Cost Ch 3
c
34. When a firm acquires the resources needed to perform an activity, it is obtaining a. practical capacity. b. resource usage. c. activity capacity. d. unused capacity.
True
1. Mixed costs are costs that have both a fixed and a variable component. a. True b. False
False
1. Multiple regression can be useful to assess cost behavior when dependent variable is affected by only one independent variable. a. True b. False
True
1. The plot of data points showing the relationship between materials handling costs and activity output is called a scattergraph. a. True b. False
unrelated
34. A correlation coefficient near 0 means that two variables are .
learning
34. When a cost behavior pattern does not follow a linear pattern, a non linear cost curve is used called the __________ curve.
Committed fixed expenses
34. result when organizations acquire many multiperiod service capacities by paying cash up front.
True
Before opting to use managerial judgment, management should make sure that each cost is predominantly fixed or variable. a. True b. False
Fixed cost
Cost that does not change in total as output changes
Two types of fixed costs
Discretionary and commited
Classify the resource costs as variable or fixed. Cost of food and decorations for the annual Fourth of July party for all factory employees
Fixed
Classify the resource costs as variable or fixed. Depreciation on the factory
Fixed
regression
The method of least squares requires a in order to be utilized.
Expression of cost as an equation for a straight line is
Total cost = Total Fixed Cost + (Variable Rate x Units of Output)
Total cost=
Total fixed cost+ Total Variable cost
Cost behavior
analysis focuses on how costs react to changes in activity levels.
True
1. A feature of regression routines, not provided by the scatter plot of high-low methods, is to provide information to and in the assessment of reliability of the estimated costs formula. a. True b. False
True
1. A number of cost behavior patterns do not follow a linear pattern, instead, they follow a nonlinear cost curve called the learning curve. a. True b. False
True
1. Activity-based use of resources can improve both managerial control and decision making because it encourages managers to pay more attention to controlling resource usage and spending. a. True b. False
True
1. Costs can display variable, fixed, or mixed behavior, and it important that they are classified accurately. a. True b. False
False
1. Managers agree that the ideas behind the learning curve can extend to the service industry only. a. True b. False
a
34. In the formula Y = F + VX, VX refers to the a. total variable costs. b. intercept. c. dependent variable. d. independent variable.
managers
34. Knowledge of cost and activity-level relationship is used by experienced .
Multiple regression
is useful when the dependent variable is affected by more than one independent variable.
High- low method
method of separating mixed costs into fixed and variable components by using just the high and low data points VR= (High point cost - low point cost)/(High point output-Low point output)
a
34. A manufacturing company pays an assembly line worker $12 per hour. What is the proper classification of this labor cost? a. variable cost b. semivariable cost c. fixed cost d. mixed cost
c
34. A nursing home requires one nurse for each six patients. This is an example of a a. fixed cost. b. variable cost. c. step cost. d. mixed cost.
Absorption cost
assigns all manufacturing costs to the product Direct materials, direct labor, variable overhead, and fixed overhead define the cost of a product
decrease; increases
34. Costs in marketing, distribution, and service after the sale as number of units produced and sold __________ .
False
1. When Multiple regression is used, the user has a choice of using manual computation or using regression programs. a. True b. False
opposite
34. A correlation coefficient near -1 means that two variables are moving in the direction
account
34. The analysis method is a method of determining cost behavior.
Which of the following statements is true of absorption costing? a. It is used only for internal reporting purposes. b. It assigns all manufacturing costs to the product. c. It treats fixed selling overhead as a product cost. d. It treats fixed manufacturing overhead as a period cost.
B. Absorption costing assigns all manufacturing costs to a product. Under absorption costing, fixed overhead is viewed as a product cost, not a period cost.
The purpose of creating a cost formula is to provide: a. a qualitative estimate of only the variable cost per unit of the cost drivers. b. a qualitative estimate of both total fixed costs and the variable cost per unit of the cost drivers. c. a quantitative estimate of both total fixed costs and the variable cost per unit of the cost drivers. d. a quantitative estimate of only the total fixed costs of the cost drivers.
C. The purpose of creating a cost formula is to provide a quantitative estimate of both total fixed costs and the variable cost per unit of the cost drivers.
Which of these statements is FALSE? A. A cost driver is a causal factor that measures the output of the activity that leads costs to change B. The number of computers processed is called the output measure or driver C. Many managers refer to an independent variable as a cost driver D. Many managers refer to a dependent variable as a cost driver
D.
The difference between variable costing and absorption costing hinges on the treatment of: a. variable selling overhead. b. variable manufacturing overhead. c. fixed selling overhead. d. fixed manufacturing overhead.
D. The difference between variable costing and absorption costing hinges on the treatment of one particular cost—fixed manufacturing overhead.
Classify the resource costs as variable or fixed. Salary of the factory receptionist
Fixed
Classify the resource costs as variable or fixed. Depreciation on a forklift used to move partially completed goods
Fixed
Classify the resource costs as variable or fixed. Wages paid to workers who maintain the factory equipment
Fixed
Classify the resource costs as variable or fixed. Fuel for a forklift used to move materials in a factory
Variable
Classify the resource costs as variable or fixed. Power to operate a drill (to drill holes in the wooden frames of the futons)
Variable
Classify the resource costs as variable or fixed. Cloth rags used to wipe the excess stain off the wooden frames
Variable
Classify the resource costs as variable or fixed. Wages paid to workers who assemble the futon frame
Variable
: Flexible resources
are those acquired from outside sources where the terms of acquisition do not require any long-term commitments.
Turquoise Company manufactures travel bags. The high output occurred in May, with 800 units produced at a total cost of $8,200. The low output was in January, with 200 units produced at a total cost of $2,800. Determine the variable rate by using the high and low points.
$ 9.00 Variable Rate = (High Point Cost - Low Point Cost) ÷ (High Point Output - Low Point Output) Variable Rate = ($8,200 − $2,800) ÷ (800 - 200) = $5,400 ÷ 600 = $9.00
Mahogany Company manufactures computer keyboards. The total cost of producing 15,000 keyboards is $450,000. The total fixed cost amounts to $150,000. Determine the total cost of manufacturing 25,000 keyboards.
$650,000....Total Variable Cost = Variable Rate × Units of Output Variable Rate = Total Variable Cost ÷ Units of Output = ($450,000 - $150,000) ÷ 15,000 = $20 per keyboard Total cost of manufacturing 25,000 keyboards = Fixed Cost + Variable Cost= $150,000 + ($20 × 25,000) = $650,000
True
1. A cost object is the item for which managers want cost information, so the first step is to determine appropriate cost objects. a. True b. False
False
1. A cost that does not change as output changes is a variable cost, and one that changes is a fixed cost. a. True b. False
False
1. An alternative measure of goodness of fit is the coefficient of determination. a. True b. False
True
1. Finding a strong statistical association between an activity cost and an activity driver can provide evidence to managers about the correctness of a driver selection. a. True b. False
True
1. Fixed costs are costs that, in total, are constant within the relevant range as the level of the associated driver varies. a. True b. False
True
1. In the method of least squares, each single measure of closeness is first squared. Squaring the deviations avoids problems caused by a mix of positive and negative numbers. a. True b. False
False
1. Managerial judgement includes the possibility of mixed costs. a. True b. False
False
1. Methods of estimating costs used by companies include the industrial engineering method, the account analysis method, and the instant decision method. a. True b. False
True
1. Resources are categorized as flexible, which are supplied as needed, and committed, which are supplied in advance of usage. a. True b. False
True
1. Resources, such as direct materials, direct labor, electricity, equipment, and so on, are economic elements that enable one to perform activities. a. True b. False
False
1. The account analysis method can be used to estimate costs by classifying accounts in the general ledger as variable. a. True b. False
True
1. The basis of the learning curve is that as we perform an action over and over, we improve, and each additional performance takes less time than the preceding ones. a. True b. False
False
1. The cumulative average-time learning curve model states that the cumulative average time per unit increases by a constant percentage. a. True b. False
False
1. The high-low method preselects the two points that are used to compute the parameters F and X in the expression Y = F + VX a. True b. False
d
34. Flexible resources a. are supplied as needed. b. are acquired from outside sources, not requiring a long-term commitment. c. have no unused capacity. d. all of the above.
c
34. If all the activity capacity acquired is not used, this is an example of a. practical capacity. b. activity capacity. c. unused capacity. d. ideal capacity.
b
34. Marlowe Company currently leases a delivery truck from Burton Enterprises for a fee of $250 per month plus $0.40 per mile. Management is evaluating the desirability of switching to a modern, fuel-efficient truck, which can be leased from Goliath, Inc., for a fee of $600 per month plus $0.05 per mile. All operating costs and fuel are included in the rental fees. In general, a lease from a. Goliath, Inc., is economically preferable to a lease from Burton Enterprises regardless of the monthly use. b. Burton Enterprises is economically preferable below 1,000 miles per month. c. Burton Enterprises is economically preferable to a lease from Goliath, Inc., regardless of the monthly use. d. Burton Enterprises is economically preferable above 1,000 miles per month.
b
34. Mixed costs, by definition, contain both a. product and period costs. b. fixed and variable costs. c. direct and indirect costs. d. Controllable and no controllable costs.
two; more
34. Multiple regression has or independent variables.
c
34. Salaries paid to shift supervisors are an example of a a. step-variable cost. b. mixed cost. c. step-fixed cost. d. variable cost.
: Non-unit-based costs drivers
34. explain changes in cost factors other than changes in units produced.
confidence
A interval provides a range of values for the actual cost with a prespecified degree of confidence
When the level of output increases within the relevant range, _____. a. fixed cost per unit does not change, but the variable cost per unit decreases b. fixed cost per unit decreases, but the variable cost per unit does not change c. both fixed cost per unit and variable cost per unit do not change d. both fixed cost per unit and variable cost per unit decrease
B. If the output increases, fixed costs per unit will decrease because fixed costs will be divided by more units. Variable costs per unit will always stay the same.
In the mixed cost equation: Total Cost = Fixed Cost + (Variable Rate × Units of Output), the dependent variable is _____. a. units of output b. total cost c. variable rate d. fixed cost
B. The dependent variable is total cost. The dependent variable depends on or is caused by the independent variable. In this case, total cost depends on both the fixed and variable costs.
Variable cost
Increases in total with an increase in output and decreases in total with decrease in output
Classify the resource costs as variable or fixed. Cloth to cover the futon mattress
Variable
Unit level drivers
________explain changes in costs as units produced change.
Time; motion
and studies may be used in conjunction with the industrial engineering method
Unit based cost drivers
are assumed to be the sole drivers of a traditional cost management system.
Cost Driver
causal factor that measures the output of the activity that leads (or causes) costs to change Direct labor hours worked Number of customer contacts Number of engineering change orders issued Number of machine hours used Number of product returns from customers
a
34. Which of the following costs is a variable cost? a. materials used in production b. research and development c. supervisors' salaries d. rent
Variable costing
-stresses the difference between fixed and variable manufacturing costs -assigns only variable manufacturing costs to the product; these costs include direct materials, direct labor, and variable overhead
same
34. A correlation coefficient near +1 means that two variables are moving in the direction.
a
34. The linearity assumption is most likely to be a close approximation for an underlying nonlinear cost function a. within a relevant range of activity. b. over the long run. c. for short-run periods. d. both a and c.
a
34. The method for analyzing cost behavior that generally classifies general ledger accounts is a. account analysis method. b. multiple regression method. c. industrial engineering method. d. learning curve method.
Which of these is NOT a commonly used method of separating a mixed cost into its fixed and variable components? A.First-In, First Out B. High-low method C. Scattergraph method D. Method of Least Squares
A.
Mixed costs
Both fixed and variable costs Ex) Overhead for a company may consist of a fixed supervisor salary plus the cost of supplies that vary with the quantity of output produced
Discretionary and committed fixed costs
D: fixed costs that can be changed or avoided relatively easily in the short run at management discretion C: Fixed costs that cannot be easily changed
True
If a company changes from skilled labor to robots, the previous data are of little value in predicting future costs. a. True b. False
Cost behavior
the foundation upon which managerial accounting is built
True
1. Multiple regression is a dependable tool for identifying the behavior of activity costs. a. True b. False
c
34. Amigos Industries analyzed the relationship between total factory overhead and changes in direct labor hours. It found the following: Y = $6,000 + $6X The Y in the equation is an estimate of a. total variable costs. b. total direct labor hours. c. total factory overhead. d. total fixed costs.
a
34. If at a given volume total costs and fixed costs are known, the variable costs per unit may be computed as follows: a. (Total costs - Fixed costs)/Unit volume b. (Total costs/Unit volume) - Fixed costs c. (Total costs × Unit volume) - (Fixed costs/Unit volume) d. Total costs - (Fixed costs/Unit volume)
c
34. In the formula Y = F + VX, V refers to the a. dependent variable. b. intercept. c. slope. d. total variable costs.
a
34. The activity-based resource usage model allows managers to better calculate the changes in resource supply and demand resulting from decisions such as: a. to make or buy production components. b. maximization of individual unit performance. c. increasing the allocation of costs. d. focusing on managing costs rather than activities.
b
34. The cost behavior method that may use time and motion studies to determine the activities and amounts for cost behavior analysis is a. account analysis method. b. industrial engineering method. c. regression analysis. d. high-low method.
a
34. The costs incurred for the acquisition of short-run activity capacity, usually as the result of yearly planning are called: a. Discretionary fixed expenses b. Committed fixed expenses c. Mixed costs d. Step-variable costs
a
34. Total costs may be computed as follows: a. Fixed costs + (Variable costs per unit × Unit volume) b. (Fixed costs per unit × Unit volume) + Variable costs c. Fixed costs per unit + (Variable costs per unit × Unit volume) d. (Fixed costs per unit × Unit volume) + Variable costs per unit
d
34. Which of the following decision-making tools would NOT be useful in determining the slope and intercept of a mixed cost? a. scattergraphs b. least-squares method c. high-low method d. account analysis method
d
34. Which of the following is NOT a method of determining cost behavior? a. industrial engineering method b. account analysis method c. statistical and quantitative methods d. confidence interval model
d
34. Which of the following is an example of a step-fixed cost? a. cost of disposable gowns used by patients in a hospital b. cost of soaking solution to clean jewelry (Each jar can soak 50 rings before losing effectiveness.) c. cost of tuition at $300 per credit hour up to 15 credit hours (Hours taken in excess of 15 hours are free.) d. cost of disposable surgical scissors, which are purchased in increments of 100
The cost of purchase of plant and equipment is an example of a(n): a. committed fixed cost. b. discretionary fixed cost. c. discretionary variable cost. d. unavoidable variable cost.
A. The cost of purchase of plant and equipment is an example of a committed fixed cost. Fixed costs such as purchase of property, plant, and equipment cannot be easily changed.
True
1. The experience curve relates cost to increased efficiency, such that the more a task is performed, the lower the cost of doing will be. a. True b. False
True
1. The industrial engineering method is used to determine which activities, and in what amounts, are necessary to complete a process. a. True b. False
False
1. The level of activity performance where the amount of activity capacity needed corresponds to the level of efficiency required is called the activity capacity. a. True b. False
True
1. The most widely used method to determine cost behavior is managerial judgement. a. True b. False
False
1. The percentage of variability in the dependent variable explained by an independent variable (i.e. measure of activity output) is called the coefficient of correlation. a. True b. False
True
1. The three widely used quantitative methods of separating a mixed cost into its fixed and variable components are the high-low method, the scatter plot method, and the method of least squares. a. True b. False
False
1. Variable costs are defined as costs that, in total, are constant regardless of change in an activity driver. a. True b. False
b
34. The expenses that result when organizations acquire many multiperiod service capacities by paying cash up front or by entering into an explicit contract that requires periodic cash payments are called: a. Managed fixed expenses b. Committed fixed expenses c. Discretionary fixed expenses d. Period expenses
c
34. The following is an example of a mixed cost: a. direct materials b. materials used in production c. salary plus commission on sales d. supervisors' salaries
scattergraph
34. The graph showing the relationship between activity costs and drivers/outputs is called the __________ .
zero
34. The hypothesis test of cost parameters indicates whether the parameters are different from __________ .
multiple regression
34. The method is used whenever least squares is used to fit an equation involving two or more independent variables.
industrial engineering
34. The method may be used to determine the activities and amounts for cost behavior.
intercept
34. The parameter is the point at which the mixed cost line intercepts the cost (vertical) axis.
b
34. The range of activity within which a linear cost function is valid is called the a. normal range. b. relevant range. c. activity range. d. none of these.
least squares
34. The three quantitative methods of separating a mixed cost into its fixed and variable components are: the high-low method, the scatter plot method and the method of .
a
34. Which of the following is an example of a committed fixed expense? a. depreciation on a factory building b. supervisor's salary c. direct labor d. insurance on a building
c
34. The drivers that explain changes in costs as units produced change are called: a. Non-unit-level drivers b. Activity based cost drivers c. Unit-level drivers d. All of these
a
34. The efficient level of activity performance is called a. practical capacity. b. activity capacity. c. unused capacity. d. acquired capacity.
d SUPPORTING CALCULATIONS: $20,000/2,000 × 2,500 = $25,000
34. The direct material cost is $20,000 when 2,000 units are produced. What is the direct material cost for 2,500 units produced? a. $15,000 b. $ 5,000 c. $20,000 d. $25,000
c
34. If production volume increases from 16,000 to 20,000 units, a. total costs will increase by 20 percent. b. total costs will increase by 25 percent. c. total variable costs will increase by 25 percent. d. mixed and variable costs will increase by 25 percent.
a
34. In a traditional cost management system, cost behavior is assumed to be driven only by a. unit based cost drivers. b. non-unit level cost drivers. c. activity-based cost drivers. d. none of these.
d
34. Longhorn Enterprises rents a truck for a flat fee plus an additional charge per mile. What type of cost is the rent? a. step cost b. fixed cost c. variable cost d. mixed cost
total cost
34. The Y in the equation Y = F + VX represents the , the dependent variable
b
34. The costs incurred that provide long-term activity capacity, usually as the result of strategic planning are called: a. Discretionary fixed expenses b. Committed fixed expenses c. Mixed costs d. Step-variable costs
b
34. Drivers that explain changes in costs as factors other than changes in units produced are called: a. Functional based cost drivers b. Non-unit-based cost drivers c. Unit-based cost drivers d. None of these
costs
34. Each time cumulative volume doubles, fall by a constant and predictable percentage.
d SUPPORTING CALCULATIONS: $7 × 25,000 = $175,000
34. Fixed cost per unit is $7 when 25,000 units are produced and $5 when 35,000 units are produced. What is the total fixed cost when nothing is produced? a. $130,000 b. $200,000 a. $12 d. $175,000
True
1. Whenever least squares is used to fit an equation involving two or more independent variables, the method is called multiple regression. a. True b. False
a
34. A $4,000 per month salary paid to a supervisor is an example of a: a. fixed cost. b. variable cost. c. step cost. d. mixed cost.
step-cost
34. A function displays a constant level of cost for a range of output and then jumps to a higher level.
d
34. An equipment lease that specifies a payment of $8,000 per month plus $7 per machine hour used is an example of a a. fixed cost. b. variable cost. c. step cost. d. mixed cost.
c
34. As the volume of activity increases within the relevant range, the variable cost per unit a. decreases. b. decreases at first, then increases. c. remains the same. d. increases.
d
34. Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that is parallel to the horizontal axis? a. total direct material costs b. a consultant paid $75 per hour with a maximum fee of $1,200 c. employees who are paid $10 per hour and guaranteed a minimum weekly wage of $200 d. rent on exhibit space at a convention
b
34. Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that starts at the origin and reaches a maximum value beyond which the line is parallel to the horizontal axis? a. total direct material costs b. a consultant paid $100 per hour with a maximum fee of $2,000 c. employees who are paid $15 per hour and guaranteed a minimum weekly wage of $300 d. rent on exhibit space at a convention
False
34. Based on managerial judgement, the best predictor of manufacturing costs is the units available. a. True b. False
c
34. Committed resources a. are supplied as needed. b. are acquired by a contract for the exact amount of their usage. c. may exceed the demand for their usage. all of the above
b
34. Cost behavior analysis focuses on how costs a. react to changes in profit. b. react to changes in activity level. c. change over time. d. both a and c.
learning
34. Cumulative average-time curve assumes the cumulative average time per unit decreases by a constant percentage each time the cumulative quantity of units produced doubles.
b
34. Direct materials are an example of a a. fixed cost. b. variable cost. c. step cost. d. mixed cost.
a
34. The type of resources that are acquired from outside sources, where the terms of acquisition do NOT require any long-term commitment for any given amount of the resource are called: a. Flexible resources b. Committed resources c. Discretionary fixed expenses d. Committed fixed expenses
c
34. When the volume of activity increases within the relevant range, the fixed cost per unit a. decreases at first, then increases. b. remains the same. c. decreases. d. increases.
d
34. Which of the following is NOT a correct statement concerning cost behavior? a. According to economics, in the long run, all costs are variable. b. Variable costs increase in total in relation to the activity driver. c. Unit fixed costs increase or decrease inversely in relation to the activity driver. d. None of the above
a
34. Which of the following is an example of a discretionary fixed expense? a. contract workers b. property taxes on a factory building c. depreciation on a factory building d. insurance on a building
d
34. Which of the following statements is TRUE about fixed and variable costs? a. Variable costs are constant in total and fixed costs are constant per unit. b. Both costs are constant when considered on a total basis. c. Both costs are constant when considered on a per-unit basis. d. Fixed costs are constant in total and variable costs are constant per unit.
b
34. Which of the following statements is TRUE about relevant range? a. When costs reach a level above the relevant range, they are considered appropriate for analysis. b. Linear estimates of an economist's curvilinear cost function is only valid within the relevant range. c. When costs reach a level below the relevant range, they are considered appropriate for analysis. d. The nonlinear relevant range is ignored, and only those costs outside of this range may be considered.
d
34. Which of the following would be an example of a unit-based cost driver? a. engineering orders b. material moves c. inspection hours d. direct labor hours
Committed resources
34. are costs incurred that provide long-term activity capacity.
step-fixed
34. costs that follow a step-cost behavior are defined as costs.
Gamma Company manufactures power transmission grids. It has 5 sales representatives, each earning a salary of $40,000 plus a commission of $200 per grid sold. The total cost associated with the sales representatives is an example of a: a. fixed cost. b. mixed cost. c. variable cost. d. step cost.
B. Mixed costs are costs that have both a fixed and a variable component. Sales representatives being paid a salary plus a commission on sales is an example of a mixed cost.