CHAPTER 10 QUIZ
1. A mixed cost function has a constant component of $20,000. If the total cost is $60,000
and the independent variable has the value 200, what is the value of the slope coefficient?
a. $200
b. $400
c. $600
d. $40,000
2. [CMA Adapted] Of the following methods, the one that would not be appropriate for
analyzing how a specific cost behaves is
a. the scattergraph method.
b. the industrial engineering approach.
c. linear programming.
d. statistical regression analysis.
3. When the high-low method is used to estimate a cost function, the variable cost per unit
is found by
a. performing regression analysis on the associated cost and cost driver database.
b. subtracting the fixed cost per unit from the total cost per unit based on either the highest
or lowest observation of the cost driver.
c. dividing the difference between the highest and lowest observations of the cost driver by
the difference between costs associated with the highest and lowest observations of the
cost driver.
d. dividing the difference between costs associated with the highest and lowest
observations of the cost driver by the difference between the highest and lowest
observations of the cost driver.
The following data apply to questions 4 and 5.
Tory Company derived the following cost relationship from a regression analysis of its
monthly manufacturing overhead cost.
y = $80,000 + $12X where: y = monthly manufacturing overhead cost
X = machine-hours
The standard error of estimate of the regression is $6,000.
The standard time required to manufacture one six-unit case of Tory’s single product is
four machine-hours. Tory applies manufacturing overhead to production on the basis of
machine-hours, and its normal annual production is 50,000 cases.
4. [CMA Adapted] Tory’s estimated variable manufacturing overhead cost for a month in
which scheduled production is 10,000 cases would be
a. $80,000.
b. $480,000.
c. $160,000.
d. $320,000.
5. [CMA Adapted] Tory’s predetermined fixed manufacturing overhead rate would be
a. $4.80/MH.
b. $4.00/MH.
c. $3.20/MH.
d. $1.60/MH.
6. Three criteria to use in identifying cost drivers from the potentially large set of
independent variables that can be included in a regression model are
a. goodness of fit, size of the intercept term, and specification analysis.
b. independence between independent variables, economic plausibility, and specification
analysis.
c. economic plausibility, goodness of fit, and significance of independent variable.
d. spurious correlation, expense of gathering data, and multicollinearity.
7. Companies that take advantage of quantity discounts in purchasing their materials have
a. decreasing cost functions.
b. linear cost functions.
c. nonlinear cost functions.
d. stationary cost functions.
8. With the cumulative average-time learning model
a. the cumulative time per unit declines by a constant percentage when production doubles.
b. the time needed to produce the last unit declines by a constant percentage when
production doubles.
c. costs increase in total by a constant percentage as production increases.
d. the total cumulative time increases in proportion to production increases.
9. When using the incremental unit-time learning model
a. the cumulative time per unit declines by a constant percentage when production doubles.
b. the time needed to produce the last unit declines by a constant percentage when
production doubles.
c. the time to produce one additional unit decreases by a constant percentage.
d. costs increase incrementally in an undetermined pattern.
10. Which of the following is not a common problem encountered in collecting data for
cost estimation?
a. Lack of observing extreme values
b. Missing data
c. Changes in technology
d. Distortions resulting from inflation
CHAPTER 10 QUIZ SOLUTIONS
