ACCT. 648 CH. 3

Which of the following is true of the industrial engineering method of estimating costs? a. It is most frequently used in the service sector, where there is no direct link between materials and labor inputs with the output. b. It is useful in determining the cost of manufactured items, where the process differs from unit to unit. c. It can be used to estimate costs by classifying accounts in the general ledger as fixed, variable, or mixed. d. It uses physical observation and analysis to determine what activities, in what amounts, are needed to complete a process.

d. it uses PHYSICAL observation and analysis to determine what activities, in what amounts, are needed to complete a process

Experienced managers use knowledge of cost and activity-level relationships to: a. determine prior period profitability. b. understand employee behavior. c. determine the accounting ratios. d. understand structural shifts.

d. understand structural shifts

Variable Rate formula?

(high cost - low costs)/ (high rate - low rate)

Activity rate per assembly formula?

total cost / # assembled

Cost formula?

Total = intercept + (X variable * Hours spent)

The range over which the assumed cost relationship is valid for the normal operations of a firm is known as the: a. relevant range. b. complete range. c. normal range. d. average range.

a. relevant range

Which of the following methods of determining cost behavior estimates costs by classifying accounts in the general ledger as fixed, variable, or mixed? a. The account analysis method b. The scatter graph method c. The industrial accounting method d. The regression accounting method

a. the account analysis method

In the mixed cost formula, Total cost = Fixed cost + (Variable rate × Measure of output), the dependent variable in the formula is: a. total cost. b. variable rate. c. fixed cost. d. output.

a. total cost

The learning curve shows how the: a. labor hours worked per unit increase as the number of units produced increases. b. labor hours worked per unit decrease as the number of units produced increases. c. direct material utilized per unit decrease as the number of units produced increases. d. direct material utilized per unit increase as the number of units produced increases.

b. labor hours worked per unit decrease as the number of units produced increases

Which of the following describes step-variable costs? a. They are costs that follow a step-cost behavior with wide steps. b. They are costs that follow a step-cost behavior with narrow steps. c. They are the costs that have both a fixed and a step-cost component. d. They are costs that keep changing at all levels of step-cost activity.

b. they are costs that follow a step-cost behavior with narrow steps

Which of the following costs does not change as output changes? a. Variable cost b. Step-up cost c. Fixed cost d. Opportunity cost

c. fixed cost

A potential disadvantage of the high-low method is that: a. the results are very subjective. b. it gives different answers when more than one person works on a particular data set. c. it uses only two data points, which may not be representative of normal conditions. d. it involves many calculations for determining costs.

c. it uses only two data points, which may not be representative of normal conditions

The managerial judgment method of determining cost behavior can be used in conjunction with the: a. multiple regression method. b. regression analysis method. c. least-squares method. d. variance analysis method.

c. least-squares method

Whenever least squares is used to fit an equation involving two or more independent variables, the method is called:

c. multiple regression

the capacity at which an activity is performed efficiently is called: a. achieved capacity. b. unused capacity. c. practical capacity. d. total capacity.

c. practical capacity

which of the following is true of the learning curve theory? a. It measures the decrease in utilization of direct materials. b. It can be applied only to the manufacturing processes. c. It assumes a constant 80 percent learning rate for all processes. d. It permits management to be more accurate in budgeting.

d. it permits management to be more accurate in budgeting