Question 1

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.

Accepted Answer

The method of least squares involves using regression analysis to minimize the sum of the squared differences between the actual data points and the predicted values. This allows for the construction of a cost formula that can be used for budgeting and decision-making purposes.

Question 2

Which of the following would probably be a mixed cost?
A)rent on building
B)raw materials
C)repairs and maintenance
D)depreciation

Accepted Answer

Repairs and maintenance costs typically have both a fixed component (such as a basic service contract) and a variable component (additional costs that vary with the level of use or production). This combination of fixed and variable components makes it a mixed cost.

Question 3

Figure 3-1. Total cost = Fixed cost + (Variable Rate ´ Output)
Refer to Figure 3-1.In the cost formula above which element would be the dependent variable?
A)variable rate
B)fixed cost
C)total cost
D)output

Accepted Answer

The answer of Figure 3-1. Total cost = Fixed cost...

Question 4

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.

Accepted Answer

The high-low method has the advantage of objectivity because it uses the actual data points of the highest and lowest activity levels to determine fixed and variable costs. It is a simple and quick method of cost estimation, but not necessarily the most accurate as it only uses two data points. It can be affected by the presence of outliers, and the subjectivity of the analyst in choosing the high and low activity levels.

Question 5

Figure 3-1. Total cost = Fixed cost + (Variable Rate ´ Output)
Refer to Figure 3-1.In the cost formula above which element would be the independent variable?
A)fixed cost
B)total cost
C)output
D)variable rate

Accepted Answer

The independent variable is the variable that determines the value of the dependent variable. In this case, the output determines the total cost, while the fixed cost and variable rate remain constant. Therefore, output is the independent variable in this cost formula.

Question 6

Figure 3-1. Total cost = Fixed cost + (Variable Rate ´ Output)
Refer to Figure 3-1.In the cost formula above which element would be the intercept?
A)fixed cost
B)total cost
C)output
D)variable rate

Accepted Answer

The intercept, or the point where the cost line intersects with the y-axis, represents the fixed cost. This is because the fixed cost remains constant regardless of the level of output.

Question 7

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.

Accepted Answer

The Y-intercept on a mixed cost graph represents the fixed cost component of the total mixed cost. The variable cost component corresponds to the slope of the line. Therefore, the correct choice is C, fixed cost.

Question 8

Using the high-low method,the variable rate of a mixed cost equals
A)total cost at high point - (variable rate ´ output at high point)
B)total cost at high point - (variable rate ´ output at low point)
C) 
D)

Accepted Answer

The answer of Using the high-low method,the variable rate of...

Question 9

The scatter-graph method
A)allows a cost analyst to inspect data visually.
B)is objective.
C)only uses two data points.
D)none of these are correct

Accepted Answer

The scatter-graph method involves plotting data points on a graph to visually inspect the relationship between two variables. This allows a cost analyst to easily identify patterns or trends in the data, which can inform their analysis and decision-making. The method is subjective, as it relies on the analyst's interpretation of the graph, but it is a useful tool for exploring data in a more intuitive way. The method does not necessarily only use two data points, as more data points can be plotted on the graph to provide a more complete picture of the relationship between the variables.

Question 10

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.

Accepted Answer

When a cost's step-cost behavior follows very narrow steps, it means the cost increases in very small, frequent increments. This behavior can be approximated using straight variable cost assumptions, as the cost closely aligns with changes in activity level, similar to how variable costs behave.

Question 11

A mixed cost
A)remains constant when the output level increases.
B)cannot be separated.
C)contains both a fixed and variable component.
D)all of these are correct

Accepted Answer

A mixed cost contains both a fixed component, which does not change with the level of output, and a variable component, which does change with the level of output.

Question 12

Figure 3-1. Total cost = Fixed cost + (Variable Rate ´ Output)
Refer to Figure 3-1.In the cost formula above which element would be the slope?
A)variable rate
B)output
C)fixed cost
D)total cost

Accepted Answer

The slope of the cost formula represents the rate at which variable costs increase with each additional unit of output. Therefore, the variable rate is the correct choice as it is the coefficient of the output variable.

Question 13

Ruskin Company had utilities cost of $95,000 at an output level of 30,000 units.The utilities cost was a mixed cost and the fixed portion was $50,000.What would the estimate of total utilities cost be at an output level of 40,000 units?
A)$65,000
B)$95,000
C)$110,000
D)$125,000

Accepted Answer

The variable portion of the utilities cost can be calculated by subtracting the fixed cost from the total cost:
Variable cost = Total cost - Fixed cost
Variable cost = $95,000 - $50,000
Variable cost = $45,000

The variable cost per unit can then be calculated by dividing the variable cost by the number of units produced:
Variable cost per unit = Variable cost / Number of units
Variable cost per unit = $45,000 / 30,000 units
Variable cost per unit = $1.50

Using the variable cost per unit, we can estimate the total utilities cost at an output level of 40,000 units:
Total utilities cost = Fixed cost + (Variable cost per unit × Number of units)
Total utilities cost = $50,000 + ($1.50 × 40,000 units)
Total utilities cost = $50,000 + $60,000
Total utilities cost = $110,000

Therefore, the best choice is C.

Question 14

A mixed cost
A)will vary in direct proportion to changes in output.
B)stays the same regardless of output.
C)has the same cost behavior as a step cost.
D)will decrease in total when output decreases.

Accepted Answer

Mixed costs consist of a fixed component and a variable component. As output decreases, the total mixed cost decreases due to the variable component decreasing, even though the fixed component remains constant.

Question 15

The scatter-graph method
A)displays a constant level of cost for a range of output.
B)has the advantage of subjectivity.
C)may reveal the presence of outliers.
D)all of these are correct

Accepted Answer

The scatter-graph method may reveal the presence of outliers, which are data points that are significantly different from the majority of the data. This method plots cost against output and visually displays the relationship between the two variables. However, it is not subjective and it does not necessarily display a constant level of cost for a range of output.

Question 16

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

Accepted Answer

The method of least squares is a statistical approach used for finding the best-fitting line through a set of data points by minimizing the sum of the squares of the vertical distances of the points from the line. It is also used in cost accounting to separate mixed costs into their fixed and variable components, ensuring consistency when applied to the same dataset.

Question 17

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

Accepted Answer

Step costs have fixed costs within a certain range, but increase to a new fixed cost level at specified intervals. They do not increase in direct proportion to output, and they do not remain the same within the relevant range.

Question 18

The formula for a mixed cost is
A)total cost = total variable cost + ( fixed rate x amount of output)
B)total cost = total fixed cost + (variable rate ´ amount of output)
C)total cost = variable rate ´ amount of output
D)none of these are correct

Accepted Answer

The formula for a mixed cost includes both fixed and variable costs. Option B represents this by stating that the total cost is equal to the total fixed cost plus a variable rate multiplied by the amount of output. Option A is incorrect because it only includes the fixed rate, and Option C is incorrect because it only includes the variable rate without any fixed costs.

Question 19

When a mixed cost is graphed the slope of the line equals
A)the variable cost per unit of the activity driver.
B)the total variable cost.
C)the sales price per unit.
D)the total fixed cost.

Accepted Answer

The slope of the line represents the change in cost with a change in activity level. Since mixed costs have both a fixed and variable component, the change in cost will only be due to the variable component, which is represented by the variable cost per unit of the activity driver. Therefore, the slope of the line equals the variable cost per unit of the activity driver.

Question 20

Managerial judgment
A)is the most accurate way to determine cost behavior.
B)is the least used method in practice.
C)is critically important in determining cost behavior.
D)none of these are correct

Accepted Answer

Managerial judgment is critically important in determining cost behavior as it involves the expertise and understanding of the manager or decision-maker about the underlying economic factors that affect costs. It is often used in conjunction with quantitative methods to arrive at a more accurate determination of cost behavior. Therefore, option C is the correct choice. Options A and B are incorrect as managerial judgment alone cannot provide the most accurate determinations, and it is widely used in practice. Option D is also incorrect as option C provides the correct answer.

Quiz 3: Cost Behavior

The method of least squares

Which of the following would probably be a mixed cost?

Figure 3-1. Total cost = Fixed cost + (Variable Rate ´ Output) Refer to Figure 3-1.In the cost formula above which element would be the dependent variable?

The high-low method

Figure 3-1. Total cost = Fixed cost + (Variable Rate ´ Output) Refer to Figure 3-1.In the cost formula above which element would be the independent variable?

Figure 3-1. Total cost = Fixed cost + (Variable Rate ´ Output) Refer to Figure 3-1.In the cost formula above which element would be the intercept?

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

Using the high-low method,the variable rate of a mixed cost equals

The scatter-graph method

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

A mixed cost

Figure 3-1. Total cost = Fixed cost + (Variable Rate ´ Output) Refer to Figure 3-1.In the cost formula above which element would be the slope?

Ruskin Company had utilities cost of $95,000 at an output level of 30,000 units.The utilities cost was a mixed cost and the fixed portion was $50,000.What would the estimate of total utilities cost be at an output level of 40,000 units?

A mixed cost

The scatter-graph method

The method of least squares

Step costs

The formula for a mixed cost is

When a mixed cost is graphed the slope of the line equals

Managerial judgment