1. Cost behavior is the most important characteristic for managerial decision making.
2. In general, accounting records accumulate cost information according to its behavior (i.e.,
variable and fixed).
3. In general, cost behavior results are likely to differ between the engineering method and
the account analysis method.
4. The engineering method of determining cost behavior is particularly useful for new
activities or products.
5. One advantage of the engineering method is that it does not require data from prior
periods to estimate cost behavior.
6. One advantage of the account analysis method for estimating cost behavior is that it
includes actual work conditions.
7. The account analysis method is more subjective than other cost estimation methods
because it relies heavily on the personal judgment and experience of accountants.
8. In general, the account analysis method focuses on the underlying relationship between
cost and activities from the previous period.
9. The relevant range represents those activity levels for which valid cost relationships have
been observed.
10. A scattergraph is useful for identifying outliers/irrelevant data points.
11. One disadvantage of the high-low method is the highest and lowest points may not be
representative of normal operating activities.
12. One advantage that regression techniques have over other cost estimation methods is it
generates information that can be used to determine how well the estimated cost equation will
predict future costs.
13. Because outliers are extreme data points, they can be included in the regression analysis
and not significantly affect the results.
14. In general, the use of multiple independent variables increases the proportion of the
variation in the dependent variable explained by the cost equation.
15. One way to control the effects of a nonlinear relation between total costs and volume is to
reduce the relevant range.
16. The linear cost estimate tends to understate the slope of the cost line in ranges close to
capacity.
17. Cost estimates using regression analysis are always more accurate and dependable than
cost estimates using the scattergraph methods.
18. A basic assumption of most cost estimation methods is cost behavior patterns are linear
within the relevant range.
19. The quality of the cost equation depends on collecting appropriate data.
20. Different cost estimations methods may produce different cost equations, even when
using the same set of data.
21. Which of the following statements is (are) true regarding cost behaviors?
(A) In general, accounting records accumulate cost information according to its behavior.
(B) Cost behaviors are the most important consideration in managerial decision making.
22. Which cost estimation method does not use the company’s cost information as its primary
source of information about the relationship between total costs and activity levels?
23. A manager is trying to estimate the manufacturing costs of a new product. The company
makes several other products that utilize some of the same manufacturing procedures as the new
product. Which cost estimation method would be the best method to determine the total cost of
manufacturing the new product?
24. Engineering cost estimates are usually based on operating conditions that are
considered:
25. Which of the following costs would most likely be classified as variable, assuming the
account analysis method is used to determine cost behaviors?
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26. In the cost equation TC = F + VX, X is best described as the:
27. In the cost equation TC = F + VX, V is best described as the:
28. Which of the following cost estimation methods finds the fixed portion of a mixed cost
before calculating the variable portion?
29. The term “relevant range” as used in cost accounting means the range over which:
30. Which of the following cost estimation methods finds the variable portion of a mixed cost
before calculating the fixed portion?
31. A disadvantage of the high-low method of cost analysis is that it:
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32. In the standard regression equation of y = a + bx, the letter b is best described as the:
33. In the standard regression equation of y = a + bx, the letter a is best described as the:
34. In the standard regression equation of y = a + bx, the letter y is best described as the:
35. The coefficient of correlation is:
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36. Given actual amounts of a semivariable cost for various levels of output, the method that
will always give the most reliable measure of the fixed and variable components is the:
37. Which of the following statements regarding regression analysis is (are) true?
(A) One way to control the effects of a nonlinear relationship between total costs and activity is
reduce the relevant range.
(B) The linear cost estimate tends to understate the slope of the cost line in ranges close to
capacity.
38. Mount Company incurred a total cost of $8,600 to produce 400 units of pulp. Each unit of
pulp required five (5) direct labor hours to complete. What is the total fixed cost if the variable
cost was $1.50 per direct labor hour?