Chapter 10 ACCT 320

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

a. a strong relationship between the cost driver and costs

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

a. by classifying cost accounts as variable, fixed, or mixed based on qualitative analysis

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 b. residual term

a. cost driver

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

a. stronger the relationship between the cost driver and costs

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

a. the account analysis method

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

b. C D A B

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

b. based on analysis and opinions gathered from various departments

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

b. conference method

The cost to be predicted is referred to as the: a. independent variable b. dependent variable c. cost driver d. regression

b. dependent variable

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

c. calculates the slope coefficient using only two observed values within the relevant range

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

c. difference between the high and low observations of the cost driver

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

c. using significant amounts of historical data

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.

d. A high correlation between two variables ensures that a cause-and-effect relationship exists.

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

d. D C B A

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

d. by analyzing the relationship between inputs and outputs in physical terms

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

d. incurring greater total utility costs for each machine-hour of operation

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

d. mixed cost functions

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

d. the quantitative analysis method