HRMA 3341 Exam 2 (Chapter 6)

Department heads are responsible for Indirect Costs, not usually responsible for indirect costs. A) True B) False

B) False

Which of the following costs decreases the most on a per-unit basis as activity increases? A) Variable B) Fixed C) Mixed D) Total

B) Fixed

Which of the following statements is false? A) Department heads are responsible for the direct costs of their departments. B) Managers of individual departments are usually held responsible for overhead costs. C) Overhead costs generally include indirect costs. D) Payroll and related expenses for rooms department staff are considered direct expenses of the rooms department

B) Managers of individual departments are usually held responsible for overhead costs Managers are not held responsible for overhead costs

Regression analysis is better than the High-low method of cost estimation because regression analysis: A) Is more mathematical B) Uses all data points, not just two C) Fits data into a mathematical equation D) Takes more time to do

B) Uses all data points, not just two

What is a Relevant Costs?

All costs that you have to consider in decision making situation, Must be differential, future and quantifiable

A sunk cost is: A) Relevant in decision-making situations B) A quantifiable future cost C) A cost that has already been incurred D) A differential cost

C) A cost that has already been incurred

In January, the total fixed costs at the 250 room vacation hotel were 40,000. With 5,000 rooms sold in January, the average fixed costs per room sold was $8. The forecast for February projects a 10% increase in occupancy over January. If this increase in sales volume occurs, the total fixed costs for February would be: A) Lower than in January B) Higher than in January C) The same as in January D) Unrelated to January's total fixed costs

C) The same as in January because Fixed Costs do not change based on volume. Here they are asking what happened to "total fixed costs"

The current cost for food sold at the Wharf Restaurant is 35% of sales. If sales increase, the restaurant manager should generally expect an increase in: A) Total Fixed costs B) The average fixed cost per meal sold C) The total cost of food sold D) The average variable cost per meal sold

C) The total cost of food sold

What is a Step Costs?

Constant within a range of activities

What is an Indirect Cost?

Costs cannot be so easily identified to one particular function

What is a Direct Cost?

Costs directly associated with a revenue center/department or function

What is a Controllable Cost? 1 example of controllable cost?

Costs over which a person is able to exert influence Training cost

What is a Sunk cost?

Costs that are in the past, example: you purchase an old vehicle and want to purchase a new vehicle, the price of old vehicle is irrelevant

What is a Mixed Costs?

Costs that are partly fixed and partly variable Examples: Leases, Maintenance Agreements, Executive Compensation: Fixed component would be his salary, and variable component would be his bonus

What is a Variable Cost?

Costs that change proportionally with the volume of the business Variable Costs per unit remain constant, Example: Hourly Wages $10 remains the same, only the volume changes i.e. 5 hours, 8 hours

What is Differential Cost?

Costs that differ between two alternatives

What is a Fixed Cost?

Costs that remain constant in the short run even when sales volume varies. Fixed cost do not change based on volume! As Volume increases the per unit fixed cost decreases.

Which of the following is not a fixed cost? A) Property Taxes B) Salary (set at $25,000 for the period) C) Depreciation D) Operating Supplies

D) Operating Supplies

What is Total Costs?

Fixed Cost + Variable Cost + Step Cost + Mixed Costs /Total Costs

What is a Scattergram?

Includes data in all periods of a time span Independent variable on horizontal axis Dependent variable on vertical axis Straight line drawn through estimated center of points Line intersects vertical axis at fixed costs amount

What is the High/Low Two-Point Method?

Is a method to estimate the behavior of costs based on sales activity with 2 extreme periods

What is a Regression Analysis?

Looks at all of the Data points. Helps explain how the typical value of the dependent variable changes when any one of the independent variables is varied, while the other independent variables are held fixed

What is the formula for Point of Indifference? How do you know which to choose?

Revenue = Fixed Lease Cost / Variable cost % If annual revenue is expected to exceed the indifference point, select fixed lease If annual revenue is expected to be less than indifference point, chose variable lease

What are some Examples of Fixed Cost?

Salaries, rent expense, insurance, property taxes, depreciation expense

What is an Opportunity Cost?

The cost of the best foregone opportunity Ex: You chose option A or option B the opportunity cost is option B

What is an Average Cost?

Total production & Service costs / production quantity

What is the Point of Indifference?

Where fixed and variable costs are going to be the same