Question 1

Managers should be trained in engineering to calculate an engineered cost estimate.

Accepted Answer

Managers do not need to be trained in engineering to calculate an engineered cost estimate.

Question 2

Categorizing costs by their behaviour is one step in estimating relevant costs for a cost object.

Accepted Answer

Categorizing costs by their behavior (fixed, variable, mixed, etc.) helps in identifying and estimating relevant costs for a cost object. This categorization allows for a more accurate analysis of how costs will change with changes in the cost driver(s) and helps in decision-making.

Question 3

Traceability can be used as a criterion to differentiate direct and indirect costs.

Accepted Answer

Traceability refers to the ability to directly link a cost to a specific product, service, or activity. Direct costs are traceable and can be attributed to a specific product or service, while indirect costs cannot be directly linked and may be shared across multiple products or services. Therefore, traceability can be used as a criterion to differentiate direct and indirect costs.

Question 4

The high-low method frequently distorts a cost function because it uses too many data points to make an estimate.

Accepted Answer

The high-low method uses only two data points - the highest and lowest activity levels - to estimate the variable and fixed components of a cost function. Therefore, it is unlikely to distort the cost function by using too many data points.

Question 5

Textbook costs are an opportunity cost of earning a college degree.

Accepted Answer

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Question 6

The first step in estimating a cost function for relevant costs is to select a cost estimation technique.

Accepted Answer

The first step in estimating a cost function for relevant costs is to define the cost object and identify the cost drivers.

Question 7

Steel used in the production of automobiles would generally be classified as a direct cost.

Accepted Answer

Direct costs are those that are directly attributable to the production or acquisition of a product, such as the cost of materials used in manufacturing an automobile. Steel is a material used in the production of automobiles and is therefore a direct cost.

Question 8

The learning curve refers to declines in the cost of materials as production volume increases.

Accepted Answer

The learning curve refers to the phenomenon where the efficiency of a process improves as a result of repetition and experience, leading to a reduction in the time and cost required to perform a task, rather than specifically to declines in the cost of materials.

Question 9

A new product's learning curve rate can be expressed as (direct material cost/total cost).

Accepted Answer

The learning curve rate reflects the rate of improvement in labor productivity as workers gain experience with a new process or product, and is typically expressed as a percentage reduction in labor hours or cost for each doubling of accumulated production volume. It is not directly related to the direct material cost of the product.

Question 10

Reviewing the pattern of a cost over time is a critical step in determining an engineered cost estimate.

Accepted Answer

The answer of Reviewing the pattern of a cost over...

Question 11

Learning curves lead to greater productivity over time.

Accepted Answer

Learning curves refer to the improvement in productivity and efficiency that occurs as an individual or organization gains experience with a task or process. As they become more familiar with the task or process, they are able to complete it more quickly and with fewer errors, leading to increased productivity over time.

Question 12

Preparing a scatter plot is a requirement before applying the two-point method of cost estimation.

Accepted Answer

Before applying the two-point method of cost estimation, it is important to prepare a scatter plot to visualize the relationship between the cost and the predictor variable. This helps in identifying any potential outliers or patterns in the data that can affect the accuracy of cost estimation.

Question 13

Salaries and wages you could earn while in college constitute a sunk cost.

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered. Salaries and wages you could earn while in college are considered opportunity costs, not sunk costs, because they represent potential income you forego by choosing to attend college instead of working.

Question 14

A scatter plot provides helpful information about the relationship between a cost and a potential cost driver.

Accepted Answer

A scatter plot can visually display the relationship between two variables, such as cost and a potential cost driver, and help identify any patterns or trends in the data.

Question 15

Past costs are irrelevant for decision-making, but may be relevant for predicting future costs.

Accepted Answer

Past costs have already been incurred and cannot be changed, therefore they should not be considered when making decisions for the future. However, past costs may provide insight into future costs and help with making predictions.

Question 16

Past costs are irrelevant for decision-making and possibly relevant for predicting future costs.

Accepted Answer

Past costs are sunk costs and cannot be changed. Therefore, they should be ignored when making decisions. However, past costs can be helpful in predicting future costs based on trends and patterns.

Question 17

Uncertainties and information quality are evaluated when determining relevant costs, then not considered again.

Accepted Answer

Uncertainties and information quality are continuously evaluated throughout the decision-making process, not just initially, to ensure that decisions are based on the most accurate and up-to-date information.

Question 18

The learning curve refers to increases in sunk costs as production volume decreases.

Accepted Answer

The learning curve refers to the decrease in unit production costs as production volume increases, not the increase in sunk costs as production volume decreases.

Question 19

The high-low method is a specific application of the two-point method of cost estimation.

Accepted Answer

The high-low method is a form of the two-point method, where the two points used are the highest and lowest levels of activity.

Question 20

Past costs are relevant for decision-making, but irrelevant for predicting future costs.

Accepted Answer

Past costs are considered sunk costs and are irrelevant for decision-making; however, they can be useful for predicting future costs by analyzing trends and patterns.

Quiz 2: Cost Concepts, Behaviour, and Estimation