Cost Accounting, 13e (Horngren et al.) 
Chapter 10

Determining How Costs Behave

1)

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 skills

2)

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 thinking

3)

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 thinking

4)

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 thinking

5)

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 thinking

6)

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 thinking

8)

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 thinking

9)

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 thinking

10)

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 thinking

11)

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 thinking

12)

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

TRUE
Diff: 1
Terms:

cost function
Objective:

2
AACSB:

Reflective thinking

13)

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 skills

15)

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 thinking

16)

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:

Communication

17)

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 thinking

18)

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 thinking

19)

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 thinking

21)

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 thinking

22)

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 thinking

23)

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 thinking

24)

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 thinking

25)

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 thinking

27)

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 thinking

28)

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 thinking

29)

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 thinking

30)

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 reasoning

31)

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 thinking

33)

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 thinking

34)

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 thinking

35)

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:

Communication

36)

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 thinking

37)

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 thinking

39)

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 thinking

40)

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 thinking

41)

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 thinking

42)

Economic plausibility is an important criterion for choosing a cost driver.
Answer:

TRUE
Diff: 1
Terms:

cost function
Objective:

5
AACSB:

Reflective thinking

43)

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 thinking

45)

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 thinking

46)

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 thinking

47)

A learning curve measures the effect of learning on efficiency.
Answer:

TRUE
Diff: 1
Terms:

learning curve
Objective:

6
AACSB:

Reflective thinking

48)

Plotting learning curve observations is helpful in selecting the appropriate learning curve model.
Answer:

TRUE
Diff: 1
Terms:

learning curve
Objective:

7
AACSB:

Reflective thinking

49)

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 thinking

50)

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 thinking

52)

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 thinking

53)

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 thinking

54)

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 Technology

55)

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 thinking

56)

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 thinking

58)

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 thinking

59)

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 thinking

60)

Multicollinearity is NOT a concern in simple regression.
Answer:

TRUE
Diff: 2
Terms:

simple regression, multicollinearity
Objective:

A
AACSB:

Reflective thinking

61)

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 thinking

62)

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 thinking

64)

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 thinking

65)

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 skills

66)

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 skills

68)

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 skills

69)

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 thinking

70)

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 skills

72)

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 skills

73)

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 skills

74)

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 skills

75)

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:

Communication

77)

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 thinking

78)

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 thinking

79)

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:

Communication


80)

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 thinking

82)

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 thinking


Answer 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 skills

85)

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 skills


Answer 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 = $12,500

Diff: 2
Terms:

cost estimation
Objective:

3
AACSB:

Analytical skills

88)

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 = $0

Diff: 2
Terms:

cost estimation
Objective:

3
AACSB:

Analytical skills


Answer 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 skills

91)

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 skills


92)

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 skills

94)

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 skills


95)

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 skills

97)

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 thinking

98)

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 thinking


99)

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 skills

101)

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 thinking

102)

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 thinking

103)

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 thinking

105)

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 thinking

106)

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 thinking

107)

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 thinking

108)

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 thinking

110)

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 skills

111)

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 thinking


112)

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 thinking

Answer 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 skills


115)

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) = $2,000
OR: Constant = $6,800 - ($20.00 × 240 hours) = $2,000
Diff: 2
Terms:

high-low method, cost estimation
Objective:

4
AACSB:

Analytical skills

116)

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) = $100

Diff: 2
Terms:

high-low method, slope coefficient
Objective:

4
AACSB:

Analytical skills


118)

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) = $25,000
OR: Constant = $125,000 - ($100.00 × 1,000 hours) = $25,000

Diff: 2
Terms:

high-low method, cost estimation
Objective:

4
AACSB:

Analytical skills

119)

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) = $135,000

Diff: 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 skills


121)

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) = $17,000
OR: Constant = $35,000 - ($2.40 × 7,500) = $17,000
Diff: 2
Terms:

high-low method
Objective:

4
AACSB:

Analytical skills

122)

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 skills

124)

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 6,600

Gallup 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 × 7,500
a = $440
Diff: 3
Terms:

high-low method, cost function
Objective:

4
AACSB:

Analytical skills


126)

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 × 7,500
a = $440

y = $440 + $1.12 × 5,000 = $6,040

Diff: 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 × 3,900
a = $3,600

Diff: 3
Terms:

cost function, high-low method
Objective:

4
AACSB:

Analytical skills


128)

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 × 3,900
a = $3,600

y = $3,600 + $10.40 × 2,850 = $33,240

Diff: 3
Terms:

high-low method, cost predictions
Objective:

4
AACSB:

Analytical skills

129)

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 skills

131)

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 thinking


132)

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 skills

133)

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 thinking

134)

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 thinking

136)

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 thinking

137)

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 thinking

138)

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 thinking

139)

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 thinking

141)

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 thinking

142)

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 thinking

143)

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 thinking

144)

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 skills


146)

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 skills

147)

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 thinking

148)

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 thinking


150)

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 thinking

151)

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 thinking

152)

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 thinking

153)

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 skills

155)

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) 2.1876

What 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 skills

157)

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-Value
Constant $913.32 $198.12 4.61
Independent Variable $20.90 $2.94 7.11

r2 = 0.56

Number of horses:
Variable Coefficient Standard Error t-Value
Constant $4,764.50 $1,073.09 4.44
Independent Variable $864.98 $247.14 3.50

r2 = 0.63

What 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 driver

Diff: 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 skills

159)

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 thinking

160)

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 = $10X
b. y = $9.20X
c. y = $1,000 + $0.05X
d. y = $200,000 + $75X
Diff: 1
Terms:

linear cost function
Objective:

1
AACSB:

Analytical skills


161)

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 = $.75X
b. y = $16.75X
c. y = $75 + $0.50X
d. 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 10

Required:
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 is
a. 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 C
a. Number of employees 300/600 250/600 50/600
$60,000 $50,000 $10,000
b. The number of new hires 15/50 25/50 10/50
$36,000 $60,000 $24,000
c. Miller Company is using the conference method for cost estimation.
Diff: 2
Terms:

conference method, cost estimation
Objective:

3
AACSB:

Communication


163)

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 $100,000

Required:

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