Deck 3: Cost Behavior, Cost Forecasting, and Segmented Income Statements

Question 1

As output increases variable cost per unit will also increase.

Answer 1

False

Question 2

Managerial judgment is critically important in determining cost behavior.

Answer 2

True

Question 3

Determining cost behavior is not essential to planning, controlling, and decision making.

Answer 3

False

Question 4

A variable cost increases in total when output increases but the per-unit costs remains the same.

Question 5

The relevant range is the range of output within which the assumed cost relationship is valid for the normal operations of the firm.

Question 6

The cost of raw materials used is usually a fixed cost.

Question 7

"Outliers" are points that seem to fit the general pattern of behavior.

Question 8

Mixed costs have both a fixed and a variable component.

Question 9

A discretionary fixed cost can be changed relatively easily at management discretion.

Question 10

The cost of advertising is usually a discretionary fixed cost.

Question 11

A driver is a factor that causes or leads to a change in a cost.

Question 12

The high-low method is an objective method to separate the cost behavior of a mixed cost.

Question 13

Computing unit fixed costs may result in misleading information.

Question 14

Discretionary fixed costs often involve a long-term contract.

Question 15

Total variable costs = Variable rate × amount of output.

Question 16

A cost that changes in total as output changes is a variable cost.

Question 17

As output decreases fixed costs per unit will increase.

Question 18

The slope of a mixed cost line is equal to the fixed element of the cost.

Question 19

Cost relationships may change at output levels outside of the relevant range.

Question 20

Fixed costs are costs that in total remain constant within the relevant range as the level of output increases or decreases.

Question 21

Using regression, the value of 'X Variable 1' equals the slope of the line.

Question 22

Knowing how costs change as output changes is essential to

A) planning and controlling.
B) controlling and decision making.
C) planning, controlling and decision making.
D) None of these are correct.

Question 23

Fixed costs are costs that:

A) decrease as the per unit variable cost increases.
B) are constant within the relevant range as the level of output changes.
C) increase as the miscellaneous expenses decrease with the level of output.
D) All of these are correct.

Question 24

Which of the following is true of a committed fixed cost?

A) A committed fixed cost is used to calculate the contribution margin.
B) It is difficult to change a committed fixed cost quickly.
C) A committed fixed cost changes in direct proportion to changes in output.
D) All of these are correct.

Question 25

Inventory costs under variable costing include only direct materials, direct labor, and variable factory overhead.

Question 26

Cost of advertising is an example of a _____.

A) discretionary fixed cost
B) variable cost
C) semi-variable cost
D) committed fixed cost

Question 27

If the number of units produced in a period is smaller than the number of units sold in period, absorption costing income will be higher than variable costing income.

Question 28

Discretionary fixed cost does not include _____.

A) assembly wages
B) public relations costs
C) advertising costs
D) leasing costs

Question 29

If the number of units produced in a period is larger than the number of units sold in a period, absorption costing income will be higher than variable costing income.

Question 30

Using a linear regression program, the term 'Intercept' refers to the variable cost.

Question 31

Using a regression program, the term 'X Variable 1' refers to the dependent variable.

Question 32

Which of the following would not be an example of a fixed cost?

A) The electricity bill paid for production
B) The rent paid for a warehouse
C) The depreciation on a factory building
D) The property taxes paid on real estate.

Question 33

Which of the following is true of discretionary fixed costs?

A) They are used to calculate contribution margin.
B) They depend on the number of units produced.
C) They can be changed easily by management's decision.
D) They increase as output increases.

Question 34

Using the high-low method, the calculation of the cost line uses the highest and lowest activity period.

Question 35

Calculation of the cost line using the high-low method tests the lowest cost period to see if it is an outlier.

Question 36

Product cost includes all costs of the company.

Question 37

Depreciation on equipment is an example of a _____.

A) variable cost
B) mixed cost
C) fixed cost
D) step cost

Question 38

Variable costing and absorption costing income statements may differ because of their treatment of fixed factory overhead.

Question 39

Variable costs within the relevant range

A) stay constant on a per unit basis as output changes.
B) increase in total as output increases.
C) decrease in total as output decreases.
D) All of these are correct.

Question 40

Inventory under absorption costing includes only direct materials and direct labor.

Question 41

Total variable costs

A) increases as output increases.
B) decreases as output decreases.
C) equal a variable rate × amount of output.
D) all of these are correct.

Question 42

Which of the following would probably be a fixed cost in a fast-food restaurant?

A) cost of hamburger
B) cost of french fries
C) shift manager's salary
D) utility cost

Question 43

Which of the following would probably be a discretionary fixed cost for a law firm?

A) salary of receptionist
B) advertising
C) depreciation on furniture and equipment
D) cost of legal forms

Question 44

The lease cost of office computers is a _____ for an accounting firm.

A) variable cost
B) discretionary fixed cost
C) committed fixed cost
D) semi-variable cost

Question 45

An increase in output leads to a(n):

A) increase in total fixed cost.
B) increase in total variable cost.
C) decrease in sunk cost.
D) decrease in step cost.

Question 46

Which of the following is true if output increases by 20% and is still within the relevant range?

A) Total fixed costs increase by 20%.
B) Contribution margin decreases by 60%.
C) Net income decreases by 40%.
D) Total variable costs increase by 20%.

Question 47

The _____ limits the cost relationship to the range of operations that the firm normally expects to occur.

A) alternate range
B) relevant range
C) variant range
D) dependent range

Question 48

The salary of the college president is a _____ for a college.

A) fixed cost
B) variable cost
C) cost driver
D) sunk cost

Question 49

Chrysntag Company incurred the following costs for the months of January and February.

Assume that output was 1,000 units in January and 3,500 units in February, utility cost is a mixed cost, and the fixed cost of utilities was $2,000.What was the variable rate per unit of output for utilities cost?

A) $0.60
B) $0.40
C) $0.20
D) $0.30

Question 50

If production volume increases from 15,000 units to 21,000 units, _____.

A) average costs will increase by 30%
B) total fixed costs will increase by 25%
C) total variable costs will increase by 40%
D) mixed and variable costs will increase by 55%

Question 51

Taran Company incurred the following costs for the months of January and February. From the information above we can assume that

A) insurance and depreciation are fixed costs.
B) output decreased from January to February.
C) output stayed the same from January to February.
D) insurance is a mixed cost.

Question 52

A _____ is a causal factor that measures the output of the activity that causes costs to change.

A) cost commitment
B) cost driver
C) mixed cost
D) fixed cost

Question 53

Which of the following is true of unit fixed costs?

A) They decrease in value with an increase in output units.
B) They are used to calculate the contribution margin.
C) They lead to more effective business decisions when compared to total fixed costs.
D) They act as a causal factor for sales that measures the output of an activity.

Question 54

The relevant range

A) is the normal range of output.
B) is the range of output where cost relationships are valid.
C) may change from period to period.
D) All of these are correct.

Question 55

Cost behavior analysis focuses on

A) how costs react to increases in activity levels only.
B) how costs will change in the future.
C) how costs react to changes in activity level.
D) None of these are correct.

Question 56

Fixed cost per unit is $10 when 12,000 units are produced and $3 when 40,000 units are produced.What is the total fixed cost when nothing is produced?

A) $175,000
B) $200,000
C) $120,000
D) $100,000

Question 57

The _____ is a variable cost for Sam's restaurant business.

A) depreciation on equipment
B) rental cost of the building
C) cost of raw materials
D) salary of the manager

Question 58

Per-unit variable costs

A) can be misleading and lead to poor decisions.
B) increase as output increases.
C) decrease as output decreases.
D) remain constant within the relevant range.

Question 59

Which of the following is true when output decreases?

A) Total fixed costs remain the same
B) Semi-mixed costs increase
C) Per-unit step costs decrease
D) All of these are correct.

Question 60

Taran Company incurred the following costs for the months of January and February. ​
​
If output was 5,000 units in January and 10,000 units in February we can assume that:

A) utilities and materials are variable costs.
B) utilities, insurance, and depreciation are fixed costs.
C) insurance and depreciation are mixed costs.
D) materials are the only variable cost.

Question 61

Total cost = Fixed cost + (Variable Rate × Output) In the cost formula above which element would be the dependent variable?

A) variable rate
B) fixed cost
C) total cost
D) output

Question 62

When a mixed cost is graphed the Y-intercept corresponds to the

A) step cost.
B) variable rate.
C) fixed cost.
D) price of the units sold.

Question 63

The scatter graph method used to establish a cost relationship:

A) displays a constant level of cost for a range of output.
B) uses only two data points to build the graph.
C) is a good way to identify nonlinearity.
D) All of these are correct.

Question 64

Total Cost = Fixed Cost + (Variable Rate × Output).In the cost formula, the slope corresponds to the _____.

A) dependent rate
B) output rate
C) conversion rate
D) variable rate

Question 65

The high-low method:

A) is the most accurate methods.
B) is not affected by the presence of outliers.
C) has the advantage of objectivity.
D) has the advantage of subjectivity.

Question 66

Which of the following would probably be a mixed cost?

A) rent on building
B) raw materials
C) repairs and maintenance
D) depreciation

Question 67

Step costs

A) remain the same within the relevant range.
B) have an increased fixed component at specified intervals.
C) increase in direct proportion to increases in output.
D) None of these are correct.

Question 68

The slope of the line in a mixed cost graph represents the _____ per unit of activity driver.

A) step cost
B) total cost
C) variable cost
D) total fixed cost

Question 69

Mixed cost is computed using the formula Total Cost = Fixed Cost + (Variable Rate × Output).The _____ explains changes in the dependent variable of the mixed cost formula.

A) sum of the fixed cost and the variable cost
B) difference of the total cost and the fixed cost
C) units of output
D) variable rate of cost per unit

Question 70

The fixed cost per unit _____ within the relevant range when the output decreases.

A) decreases
B) decreases at first and then increases
C) remains the same
D) increases

Question 71

Which of the following formulas is used to calculate the variable rate in the high-low method?

A) Total Cost at High Point - (Fixed Rate × Output at High Point)
B) Total Cost at High Point - (Step Rate × Output at Low Point)
C) (High Point Cost - Low Point Cost) ÷ (High Point Output - Low Point Output)
D) (Absorption Point Cost - Margin Cost) ÷ (High Point Cost + Low Point Cost)

Question 72

Which of the following is the formula used to calculate a mixed cost?

A) Total Cost = Total Fixed Cost + (Fixed Cost Rate × Amount of Output)
B) Total Cost = Total Fixed Cost + Total Variable Cost
C) Total Cost = Variable Rate × Amount of Output
D) None of these are correct.

Question 73

If a cost's step-cost behavior follows very narrow steps, the costs may be approximated using:

A) straight variable cost assumptions.
B) fixed costs assumptions.
C) step-fixed cost assumptions.
D) mixed cost assumptions.

Question 74

Which of the following is true of a mixed cost?

A) It remains constant irrespective of changes in output.
B) It consists of only one cost component.
C) It has the same cost behavior as a step cost.
D) It decreases when output decreases.

Question 75

Which of the following is true of a mixed cost?​

A) It does not change with a change in the level of output.
B) It cannot be separated into fixed and variable components.
C) It contains both a fixed and variable component.
D) All of these are correct.

Question 76

The method of least squares

A) uses the results of regression analysis to construct a cost formula.
B) is the least accurate method.
C) analyzes a cost relationship by plotting the data points on a graph.
D) can easily be calculated by hand.

Question 77

The cost formula for monthly depreciation cost in a factory is ​
Total cost = $10,000
​
This cost is

A) strictly variable.
B) strictly fixed.
C) a mixed cost.
D) a step cost.

Question 78

Which of the following is true about managerial judgment?

A) It does not consider a manager's past experience and observation.
B) It is based on mixed costs only.
C) It is the most widely used method in practice.
D) None of these are correct.

Question 79

Total cost = Fixed cost + (Variable Rate × Output) In the cost formula above which element would be the intercept?

A) fixed cost
B) total cost
C) output
D) variable rate

Question 80

The method of least squares

A) is a way to find the "best fitting" line through a set of data points.
B) is a statistical way of separating a mixed cost.
C) always produces the same cost formula when used on the same data set.
D) all of these are correct