Chapter 14—Cost Behavior Key
1. A cost that changes in total as output changes is a variable cost.
2. The cost of raw materials used is usually a fixed cost.
3. Fixed costs are costs that in total remain constant within the relevant range as the level of output increases or
decreases.
4. As output decreases fixed costs per unit will increase.
5. As output increases variable cost per unit will also increase.
6. The cost of advertising is usually a discretionary fixed cost.
7. A discretionary fixed cost can be changed relatively easily at management discretion.
8. The relevant range is the range of output which the assumed cost relationship is valid for the normal
operations of the firm.
9. Determining cost behavior is not essential to planning, controlling, and decision making.
10. A variable cost increases in total when output increases but the per-unit costs remains the same.
11. Cost relationships may change at output levels outside of the relevant range.
12. Computing unit fixed costs may result in misleading information.
13. Discretionary fixed costs often involve a long-term contract.
14. Total variable costs = Variable rate ´ amount of output.
15. A driver is a factor that causes or leads to a change in a cost.
16. Mixed costs have both a fixed and a variable component.
17. Managerial judgment is critically important in determining cost behavior.
18. The high-low method is an objective method to separate the cost behavior of a mixed cost.
19. “Outliers” are points that seem to fit the general pattern of behavior.
20. The slope of a mixed cost line is equal to the fixed element of the cost.
21. Using the high-low method, the calculation of the cost line uses the highest and lowest cost period.
22. Calculation of the cost line using the high-low method tests the lowest cost period to see if it is an outlier.
23. Using a linear regression program, the term ‘Intercept’ refers to the variable cost.
24. Using a regression program, the term ‘X Variable 1’ refers to the dependent variable.
25. Using regression, the value of ‘X Variable 1’ equals the slope of the line.
26. Select the appropriate item for each of the definitions listed below.
1. a description of how a cost changes when the level of
2. the range of output over which the assumed cost
relevant
27. Select the appropriate type of cost for each of the definitions below.
1. will increase in total in direct proportion to an increase in the
28. Select the appropriate item for each of the definitions listed below.
29. Select the appropriate type of cost for each of the definitions listed below.
30. Select the appropriate item for each of the definitions listed below.
31. Select the best description for the following:
SUMMARY OUTPUT
Regression Statistics
Multiple R
1
R Square
0.99
Adjusted R Square
0.99
Standard Error
195.35
Observations
5
ANOVA
df
SS
MS
F
Significance F
Regression
1
12492415.96
12492415.96
327.37
0
Residual
3
114479.24
38159.75
Total
4
12606895.2
Standard
Lower
Upper
Lower
Upper
Coefficients
Error
t Stat
P-value
95%
95%
95%
95.%
Intercept
10630.8
1187.44
8.95
0
6851.83
14409.76
6851.83
14409.76
X Variable 1
8.83
0.49
18.09
0
7.28
10.38
7.28
10.38
32. The ________________ is the range of output over which the assumed cost relationship is valid for the
normal operations of a firm.
33. A cost __________ is a casual factor that measures the output of the activity that leads costs to change.
34. __________________ is the general term for describing whether a cost changes when the level of output
changes.
35. The fabric used to manufacture curtains is an example of a ____________ cost.
36. Depreciation on factory equipment would be an example of a _________.
37. A type of cost behavior where the true total cost function is increasing at a decreasing rate is called
______________.
38. Rental expense for a warehouse is an example of a ___________ cost.
39. Fixed costs that cannot be easily changed and typically involve a long-term contract are known as
___________________.
40. A fixed cost that management can easily decide to increase or decrease is known as a _________________.
41. ___________________ are costs that in total vary in direct proportion to changes in output within the
relevant range.
42. A _______________ displays a constant level of cost for a range of output and then jumps to a higher level
of cost at some point.
43. _______________________ are costs that have both a fixed and a variable component.
44. The ______________________________ is a statistical way to find the best-fitting line through a set of
data points.
45. __________________________ is critically important in determining cost behavior and is by far the most
widely used method in practice.
46. The _________________________ is a way to see the cost relationship by plotting the data points on a
graph.
47. The ________________________ is a variable whose value depends on the value of another variable.
48. Graphically, the ______________ is the point at which the cost line intercepts the cost (vertical) axis.
49. An advantage of the high-low method is that it is ___________.
50. The percentage of variability in the dependent variable explained by an independent variable is called the
____________________________________.
51. The spreadsheet regression program supplies more than the estimates of the coefficients; it also provides
information that can be used to see how ________ the cost equation is which is a feature not available for the
high-low method.
52. Knowing how costs change as output changes is essential to
53. A fixed cost within the relevant range
54. Which of the following would be an example of a fixed cost?
55. Which of the following would not be an example of a fixed cost?
56. Discretionary fixed costs
57. Which of the following is an example of a discretionary fixed cost?
58. Which of the following is not an example of a discretionary fixed cost?
59. A committed fixed cost
60. Variable costs within the relevant range
61. Which of the following would be a variable cost for a dentist’s office?
62. Total variable costs
63. A factor that causes or leads to a change in a cost or activity is a(n)
64. Which of the following would probably be a fixed cost in a fast-food restaurant?
65. Which of the following would probably be a variable cost at a college?
66. The relevant range
67. Per-unit fixed costs
68. Which of the following would probably be a discretionary fixed cost for a law firm?
69. Which of the following would probably be a committed fixed cost for an accounting firm?
70. Per-unit variable costs
71. If output increases
72. If output decreases
73. If output increases by 50% and is still within the relevant range
74. Figure 3-2.
Lassiter Toys, Inc.
Cost of Materials
No. of toys produced
Total cost of materials
100,000
$20,000
200,000
$40,000
300,000
$60,000
Refer to Figure 3-2. The cost behavior of the materials cost is
75. Figure 3-2.
Lassiter Toys, Inc.
Cost of Materials
No. of toys produced
Total cost of materials
100,000
$20,000
200,000
$40,000
300,000
$60,000
Refer to Figure 3-2. What is the materials cost per unit of output?
76. Figure 3-2.
Lassiter Toys, Inc.
Cost of Materials
No. of toys produced
Total cost of materials
100,000
$20,000
200,000
$40,000
300,000
$60,000
Refer to Figure 3-2. What should the total materials cost be at a production level of 220,000 toys?
77. Figure 3-6.
Taran Company incurred the following costs for the months of January and February.
Type of Cost
January
February
Insurance
$ 5,000
$ 5,000
Utilities
4,000
5,000
Depreciation
3,500
3,500
Materials
10,000
20,000
Refer to Figure 3-6. From the information above we can assume that
78. Figure 3-6.
Taran Company incurred the following costs for the months of January and February.
Type of Cost
January
February
Insurance
$ 5,000
$ 5,000
Utilities
4,000
5,000
Depreciation
3,500
3,500
Materials
10,000
20,000
Refer to Figure 3-6. Assume that output was 5,000 units in January and 10,000 units in February, utility cost is a mixed cost, and the fixed cost of
utilities was $3,000. What was the variable rate per unit of output for utilities cost?
79. Figure 3-6.
Taran Company incurred the following costs for the months of January and February.
Type of Cost
January
February
Insurance
$ 5,000
$ 5,000
Utilities
4,000
5,000
Depreciation
3,500
3,500
Materials
10,000
20,000
Refer to Figure 3-6. If output was 5,000 units in January and 10,000 units in February we can assume that
80. The range of output over which the assumed cost relationship is valid for normal operations of a firm is
called the
81. Cost behavior analysis focuses on
82. Fixed cost per unit is $9 when 20,000 units are produced and $6 when 30,000 units are produced.
What is the total fixed cost when nothing is produced?
83. If production volume increases from 8,000 to 10,000 units,
84. When the volume of activity increases within the relevant range, the fixed cost per unit
85. The cost formula for monthly depreciation cost in a factory is:
Total cost = $10,000
This cost
86. A mixed cost
87. When a mixed cost is graphed the Y-intercept corresponds to the
88. When a mixed cost is graphed the slope of the line equals
89. Step costs
90. The formula for a mixed cost is
91. Which of the following would probably be a mixed cost?
92. A mixed cost
93. If a cost’s step-cost behavior follows very narrow steps, the costs may be approximated using:
94. Figure 3-1.
Total cost = Fixed cost + (Variable Rate ´ Output)
Refer to Figure 3-1. In the cost formula above which element would be the dependent variable?
95. Figure 3-1.
Total cost = Fixed cost + (Variable Rate ´ Output)
Refer to Figure 3-1. In the cost formula above which element would be the independent variable?
96. Figure 3-1.
Total cost = Fixed cost + (Variable Rate ´ Output)
Refer to Figure 3-1. In the cost formula above which element would be the intercept?
97. Figure 3-1.
Total cost = Fixed cost + (Variable Rate ´ Output)
Refer to Figure 3-1. In the cost formula above which element would be the slope?
98. The high-low method
99. The scatter-graph method
100. The method of least squares
101. Using the high-low method, the variable rate of a mixed cost equals
102. The method of least squares
103. Managerial judgment
104. The scatter-graph method
105. Ruskin Company had utilities cost of $95,000 at an output level of 30,000 units. The utilities cost was a
mixed cost and the fixed portion was $50,000. What would the estimate of total utilities cost be at an output
level of 40,000 units?
106. Figure 3-3.
Okafor Company manufactures skis. The management accountant wants to calculate the fixed and variable
costs associated with the leasing of machinery. Data for the past four months were collected.
Machine
Month
Lease cost
hours
April
$21,000
550
May
16,500
420
June
19,000
510
July
22,230
570
Refer to Figure 3-3. Using the high-low method calculate the variable rate for the lease cost
107. Figure 3-3.
Okafor Company manufactures skis. The management accountant wants to calculate the fixed and variable
costs associated with the leasing of machinery. Data for the past four months were collected.
Machine
Month
Lease cost
hours
April
$21,000
550
May
16,500
420
June
19,000
510
July
22,230
570
Refer to Figure 3-3. Using the high-low method calculate the fixed cost of leasing
108. Figure 3-3.
Okafor Company manufactures skis. The management accountant wants to calculate the fixed and variable
costs associated with the leasing of machinery. Data for the past four months were collected.
Machine
Month
Lease cost
hours
April
$21,000
550
May
16,500
420
June
19,000
510
July
22,230
570
Refer to Figure 3-3. What would Okafor Company’s cost formula be to estimate the cost of leasing within the relevant range?
109. Figure 3-3.
Okafor Company manufactures skis. The management accountant wants to calculate the fixed and variable
costs associated with the leasing of machinery. Data for the past four months were collected.
Machine
Month
Lease cost
hours
April
$21,000
550
May
16,500
420
June
19,000
510
July
22,230
570
Refer to Figure 3-3. What would the estimate of Okafor Company’s total lease cost be at a level of 500 machine hours?
110. Figure 3-4.
Botana Company constructed the following formula for monthly utility cost.
Total utility cost = $1,200 + ($8.10 ´ labor hours)
Assume that 775 labor hours are budgeted for the month of April.
Refer to Figure 3-4. Calculate the total variable utility cost for the month of April.
111. Figure 3-4.
Botana Company constructed the following formula for monthly utility cost.
Total utility cost = $1,200 + ($8.10 ´ labor hours)
Assume that 775 labor hours are budgeted for the month of April.
Refer to Figure 3-4. Calculate the total utility cost for the month of April.