Chapter 3—Cost Behavior
MULTIPLE CHOICE
1. ____ are costs that do not change in total when production volume increases or decreases within the
relevant range.
a.
Variable costs
b.
Relevant costs
c.
Fixed costs
d.
Period costs
2. Which of the following types of costs are the most likely to be classified as fixed?
a.
Factory utilities
b.
Factory supplies
c.
Direct labor
d.
Factory insurance
3. Which of the following costs is the least likely to be classified as a fixed cost?
a.
Factory rent
b.
Plant manager salary
c.
Direct materials
d.
Depreciation on factory building
4. As production goes up, total fixed costs ____.
a.
decrease
b.
increase
c.
stay the same
d.
can not be predicted
5. As production increases, fixed costs per unit ____.
a.
increase
b.
decrease
c.
stay the same
d.
can not be predicted
6. As production decreases, fixed costs per unit ____.
a.
increase
b.
decrease
c.
stay the same
d.
can not be predicted
7. ____ are costs that change in total when production volume increases or decreases within the relevant
range.
a.
Variable costs
b.
Facility-level costs
c.
Fixed costs
d.
Period costs
8. As production goes up, total variable costs ____.
a.
decrease
b.
increase
c.
stay the same
d.
can not be predicted
9. As production increases, variable costs per unit ____.
a.
increase
b.
decrease
c.
stay the same
d.
can not be predicted
10. As production decreases, variable costs per unit ____.
a.
increase
b.
decrease
c.
stay the same
d.
can not be predicted
11. Which of the following types of costs is the most likely to be classified as variable?
a.
Factory rent
b.
Factory insurance
c.
Direct materials
d.
Depreciation of factory building
12. Which of the following types of costs is the least likely to be classified as variable?
a.
Direct materials
b.
Factory supplies
c.
Direct labor
d.
Administrative building rent
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:
a.
relevant cost area.
b.
regression area.
c.
dependent variable area.
d.
relevant range.
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?
a.
Variable
b.
Fixed
c.
Mixed
d.
Can not be determined
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?
a.
Variable
b.
Fixed
c.
Step
d.
Mixed
Managerial ACCT Test Bank Chapter 3 4
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?
a.
Variable
b.
Fixed
c.
Mixed
d.
Can not be determined
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?
a.
Variable
b.
Fixed
c.
Step
d.
Mixed
18. The cost equation, y = $0 + $5.40x, represents:
a.
a variable cost.
b.
a fixed cost.
c.
a mixed cost.
d.
a step cost.
19. The cost equation, y = $500 + $0x, represents:
a.
a variable cost.
b.
a fixed cost.
c.
a mixed cost.
d.
a step cost.
20. The cost equation, y = $400 + $5x, represents:
a.
a variable cost.
b.
a fixed cost.
c.
a mixed cost.
d.
can not be determined
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?
a.
$ 9,500
b.
$14,500
c.
$12,000
d.
$ 2,520
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:
a.
$242,000
b.
$230,000
c.
$322,000
d.
$212,000
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?
a.
$151,500
b.
$159,600
c.
$161,100
d.
$166,080
Managerial ACCT Test Bank Chapter 3 6
NARRBEGIN: Bob’s Burgers
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.
NARREND
24. Refer to the Bob’s Burgers information above. What will be Bob’s new cost equation?
a.
Total costs = $2,000 + $.50x
b.
Total costs = $2,000 + $.45x
c.
Total costs = $4,000 + $.50x
d.
Total costs = $1,960 + $.45x
25. 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?
a.
$3,850
b.
$4,000
c.
$4,100
d.
$4,410
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?
a.
$21,000
b.
$71,000
c.
$48,600
d.
$29,000
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?
a.
$3,400.00
b.
$2,600.00
c.
$2,812.50
d.
$4,200.00
NARRBEGIN: Chadwick Ski Lodge
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:
Managerial ACCT Test Bank Chapter 3 7
Number of occupied rooms Housekeeping costs
0 – 25 $1,500
26 – 40 3,000
41 – 55 4,50
NARREND
28. Refer to the Chadwick Ski Lodge information above. What type of cost is housekeeping?
a.
Fixed
b.
Variable
c.
Step
d.
Mixed
29. 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?
a.
Fixed
b.
Variable
c.
Step
d.
Mixed
30. A cost that has both a fixed and variable component is called a:
a.
step cost.
b.
mixed cost.
c.
product cost.
d.
relevant cost.
31. Regression analysis is a technique used to:
a.
estimate the step and mixed components of total cost.
b.
estimate the fixed and variable components of a mixed cost.
c.
estimate the fixed and variable components of a step cost.
d.
estimate the fixed and mixed components of step cost.
32. Which of the following statements is true regarding regression analysis?
a.
It is usually the most accurate technique used to determine equivalent units.
b.
It is usually the most accurate technique used to determine net income.
c.
It is usually the most accurate technique used to determine the total units of production.
d.
It is usually the most accurate technique used to determine mixed cost behavior.
33. Which of the following statements is false regarding regression analysis?
a.
It is used to predict the fixed and variable components of a mixed cost.
b.
It is used to predict whether or not a cost is a product or period cost.
c.
It is usually more accurate than the high/low method.
d.
It uses statistical methods to fit a cost line through a number of data points.
34. Which of the following statements is true regarding regression analysis?
a.
It is often less accurate than the high/low method.
b.
It is a better predictor of fixed costs than variable costs.
c.
It can not be used to predict the effect that a change in volume of production has on net
income.
d.
It uses statistical methods to fit a cost line through a number of data points.
35. When using regression analysis to predict mixed cost behavior, which of the following would be the
dependent variable?
a.
The highest level of activity
b.
The lowest level of activity
c.
The mixed cost at a given level of production
d.
The variable cost per unit
36. When using regression analysis to predict mixed cost behavior, which of the following would be the
independent variable?
a.
The highest level of activity
b.
The lowest level of activity
c.
The mixed cost at a given level of production
d.
The volume of production that drives a particular amount of mixed cost
NARRBEGIN: Regression Analysis-1
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
MS
F
Significance F
Regression
1
1E+07
10.7736
0.0463451
Residual
3
1E+06
Total
4
Coefficients
t Stat
P-value
Intercept
16146.37
1.977
0.14249
X Variable 1
2.380
3.282
0.04635
NARREND
37. Refer to the Regression Analysis 1 above. What would be the equation to predict mixed cost behavior?
a.
Y = $2.38 + $16,146.37x
b.
Y = $1,165.19 + $.88x
c.
Y = $16,146.37 + $2.38x
d.
Y = $8,167.49 + $.73x
38. Refer to the Regression Analysis 1 above. To the nearest dollar, what would be the estimated total
costs if 3,000 units were produced?
a.
$23,286
b.
$16,146
c.
$10,357
d.
$33,643
Managerial ACCT Test Bank Chapter 3 10
NARRBEGIN: Regression Analysis-2
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
MS
F
Significance F
Regression
1
6139184.211
47.36832487
0.006283174
Residual
3
129605.2632
Total
4
Coefficients
t Stat
P-value
Intercept
3056.58
6.728812231
0.006701298
X Variable 1
1.27
6.882465029
0.006283174
NARREND
39. Refer to the Regression Analysis 2 above. What would be the equation to predict total mixed costs?
a.
Y = $2,602.33 + $1.09x
b.
Y = $454.25 + $.18x
c.
Y = $3,510.83 + $1.45x
d.
Y = $3,056.58 + $1.27x
40. Refer to the Regression Analysis 2 above. To the nearest dollar, what would be the estimated total
costs if 500 units were produced?
a.
$ 544
b.
$4,236
c.
$3,692
d.
$3,147
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
Managerial ACCT Test Bank Chapter 3 11
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?
a.
Y = $300 + $20x
b.
Y = $374 + $18x
c.
Y = $900 + $30x
d.
Y = $18 + $374x
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?
a.
86 percent of the company’s total costs are utilities costs.
b.
86 percent of the variation in utilities costs is not explained by the increase or decrease in
production.
c.
86 percent of the variation in utilities costs is explained by the increase or decrease in
production.
d.
86 percent of the company’s total costs are fixed costs and the remaining 14 percent are
variable costs.
43. In regression analysis, an R square (R2) of 1.0 would indicate:
a.
that 1 percent of the data points are on the regression line.
b.
that 1 percent of the total mixed costs can be attributable to fixed costs.
c.
that 1 percent of the total mixed costs can be attributable to variable costs.
d.
that there is a perfect correlation between the independent and dependent variables.
44. The high/low method:
a.
considers only the highest and lowest costs for a given time period.
b.
is superior to regression analysis.
c.
considers all data points available.
d.
uses the data points for only the high and low levels of activity.
45. When using the high/low method, the change in cost divided by the change in volume is:
a.
the fixed cost per unit.
b.
the mixed cost per unit.
c.
the variable cost per unit.
d.
the total cost per unit.
Managerial ACCT Test Bank Chapter 3 12
NARRBEGIN: Mr. Quik Printers
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
NARREND
46. Refer to Mr. Quik Printers information above. Using the high/low method, what is the variable cost per
unit?
a.
$ .012
b.
$ .030
c.
$33.11
d.
$83.33
47. Refer to Mr. Quik Printers information above. Using the high/low method, what is the overhead cost
equation?
a.
Y = $400 + $.030x
b.
Y = $4,640 + $.012x
c.
Y = $7,630 + $.001x
d.
Y = $5,566 + $.008x
NARRBEGIN: Cardinal Cleaners
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
NARREND
48. Refer to the Cardinal Cleaners information above. Using the high/low method, what is the variable
cost per unit?
a.
$ 25
b.
$ .03
c.
$900
d.
$ 36
49. Refer to the Cardinal Cleaners information above. Using the high/low method, what is equation to
predict total overhead costs?
a.
Y = $700 + $36x
b.
Y = $900 + $25x
c.
Y = $175 + $41x
d.
Y = $100 + $40x
50. 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?
a.
$9,778
b.
$7,900
c.
$8,133
d.
$8,000
NARRBEGIN: Speedy Couriers
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
NARREND
51. Refer to the Speedy Couriers information above. Using the high/low method, what is the cost equation
to predict total vehicle costs?
a.
Y = $52.50 + $1.67x
b.
Y = $255 + $1.05x
c.
Y = $285 + $1.725x
d.
Y = $750 + $.60x
52. Refer to the Speedy Couriers information above. Using the high/low method, if Speedy expects to
drive 1,200 miles in June, what will be expected total vehicle costs?
a.
$1,470.00
b.
$1,515.00
c.
$2,056.50
d.
$1,720.88
NARRBEGIN: Denver Manufacturing
Denver Manufacturing
Denver Manufacturing would like to do a better job budgeting for maintenance costs and,
consequently, they have prepared a schedule showing maintenance costs and units produced for the
past five months as follows:
Number of
units produced
Total
maintenance costs
January
5,400
$4,800
February
6,600
5,180
March
4,900
4,500
April
5,600
4,900
May
6,000
5,490
NARREND
53. Refer to the Denver Manufacturing information above. Using the high/low method, what is the cost
equation to predict total maintenance costs?
a.
Y = $90 + $.90x
b.
Y = $2,540 + $.40x
c.
Y = $1,646 + $.5824x
d.
Y = $2.50x − $11,320
54. Refer to the Denver Manufacturing information above. Using the high/low method, if Denver expects
to produce 5,000 units in June, what will be budgeted total maintenance costs?
a.
$4,590
b.
$4,558
c.
$4,540
d.
$4,363
55. When comparing a “pre-tax cost” and an “after-tax cost”, which of the following is true?
a.
The after-tax cost will be greater than the pretax cost.
b.
They will be the same amount.
c.
The pre-tax cost will be greater than the after-tax cost.
d.
The higher the tax rate, the lower the difference in the amount between them.
56. The after-tax benefit of a taxable cash receipt can be calculated as follows:
a.
After-tax benefit = Pretax receipt Tax rate
b.
After-tax benefit = Pretax receipt (1 − Tax rate)
c.
After-tax benefit = Pretax receipt (1 + Tax rate)
d.
After-tax benefit = Pretax receipt Tax rate
57. After-tax net income can be calculated as follows:
a.
After-tax income = Pretax income Tax rate
b.
After-tax income = Pretax income (1 − Tax rate)
c.
After-tax income = Pretax income (1 + Tax rate)
d.
After-tax income = Pretax income (1 − Tax rate)
58. The manager of a company is considering a special project that will increase sales revenue by $90,000
without affecting costs. If the company has a tax rate of 30%, what will be the after-tax profit?
a.
$ 63,000
b.
$ 27,000
c.
$ 90,000
d.
$117,000
59. Blossom Products is considering a special project that will increase sales revenue by $60,000 without
affecting costs. If the company has a tax rate of 25%, what will be the after-tax profit?
a.
$ 60,000
b.
$ 45,000
c.
$ 15,000
d.
$105,000
60. Putnam Distributors is contemplating whether or not to accept a special order. Putnam wishes to have
after-tax cash receipts of $5,200 if they accept the order. If Putnam has a tax rate of 35%, what is the
price the customer should be charged for their order?
a.
$14,857
b.
$ 3,380
c.
$ 8,000
d.
$ 7,020
61. Triangle Associates is contemplating making a large charitable contribution. If their tax rate is 35%,
what is the after-tax cost of making a $20,000 contribution?
a.
$27,000
b.
$ 7,000
c.
$20,000
d.
$13,000
62. Manning Inc. is contemplating the rental of a special tool for $3,000 per month. If their tax rate is
35%, what is the after-tax monthly cost of renting the tool?
a.
$1,950
b.
$3,000
c.
$1,050
d.
$4,050
63. Portia’s Salon is contemplating an increase in their rental space that will result in a before-tax rent
increase of $1,000 per month. If their tax rate is 30%, what is the after-tax monthly increase in rent
cost?
a.
$1,000
b.
$ 700
c.
$ 300
d.
$1,700
64. Beauregard Imports has pretax income of $75,000. If their tax rate is 35%, what will be their after-tax
income?
a.
$ 48,750
b.
$123,750
c.
$ 26,250
d.
$214,285
65. Blue Ridge Resorts has the following pretax information available for the current year:
Pretax receipts
$800,000
Pretax costs
300,000
Assuming all receipts are taxable and all costs are tax-deductible, what will be Blue Ridge’s after-tax
net income for the year if their tax rate is 30%?
a.
$330,000
b.
$150,000
c.
$350,000
d.
$770,000