Chapter 5—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 is most likely to be classified as a fixed cost?
a.
Factory utilities
b.
Factory supplies
c.
Direct labor
d.
Factory insurance
3. Which of the following costs is 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.
remain the same
d.
cannot be predicted
5. As production increases, fixed costs per unit ____.
a.
increase
b.
decrease
c.
remain the same
d.
cannot be predicted
6. As production decreases, fixed costs per unit ____.
a.
increase
b.
decrease
c.
remain the same
d.
cannot 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.
remain the same
d.
cannot be predicted
9. As production increases, variable costs per unit ____.
a.
increase
b.
decrease
c.
remain the same
d.
can not be predicted
10. As production decreases, variable costs per unit ____.
a.
increase
b.
decrease
c.
remain the same
d.
can not be predicted
11. Which of the following is most likely to be classified as a variable cost?
a.
Factory rent
b.
Factory insurance
c.
Direct materials
d.
Depreciation of factory building
12. Which of the following is least likely to be classified as a variable cost?
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.
true range.
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.
Cannot 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
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.
Semi variable
b.
Fixed
c.
Variable
d.
Mixed
18. In the cost equation, y = $500 + $5.40x, $5.40 represents:
a.
variable cost per unit.
b.
fixed cost per unit.
c.
mixed cost per unit.
d.
step cost per unit.
19. In the cost equation, y = $500 + $5.40x, $500 represents:
a.
total variable cost.
b.
total fixed cost.
c.
total mixed cost.
d.
total cost.
20. The cost equation, y = $500 + $5.40x, x represents:
a.
variable cost.
b.
step cost.
c.
units produced.
d.
mixed cost.
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 30% while
variable costs will remain the same. Current year costs are as follows:
Variable costs
$20 per unit
Fixed costs
$15,000
If next year production is expected to be 13,500 units, estimated total costs will be:
a.
$289,500.
b.
$270,000.
c.
$285,000.
d.
$250,500.
23. Jansen Inc. currently produces and sells 9,000 units per year with the following cost data:
Variable costs
$7 per unit
Fixed costs
$7,500
Next year, Jansen plans to increase its advertising budget, which will increase fixed costs by 7%. With
increased advertising, the company expects the number of units produced and sold to increase by 12%.
Determine the budgeted total cost for next year.
a.
$70,500
b.
$78,060
c.
$78,585
d.
$71,025
Bob’s Burgers
Bob’s Burgers currently produces and sells 12,000 burgers per month with the following costs:
Variable costs
$2.40 per unit
Fixed costs
$60,000
Bob has recently switched food suppliers and anticipates that variable costs will decrease by $0.35 per
unit. In addition, Bob has renegotiated his store lease and fixed costs will be dropping by $8,000 per
month.
24. Refer to the information provided for Bob’s Burgers. What will be Bob’s new cost equation?
a.
Total costs = $60,000 + $2.75x
b.
Total costs = $60,000 + $2.05x
c.
Total costs = $8,000 + $0.35x
d.
Total costs = $52,000 + $2.05x
25. Refer to the information provided for Bob’s Burgers. Bob anticipates selling 12,300 burgers during the
month of July. What will be estimated total costs during July?
a.
$77,215
b.
$88,800
c.
$76,600
d.
$85,825
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 $75,000 when 500 units are sold and the variable cost is $18 per
unit. Bixby expects to sell 750 units in July. What will be expected total costs in July?
a.
$75,000
b.
$79,500
c.
$66,000
d.
$88,500
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
Housekeeping costs
$11,500
23,000
34,500
28. Refer to the information provided for Chadwick Ski Lodge. What type of cost is housekeeping?
a.
Semi variable
b.
Variable
c.
Step
d.
Mixed
29. Refer to the information provided for Chadwick Ski Lodge. 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(n):
a.
step cost.
b.
mixed cost.
c.
irrelevant 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 a cost is a product or a 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.
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
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 15,000 units were produced?
a.
$51,846
b.
$16,148
c.
$19,117
d.
$35,700
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
39. Refer to the Regression Analysis 2 above. What would be the equation to predict total mixed costs?
a.
Y = $1.27 + $3,056.58x
b.
Y = $454.25 + $.18x
c.
Y = $360.007 + $1.27x
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
George has run a regression analysis on the above information and has come up with the following
data:
Coefficients
Intercept
329.5047923
X Variable 1
19.5686901
Using regression analysis, which of the following formulas would be the best predictor of total
estimated mixed costs?
a.
Y = $300 + $20x
b.
Y = $329.50 + $19.57x
c.
Y = $900 + $30x
d.
Y = $19.56 + $329.50x
42. Hill Top Products has run a regression analysis for utilities costs and the total production 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.
14 percent of the variation in utilities costs is 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.
Cool Creams
Cool Creams provided the following data for number of ice creams produced and its total overhead
costs for past five months:
Number of ice
creams
Total overhead costs
January
14,000
$64,500
February
25,000
114,000
March
6,000
28,500
April
23,000
105,000
May
27,000
123,000
46. Refer to the information provided for Cool Creams. Using the high/low method, what is the variable
cost per unit?
a.
$4.50
b.
$5.50
c.
$4.75
d.
$4.32
47. Refer to the information provided for Cool Creams. Using the high/low method, what is the overhead
cost equation?
a.
Y = $6,000 + $4.75x
b.
Y = $1,500 + $4.50x
c.
Y = $7,630 + $4.32x
d.
Y = $1,500 + $4.32x
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
48. Refer to the Cardinal Cleaners information above. Using the high/low method, what is the variable
cost per unit?
a.
$25.00
b.
$0.03
c.
$900.00
d.
$36.00
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 162 gallons of solvent in December, what are expected
total overhead costs?
a.
$6,500
b.
$6,532
c.
$5,832
d.
$700
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
1,600
$3,600
February
2,000
4,600
March
1,500
3,450
April
1,800
3,900
May
2,200
4,500
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 = $985 + $1.64x
b.
Y = $4,500 + $2.05x
c.
Y = $560 + $2.30x
d.
Y = $1,200 + $1.50x
52. Refer to the Speedy Couriers information above. Using the high/low method, if Speedy expects to
drive 1,750 miles in June, what will be expected total vehicle costs?
a.
$3,825.00
b.
$4,585.00
c.
$8,087.50
d.
$3,855.00
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
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 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 $27,500
without affecting costs. If the company has a tax rate of 40%, what will be the after-tax income?
a.
$16,500
b.
$11,000
c.
$27,500
d.
$38,500
59. Blossom Products is considering a special project that will increase sales revenue by $127,000 without
affecting costs. If the company has a tax rate of 40%, what will be the after-tax income?
a.
$ 50,800
b.
$ 76,200
c.
$127,000
d.
$203,200
60. Putnam Distributors is contemplating whether or not to accept a special order. Putnam wishes to have
after-tax cash receipts of $54,000 if they accept the order. If Putnam has a tax rate of 40%, what is the
price the customer should be charged for their order?
a.
$32,400
b.
$21,600
c.
$90,000
d.
$54,000
61. Triangle Associates is contemplating making a large charitable contribution. If their tax rate is 40%,
what is the after-tax cost of making a $150,000 contribution?
a.
$210,000
b.
$ 60,000
c.
$150,000
d.
$ 90,000
62. Manning Inc. is contemplating the rental of a special tool for $45,000 per month. If their tax rate is
40%, what is the after-tax monthly cost of renting the tool?
a.
$27,000
b.
$18,000
c.
$63,000
d.
$45,000
63. Portia’s Salon is contemplating an increase in their rental space that will result in a before-tax rent
increase of $14,500 per month. If their tax rate is 40%, what is the after-tax monthly increase in rent
cost?
a.
$ 5,800
b.
$ 8,700
c.
$20,300
d.
$14,500
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.
$101,250
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
66. Under variable costing, which of the following is not considered a product cost?
a.
Direct materials
b.
Direct labor
c.
Fixed manufacturing overhead
d.
Variable manufacturing overhead
67. Under absorption costing, which of the following is not considered a product cost?
a.
Direct labor
b.
Fixed manufacturing overhead
c.
Variable manufacturing overhead
d.
Administrative costs
68. The primary difference between variable and absorption costing is the treatment of:
a.
fixed selling and administrative costs.
b.
variable selling and administrative costs.
c.
fixed manufacturing overhead.
d.
variable manufacturing overhead.
69. Which of the following statements is false regarding absorption costing?
a.
Variable overhead is treated as a product cost.
b.
Absorption costing is required for external financial statements prepared in accordance
with generally accepted accounting principles (GAAP).
c.
Fixed manufacturing overhead is treated as a product cost.
d.
Fixed manufacturing overhead is expensed in the period incurred.
70. Which of the following statements is false regarding variable costing?
a.
Variable overhead is treated as a product cost.
b.
Variable costing is required for external financial statements prepared in accordance with
generally accepted accounting principles (GAAP).
c.
Fixed manufacturing overhead is treated as a period cost.
d.
Period costs are expensed as they are incurred.