cost10
: Application of knowledge 5) 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 marginal costing method D) the incremental costing method
A Diff: 1 Objective: 3
: Analytical thinking 11) 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 Diff: 2 Objective: 1
: Analytical thinking 2) Bennet Company employs 20 individuals. Eighteen employees are paid $18 per hour and the rest are salaried employees paid $3,000 a month. Which of the following is the total cost function of personnel? A) y = a + bX B) y = b C) y = bX D) y = a
A Diff: 2 Objective: 1
: Analytical thinking 3) Crimson Services, Inc., employs 8 individuals. They are all paid $16.50 per hour. How would total costs of personnel be classified? A) variable cost B) mixed cost C) irrelevant cost D) fixed cost
A Diff: 2 Objective: 1
: Analytical thinking 6) Which of the following statements is true of a linear cost function? A) It presents variable cost as a slope coefficient. B) It presents total cost as an intercept. C) It presents variable cost as an intercept. D) It presents total cost as slope coefficient.
A Diff: 2 Objective: 1
: Analytical thinking 5) The cost components of a heater include $30 for the compressor, $10 for the sheet molded compound frame, and $75 per unit for assembly. The factory machines and tools cost is $60,000. The company expects to produce 1,000 heaters in the coming year. What cost function best represents these costs? A) y = 60,000 + 115X B) y = 1,000 + 60,000X C) y = 60,000 + 1,000X D) y = 1,000 + 115X
A Diff: 2 Objective: 1
: Analytical thinking 2) 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 Diff: 2 Objective: 3
: Analytical thinking Answer the following questions using the information below: Genend's Good Value Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2015 operations. Sales (6,000 microwave ovens) $ 1,740,000 Cost of goods sold 960,000 Store manager's salary per year 100,000 Operating costs per year 250,000 Advertising and promotion per year 30,000 Commissions (3% of sales) 52,200 18) Which cost estimation method is being used by Genend's Good Value Appliance Store? A) the account analysis method B) the operating costing method C) the marginal costing method D) the cost-volume-profit analysis method
A Diff: 2 Objective: 3
: Analytical thinking 10) 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 Diff: 2 Objective: 4
: Analytical thinking 17) The slope of the line of regression is the ________. A) rate at which the dependent variable varies B) rate at which the independent variable varies C) difference between the fixed cost and variable cost associated with the cost driver D) difference between actual cost and estimated cost for each observation of the cost driver
A Diff: 2 Objective: 4
: Analytical thinking 11) When using the high-low method, the two observations used are the high and low observations of the ________. A) cost driver B) fixed cost component C) slope coefficient D) direct cost
A Diff: 2 Objective: 4
: Application of knowledge 27) What is the constant? A) $17,500 B) $45,000 C) $7,000 D) $4,375
A Explanation: A) High observation: Constant = $130,000 − ($3.75 × 30,000) = $17,500 OR: Low observation: Constant = $85,000 − ($3.75 × 18,000) = $17,500 Diff: 2 Objective: 4
: Analytical thinking At the Auric Company, the cost of the personnel department has always been charged to production departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs. Total personnel department costs are $287,500. Department A B C Number of employees 70 280 225 Number of new hires 25 13 12 8) If the number of employees is considered the cost driver, what amount of personnel costs will be allocated to Department A? A) $35,000 B) $10,667 C) $140,000 D) $43,700
A Explanation: A) Personnel costs of Department A = [70 / (70 + 280 + 225)] × $287,500 = $35,000 Diff: 2 Objective: 3
: Application of knowledge 16) What are the estimated total costs if the company expects to sell 3,500 units next year? A) $2,028,000 B) $3,619,000 C) $3,271,000 D) $1,429,000
A Explanation: A) Total cost = fixed costs ($108,000 + $216,000 + $24,000) + variable costs (3,500 units × $480 variable costs per unit) = $1,680,000 = $2,028,000 total estimated costs. Diff: 3 Objective: 3
: Application of knowledge 19) What is the constant for the estimated cost equation? A) $5,500 B) $13,000 C) $16,500 D) $22,000
A Explanation: A) Using highest observation: Constant = $22,000 − ($30.00 × 550 hours) = $5,500 OR: Using lowest observation: Constant = $13,000 − ($30.00 × 250 hours) = $5,500 Diff: 2 Objective: 4
: Analytical thinking 23) What will be the variable cost per hour? A) $78 B) $48.75 C) $62.50 D) $100
A Explanation: A) Variable cost per hour = ($390,000/5,000) = $78 Diff: 2 Objective: 3
: Application of knowledge Answer the following questions using the information below: Presented below are the production data for the first six months of the year for the mixed costs incurred by Vertise Company. Month Cost Units January $4,890 4,100 February 4,426 3,520 March 6,730 5,200 April 9,724 8,250 May 5,900 4,900 June 7,336 6,600 Vertise Company uses the high-low method to analyze mixed costs. 31) How would the cost function be stated? A) y = $484 + $1.12X B) y = $5,298 + $1.19X C) y = $2,388 + $1.12 D) y = $7,850 + $1.18X
A Explanation: A) b = ($9,724 − $4,426) / (8,250 − 3,520) = $1.12 $9,724 = a + $1.12 × 8,250 a = $484 Cost function is Y=$484 + $1.12X Diff: 3 Objective: 4
: Analytical thinking 4) For February, the cost components of a picture frame include $0.30 for the glass, $0.75 for the wooden frame, and $0.80 for assembly. The assembly desk and tools cost $500. Two hundred fifty frames are expected to be produced in the coming year. What cost function best represents these costs? A) y = 1.85 + 500X B) y = 500 + 1.85X C) y = 3.85 + 600X D) y = 1.05 + 500X
B Diff: 2 Objective: 1
: Analytical thinking 10) The cost function 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 Diff: 2 Objective: 1
: Analytical thinking Objective 10.3 1) 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 Diff: 2 Objective: 3
: Application of knowledge 20) What were the total fixed costs for 2015? A) $1,392,200 B) $380,000 C) $350,000 D) $1,012,200
B Diff: 2 Objective: 3
: Analytical thinking 4) Place the following steps in order for estimating a cost function using quantitative analysis. A = Plot the data B = Collect data on the dependent variable and the cost driver. C = Choose the dependent variable D = Identify the independent variable, or cost driver E = Estimate the cost function A) D C E A B B) C D B A E C) A D C E B D) E D C B A
B Diff: 2 Objective: 4
: Analytical thinking 8) A plot of data that results in one extreme observation most likely indicates that ________. A) more than one cost pool should be used B) an unusual event such as a plant shutdown occurred during that month C) the cost-allocation base has been incorrectly identified D) individual cost items do not have the same cost driver
B Diff: 2 Objective: 4
: Analytical thinking Objective 10.4 1) The cost to be predicted is referred to as the ________. A) independent variable B) dependent variable C) cost driver D) regression
B Diff: 2 Objective: 4
: Application of knowledge 20) What is the estimated cost function for the above data? A) y = 13,000 + 43.75X B) y = 5,500 + 30X C) y = 22,000 + 40X D) y = 16,500 + 52X
B Diff: 2 Objective: 4
: Analytical thinking 12) Which of the following functions represents the least total cost assuming the number of units is equal in each case? A) y = 180 + 7X B) y = 90 + 6X C) y = 90 + 7X D) y = 180 + 6X
B Diff: 3 Objective: 1
: Application of knowledge 10) Which cost estimation method is being used by Auric Company? A) the simple regression method B) the conference method C) the account analysis method D) the marginal costing method
B Diff: 3 Objective: 3
: Analytical thinking 7) 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 Diff: 3 Objective: 4
: Analytical thinking 15) Regression analysis ________. A) calculates the slope coefficient using only two observed values within the relevant range and their respective costs B) measures the average amount of change in the dependent variable associated with a unit change in one or more independent variables C) estimates the cost functions using the time-and-motion studies D) measures the variability or dispersion in a set of data points
B Diff: 3 Objective: 4
: Analytical thinking 8) If the total cost function is y = 5,000 + 7X, calculate the variable cost for 4,000 units. A) $33,000 B) $28,000 C) $20,000 D) $5,000
B Explanation: B) Explanation: Variable cost for 4,000 units = $7 × 4,000 units = $28,000 Diff: 2 Objective: 1
: Analytical thinking 12) If the number of employees is considered the cost driver, what amount of library and information center costs will be allocated to Department A? A) $30,000 B) $33,750 C) $0 D) $66,667
B Explanation: B) Library and information costs of Department A = [135/ (135 + 530 + 135)] × $200,000 = $33,750 Diff: 2 Objective: 3
: Application of knowledge Answer the following questions using the information below: For Divaxo Company, labor-hours are 30,000 and wages $130,000 at the high point of the relevant range, and labor-hours are 18,000 and wages $85,000 at the low point of the relevant range. 26) What is the slope coefficient? A) $4.45 B) $3.75 C) $4.33 D) $4.72
B Explanation: B) Slope = ($130,000 − $85,000) / (30,000 − 18,000) = $3.75 per labor-hour Diff: 2 Objective: 4
: Analytical thinking 25) What is the estimated total cost when 1,300 machine-hours are used? A) $411,100 B) $204,000 C) $456,000 D) $156,000
B Explanation: B) The total cost, y = $100,000 + ($80 × 1,300) = $204,000 Diff: 2 Objective: 4
: Analytical thinking 4) Variable cost per labor-hour is $8.50. Fixed cost is $10,500. Calculate the total cost for 350 labor hours. Machine hours during the period are 50. A) $10,925 B) $13,475 C) $13,900 D) $3,400
B Explanation: B) Total cost = $10,500 + ($8.50 × 350) = $13,475 Diff: 2 Objective: 3
: Application of knowledge 21) What are the estimated total costs if Genend's store expects to sell 8,000 units next year? A) $812,117 B) $1,729,600 C) $1,952,200 D) $380,450
B Explanation: B) Total cost = fixed cost ($100,000 + $250,000 + 30,000) + variable costs (8,000 units × $168.70 variable costs per unit) = $1,349,600 = $1,729,600. Diff: 3 Objective: 3
: Application of knowledge 28) What is the estimated total labor costs at Divaxo Company when 11,000 labor-hours are used? A) $51,944 B) $58,750 C) $56,270 D) $52,042
B Explanation: B) Total labor costs, y = $17,500 + ($3.75 × 11,000) = $58,750 Diff: 3 Objective: 4
: Application of knowledge 24) What will be the total variable cost for the estimated 7,000 hours? A) $341,250 B) $546,000 C) $700,000 D) $437,500
B Explanation: B) Total variable cost = ($390,000/5,000) × 7,000 = $546,000 Diff: 2 Objective: 3
: Application of knowledge Isondo's TV and Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2015 operations. Sales (1,200 televisions) $ 1,200,000 Cost of goods sold 540,000 Store manager's salary per year 108,000 Operating costs per year 216,000 Advertising and promotion per year 24,000 Commissions (3% of sales) 36,000 14) What was the variable cost per unit sold for 2015? A) $30 B) $480 C) $770 D) $450
B Explanation: B) Variable cost per unit = ($540,000 + $36,000) / 1,200 = $480 per unit Diff: 2 Objective: 3
: Application of knowledge 30) What is the estimated total cost at an operating level of 9,000 hours? A) $35,100 B) $40,300 C) $44,460 D) $39,644
B Explanation: B) b = ($45,370 − $24,700) / (10,300 − 5,000) = $3.90 for the highest and lowest values of the cost driver $45,370 = a + ($3.90 × 10,300) a = $5,200 Cost function is Y = $5,200 + $3.90X Y = $5,200 + ($3.90 × 9,000) Y = $40,300 Diff: 3 Objective: 4
: Application of knowledge 34) What is the estimated total cost at an operating level of 3,100 hours? A) $71,133 B) $39,600 C) $36,607 D) $63,687
B Explanation: B) b = ($69,850 − $38,500) / (5,850 − 3,000) = $11 $69,850 = a + ($11 × 5,850) a = $5,500 y = $5,500 + ($11 × 3,100) = $39,600 Diff: 3 Objective: 4
: Application of knowledge 32) What is the estimated total cost at an operating level of 6,500 units? A) $7,752.44 B) $7,764.00 C) $7,280.00 D) $7,661.33
B Explanation: B) b = ($9,724 − $4,426) / (8,250 − 3,520) = $1.12 $9,724 = a + $1.12 × 8,250 a = $484 Cost function is: Y = $484 + $1.12X Y = $484 + $1.12 × 6,500 = $7,764 Diff: 3 Objective: 4
: Analytical thinking 7) Which cost estimation method may use time-and-motion studies to analyze the relationship between inputs and outputs in physical terms? A) the accrual accounting method B) the high-low method C) the industrial engineering method D) the cash accounting method
C Diff: 1 Objective: 3
: Application of knowledge 9) 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 Diff: 2 Objective: 1
Cost Accounting, 15e (Horngren/Datar/Rajan) Chapter 10 Determining How Costs Behave Objective 10.1 1) A cost function is a ________. A) process of calculating present value of projected cash flows B) process of allocating costs to cost centers or cost objects C) mathematical description of how a cost changes with changes in the level of an activity relating to that cost D) is a very thorough and detailed way to identifying a cost object when there is a physical relationship between inputs and outputs
C Diff: 2 Objective: 1
: Analytical thinking 3) Quantitative analysis methods estimate cost functions ________. A) using the time-and-motion studies B) based on analysis and opinions gathered from various departments C) using a formal mathematical method to fit cost functions to past data observations D) using the pooling of knowledge from each value chain function
C Diff: 2 Objective: 3
: Analytical thinking 14) 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
C Diff: 2 Objective: 4
: Analytical thinking 16) Which of the following statements shows a difference between simple regression and multiple regression? A) Simple regression uses more than one dependent and independent variables, whereas multiple regression uses only one dependent and independent variable. B) Simple regression uses only the independent variables, whereas multiple regression uses only dependent variables. C) Simple regression uses only one dependent and one independent variable, whereas multiple regression uses one dependent and more than one independent variable. D) Simple regression uses only one dependent variable and more than one independent variables, whereas multiple regression uses more than one dependent variable and only one independent variable.
C Diff: 2 Objective: 4
: Analytical thinking 2) In the estimation of a cost function using quantitative analysis, the independent variable ________. A) is the cost to be predicted B) is the product of fixed costs and slope coefficient C) is the factor used to predict the dependent variable D) is the product of total costs and slope coefficient
C Diff: 2 Objective: 4
: Analytical thinking 5) All individual cost items included in the dependent variable should have ________. A) a different cost driver B) an independent relationship with the independent variable C) an economically plausible relationship with the cost driver D) a heterogeneous cost pool
C Diff: 2 Objective: 4
: Analytical thinking 9) 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 Diff: 2 Objective: 4
: Analytical thinking 3) How many separate cost pools should be formed given the following information? Cost Cost driver Postage costs # of brochures mailed Printing and paper costs # of brochures mailed Quality control costs # of inspections Customer service costs # of customers served A) 1 cost pool B) 2 cost pools C) 3 cost pools D) 4 cost pools
C Diff: 2 Objective: 4
: Analytical thinking 6) Which of the following represents cross-sectional data? A) indirect manufacturing labor costs for the past 5 years B) number of machine-hours used for the past 10 years C) personnel costs of a month at 10 different organizations D) maintenance cost of machine in a plant for the past 3 years
C Diff: 2 Objective: 4
: Application of knowledge 24) What is the estimated cost function for the above data? A) y = 300,000 +120X B) y = 220,000 +147X C) y = 100,000 +80X D) y = 130X
C Diff: 2 Objective: 4
: Analytical thinking 7) A finance manager has to select one of the four different suppliers of raw materials. The total cost functions under the four options are given below. Assume the quality of the raw material to be the same, which of the following is preferred by the finance manager? A) y = 200 + 5X B) y = 200 + 5.50X C) y = 200 + 4.50X D) y = 200 + 4.70X
C Diff: 3 Objective: 1
: Analytical thinking Answer the following questions using the information below: At the Verill Company, the cost of the library and information center has always been charged to the various departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of engineers within a department might be a better predictor of library and information center costs. Total library and information center costs are $200,000. Department A B C Number of employees 135 530 135 Number of engineers 0 80 20 11) Which cost estimation method is being used by Verill Company? A) the regression analysis method B) the marginal costing method C) the conference method D) the operating costing method
C Diff: 3 Objective: 3
: Application of knowledge 17) Which cost estimation method is being used by Isondo's TV and Appliance Store? A) the operating costing method B) the marginal costing method C) the account analysis method D) the cost-volume-profit analysis method
C Diff: 3 Objective: 3
: Analytical thinking 13) The high-low method ________. A) measures the difference between actual cost and estimated cost for each observation of the cost driver B) calculates the standard deviation of residuals C) calculates the slope coefficient using only two observed values within the relevant range and their respective costs D) measures how well the predicted values, y, based on the cost driver, X, match actual cost observations, Y
C Diff: 3 Objective: 4
: Analytical thinking 23) What is the constant for the estimated cost equation? A) $220,000 B) $300,000 C) $100,000 D) $0
C Explanation: C) EITHER: High observation: Constant = $300,000 − ($80.00 × 2,500 hours) = $100,000 OR: Low observation: Constant = $220,000 − ($80.00 × 1,500 hours) = $100,000 Diff: 2 Objective: 4
: Application of knowledge 15) What were total fixed costs for 2015? A) $924,000 B) $576,000 C) $348,000 D) $224,000
C Explanation: C) Fixed costs = $108,000 + $216,000 + $24,000 = $348,000 Diff: 2 Objective: 3
: Application of knowledge Answer the following questions using the information below: Flify Manufacturing Inc., incurred total indirect manufacturing labor costs of $500,000. The company is labor intensive. Total labor hours during the period were 5,000. Using qualitative analysis, the manager and the management accountant determine that over the period the indirect manufacturing labor costs are mixed costs with only one cost driver-labor-hours. They separated the total indirect manufacturing labor costs into costs that are fixed ($110,000 based on 8,000 hours of labor) and costs that are variable ($390,000) based on the number of labor-hours used. The company has estimated 7,000 labor hours during the next period. 22) Which of the following represents the correct linear cost function? A) y = $390,000 + $ 48.75X B) y = $110,000 + $100 X C) y = $110,000 + $78 X D) y = $390,000 + $62.50 X
C Explanation: C) Fixed costs are given at $110,000 based on 8,000 hours of labor; variable costs are $390,000 during the period divided by 5,000 labor hours during the period = $78.00 variable cost per labor hour. Diff: 2 Objective: 3
: Application of knowledge 13) If the number of engineers is considered the cost driver, what amount of library and information center costs will be allocated to Department A? A) $30,000 B) $33,750 C) $0 D) $66,667
C Explanation: C) Library and information costs of Department A = [0 / (0 + 80 + 20)] × $200,000 = $0 Diff: 2 Objective: 3
: Application of knowledge 9) If the number of new hires is considered the cost driver, what amount of personnel costs will be allocated to Department A? A) $35,000 B) $10,667 C) $143,750 D) $43,700
C Explanation: C) Personnel costs of Department A = [25 / (25 + 13 + 12)] × $287,500 = $143,750 Diff: 2 Objective: 3
: Analytical thinking Answer the following questions using the information below: Uninder Company uses the high-low method to estimate the cost function. The information for 2015 is provided below: Machine-hours Labor Costs Highest observation of cost driver 550 $22,000 Lowest observation of cost driver 250 $ 13,000 18) What is the slope coefficient? A) $52.00 B) $43.75 C) $30.00 D) $40.00
C Explanation: C) Slope = ($22,000 − $13,000) / (550 − 250) = $30 Diff: 2 Objective: 4
: Application of knowledge Answer the following questions using the information below: Syosis Company uses the high-low method to estimate its cost function. The information for 2015 is provided below: Machine-hours Costs Highest observation of cost driver 2,500 $300,000 Lowest observation of cost driver 1,500 $ 220,000 22) What is the slope coefficient? A) $120.00 B) $147.00 C) $80.00 D) $130.00
C Explanation: C) Slope = ($300,000 − $220,000) / (2,500 − 1,500) = $80 Diff: 2 Objective: 4
: Analytical thinking 19) What was the variable cost per unit sold for 2015? A) $8.70 B) $160 C) $168.70 D) $232
C Explanation: C) Variable cost per unit = ($960,000 + $52,200) / 6,000 = $168.70 per unit Diff: 2 Objective: 3
: Analytical thinking 6) Which cost estimation method uses a formal mathematical method to develop cost functions based on past data? A) the cash accounting method B) the conference method C) the accrual accounting method D) the quantitative analysis method
D Diff: 1 Objective: 3
: Analytical thinking 13) Which of the following is an equation of a fixed cost function? A) y = (a + b)X B) y = a + bX C) y = bX D) y = a
D Diff: 2 Objective: 1
: Analytical thinking 12) When using the high-low method, the numerator of the equation that determines the slope is the ________. A) difference between the positive and negative values of dependent and independent variables B) difference between the fixed cost and variable cost associated with the cost driver C) difference between the high and low observations of the cost driver D) difference between the costs associated with highest and lowest observations of the cost driver
D Diff: 2 Objective: 4
: Application of knowledge 21) What is the estimated total cost when 400 machine-hours are used? A) $20,800 B) $29,000 C) $16,000 D) $17,500
D Explanation: D) The total cost, y = $5,500 + ($30 × 400) = $17,500 Diff: 3 Objective: 4
: Application of knowledge 25) What will be the total cost for the estimated 7,000 hours? A) $451,250 B) $547,500 C) $700,000 D) $656,000
D Explanation: D) Total cost = $110,000 + [($390,000/5,000) × 7,000] = $656,000 Diff: 2 Objective: 3
: Application of knowledge Answer the following questions using the information below: The Frontive Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Frontive Company has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation. Cost Hours $24,700 5,000 26,000 5,500 34,000 7,500 45,370 10,300 38,000 9,500 29) What is the cost function? A) y = $45,370 + $4.19X B) y = $24,700 + $4.40X C) y = $34,000 + $4.94X D) y = $5,200 + $3.90X
D Explanation: D) b = ($45,370 − $24,700) / (10,300 − 5,000) = $3.90 for the highest and lowest values of the cost driver Using highest observation: $45,370 = a + ($3.90 × 10,300) a = $5,200 Cost function is Y = $5,200 + $3.90X Diff: 3 Objective: 4
: Application of knowledge Answer the following questions using the information below: The Bovise Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Bovise Company has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation. Month Cost Hours January $40,000 3,600 February 38,500 3,000 March 36,280 3,300 April 38,000 3,500 May 69,850 5,850 June 45,000 4,250 33) How is the cost function stated? A) y = $26,672 + $11.94X B) y = $1,360 + $11.37 C) y = $31,350 + $12.83X D) y = $5,500 + $11X
D Explanation: D) b = ($69,850 − $38,500) / (5,850 − 3,000) = $11 $69,850 = a + ($11 × 5,850) a = $5,500 Diff: 3 Objective: 4
: Analytical thinking 30) The cost of the personnel department at the Binix Company has always been charged to the production departments based upon number of employees. Recently, opinions gathered from the department managers indicated that the number of new hires might also be a predictor of personnel costs to be assigned. Total personnel department costs are $180,000. Department Department Department Cost Driver A B C Number of employees 390 325 65 The number of new hires 25 35 20 Required: Using the above data, prepare a report that contrasts the different amounts of personnel department cost that would be allocated to each of the production departments if the cost driver used is: a. number of employees. b. the number of new hires. c. Which cost estimation method is being used by Binix Company?
Department Department Department Cost Driver A B C a. Number of employees 390/780 × 180,000 325/780 × 180,000 65/780 × 180,000 $90,000 $75,000 $15,000 b. The number of new hires 25/80×180,000 35/80×180,000 20/80×180,000 $56,250 $78,750 $45,000 c. Binix Company is using the conference method for cost estimation. Diff: 3 Objective: 3
: Analytical thinking Objective 10.2 1) A linear cost function can only represent fixed cost behavior.
FALSE Explanation: A linear cost function can represent fixed, mixed, or variable cost behavior. Diff: 1 Objective: 2
: Analytical thinking 16) All cost functions are linear.
FALSE Explanation: All cost functions are not linear, but for cost-behavior estimation we assume some are linear within a relevant range. Diff: 1 Objective: 1
: Analytical thinking 20) All other things being equal, the longer the time horizon the more likely a cost will be fixed.
FALSE Explanation: All other things being equal, the longer the time horizon, the more likely the cost will be variable. Diff: 1 Objective: 1
: Analytical thinking 2) In a graphical display of a cost function, the steepness of a line represents the total amount of fixed costs.
FALSE Explanation: In a graphical display of a cost function, the constant or the y-intercept represents the amount of fixed costs whereas the steepness of a line represents the variable cost. Diff: 2 Objective: 2
: Analytical thinking 37) In estimating a cost function using quantitative analysis, the dependent variable is the factor used to predict the independent variable.
FALSE Explanation: In estimating a cost function using quantitative analysis, the independent variable is the factor used to predict the dependent variable. Diff: 2 Objective: 4
: Analytical thinking 3) It can be inferred that when there is a high correlation between two variables, one is the cause of the other.
FALSE Explanation: It cannot be inferred that a high correlation between two variables indicates that one is the cause of the other. A high correlation simply indicates that the variables move together. Diff: 2 Objective: 2
: Analytical thinking 5) Managers should use past data to create a cost function and then use the exact information provided by that cost function to create the budgetary forecast for the next year.
FALSE Explanation: Managers are interested in estimating past cost-behavior functions because the estimates can help them make more accurate cost predictions, or forecasts, about future costs. But better management decisions, cost predictions, and estimation of cost functions can be achieved only if managers correctly identify the factors that affect costs. Diff: 2 Objective: 2
: Analytical thinking 21) Outside of the relevant range, variable and fixed cost-behavior patterns remain constant.
FALSE Explanation: Outside of the relevant range, variable and fixed cost-behavior patterns may change. Diff: 2 Objective: 1
: Application of knowledge 26) The quantitative analysis method of cost estimation is based on opinions from various departments and is quick and of low cost to apply.
FALSE Explanation: The conference method of cost estimation is based on opinions from various departments and is quick and of low cost to apply. Diff: 1 Objective: 3
: Analytical thinking 36) The first step in estimating a cost function using quantitative analysis is to plot the data.
FALSE Explanation: The first step in estimating a cost function using quantitative analysis is to choose the dependent variable. Diff: 2 Objective: 4
: Analytical thinking 38) Cross-sectional data pertain to the same entity (organization, plant, activity, and so on) over successive past periods.
FALSE Explanation: Time-series data pertain to the same entity (organization, plant, activity, and so on) over successive past periods. Diff: 1 Objective: 4
: Analytical thinking 15) A cost function is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost.
TRUE Diff: 1 Objective: 1
: Analytical thinking 19) y = a + bX, y = a, and y = bX are the three basic types of linear cost functions.
TRUE Diff: 1 Objective: 1
: Analytical thinking 22) A particular cost item could be variable for one cost object and fixed for another cost object.
TRUE Diff: 1 Objective: 1
: Analytical thinking 14) One assumption frequently made in cost behavior estimation is that changes in total costs can be explained by changes in the level of a single activity.
TRUE Diff: 1 Objective: 1
: Analytical thinking 28) The account analysis method estimates cost functions by classifying various cost accounts as variable, fixed, or mixed with respect to the identified level of activity.
TRUE Diff: 1 Objective: 3
: Analytical thinking 27) The account analysis method of cost estimation classifies account costs as fixed, mixed, or variable using qualitative judgments.
TRUE Diff: 1 Objective: 3
: Analytical thinking 29) The quantitative analysis method uses a formal mathematical method to identify cause-and-effect relationships among past data observations.
TRUE Diff: 1 Objective: 3
: Analytical thinking 18) When estimating a cost function, cost behavior can be approximated by a linear cost function within the relevant range.
TRUE Diff: 2 Objective: 1
: Analytical thinking 17) In a cost function y = 18,000, the slope coefficient is zero.
TRUE Diff: 2 Objective: 1
: Analytical thinking 4) An example of a physical cause-and-effect relationship is when additional units of production increase total direct material costs.
TRUE Diff: 2 Objective: 2
: Analytical thinking 39) Simple regression analysis estimates the relationship between the dependent variable and one independent variable.
TRUE Diff: 2 Objective: 4
: Application of knowledge 35) A homogeneous relationship exists when each activity whose costs are included in the dependent variable has the same cost driver.
TRUE Diff: 2 Objective: 4
: Application of knowledge 31) Munir Hassan, controller, gathered data on overhead costs and direct labor-hours over the past 12 months. List and discuss the different approaches Munir can use to estimate a cost function for overhead costs using direct labor-hours as the cost driver.
The four approaches to cost estimation are: 1. industrial engineering method 2. conference method 3. account analysis method 4. quantitative analysis of current or past cost relationships The industrial engineering method, also called the work-measurement method, estimates cost functions by analyzing the relationship between inputs and outputs in physical terms. The conference method estimates cost functions on the basis of analysis and opinions about costs and their drivers gathered from various departments of an organization (purchasing, process engineering, manufacturing, employee relations, etc.). The account analysis method estimates cost functions by classifying cost accounts in the ledger as variable, fixed, or mixed with respect to the identified cost driver. Quantitative analysis of cost relationships are formal methods, such as the high-low method or regression analysis, to fit linear cost functions to past data observations. Diff: 2 Objective: 3
: Analytical thinking 6) What are the two assumptions behind a simple linear cost function? Briefly explain the three ways that a linear cost function may behave?
The two usual assumptions behind a simple linear cost function are: 1) Variations in the level of a single activity (the cost driver) explain the variations in the related total costs; and 2) Cost behavior is approximated by a linear cost function within the relevant range. This means that total cost versus the level of a single activity that is related to that cost is a straight line within the relevant range. Once linearity is established, there are three possible types of linearity: 1) A strictly variable cost of the form Y = bX, where b is the slope of the straight line and is the variable cost per unit of the cost driver; 2) A strictly constant cost of the form Y = a, where a is the total fixed cost or constant; and 3) A mixed or semivariable cost of the form Y = a + bX, where a is the total fixed cost or constant, and b is the variable cost per unit of the driver or the slope of the straight line. Diff: 2 Objective: 2
: Analytical thinking 24) Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver. a. Direct materials cost is $1.70 per pound b. Total cost is fixed at $8,000 per month regardless of the number of units produced. c. Auto rental has a fixed fee of $80.00 per day plus $2.00 per mile driven. d. Machine operating costs include $1,000 of maintenance per month, and $12.00 of coolant usage costs for each day the machinery is in operation.
a. y = $1.70X b. y = $8,000 c. y = $80 + $2.00X d. y = $1,000 + $12X Diff: 2 Objective: 1
: Analytical thinking 23) Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver. a. Direct manufacturing labor is $10 per hour. b. Direct materials cost $15.60 per cubic yard. c. Utilities have a minimum charge of $5,000, plus a charge of $0.30 per kilowatt-hour. d. Machine operating costs include $300,000 of machine depreciation per year, plus $100 of utility costs for each day the machinery is in operation.
a. y = $10X b. y = $15.60X c. y = $5,000 + $0.30X d. y = $300,000 + $100 X Diff: 2 Objective: 1
