Question 1

Which of the following is not true of regression techniques for estimating costs?

Accepted Answer

Regression techniques do not typically use only the highest and lowest activity points; that method is characteristic of the high-low method, not regression analysis. Regression uses all data points to find the best-fitting line.

Question 2

Which of the following statements is(are) true regarding cost behaviors?
(A) In general, accounting records accumulate cost information according to its behavior.
(B) Cost behaviors are the most important consideration in managerial decision making.

Accepted Answer

The answer of Which of the following statements is(are) true...

Question 3

Which of the following costs would most likely be classified as variable, assuming the account analysis method is used to determine cost behaviors?

Accepted Answer

Indirect materials are typically considered variable costs because they change in direct proportion to the level of production or activity.

Question 4

The term "relevant range," as used in cost accounting, means the range over which:

Accepted Answer

The relevant range is the span of activity or volume over which the assumptions about cost behavior (fixed and variable costs) hold true.

Question 5

Which of the following is the difference between variable costs and fixed costs? (CMA adapted)

Accepted Answer

Variable costs per unit remain constant over the relevant range, while total variable costs change with activity level. Fixed costs per unit vary with activity level, as total fixed costs remain constant over the relevant range.

Question 6

The correlation coefficient is:

Accepted Answer

The answer of The correlation coefficient is:
...

Question 7

Which of the following cost estimation methods is based on two cost observations?

Accepted Answer

The high-low method uses two cost observations, the highest and lowest activity levels, to estimate variable and fixed costs.

Question 8

Ballard Company incurred a total cost of $8,600 to produce 400 units of pulp. Each unit of pulp required five (5) direct labor hours to complete. What is the total fixed cost if the variable cost was $1.50 per direct labor hour?

Accepted Answer

The answer of Ballard Company incurred a total cost of...

Question 9

Brewsky's is a chain of micro-breweries. Managers are interested in the costs of the stores and believe that the costs can be explained in large part by the number of customers patronizing the stores. Monthly data regarding customer visits and costs for the preceding year for one of the stores have been entered into the regression analysis and the analysis is as follows:
$\begin{array}{llr}
  \text { Average monthly customer visits } &&1,462\
 \text { Average monthly total costs } &&\$4,629\
& \text {  Regression Results} &\
 \text {  Intercept} &&\$1,496\
 \text {  $ b $ coefficient} &&\$2.08\
 \text { R } ^{2}&&0.86814\ 
\end{array}$

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In a regression equation expressed as y = a + bx, how is the letter b best described? (CMA adapted)

Accepted Answer

The estimate of the cost for an additional customer visit.

Question 10

Given the following information, compute the total number of units for the period:
$$\begin{array} { l l} 
\text { Direct labor hours } & { 12,000 } \
\text { Direct labor cost } & \$  2.70 \text { per hour } \
\text { Direct materials cost } & \$  75 \text { per unit } \
\text { Total maruffacturing cost } & \$ 132,600 \
\text { Fixed overhead cost } & \$  36,000\
\text { Variahle owerhead cost }&\text { $ 500 \% $ of total labor cost}
\end{array}$$

Accepted Answer

Total labor cost = 12,000 hours * $2.70 per hour = $32,400Variable overhead cost = 500% of total labor cost = 5 * $32,400 = $162,000Total manufacturing cost = $132,600Total variable cost = $32,400 + $162,000 = $194,400Units produced = Total manufacturing cost / Total variable cost per unitTotal variable cost per unit = Direct materials cost + Variable overhead cost per unitVariable overhead cost per unit = Variable overhead cost / Units producedUnits produced = $132,600 / ($75 + $162,000 / Units produced)Solving for Units produced, we get Units produced = 640 units.

Question 11

Which cost estimation method does not use the company's cost information as its primary source of information about the relationship between total costs and activity levels?

Accepted Answer

Engineering estimates rely on technical evaluations and standards rather than historical cost data from the company.

Question 12

In the cost equation TC = F + VX, "V" is best described as the:

Accepted Answer

"V" represents the variable cost per unit, which is the slope of the cost equation, indicating how total costs change with changes in the activity level.

Question 13

A manager is trying to estimate the manufacturing costs of a new product. The company makes several other products that utilize some of the same manufacturing procedures as the new product. Which cost estimation method would be the best method to determine the total cost of manufacturing the new product?

Accepted Answer

The answer of A manager is trying to estimate the...

Question 14

Identifying the relation between the activity and the costs is a key step in which of the following cost estimation methods?

Accepted Answer

The answer of Identifying the relation between the activity and...

Question 15

Obtaining regression estimates for cost estimation requires establishing the existence of a logical relation between activities and the cost to be estimated. Which of the following is not used to refer to the cost to be estimated?

Accepted Answer

The independent variable is not used to refer to the cost to be estimated; it refers to the variable that influences or predicts the cost, which is the dependent variable (also known as LHS or Y term).

Question 16

In the cost equation TC = F + VX, "X" is best described as the:

Accepted Answer

"X" in the cost equation TC = F + VX represents the activity level used to estimate the total cost.

Question 17

Obtaining regression estimates for cost estimation requires establishing the existence of a logical relation between activities and the cost to be estimated. Which of the following is not used to refer to these activities?

Accepted Answer

Dependent variables refer to the outcome or the cost to be estimated, not the activities or factors used to predict the cost. The activities are typically referred to as independent variables, predictors, or X terms.

Question 18

Engineering cost estimates are usually based on operating conditions that are considered:

Accepted Answer

The answer of Engineering cost estimates are usually based on...

Question 19

A disadvantage of the high-low method of cost analysis is that it:

Accepted Answer

The high-low method uses only the highest and lowest activity levels to estimate variable and fixed costs, which may not accurately represent normal operating conditions or capture the variability in costs.

Question 20

A cost driver is defined as: (CMA adapted)

Accepted Answer

A cost driver is a causal factor that increases the total cost of a cost objective, meaning it is an activity or factor that causes costs to change.

Quiz 5: Cost Estimation