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300,000
$60,000
23. Refer to Figure 3-2. The cost behavior of the materials cost is
a.
fixed
b.
variable
c.
committed
d.
discretionary
24. Refer to Figure 3-2. What is the materials cost per unit of output?
a.
$0.10
b.
$0.20
c.
$0.60
d.
$0.40
25. Refer to Figure 3-2. What should the total materials cost be at a production level of 220,000 toys?
a.
$44,000
b.
$88,000
c.
$22,000
d.
$132,000
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
26. Refer to Figure 3-6. From the information above we can assume that
a.
insurance and depreciation are fixed costs.
b.
output decreased from January to February.
c.
output stayed the same from January to February.
d.
insurance is a mixed cost.
27. 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?
a.
$0.60
b.
$0.40
c.
$0.20
d.
$0.30
28. Refer to Figure 3-6. If output was 5,000 units in January and 10,000 units in February we can assume
that
a.
utilities and materials are variable costs.
b.
utilities, insurance, and depreciation are fixed costs.
c.
insurance and depreciation are mixed costs.
d.
materials is the only variable cost.
29. The range of output over which the assumed cost relationship is valid for normal operations of a firm
is called the
a.
mixed range.
b.
relevant range.
c.
linear range.
d.
dependent range.
30. Cost behavior analysis focuses on
a.
how costs react to increases in activity levels only.
b.
how costs will change in the future.
c.
how costs react to changes in activity level.
d.
None of these are correct.
31. 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?
a.
$180,000
b.
$360,000
c.
$150,000
d.
$240,000
32. If production volume increases from 8,000 to 10,000 units,
a.
total costs will increase by 20%.
b.
total costs will increase by 25%.
c.
total variable costs will increase by 25%.
d.
mixed and variable costs will increase by 25%.
33. When the volume of activity increases within the relevant range, the fixed cost per unit
a.
decreases.
b.
increases at first, then decreases.
c.
remains the same.
d.
increase.
34. The cost formula for monthly depreciation cost in a factory is
Total cost = $10,000
This cost
a.
is strictly variable.
b.
is strictly fixed.
c.
is a mixed cost.
d.
is a step cost.
35. A mixed cost
a.
remains constant when the output level increases.
b.
cannot be separated.
c.
contains both a fixed and variable component.
d.
All of these are correct.
36. When a mixed cost is graphed the Y-intercept corresponds to the
a.
step cost.
b.
variable rate.
c.
fixed cost.
d.
price of the units sold.
37. When a mixed cost is graphed the slope of the line equals
a.
the variable cost per unit of the activity driver.
b.
the total variable cost.
c.
the sales price per unit.
d.
the total fixed cost.
38. Step costs
a.
remain the same within the relevant range.
b.
have an increased fixed component at specified intervals.
c.
increase in direct proportion to increases in output.
d.
None of these are correct.
39. The formula for a mixed cost is
a.
total cost = total variable cost + ( fixed rate x amount of output).
b.
total cost = total fixed cost + (variable rate amount of output).
c.
total cost = variable rate amount of output.
d.
None of these are correct.
40. Which of the following would probably be a mixed cost?
a.
rent on building
b.
raw materials
c.
repairs and maintenance
d.
depreciation
41. A mixed cost
a.
will vary in direct proportion to changes in output.
b.
stays the same regardless of output.
c.
has the same cost behavior as a step cost.
d.
will decrease in total when output decreases.
42. If a cost's step-cost behavior follows very narrow steps, the costs may be approximated using:
a.
straight variable cost assumptions.
b.
fixed costs assumptions.
c.
step-fixed cost assumptions.
d.
mixed cost assumptions.
43. Refer to Figure 3-1. In the cost formula above which element would be the dependent variable?
a.
variable rate
b.
fixed cost
c.
total cost
d.
output
44. Refer to Figure 3-1. In the cost formula above which element would be the independent variable?
a.
fixed cost
b.
total cost
c.
output
d.
variable rate
45. Refer to Figure 3-1. In the cost formula above which element would be the intercept?
a.
fixed cost
b.
total cost
c.
output
d.
variable rate
46. Refer to Figure 3-1. In the cost formula above which element would be the slope?
a.
variable rate
b.
output
c.
fixed cost
d.
total cost
47. The high-low method
a.
is the most accurate methods.
b.
is not affected by the presence of outliers.
c.
has the advantage of objectivity.
d.
has the advantage of subjectivity.
48. The scatter-graph method
a.
displays a constant level of cost for a range of output.
b.
has the advantage of subjectivity.
c.
may reveal the presence of outliers.
d.
all of these are correct
49. The method of least squares
a.
is a way to find the "best fitting" line through a set of data points.
b.
is a statistical way of separating a mixed cost.
c.
always produces the same cost formula when used on the same data set.
d.
all of these are correct
50. Using the high-low method, the variable rate of a mixed cost equals
a.
total cost at high point − (variable rate output at high point)
b.
total cost at high point − (variable rate output at low point)
c.
d.
51. The method of least squares
a.
uses the results of regression analysis to construct a cost formula.
b.
is the least accurate method.
c.
analyzes a cost relationship by plotting the data points on a graph.
d.
can easily be calculated by hand.
52. Managerial judgment
a.
is the most accurate way to determine cost behavior.
b.
is the least used method in practice.
c.
is critically important in determining cost behavior.
d.
none of these are correct
53. The scatter-graph method
a.
allows a cost analyst to inspect data visually.
b.
is objective.
c.
only uses two data points.
d.
none of these are correct
54. 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?
a.
$65,000
b.
$95,000
c.
$110,000
d.
$125,000
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
55. Refer to Figure 3-3. Using the high-low method calculate the variable rate for the lease cost
a.
$38.18
b.
$38.20
c.
$61.50
d.
$37.25
56. Refer to Figure 3-3. Using the high-low method calculate the fixed cost of leasing
a.
$482
b.
$516
c.
$420
d.
$456
57. Refer to Figure 3-3. What would Okafor Company's cost formula be to estimate the cost of leasing
within the relevant range?
a.
total lease cost = $456 + ($38.20 machine hours)
b.
total lease cost = $516 + ($38.18 machine hours)
c.
total lease cost = $420 + ($37.25 machine hours)
d.
none of these are correct
58. Refer to Figure 3-3. What would the estimate of Okafor Company's total lease cost be at a level of 500
machine hours?
a.
$19,606
b.
$19,556
c.
$16,464
d.
$18,546
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.
59. Refer to Figure 3-4. Calculate the total variable utility cost for the month of April.
a.
$1,200.00
b.
$7,477.50
c.
$6,277.50
d.
$5,077.50
60. Refer to Figure 3-4. Calculate the total utility cost for the month of April.
a.
$7,477.50
b.
$6,277.50
c.
$1,200.00
d.
$5,077.50
61. Refer to Figure 3-4. If Botana Company incurs 9,600 labor hours for the year, what would be the
estimate of total utility cost?
a.
$76,560
b.
$78,960
c.
$92,160
d.
none of these are correct
Figure 3-5.
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.
Janitorial
Machine
Month
costs
hours
September
$11,000
575
October
11,400
610
November
10,200
510
December
10,725
550
62. Refer to Figure 3-5. Using the high-low method calculate the fixed cost of the janitorial services
a.
$4,080
b.
$7,320
c.
$6,120
d.
none of these are correct
63. Refer to Figure 3-5. What would Maxwell Company's estimate of total janitorial cost be at a level of
600 machine hours?
a.
$11,280
b.
$7,500
c.
$4,080
d.
$6,120
Figure 3-7.
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.
Maintenance
Machine
Month
cost
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
1,150
X Variable 1
9.06
64. Refer to Figure 3-7. Using the results of regression, calculate the fixed cost of maintenance.
a.
$1,150.00
b.
$978.37
c.
$9.06
d.
None of these are correct.
65. Refer to Figure 3-7. Using the results of regression, calculate the variable rate of maintenance cost.
a.
$1,150 per machine hour
b.
$12.74 per machine hour
c.
$9.06 per machine hour
d.
$12.14 per machine hour
66. Refer to Figure 3-7. Using the results of regression, the cost formula for maintenance cost was
a.
$1,150 machine hours
b.
($4,686 − $3,956)/(386 − 310)
c.
$9.06 machine hours
d.
$1,150 + ($9.06 machine hours)
67. Refer to Figure 3-7. Using the results of regression, what would be the budgeted cost for maintenance
next month assuming that 340 machine hours are budgeted?
a.
$4,230
b.
$3,928
c.
$1,150
d.
$2,943
Figure 3-8.
Martin Company makes cell phones. The company controller wanted to calculate the fixed and
variable costs associated with electricity use in the factory. Data for the past four months were
collected.
Electricity
Machine
Month
cost
hours
January
$7,560
570
February
8,220
625
March
7,480
546
April
7,186
518
Coefficients shown by a regression program are:
68. Refer to Figure 3-8. Using the results of regression, calculate the variable rate of the electricity cost.
a.
$9.67 per machine hour
b.
$9.48 per machine hour
c.
$2,255 per machine hour
d.
none of these are correct
69. Refer to Figure 3-8. Using the results of regression, calculate the fixed cost of electricity.
a.
$2,255
b.
$9.48
c.
$2,200
d.
None of these are correct.
70. Refer to Figure 3-8. Using the results of regression, the cost formula for electricity cost was
a.
$9.48 machine hours
b.
$2,255 machine hours
c.
$2,255 + ($9.48 machine hours)
d.
None of these are correct.
71. Refer to Figure 3-8. Using the results of regression, what would be the total budgeted cost for
electricity next month assuming that 615 machine hours are budgeted?
a.
$2,225
b.
$8,240
c.
$8,085
d.
$4,015
Figure 3-9.
The following cost formula was developed using monthly data for a retail clothing store.
Total cost = $75,620 + ($242 number of customers)
72. Refer to Figure 3-9. The term $75,620
a.
is the independent variable.
b.
is the dependant variable.
c.
is the intercept.
d.
is the variable rate.
73. Refer to Figure 3-9. The term $242
a.
is the independent variable.
b.
is the dependant variable.
c.
is the intercept.
d.
is the variable rate.
74. Refer to Figure 3-9. The term "number of customers"
a.
is the independent variable.
b.
is the dependant variable.
c.
is the intercept.
d.
is the variable rate.
75. Refer to Figure 3-9. The term "total cost"
a.
is the independent variable.
b.
is the dependant variable.
c.
is the intercept.
d.
is the variable rate.
Figure 3-10.
The following cost formula was developed using the monthly data for an accounting firm.
Total cost = $87,100 + ($210 number of tax returns)
76. Refer to Figure 3-10. The term $87,100
a.
is the independent variable.
b.
is the dependant variable.
c.
is the intercept.
d.
is the variable rate.
77. Refer to Figure 3-10. The term "number of tax returns"
a.
is the independent variable.
b.
is the dependant variable.
c.
is the intercept.
d.
is the variable rate.
78. Refer to Figure 3-10. The term $210
a.
is the independent variable.
b.
is the dependant variable.
c.
is the intercept.
d.
is the variable rate.
79. Refer to Figure 3-10. The term "total cost"
a.
is the independent variable.
b.
is the dependant variable.
c.
is the intercept.
d.
is the variable rate.
Figure 3-11.
The following four months of data were collected on utility cost and the number of labor hours in a
factory.
Utility
Labor
Month
cost
hours
January
$22,100
3,975
February
24,600
5,430
March
23,500
4,400
April
20,140
3,200
80. Refer to Figure 3-11. Select the correct set of high and low months.
High Low
a.
February April
b.
February March
c.
January March
d.
January April
81. Refer to Figure 3-11. Using the high-low method, compute the variable rate for the utility cost.
a.
$1.02
b.
$2.80
c.
$1.07
d.
$2.00
82. Refer to Figure 3-11. Using the high-low method, compute the fixed cost of electricity.
a.
$13,740
b.
$10,860
c.
$6,400
d.
None of these are correct.
83. Refer to Figure 3-11. What would be the estimate of electricity cost if the factory incurred 4,700 labor
hours next month?
a.
$9,400
b.
$20,260
c.
$23,140
d.
$19,560
Figure 3-12.
The method of least squares was used to develop a cost equation to predict the cost of monthly
equipment maintenance. The following computer output was received:
Intercept
32,000
Slope
25
The driver used was the number of machine hours.
84. Refer to Figure 3-12. What was the cost formula for equipment maintenance?
a.
total maintenance cost = $25 machine hours
b.
total maintenance cost = $32,000
c.
total maintenance cost = $32,000 + ($25 machine hours)
d.
None of these are correct.
85. Refer to Figure 3-12. Using the cost formula for the equipment maintenance cost, what is the predicted
cost of equipment maintenance for April assuming that 5,000 machine hours will be incurred in April?
a.
$32,000
b.
$125,000
c.
$157,000
d.
None of these are correct.
86. Refer to Figure 3-12. What is the independent variable of the cost formula for equipment
maintenance?
a.
number of machine hours
b.
the variable rate
c.
the fixed cost
d.
the total cost
87. Refer to Figure 3-13. Select the correct set of high and low months.
High Low
a.
June July
b.
June October
c.
October September
d.
October June
88. Refer to Figure 3-13. An independent variable value used in calculating the cost line using the high-
low method is:
a.
$27,950
b.
5,430
c.
$25,160
d.
4,000
89. Refer to Figure 3-13. A dependent variable value used in calculating the cost line using the high-low
method is:
a.
$27,900
b.
5,430
c.
$25,160
d.
4,500
90. Margolo Company makes cross-country skis. The company controller wants to calculate the fixed and
variable costs associated with janitorial services incurred by the factory. Data for the past 6 months
were collected.
Janitorial
Labor
Month
cost
hours
January
$9,200
10,120
February
8,800
9,500
March
9,350
10,500
April
9,620
11,100
May
8,400
8,660
June
9,400
10,650
Select the correct set of high and low months.
High Low
a.
June April
b.
June May
c.
January February
d.
April May
91. Advantages of the method of least squares over the high-low method include all of the following
except
a.
a statistical method is used to mathematically derive the cost function.
b.
only two points are used to develop the cost function.
c.
the squared differences between actual observations and the line (cost function) are
minimized.
d.
All the observations have an effect on the cost function.
92. If an automobile manufacturer changes from skilled labor to computer-controlled assembly
procedures, the past data
a.
are useful in predicting future costs.
b.
are of little or no value in predicting future costs.
c.
should be used without adjustments to predict future costs.
d.
are representative of future costs.
93. Which of the following is an advantage of using the scatter-graph method over the high-low method to
estimate costs?
a.
It is a statistical method to determine "best fit".
b.
A cost analyst can review the data visually and eliminate outliers.
c.
The quality of the cost formula relies on the objective judgment of the analysts.
d.
The cost formula can be determined simply by looking at two points of data.
94. If at a given volume total costs and fixed costs are known, the variable costs per unit may be computed
as follows:
a.
(total costs − fixed costs)/unit volume
b.
(total costs/unit volume) − fixed costs
c.
(total costs unit volume) − (fixed costs/unit volume)
d.
total costs − (fixed costs/unit volume)
Figure 3-14.
Blacken Company manufactures motorcycles. The company's management accountant wants to
calculate the fixed and variable costs associated with utility cost incurred by the factory. Data for the
past five months were collected.
Utility
Machine
Month
cost
hours
March
$30,255
2,200
April
32,750
2,525
May
34,712
2,710
June
31,850
2,410
July
30,720
2,290
95. Refer to Figure 3-14. Using a regression program, the value of the intercept (rounded to the nearest
penny) is
a.
$.99.
b.
$195.35.
c.
$10,630.80.
d.
$190,267.00.
96. Refer to Figure 3-14. Using a regression program, the value of the X Variable 1 (rounded to the
nearest penny) is
a.
$.99.
b.
$8.83.
c.
$195.35.
d.
$11,594.00.
