating a weak manager as providing strong performance  B) promoting a product that is actually less profitable than budgeted  C) predicting total costs that are too low  D) replicating processes that are truly cost saving  Answer:  A Diff: 3 Terms:  cost function, cost estimation Objective:  5 AACSB:  Analytical skills131) A cost function with a lower constant than a year ago could indicate all of the following EXCEPT:  A) last year's cost function was inaccurate  B) a new operations manager is being effective  C) the sales commission percentage has decreased  D) insurance premiums have decreased  Answer:  C Diff: 3 Terms:  cost function, cost estimation Objective:  5 AACSB:  Reflective thinking132) A cost function with a lower slope coefficient than a year ago could indicate that:  A) total variable costs have decreased  B) new cost-cutting initiatives are beneficial  C) production has decreased  D) rental costs have decreased  Answer:  B Diff: 3 Terms:  cost function, cost estimation, slope coefficient Objective:  5 AACSB:  Analytical skills133) If machine maintenance is scheduled at a time when production is at a low level, then:  A) low production is the cost driver of high repair costs  B) an understanding of operations is needed to determine an appropriate cost driver  C) low production should be avoided since it is the cause of machine maintenance  D) machine maintenance cannot be accurately predicted  Answer:  B Diff: 3 Terms:  cost function, cost estimation Objective:  5 AACSB:  Reflective thinking134) Goodness-of-fit measures how well the predicted values in a cost estimating equation:  A) match the cost driver  B) determine the level of activity  C) match the actual cost observations  D) rely on the independent variable  Answer:  C Diff: 2 Terms:  cost function, cost estimation, regression analysis Objective:  5 AACSB:  Reflective thinking 135) A steeply sloped regression line indicates:  A) a strong relationship between the cost driver and costs  B) a greater proportion of fixed costs than variable costs  C) an economically plausible relationship exists  D) management should cut costs  Answer:  A Diff: 3 Terms:  regression analysis, slope coefficient Objective:  5 AACSB:  Reflective thinking136) The smaller the residual term the:  A) stronger the relationship between the cost driver and costs  B) weaker the relationship between the cost driver and costs  C) steeper the slope of the cost function  D) gentler the slope of the cost function  Answer:  A Diff: 2 Terms:  regression analysis, cost function Objective:  5 AACSB:  Reflective thinking137) When using activity-based costing all of the following are true EXCEPT that:  A) all cost drivers should be output unit-level cost drivers  B) there are a great number and variety of cost drivers and cost pools  C) industrial engineering, conference, and regression analysis can be used to estimate slope coefficients  D) the more cost pools, the greater the chance of estimation error  Answer:  A Diff: 2 Terms:  cost function, cost estimation Objective:  5 AACSB:  Reflective thinking138) When evaluating and choosing cost drivers all of the following are true EXCEPT:  A) the cost driver is economically plausible. B) there is a significance of effect of the independent variable C) there is an independent verification of the relationship by a committee of cost accountants  D) there is a goodness of fit between the various data points and the regression line Answer:  C Diff: 2 Terms:  cost function, cost estimation Objective:  5 AACSB:  Reflective thinking139) Over the short run, a nonlinear cost function would MOST likely result from all of the following EXCEPT:  A) quantity discounts for each additional 10,000 parts purchased  B) purchasing another \$250,000 printing machine to double production  C) hiring a third production supervisor  D) incurring greater total utility costs for each machine-hour of operation  Answer:  D Diff: 3 Terms:  cost function, nonlinear cost function Objective:  6 AACSB:  Analytical skills 140) Examples of nonlinear cost functions include all of the following EXCEPT:  A) step variable-cost functions  B) step fixed-cost functions  C) learning curves  D) mixed cost functions  Answer:  D Diff: 2 Terms:  nonlinear cost function Objective:  6 AACSB:  Reflective thinking141) A step fixed-cost function:  A) is fixed over the short run but not over the long run  B) is often approximated with a continuous variable-cost function  C) remains the same over a narrow range of activity  D) example includes setup costs  Answer:  A Diff: 2 Terms:  step cost function Objective:  6 AACSB:  Reflective thinking142) A step variable-cost function:  A) is fixed over the long run but not over the short run  B) is often approximated with a continuous variable-cost function  C) remains the same over a wide range of activity  D) example includes adding additional warehouse space  Answer:  B Diff: 2 Terms:  step cost function Objective:  6 AACSB:  Reflective thinking143) A learning curve is a function:  A) that measures the decline in labor-hours per unit due to workers becoming better at a job  B) that increases at a greater rate as workers become more familiar with their tasks  C) where unit costs increase as productivity increases  D) that is linear  Answer:  A Diff: 2 Terms:  learning curve Objective:  6 AACSB:  Reflective thinking144) An experience curve:  A) is a narrower application of the learning curve  B) measures the decline in cost per unit as production decreases for various value-chain functions such as marketing as production increases  C) only measures the decline in labor-hours per unit as units produced increases  D) measures the increase in cost per unit as productivity increases  Answer:  B Diff: 2 Terms:  experience curve Objective:  6 AACSB:  Reflective thinking 145) To complete the first setup on a new machine took an employee 200 minutes. Using an 80% cumulative average-time learning curve indicates that the second setup on the new machine is expected to take:  A) 160 minutes  B) 120 minutes  C) 80 minutes  D) 60 minutes  Answer:  B Explanation:  B) 200 × .80 = 160; (200 + X)/2 = 160; X = 120 minutes Diff: 3 Terms:  learning curve, cumulative average-time learning model Objective:  7 AACSB:  Analytical skills146) To complete the first setup on a new machine took an employee 200 minutes. Using an 80% incremental unit-time learning model indicates that the second setup on the new machine is expected to take:  A) 160 minutes  B) 120 minutes  C) 80 minutes  D) 60 minutes  Answer:  A Explanation:  A) 200 × .80 = 160 minutes  Diff: 2 Terms:  learning curve, incremental unit-time learning model Objective:  7 AACSB:  Analytical skills147) Learning curve effects can be incorporated:  A) into performance evaluations  B) into production schedules  C) when using costs to price products  D) All of these answers are correct.  Answer:  D Diff: 2 Terms:  learning curve Objective:  7 AACSB:  Reflective thinking148) The learning-curve models presented in the text examine:  A) how quality increases over time  B) how efficiency increases as more units are produced  C) how setup costs decline as more workers are added  D) the change in variable costs when quantity discounts are available  Answer:  B Diff: 2 Terms:  learning curve Objective:  7 AACSB:  Reflective thinking 149) The ideal database contains:  A) numerous cost driver observations  B) reliably measured observations  C) cost driver observations spanning a wide range  D) All of these answers are correct.  Answer:  D Diff: 1 Terms:  cost estimation Objective:  8 AACSB:  Reflective thinking150) Data collection problems arise when:  A) data are recorded electronically rather than manually  B) accrual-basis costs are used rather than cash-basis costs  C) fixed and variable costs are not separately identified and both are allocated to products on a per unit basis  D) purely inflationary price effects are removed  Answer:  C Diff: 3 Terms:  cost estimation Objective:  8 AACSB:  Reflective thinking151) Managers who design data collection reports that regularly and routinely obtain required data are helping to ensure that:  A) inflationary effects are removed  B) all data are recorded  C) extreme values are not used to calculate cost functions  D) the relationship between the cost driver and the cost remains stable over time  Answer:  B Diff: 2 Terms:  cost estimation Objective:  8 AACSB:  Reflective thinking152) Extreme values of observations may be the result of:  A) a misplaced decimal point in the recorded data  B) classifying a cost incorrectly  C) a temporary plant shutdown  D) All of these answers are correct.  Answer:  D Diff: 2 Terms:  cost estimation Objective:  8 AACSB:  Reflective thinking153) All of the following are cost analysis problems EXCEPT:  A) fixed costs are allocated as if they are variable costs  B) extreme observations are adjusted or removed  C) time periods differ for measuring items included in the dependent variable and the cost driver(s)  D) homogeneous relationships between individual cost items in the dependent variable pool and cost drivers may not be present  Answer:  B Diff: 3 Terms:  cost estimation Objective:  8 AACSB:  Reflective thinking 154) The coefficient of determination is important in explaining variances in estimating equations. For a certain estimating equation, the unexplained variation was given as 26,505. The total variation was given as 46,500. What is the coefficient of determination for the equation?  A) 0.34  B) 0.43  C) 0.57  D) 0.66  Answer:  B Explanation:  B) r2 = 1 - (26,505/46,500) = 0.43 Diff: 2 Terms:  coefficient of determination (r2) Objective:  A AACSB:  Analytical skills155) The Bhaskara Corporation used regression analysis to predict the annual cost of indirect materials. The results were as follows: 	Indirect Materials Cost Explained by Units Produced	Constant	\$21,890	Standard error of Y estimate	\$4,560	r2	0.7832	Number of observations	22	X coefficient(s)	11.75	Standard error of coefficient(s)	2.1876What is the linear cost function?  A) Y = \$21,890 + \$11.75X  B) Y = \$4,560 + \$5.15X  C) Y = \$20,100 + \$4.60X  D) None of these answers is correct.  Answer:  A Diff: 2 Terms:  simple regression, cost function Objective:  A AACSB:  Analytical skills 156) Craig's Cola was to manufacture 1,000 cases of cola next week. The accountant provided the following analysis of total manufacturing costs. 	Variable	Coefficient	Standard Error	t-Value	Constant	100	71.94	1.39	Independent variable	200	91.74	2.18	r2 = 0.82 What is the estimated cost of producing the 1,000 cases of cola?  A) \$200,100  B) \$142,071  C) \$100,200  D) \$9,000  Answer:  A Explanation:  A) y = \$100 + (\$200 × 1,000) = \$200,100  Diff: 2 Terms:  simple regression, cost predictions Objective:  A AACSB:  Analytical skills157) Pam's Stables used two different independent variables (trainer hours and number of horses) in two different equations to evaluate the cost of training horses. The most recent results of the two regressions are as follows: Trainer's hours:Variable	Coefficient	Standard Error	t-ValueConstant	\$913.32	\$198.12	4.61Independent Variable	\$20.90	\$2.94	7.11r2 = 0.56Number of horses:Variable	Coefficient	Standard Error	t-ValueConstant	\$4,764.50	\$1,073.09	4.44Independent Variable	\$864.98	\$247.14	3.50r2 = 0.63What is the estimated total cost for the coming year if 16,000 trainer hours are incurred and the stable has 400 horses to be trained, based on the best cost driver?  A) \$99,929.09  B) \$350,756.50  C) \$335,313.32  D) \$13,844,444.50  Answer:  B Explanation:  B) y = \$4,764.50 + \$864.98 × 400 = \$350,756.50 based on highest r2, which uses # of horses as the cost driverDiff: 3 Terms:  simple regression, cost predictions Objective:  A AACSB:  Analytical skills 158) A major concern that arises with multiple regression is multicollinearity, which exists when:  A) in simple regression, when the dependent variable is not normally distributed  B) in simple regression, when the R2 statistic is low  C) in multiple regression, when the R2 statistic is low  D) in multiple regression, when two or more independent variables are correlated with one another  Answer:  D Diff: 2 Terms:  multiple regression, multicollinearity Objective:  A AACSB:  Analytical skills159) In multiple regression, when two or more independent variables are correlated with one another, the situation is known as:  A) heteroscedasticity  B) homoscedasticity  C) multicollinearity  D) autocorrelation  Answer:  C Diff: 2 Terms:  multiple regression, multicollinearity Objective:  A AACSB:  Reflective thinking160) 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 labor is \$10 per hour.b.	Direct materials cost \$9.20 per cubic yard.c.	Utilities have a minimum charge of \$1,000, 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.  Answer:  a.	y = \$10Xb.	y = \$9.20Xc.	y = \$1,000 + \$0.05Xd.	y = \$200,000 + \$75X  Diff: 1 Terms:  linear cost function Objective:  1 AACSB:  Analytical skills161) 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 pound.b.	Direct labor cost is \$16.75 per hour.c.	Auto rental has a fixed fee of \$75.00 per day plus \$.50 per mile 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.  Answer:  a.	y = \$.75Xb.	y = \$16.75Xc.	y = \$75 + \$0.50Xd.	y = \$350 + \$5X  Diff: 1 Terms:  linear cost function Objective:  1 AACSB:  Analytical skills 162) The cost of the personnel department at the Miller Company has always been charged to the production departments based upon number of employees. Recently, opinions gathered from the department managers indicated that the number of new hires might also be a predictor of personnel costs to be assigned. Total personnel department costs are \$120,000.	Department	Department	Department	Cost Driver	A	B	C	Number of employees	300	250	50	The number of new hires	15	25	10Required:Using the above data, prepare a report that contrasts the different amounts of personnel department cost that would be allocated to each of the production departments if the cost driver used isa.	number of employees.b.	the number of new hires.c.	Which cost estimation method is being used by Miller Company?  Answer:  	Department	Department	Department	Cost Driver	A	B	Ca.	Number of employees	300/600	250/600	50/600	\$60,000	\$50,000	\$10,000b.	The number of new hires	15/50	25/50	10/50	\$36,000	\$60,000	\$24,000c.	Miller Company is using the conference method for cost estimation.  Diff: 2 Terms:  conference method, cost estimation Objective:  3 AACSB:  Communication163) The managers of the production department have decided to use the production levels of 20X2 and 20X4 as examples of the highest and lowest years of operating levels. Data for those years are as follows: 	Year	Chemicals used	Overhead Costs	20X2	140,000 gallons	\$115,000	20X4	120,000 gallons	\$100,000Required: What is the cost estimating equation for the department if gallons of chemicals are used as the cost driver?  Answer:  Slope (variable cost)	= (\$115,000 - \$100,000) / (140,000 - 120,000) = \$0.75 Constant (fixed cost)	= \$100,000 - \$0.75(120,000) = \$10,000 Estimating equation	= \$10,000 + \$0.75DM  Diff: 1 Terms:  cost estimation, slope coefficient, constant Objective:  4 AACSB:  Analytical skills 164) Wimmer's Storage ran its freezer in Februar
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