Question 1

In general,the account analysis method focuses on the underlying relationship between cost and activities from the previous period.The identification of the relationship between this relationship (the dependent and independent variable)is key to the analysis.

Accepted Answer

The statement accurately describes the account analysis method and how it focuses on identifying the relationship between cost and activities from the previous period, with the goal of understanding the underlying factors that drive costs. This relationship is typically between a dependent variable (usually the cost) and one or more independent variables (such as the level of activity, volume of production, or other relevant factors). By analyzing this relationship and understanding how changes in activity levels or other variables affect costs, managers can make more informed decisions about resource allocation, pricing, and other key aspects of running a business.

Question 2

One way to control the effects of a nonlinear relation between total costs and volume is to reduce the relevant range.This is done as a basis for defining cost-volume-profit relationship by the use of a smaller range of data in order to avoid the need to use differential calculus.

Accepted Answer

By reducing the relevant range, we can assume a linear relationship between costs and volume, which simplifies the analysis and eliminates the need for calculus. This is a commonly used technique in cost-volume-profit analysis.

Question 3

In general,accounting records accumulate cost information according to its behavior (i.e. ,variable and fixed).Accounting records accumulate cost information by account.

Accepted Answer

Accounting records accumulate cost information by account.

Question 4

A scattergraph is useful for identifying outliers/irrelevant data points.This visual representation gives an indication of unusual or extreme points that are outside the area determined to be the norm.

Accepted Answer

A scattergraph can indeed be used for identifying outliers in a dataset.

Question 5

In general,the use of multiple independent variables increases the proportion of the variation in the dependent variable explained by the cost equation.This is a basic principal.The adjusted R-squared (R²)is the correlation coefficient squared and adjusted for the number of independent variables used to make the estimate.This adjustment to R² recognizes that as the number of independent variables increases,R² (unadjusted)increases.

Accepted Answer

This statement is true. The adjusted R-squared takes into account the number of independent variables used in the cost equation to provide a more accurate measure of the correlation between the independent and dependent variables. As the number of independent variables used increases, the adjusted R-squared will decrease to account for the possibility of chance correlations.

Question 6

The account analysis method is more subjective than other cost estimation methods because it relies heavily on the personal judgment and experience of accountants.Different accountants will have different experience and will classify items accordingly.

Accepted Answer

The statement is true as the account analysis method involves the use of personal judgment and experience, leading to varying classifications by different accountants.

Question 7

One advantage of the engineering method is that it does not require data from prior periods to estimate cost behavior.The engineering method is based on what needs to be done,not what was done in prior periods.

Accepted Answer

The statement accurately describes one advantage of the engineering method.

Question 8

Cost estimates using regression analysis are always more accurate and dependable than cost estimates using the scattergraph methods.Not always.If the data is linear the scattergraph method will give the same results as regression analysis.

Accepted Answer

The accuracy and dependability of cost estimates using regression analysis versus the scattergraph method depend on factors such as the quality of the data and the assumptions made in the analysis. While regression analysis is generally considered a more advanced and robust method, it is not always more accurate and dependable than the scattergraph method. Additionally, the scattergraph method can be just as reliable as regression analysis when the data follows a linear trend.

Question 9

Because outliers are extreme data points,they can be included in the regression analysis and not significantly affect the results.Outliers will significantly affect the results as they did in the High and Low analysis.

Accepted Answer

Outliers can significantly affect the results of regression analysis, as seen in the High and Low analysis where the outlier data points had a large influence on the results. It is important to identify and analyze outliers separately to determine their impact on the overall analysis.

Question 10

One advantage of the account analysis method for estimating cost behavior is that it includes actual work conditions.The account analysis method is based on existing circumstances.

Accepted Answer

The account analysis method involves examining the company's accounting records to determine how costs are associated with the company's activities and provides analysis based on actual work conditions. Therefore, the given statement is true.

Question 11

Cost behavior is the most important characteristic for managerial decision making.This is a fundamental concept.

Accepted Answer

Cost behavior, which refers to how costs change in response to changes in activity levels, is a critical determinant of a company's profitability and can significantly impact managerial decision making. Understanding cost behavior is essential in analyzing and predicting costs, determining pricing strategies, optimizing resource allocation, and making informed business decisions. Therefore, cost behavior is a fundamental concept for managerial decision making.

Question 12

The quality of the cost equation depends on collecting appropriate data.The results obtained are only as good as the data used.If data improves,so will the results.

Accepted Answer

The statement is true. The accuracy and reliability of a cost equation depend on the quality of the data used to develop it. If the data used is accurate and comprehensive, the resulting equation will be more reliable and accurate. Improving the quality of the data will result in an improvement in the accuracy of the cost equation.

Question 13

A basic assumption of most cost estimation methods is cost behavior patterns are linear within the relevant range.Most cost estimation models are linear models and assume that the underlying data is linear.

Accepted Answer

Most cost estimation methods assume that cost behavior patterns are linear within the relevant range and therefore use linear models.

Question 14

The relevant range represents those activity levels for which valid cost relationships have been observed.This is a definition of the term relevant range.

Accepted Answer

This statement accurately defines the term relevant range.

Question 15

One advantage that regression techniques have over other cost estimation methods is it generates information that can be used to determine how well the estimated cost equation will predict future costs.It is objective,provides a number of statistics not available from other methods,and could be the only feasible method when more than one predictor is used.

Accepted Answer

Regression techniques do indeed have the advantages listed.

Question 16

The engineering method of determining cost behavior is particularly useful for new activities or products.This is true because there often is no history to rely on.

Accepted Answer

The engineering method involves analyzing the physical components and processes involved in a new activity or product in order to determine how costs will behave. Since there is no history to rely on, this method can be particularly useful in predicting costs.

Question 17

In general,cost behavior results are likely to differ between the engineering method and the account analysis method.Results are likely to differ from method to method.

Accepted Answer

Cost behavior can be analyzed using different methods, and the results may differ from one method to another. The engineering method involves analyzing the physical relationships between inputs and outputs to determine how costs will change with changes in production levels, while the account analysis method involves examining past cost data to identify patterns and trends. The differences in the underlying assumptions and data used by these methods can result in different cost behavior results.

Question 18

Different cost estimations methods may produce different cost equations,even when using the same set of data.The general rule is that moving up the hierarchy of cost estimation methods will cost more to implement but will return a more accurate result.

Accepted Answer

The statement is true. As we move up the hierarchy of cost estimation methods, the accuracy of cost estimation improves, but the cost of implementation also increases due to the involvement of more resources and expertise. Therefore, different cost estimation methods may produce different cost equations even when using the same set of data, and the higher-level methods will provide more accurate results.

Question 19

One disadvantage of the high-low method is the highest and lowest points may not be representative of normal operating activities.High and low points may reflect unusual circumstances.

Accepted Answer

The statement is true. The high and low points used in the high-low method may not be representative of normal operating activities and may instead reflect unusual circumstances or outliers in the data.

Question 20

The linear cost estimate tends to understate the slope of the cost line in ranges close to capacity.As capacity is approached there are changes in the costs such as additional overtime due to scheduling problems.

Accepted Answer

As capacity is approached, the linear cost estimate tends to underestimate the actual costs due to additional costs such as overtime and scheduling problems, leading to a steeper slope in the cost line.

Quiz 5: Cost Estimation