Chapter 10

How many separate cost pools should be formed given the following info: COST COST DRIVER Postage costs # of brochures mailed Printing and paper costs # of brochures mailed Quality control costs # of inspections C.S costs # of customer served

3 cost pools

A steeply sloped regression line indicates: A. a strong relationship between the cost driver and costs B. a greater proportion of FC than VC C. an economically plausible relationship exists D. management should cut costs

A. a strong relationship between the cost driver and costs

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

A. all cost drivers should be output unit-level cost drivers

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 2 observations used are the high and low observations of the: A. cost driver B. dependent variables C. slope coefficient D. residual term

A. cost driver

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 cost that are too low D. replicating processes that are truly cost saving

A. evaluating a weak manager as providing strong performance

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

A. is fixed over the short run but not over the long run

The slope of the line of regression is the: A. rate at which the dependent variable varies B. ________________________ independent variable varies C. level of total FC D. level of total VC

A. rate at which the dependent variable varies

The cost function y = 10,000 + 3X: A. represents a mixed cost B. will intersect the y-axis at 3 C. has a slope coefficient of 10,000 D. is a curved line

A. represents a mixed cost

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

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

A. that measures the decline in labor-hours per unit due to workers becoming better at a job

Which cost estimation method analyzes accounts in the subsidiary ledger as variable, fixed, or mixed using qualitative method? A. the account analysis method B. the conference method C. the industrial engineering method D. the quantitative analysis method

A. the account analysis method

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

A. using a variety of time periods to measure the dependent variable

McGuinness Company employs 8 individuals. They are all paid $14.5 per hour. How would total costs of personnel be classified? A. variable B. mixed C. a variable cost within a relevant range D. a FC within a relevant range

A. variable

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

B. a weak relationship

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 & the cost remains stable over time

B. all data are recorded

A plot of data that results in 1 extreme observation most likely indicates that: A. more than 1 cost pool should be used B. an annual event such as a plant shutdown occurred during that month C. the cost-allocation based has been incorrectly identified D. individual cost items do not have the same cost driver

B. an annual event such as a plant shutdown occurred during that month

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

B. an understanding of operations is needed to determine an appropriate cost driver

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 info 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

All of the following are cost analysis problems EXCEPT: A. Fixed costs are allocated as if they are VC 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. homogenous relationship between individual cost items in the dependent variable pool & cost drivers may not be present

B. extreme observations are adjusted or removed

The cost function of y = 150 + 10X: A. has a slope coefficient of 150 B. has an intercept of 150 C. is a nonlinear D. represents a fixed cost

B. has an intercept of 150

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 VC when quantity discounts are available

B. how efficiency increases as more units are produced

An inaccurate cost function with a slope coefficient that is estimates 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

B. initiating cost cutting measures when they are unnecessary

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 warehouse space

B. is often approximated with a continuous variable-cost function

An experience curve: A. is a narrow 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-hour per unit as units produced increases D. measures the increase in cost per unit as productivity increases

B. measures the decline in cost per unit as production decreases for various value-chain functions such as marketing as production increases

Bennet Company employs 30 individuals. 18 employees are paid $14 / hour and the rest are salaried employees paid $4,000 a month. How would total costs of personnel be classified? A. variable B. mixed C. a variable cost within a relevant range D. a FC within a relevant range

B. mixed

A cost function with a lower slope coefficient than a year ago could indicate that: A. total VC have decreased B. new cost-cutting initiatives are beneficial C. production have decreased D. rental costs have decreased

B. new cost-cutting initiatives are beneficial

For February, the cost components of a picture frame include $0.25 for the glass, $.65 for the wooden frame, and $.8 for the assembly. The assembly desk and tools cost $400. 1,000 frames are expected to be produced in this coming year. What cost function best represents these costs? A. y = 1.7 + 400X C. y = 2.10 + 1,000X D. y = .9 + 400X

B. y = 400 + 1.7X

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

C D A B

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

C. Utility costs increase at the same time that insurance costs increase

The high-low method: A. easily handles estimating the relationship between the dependent variable and 2 or more independent variables B. is more accurate than the regression method C. calculates the slope coefficient using only 2 observed values within the relevant range D. uses the residual term to measure goodness of fit

C. calculates the slope coefficient using only 2 observed values within the relevant range

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 & both are allocated to products on a per unit basis D. purely inflationary price effects are removed

C. fixed and variable costs are not separately identified & both are allocated to products on a per unit basis

The cost function of y = 90 + 8X: A. has a slope coefficient of -8 B. will intersect the y-axis at 8 C. has a slope coefficient of 8 D. is a curved line

C. has a slope coefficient of 8

When using the high-low method, the denominator of the equation that determines the slope is the: A. dependent variable B. independent variable C. indifference between the high and low observations of the cost driver D. ______________________________________________________________________________ the dependent variables

C. indifference between the high and low observations of the cost driver

The cost function y = 2,000 + 6X: A. has a slope coefficient of 2,000 B. has an intercept of 6 C. is a straight line D. represents a fixed cost

C. is a straight line

Goodness-of-fit measures how well the predicted values in a cost estimating equation: A. match the cost driver B. determine the level of capacity C. match the actual cost observations D. rely on the independent variable

C. match the actual cost observations

In multiple regression, when 2 or more independent variables are correlated with 1 another, the situation is known as: A. heteroscedasticity B. homoscedasticity C. multicollinearity D. autocorrelation

C. multicollinearity

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

C. observing different entities during the same time period

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 variable ad multiple regression can use both dependent & independent variables C. simple regression uses only 1 independent variable & multiple regression uses more than 1 independent variable D. simple regression uses only 1 dependent variable & multiple regression uses more than 1 dependent variable

C. simple regression uses only 1 independent variable & multiple regression uses more than 1 independent variable

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

C. the industrial engineering method

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

C. the sales commission percentage has decreased

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

C. there is an independent verification of the relationship by a committee of cost accountants

Quantitative analysis method estimate cost functions: A. which depend on the experience & judgement 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

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

D C B A

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 cost is desired C. A linear function approximates cost behavior within the relevant range of the cost driver D. A high correlation between 2 variables ensures that a cause-and-effect relationships exists

D. A high correlation between 2 variables ensures that a cause-and-effect relationships exists

A linear cost function can represent: A. mixed cost behaviors B. fixed cost behaviors C. variable cost behaviors D. ALL

D. ALL

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

D. ALL

Learning curve effects can be incorporated: A. into performance evaluations B. into production schedules C. when using costs to price products D. ALL

D. ALL

The cause-and-effect relationship might arise as a result of which of the following: A. a physical relationship between the level of activity and costs B. a contractual arrangement C. knowledge of operations A. ALL

D. ALL

The ideal database contains: A. numerous cost driver observations B. reliably measured observations C. cost driver observations spanning a wide range D. ALL

D. ALL

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

D. ALL

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

D. ALL of these answers are correct

A high correlation between 2 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

D. All of these answers are correct

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

D. All of these answers are correct

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. ___________________________________________ R2 statistic is low C. in multiple regression, when the R2 statistic is low D. ________________________________________ 2 or more independent variables are correlated with 1 another

D. ________________________________________ 2 or more independent variables are correlated with 1 another

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. ______ 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

Regression analysis: A. is simple to compute B. measures the change in a dependent variable associated with 1 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

D. uses the constant to measure goodness of fit

Which of the following is an equation of a fixed cost function? A. y = bX + a B. y = a + bX C. y = bX D. y = a

D. y = a