Acc222 Ch. 3 - Practice Problems

An insurance company has hired a sales representative, and has agreed to pay him a fixed salary of $2,000 per month, along with a commission of 2% on every sale made by him in a month. For the month of March, 20X1, the sales representative made a total sales of $15,000. Calculate the cost of the sales representative for the month. A. $2,000 B. $1,700 C. $2,300 D. $2,600

2300

A management accountant of Oak Constructions Inc. used an Excel spreadsheet program to run ordinary least squares on a set of cost data for its manufacturing costs. Oak Constructions' cost driver for manufacturing costs was labor cost. The results produced showed the following:Intercept: 3,000; X Variable: 6. Oak Constructions paid their labor force on an hourly basis. The total estimated hours for a month was 160. Calculate the estimated total labor costs for the month. A. $5,420 B. $1,460 C. $3,960 D. $2,500

3960

The production at Mengaris Systems Inc. had a low output point of 200 units and a high output point of 500 units in a year. The cost of production for the high point was $5,000. The cost of production for the low point was $2,300. Calculate the variable rate using the high-low method of separating mixed costs into fixed and variable components for Mengaris Systems for the year. A. $10 B. $24 C. $9 D. $6

9

Which of the following is true of a committed cost? A. A committed cost is a cost that often involves long-term contracts, thereby making it hard for the management to exercise control over such costs. B. A committed cost is a cost that can be changed or avoided relatively easily at a management's discretion. C. A committed cost includes costs that in total vary in direct proportion to changes in output within a relevant range. D. A committed cost is a cost that involves the cost of producing and assembling finished goods for sale.

A committed cost is a cost that often involves long-term contracts, thereby making it hard for the management to exercise control over such costs.

Which of the following is true of the coefficient of determination? A. The coefficient of determination is the percentage of variability in the dependent variable explained by an independent variable. B. The coefficient of determination is a way to see the cost relationship by plotting the data points on a graph. C. The coefficient of determination is the point on the scattergraph at which the cost line intercepts the cost (vertical) axis. D. The coefficient of determination is a variable whose value depends on the value of another variable.

The coefficient of determination is the percentage of variability in the dependent variable explained by an independent variable.

If Jeanette's Good Times Diner paid for social media advertising based on how many "likes" their pages received each week, it would be a fixed cost because it is not related to the number of burgers sold each week. T/F

False

One disadvantage of the method of lead squares (regression) is that the cost formula may be different depending on which number is used from a given set of data T/F

False

The high-low method is quick and inexpensive to perform, easy to explain to decision makers, and creates the most accurate estimates possible for variable costs and fixed costs T/F

False

Which of the following is a difference between fixed costs and variable costs? A. Fixed costs per unit increases within a relevant range as the level of output increases, whereas variable costs are per unit decreases as the level of output decreases within a relevant range. B. Fixed costs in total decreases within a relevant range as the level of output increases, whereas variable costs in total vary in direct proportion to changes in output within a relevant range. C. Fixed costs per unit does not change within a relevant range as the level of output increases or decreases, whereas variable costs per unit vary in direct proportion to changes in output within a relevant range. D. Fixed costs in total does not change within a relevant range as the level of output increases or decreases, whereas variable costs in total vary in direct proportion to changes in output within a relevant range.

Fixed costs in total does not change within a relevant range as the level of output increases or decreases, whereas variable costs in total vary in direct proportion to changes in output within a relevant range.

Which of the following is an example of a discretionary fixed cost? A. Payment of interest on a bank loan whose term is for 10 years B. Purchase of advertisement space in the local print media C. Purchase of property, plant, and equipment D. Payment of lease rentals of a warehouse

Purchase of advertisement space in the local print media

Which of the following is a way to see the cost relationship by plotting the data points on a graph? A. High-low method B. Method of least squares C. Scattergraph method D. Regression Method

Scattergraph method

Which of the following is true of step costs? A. Step costs show constant levels of cost for a range of output and then jump to a higher level of cost at some point, where they remain for a similar range of output. B. Step costs are costs that have only a fixed cost component. C. Step costs with wide steps are more characteristic of variable costs. D. Step costs increase in direct proportion to increases in output.

Step costs show constant levels of cost for a range of output and then jump to a higher level of cost at some point, where they remain for a similar range of output.

Which of the following is a potential disadvantage of a management using the method of least squares for separating mixed costs into fixed and variable components? A. The method of least square does not consider any outliers while choosing the best-fitting line for finding the best fitting line. B. The method of least square is subjective in choosing the best-fitting line for finding the best fitting line. C. The method of least squares is a relatively more complicated method to perform or explain to the managerial users of the regression output. D. The method of least squares is a more subjective method for separating mixed costs into fixed and variable components than the high-low or the scattergraph methods.

The method of least squares is a relatively more complicated method to perform or explain to the managerial users of the regression output.

Which of the following best describes the method of least squares? A. The method of least squares is a statistical way to find the best-fitting line through a set of data points. B. The method of least squares is a statistical way of separating a mixed cost into fixed costs and variable costs by fitting a line to a set of data using two points that are selected by judgment. C. The method of least squares separates mixed cost into fixed and variable costs by using the low and high data points. D. The method of least squares separates mixed costs into fixed and variable components in a quick and simple manner.

The method of least squares is a statistical way to find the best-fitting line through a set of data points.

Which of the following statements is true of the scattergraph method? A. The scattergraph method plots all the data points so that the relationship between costs and activity output can be seen. B. The scattergraph method plots all the data points and uses the low and high data points to separate mixed costs into fixed and variable components. C. The scattergraph method always produces the same cost formula when used on the same data set. D. The scattergraph method is a statistical way to find the best-fitting line through a set of data points.

The scattergraph method plots all the data points so that the relationship between costs and activity output can be seen.

Which of the following is an advantage of using the scattergraph method as a method for separating mixed costs into fixed and variable components? A. The data presented always produces the same cost formula. B. The scattergraph considers the high and low points of the concerned data while representing the data required to separate mixed costs into their fixed and variable components. C. The scattergraph is an objective representation of the data required to separate mixed costs into their fixed and variable components. D. The scattergraph provides a visual representation of the data required to separate mixed costs into their fixed and variable components.

The scattergraph provides a visual representation of the data required to separate mixed costs into their fixed and variable components.

Which of the following is an expression of costs as an equation for a straight line? A. Total Cost = Total Fixed Cost + (Variable rate × Units of Output) B. Total Cost = Total Fixed Cost - (Variable rate ×Units of Output) C. Total Cost = Fixed cost × Variable rate × Units of Output D. Total Cost = Fixed cost ÷ (Variable rate × Rate of Output)

Total Cost = Total Fixed Cost + (Variable rate × Units of Output)

Cost behavior is the general term for describing whether and how a cost changes when the level of output changes. T/F

True

Which of the following is the formula to calculate the variable rate using the high-low method of separating mixed costs into fixed and variable components? A. Variable rate = (High Point Cost + Low Point Cost) × (High Point Output - Low Point Output) B. Variable rate = (High Point Cost - Low Point Cost) ÷ (High Point Output - Low Point Output) C. Variable rate = (High Point Cost - Low Point Cost) × (High Point Output - Low Point Output) D. Variable rate = (High Point Output - Low Point Output) ÷ (High Point Cost - Low Point Output)

Variable rate = (High Point Cost - Low Point Cost) ÷ (High Point Output - Low Point Output)