Chapter 2—Cost Behavior Key
1. A cost that does not change in total as output changes is a variable cost.
2. The cost of raw materials used is usually a variable 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 also decrease.
5. As output increases variable cost per unit will also increase.
6. The cost of advertising is usually a discretionary fixed cost.
7. A committed fixed cost can be changed relatively easily at management discretion.
8. The relevant range is the range of activity for which the assumed cost relationships are valid.
9. Mixed costs have both a fixed and a variable component.
10. Managerial judgement is not a factor in determining cost behavior.
11. Determining cost behavior is essential to planning, controlling, and decision making.
12. A variable cost increases in total and per-unit when output increases.
13. Cost relationships may change at output levels outside of the relevant range.
14. Computing unit fixed costs may result in misleading information.
15. Discretionary fixed costs often involve a long-term contract.
16. Total variable costs = Variable rate ´ amount of output.
17. The high-low method is the most accurate method to separate the cost behavior of a mixed cost.
18. “Outliers” are points that do not seem to fit the general pattern of behavior.
19. The slope of a mixed cost line is equal to the fixed element of the cost.
20. A driver is a factor that causes or leads to a change in a 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 fixed cost.
24. Using a linear regression program, the term ‘X Variable 1’ refers to the dependent variable.
25. Using Microsoft Excel, the function ‘LINEST’ returns the parameters of a linear regression.
26. Using Microsoft Excel, the function ‘INTERCEPT’ returns the variable rate of the independent variable.
27. Using linear regression, the value of ‘X Variable 1’ equals the slope of the line.
28. Knowing how costs change as output changes is essential to
29. A fixed cost within the relevant range
30. Which of the following would be an example of a fixed cost?
31. Which of the following would not be an example of a fixed cost?
32. Discretionary fixed costs
33. Which of the following is an example of a discretionary fixed cost?
34. Which of the following is not an example of a discretionary fixed cost?
35. A committed fixed cost
36. Variable costs within the relevant range
37. Which of the following would be a variable cost for a dentist’s office?
38. Total variable costs
39. A mixed cost
40. When a mixed cost is graphed the Y-intercept corresponds to the
41. Figure 2-1.
Total cost = Fixed cost + Variable Rate ´ Output
See Figure 2-1: In the cost formula above which element would be the dependent variable?
42. Figure 2-1.
Total cost = Fixed cost + Variable Rate ´ Output
See Figure 2-1: In the cost formula above which element would be the independent variable?
43. Figure 2-1.
Total cost = Fixed cost + Variable Rate ´ Output
See Figure 2-1: In the cost formula above which element would be the intercept?
44. Figure 2-1.
Total cost = Fixed cost + Variable Rate ´ Output
See Figure 2-1: In the cost formula above which element would be the slope?
45. When a mixed cost is graphed the slope of the line equals
46. The high-low method
47. The scatter graph method
48. The method of least squares
49. A factor that causes or leads to a change in a cost or activity is a(n)
50. Which of the following would probably be a fixed cost in a fast-food restaurant?
51. Which of the following would probably be a variable cost at a college?
52. The relevant range
53. Per-unit fixed costs
54. Which of the following would probably be a discretionary fixed cost for a law firm?
55. Which of the following would probably be a committed fixed cost for an accounting firm?
56. Per-unit variable costs
57. Step costs
58. The formula for a mixed cost is
59. Which of the following would probably be a mixed cost?
60. Using the high-low method, the variable rate of a mixed cost equals
61. The method of least squares
62. Managerial judgement
63. If output increases
64. If output decreases
65. If output increases by 50% and is still within the relevant range
66. A mixed cost
67. The scatter graph method
68. Figure 2-2.
Lassiter Toys, Inc.
Cost of Materials
No. of toys
Total cost
produced
of materials
100,000
$20,000
200,000
$40,000
300,000
$60,000
See Figure 2-2: The cost behavior of the materials cost is
69. Figure 2-2.
Lassiter Toys, Inc.
Cost of Materials
No. of toys
Total cost
produced
of materials
100,000
$20,000
200,000
$40,000
300,000
$60,000
See Figure 2-2: What should the total materials cost be at a production level of 220,000 toys?
70. Figure 2-2.
Lassiter Toys, Inc.
Cost of Materials
No. of toys
Total cost
produced
of materials
100,000
$20,000
200,000
$40,000
300,000
$60,000
See Figure 2-2: What is the materials cost per unit of output?
71. 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?
72. Figure 2-3.
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.
Month
Lease cost
Machine hours
April
$ 21,000
550
May
16,500
420
June
19,000
510
July
22,230
570
See Figure 2-3: Using the high-low method calculate the variable rate for the lease cost
73. Figure 2-3.
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.
Month
Lease cost
Machine hours
April
$ 21,000
550
May
16,500
420
June
19,000
510
July
22,230
570
See Figure 2-3: Using the high-low method calculate the fixed cost of leasing
74. Figure 2-3.
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.
Month
Lease cost
Machine hours
April
$ 21,000
550
May
16,500
420
June
19,000
510
July
22,230
570
See Figure 2-3: What would Okafor Company’s cost formula be to estimate the cost of leasing within the relevant range?
75. Figure 2-3.
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.
Month
Lease cost
Machine hours
April
$ 21,000
550
May
16,500
420
June
19,000
510
July
22,230
570
See Figure 2-3: What would the estimate of Okafor Company’s total lease cost be at a level of 500 machine hours?
76. Figure 2-4.
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.
See Figure 2-4: Calculate the total variable utility cost for the month of April
77. Figure 2-4.
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.
See Figure 2-4: Calculate the total utility cost for the month of April
78. Figure 2-4.
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.
See Figure 2-4: If Botana Company incurs 9,600 labor hours for the year, what would be the estimate of total
utility cost?
79. Figure 2-5.
Maxwell Company makes treadmills. The company controller wants to calculate the fixed and variable costs
associated with the janitorial costs incurred in the factory.
Data for the past four months were collected.
Month
Janitorial costs
Machine hours
September
$ 11,000
575
October
11,400
610
November
10,200
510
December
10,725
550
See Figure 2-5: Using the high-low method calculate the fixed cost of the janitorial services
80. Figure 2-5.
Maxwell Company makes treadmills. The company controller wants to calculate the fixed and variable costs
associated with the janitorial costs incurred in the factory.
Data for the past four months were collected.
Month
Janitorial costs
Machine hours
September
$ 11,000
575
October
11,400
610
November
10,200
510
December
10,725
550
See Figure 2-5: What would Maxwell Company’s estimate of total janitorial cost be at a level of 625 machine hours?
81. Figure 2-6.
Taran Company incurred the following costs for the months of January and February.
January
February
$ 5,000
$ 5,000
4,000
6,000
3,500
3,500
10,000
20,000
See Figure 2-6: From the information above we can assume that
82. Figure 2-6.
Taran Company incurred the following costs for the months of January and February.
January
February
$ 5,000
$ 5,000
4,000
6,000
3,500
3,500
10,000
20,000
See Figure 2-6: 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?
83. Figure 2-6.
Taran Company incurred the following costs for the months of January and February.
January
February
$ 5,000
$ 5,000
4,000
6,000
3,500
3,500
10,000
20,000
See Figure 2-6: If output was 5,000 units in January and 10,000 units in February we can assume that
84. Figure 2-7.
Margola Company produces hand-held calculators. The company controller wanted to calculate the fixed and
variable costs associated with the maintenance cost incurred by the factory. Data for the past four months were
collected.
Month
Maintenance cost
Machine hours
June
$ 4,180
328
July
3,956
310
August
4,686
386
September
4,240
352
Coefficients shown by a regression program are:
Intercept
985
X Variable 1
9.82
See Figure 2-7: Using the results of regression, calculate the fixed cost of maintenance
85. Figure 2-7.
Margola Company produces hand-held calculators. The company controller wanted to calculate the fixed and
variable costs associated with the maintenance cost incurred by the factory. Data for the past four months were
collected.
Month
Maintenance cost
Machine hours
June
$ 4,180
328
July
3,956
310
August
4,686
386
September
4,240
352
Coefficients shown by a regression program are:
Intercept
985
X Variable 1
9.82
See Figure 2-7: Using the results of regression, calculate the variable rate of maintenance cost
86. Figure 2-7.
Margola Company produces hand-held calculators. The company controller wanted to calculate the fixed and
variable costs associated with the maintenance cost incurred by the factory. Data for the past four months were
collected.
Month
Maintenance cost
Machine hours
June
$ 4,180
328
July
3,956
310
August
4,686
386
September
4,240
352
Coefficients shown by a regression program are:
Intercept
985
X Variable 1
9.82
See Figure 2-7: Using the results of regression, the cost formula for maintenance cost was
87. Figure 2-7.
Margola Company produces hand-held calculators. The company controller wanted to calculate the fixed and
variable costs associated with the maintenance cost incurred by the factory. Data for the past four months were
collected.
Month
Maintenance cost
Machine hours
June
$ 4,180
328
July
3,956
310
August
4,686
386
September
4,240
352
Coefficients shown by a regression program are:
Intercept
985
X Variable 1
9.82
See Figure 2-7: Using the results of regression, what would be the budgeted cost for maintenance next month assuming that 400 machine hours are
budgeted.
88. Figure 2-8.
Martin Company makes cell phones. The company controller wanted to calculate the fixed and variable costs
associated with electricity using in the factory. Data for the past four months were collected:
Month
Electricity cost
Machine hours
January
$ 7,560
570
February
8,220
625
March
7,480
546
April
7,186
518
Coefficients show by a regression program are:
Intercept
2,225
X Variable 1
9.75
See Figure 2-8: Using the results of regression, calculate the variable rate of the electricity cost
89. Figure 2-8.
Martin Company makes cell phones. The company controller wanted to calculate the fixed and variable costs
associated with electricity using in the factory. Data for the past four months were collected:
Month
Electricity cost
Machine hours
January
$ 7,560
570
February
8,220
625
March
7,480
546
April
7,186
518
Coefficients show by a regression program are:
Intercept
2,225
X Variable 1
9.75
See Figure 2-8: Using the results of regression, calculate the fixed cost of electricity