Chapter 4—Cost Behavior and Relevant Costs Key
1. ____ are costs that do not change in total when production volume increases or decreases within the relevant
range.
2. Which of the following types of costs are the most likely to be classified as fixed?
3. Which of the following costs is the least likely to be classified as a fixed cost?
4. As production goes up, total fixed costs ____.
5. As production increases, fixed costs per unit ____.
6. As production decreases, fixed costs per unit ____.
7. ____ are costs that change in total when production volume increases or decreases within the relevant range.
8. As production goes up, total variable costs ____.
9. As production increases, variable costs per unit ____.
10. As production decreases, variable costs per unit ____.
11. Which of the following types of costs is the most likely to be classified as variable?
12. Which of the following types of costs is not the most likely to be classified as variable?
13. When predicting cost behavior, the volume of production for which the fixed and variable cost relationships
are assumed to hold true is called the:
14. You are given the following cost and volume information:
Volume
Total Cost
(in units)
(in $)
200
$1,000
400
1,000
600
1,000
Which type of cost is given?
15. You are given the following cost and volume information:
Volume
Total Cost
(in units)
(in $)
200
$1,000
400
2,000
600
3,000
Which type of cost is given?
16. You are given the following cost and volume information:
Volume
Cost per unit
(in units)
(in $)
200
$10
400
10
600
10
Which type of cost is given?
17. You are given the following cost and volume information:
Volume
Cost per unit
(in units)
(in $)
500
$6
1,000
3
1,500
2
Which type of cost is given?
18. The cost equation, y = $0 + $5.40x, represents:
19. The cost equation, y = $500 + $0x, represents:
20. The cost equation, y = $400 + $5x, represents:
21. Howard Inc. provides temporary clerical services to local businesses. The company has determined that total
costs for a given month can be predicted by using the following formula:
Total Costs = $2,500 + $20x
where “x” equals total direct labor hours for the month. If total direct labor hours for June are expected to be
600, what are total costs expected to be?
22. Logan Inc. plans to double its rental space next year which will increase its fixed costs by 40% while
variable costs remain the same. Current year costs are as follows:
Variable costs
$10 per unit
Fixed costs
$30,000
If next year production is expected to be 20,000 units, estimated total costs will be:
23. Jansen Inc. currently produces and sells 12,000 units per year with the following cost data:
Variable costs
$10 per unit
Fixed costs
$30,000
Next year, Jansen plans to increase its advertising budget, which will increase fixed costs by 5%. With increased advertising, the company expects
the number of units produced and sold to increase by 8%. What are budgeted total costs expected to be next year?
24. Bob’s Burgers
Bob’s Burgers currently produces and sells 4,000 burgers per month with the following costs:
Variable costs
$.50 per unit
Fixed costs
$2,000
Bob has recently switched food suppliers and anticipates that variable costs will decrease by $.05 per unit. In addition, Bob has renegotiated his store
lease and fixed costs will be dropping by $40 per month.
Refer to the Bob’s Burgers information above. What will be Bob’s new cost equation?
25. Bob’s Burgers
Bob’s Burgers currently produces and sells 4,000 burgers per month with the following costs:
Variable costs
$.50 per unit
Fixed costs
$2,000
Bob has recently switched food suppliers and anticipates that variable costs will decrease by $.05 per unit. In addition, Bob has renegotiated his store
lease and fixed costs will be dropping by $40 per month.
Refer to the Bob’s Burgers information above. Bob anticipates selling 4,200 burgers during the month of July. What will be estimated total costs
during July?
26. Quality Products Inc. incurred total costs of $50,000 to produce 1,400 units. Variable costs are $15 per unit.
What are estimated fixed costs?
27. Bixby Inc. expects total costs to be $2,500 when 80 units are sold and the variable cost is $10 per unit.
Bixby expects to sell 90 units in July. What will be expected total costs in July?
28. Chadwick Ski Lodge
Chadwick Ski Lodge decides how many housekeepers it needs to hire based on expected hotel occupancy. The
following shows the budgeted housekeeping costs per month at various occupancies:
Number of occupied rooms
0 – 25
26 – 40
41 – 55
Refer to the Chadwick Ski Lodge information above. What type of cost is housekeeping?
29. Chadwick Ski Lodge
Chadwick Ski Lodge decides how many housekeepers it needs to hire based on expected hotel occupancy. The
following shows the budgeted housekeeping costs per month at various occupancies:
Number of occupied rooms
0 – 25
26 – 40
41 – 55
Refer to the Chadwick Ski Lodge information above. The number of occupied rooms during the month of January is expected to be between 41 and
55 at all times. For the month of January, what type of cost does housekeeping effectively become?
30. A cost that has both a fixed and variable component is called a:
31. Regression analysis is a technique used to:
32. Which of the following statements is true regarding regression analysis?
33. Which of the following statements is false regarding regression analysis?
34. Which of the following statements is true regarding regression analysis?
35. When using regression analysis to predict mixed cost behavior, which of the following would be the
dependent variable?
36. When using regression analysis to predict mixed cost behavior, which of the following would be the
independent variable?
37. Regression Analysis 1
You run a regression analysis and receive the following results:
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.88000000
R Square
0.78219168
Adjusted R Square
0.70958891
Standard Error
1165.19000
Observations
5
df
SS
MS
F
Significance F
Regression
1
14626984.4
1E+07
10.7736
0.0463451
Residual
3
4073015.604
1E+06
Total
4
18700000
Coefficients
Standard Error
t Stat
P-value
Intercept
16146.37
8167.49
1.977
0.14249
X Variable 1
2.380
0.730
3.282
0.04635
Refer to the Regression Analysis 1 above. What would be the equation to predict mixed cost behavior?
38. Regression Analysis 1
You run a regression analysis and receive the following results:
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.88000000
R Square
0.78219168
Adjusted R Square
0.70958891
Standard Error
1165.19000
Observations
5
df
SS
MS
F
Significance F
Regression
1
14626984.4
1E+07
10.7736
0.0463451
Residual
3
4073015.604
1E+06
Total
4
18700000
Coefficients
Standard Error
t Stat
P-value
Intercept
16146.37
8167.49
1.977
0.14249
X Variable 1
2.380
0.730
3.282
0.04635
Refer to the Regression Analysis 1 above. To the nearest dollar, what would be the estimated total costs if 3,000 units were produced?
39. Regression Analysis 2
You run a regression analysis and receive the following results:
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.969762217
R Square
0.940438758
Adjusted R Square
0.92058501
Standard Error
360.0073099
Observations
5
ANOVA
df
SS
MS
F
Significance F
Regression
1
6139184.211
6139184.211
47.36832487
0.006283174
Residual
3
388815.7895
129605.2632
Total
4
6528000
Coefficients
Standard Error
t Stat
P-value
Intercept
3056.58
454.25
6.728812231
0.006701298
X Variable 1
1.27
0.18
6.882465029
0.006283174
Refer to the Regression Analysis 2 above. What would be the equation to predict total mixed costs?
40. Regression Analysis 2
You run a regression analysis and receive the following results:
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.969762217
R Square
0.940438758
Adjusted R Square
0.92058501
Standard Error
360.0073099
Observations
5
ANOVA
df
SS
MS
F
Significance F
Regression
1
6139184.211
6139184.211
47.36832487
0.006283174
Residual
3
388815.7895
129605.2632
Total
4
6528000
Coefficients
Standard Error
t Stat
P-value
Intercept
3056.58
454.25
6.728812231
0.006701298
X Variable 1
1.27
0.18
6.882465029
0.006283174
Refer to the Regression Analysis 2 above. To the nearest dollar, what would be the estimated total costs if 500 units were produced?
41. George’s Ice Cream Shop believes most of its utilities costs are mixed. George has collected the following
data on gallons of ice cream used and related utilities’ costs for the past six months:
Number of
gallons used
Utilities cost
May
20
$ 700
June
30
850
July
40
1,100
August
30
975
September
25
900
October
22
720
George has run a regression analysis on the above information and has come up with the following data:
Coefficients
Intercept
374.4318
X Variable 1
18.29545
Comparing the high/low method to regression analysis, to the nearest dollar, which of the following formulas would be the best predictor of total
estimated mixed costs?
42. Hill Top Products has run a regression analysis comparing total production and utilities’ costs for the past
six months. The regression analysis shows an R square (R2) of .86. Which of the following statements best
describes the meaning of R2?
43. In regression analysis, an R square (R2) of 1.0 would indicate:
44. The high/low method:
45. When using the high/low method, the change in cost divided by the change in volume is:
46. Mr. Quik Printers
Mr. Quik Printers documented the number of copies it made for customers as well as total overhead costs for
the past five months as follows:
Number of copies
Total overhead costs
October
230,000
$7,400
November
240,000
7,500
December
280,000
8,000
January
265,000
7,700
February
248,000
7,550
Refer to Mr. Quik Printers information above. Using the high/low method, what is the variable cost per unit?
47. Mr. Quik Printers
Mr. Quik Printers documented the number of copies it made for customers as well as total overhead costs for
the past five months as follows:
Number of copies
Total overhead costs
October
230,000
$7,400
November
240,000
7,500
December
280,000
8,000
January
265,000
7,700
February
248,000
7,550
Refer to Mr. Quik Printers information above. Using the high/low method, what is the overhead cost equation?
48. Cardinal Cleaners
Cardinal Cleaners documented the gallons of cleaning solvent it used as well as total overhead costs for the past
five months as follows:
Number of gallons
Total overhead costs
July
160
$6,500
August
150
6,100
September
155
6,700
October
175
7,000
November
170
6,800
Refer to the Cardinal Cleaners information above. Using the high/low method, what is the variable cost per unit?
49. Cardinal Cleaners
Cardinal Cleaners documented the gallons of cleaning solvent it used as well as total overhead costs for the past
five months as follows:
Number of gallons
Total overhead costs
July
160
$6,500
August
150
6,100
September
155
6,700
October
175
7,000
November
170
6,800
Refer to the Cardinal Cleaners information above. Using the high/low method, what is equation to predict total overhead costs?
50. Cardinal Cleaners
Cardinal Cleaners documented the gallons of cleaning solvent it used as well as total overhead costs for the past
five months as follows:
Number of gallons
Total overhead costs
July
160
$6,500
August
150
6,100
September
155
6,700
October
175
7,000
November
170
6,800
Refer to the Cardinal Cleaners information above. Cardinal uses the high/low method to predict total overhead costs. If Cardinal anticipates using
200 gallons of solvent in December, what are expected total overhead costs?
51. Speedy Couriers
Speedy Couriers documented the miles driven and total vehicle costs for the past five months as follows:
Number of miles
Total vehicle costs
January
800
$1,095
February
1,000
1,440
March
750
1,200
April
900
1,380
May
1,100
1,410
Refer to the Speedy Couriers information above. Using the high/low method, what is the cost equation to predict total vehicle costs?