Question 1

The major disadvantage of the high-low method is that:

Accepted Answer

A)  It uses the two most extreme data points in determining a cost function
B)  It is difficult to calculate
C)  It is difficult to understand
D)  It involves more judgmental factors than do other methodsE) B) and C)
F) All of the above

Question 2

Which of the following is not an assumption when estimating a cost function over the relevant range of activity?

Accepted Answer

A)  Mixed costs will change in total
B)  Mixed costs will change per unit
C)  Variable costs will be constant in total
D)  Fixed costs will be constant in total.E) B) and C)
F) None of the above

Question 3

A p-value of 89% for the slope coefficient in a regression of a cost driver against a cost indicates:

Accepted Answer

A)  The true variable costs are statistically significantly different from zero
B)  There is only an 11% chance the true variable costs are zero
C)  The relationship between the cost and the cost driver is nonlinear
D)  None of the aboveE) B) and C)
F) A) and C)

Question 4

List the assumptions made when a linear cost function is developed.

Accepted Answer

Assumptions:
Fixed costs remai...

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

You work for a company that manufactures computer chips. You need to develop a cost function for maintenance cost, which consists of the cost for routine maintenance and repair of machines used to manufacture the chips.
a)List the steps you would take to develop a cost function for predicting next year's maintenance cost. The maintenance department head has suggested these three possible cost drivers: machine setups, labour hours, or machine hours. Include a detailed explanation of how you would determine the best cost driver among these three.
b)You have developed the cost function and used it to develop part of next year's budget. During the first few months of the year, you find that the estimate is off by several thousand dollars. Provide reasons why this could occur.

Accepted Answer

a)To develop a cost function, I first co...

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

All of the following are assumptions for developing and using a cost linear function except:

Accepted Answer

A)  Past costs rarely need updating to be good predictors of future costs
B)  Operations are within the relevant range
C)  Variable costs remain constant within the relevant range
D)  Fixed costs remain fixed within the relevant rangeE) B) and C)
F) None of the above

Question 9

The relevant range is defined as:

Accepted Answer

A)  The period of time over which costs do not change
B)  The volume of production over which the cost assumptions hold
C)  The volume of production over which step-wise fixed costs increase
D)  The time period in which the level of production does not changeE) C) and D)
F) A) and D)

Question 10

When the cost object is a unit produced, straight-line depreciation on manufacturing equipment would be a: Variable Cost Fixed Cost Direct Cost

Accepted Answer

A)  No Yes No
B)  Yes No No
C)  Yes No Yes
D)  No Yes YesE) B) and C)
F) None of the above

Question 11

List one assumption made when a linear cost function is developed and describe a circumstance in which that assumption would not hold.

Accepted Answer

Students are asked to list only one assu...

Question 12

The trend line from a scatter plot can be used to identify data points for:

Accepted Answer

A)  The two-point method
B)  Analysis at the account level
C)  Engineered estimate of cost
D)  Regression analysisE) A) and B)
F) All of the above

Question 13

Which of the following is the most valid criticism of the high-low method?

Accepted Answer

A)  It never produces accurate results
B)  It is mathematically too complex for most managers to comprehend
C)  It is a specialized case of the two-point method
D)  Data points might be outside the normal range of activityE) A) and C)
F) C) and D)

Question 14

Which graph shows data that are more suitable for regression analysis?

Accepted Answer

A)  Graph A
B)  Graph B
C)  Neither Graph A nor Graph B
D)  Cannot be determinedE) A) and B)
F) B) and C)

Question 15

A firm has the capacity to produce 3,100 units per week. At 80% capacity, the average total cost per unit is $12.50 and the average variable cost per unit is $7.50. What is the total fixed cost per week, assuming the firm is still operating within its relevant range?

Accepted Answer

A)  $10,400
B)  $14,400
C)  $ 8,400
D)  $12,400E) All of the above
F) C) and D)

Question 16

Explain how scatter plots are used in the process of developing cost functions.

Accepted Answer

A scatter plot is used to increase under...

Question 17

Regression analysis works best when the relationship between costs and cost drivers is:

Accepted Answer

A)  Positive and linear
B)  Linear and direct
C)  Positive and indirect
D)  Positive, linear, and indirectE) A) and D)
F) A) and C)

Question 18

If we want to estimate the cost of lumber for manufacturing chairs, the cost function most likely reflects:

Accepted Answer

A)  Only a variable cost
B)  Only a fixed cost
C)  A mixed cost
D)  An irrelevant costE) A) and D)
F) A) and C)

Question 19

Jackie's Kennels is located in a small city in Western Canada. The company employs three pet attendants, four pet groomers, and two front office staff who book appointments and keep records. The Kennel provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. Which of the following is a sunk cost for any cost object related to Jackie's Kennels?

Accepted Answer

A)  Cost of the automobile Jackie is planning to buy for pet transportation
B)  Cost of existing computer equipment used to keep company records
C)  Cost of annual wages for full-time employees
D)  Cost of rent for the next periodE) C) and D)
F) B) and D)

Question 20

In a regression equation, variable costs are represented by the:

Accepted Answer

A)  Slope
B)  Intercept
C)  Adjusted R-square coefficient
D)  t-statisticE) A) and D)
F) B) and C)

Exam 2: Cost Concepts, Behaviour, and Estimation

Which of the following is not an assumption when estimating a cost function over the relevant range of activity?

Correct Answer
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Correct Answer
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Which of the following is the most valid criticism of the high-low method?

Correct Answer
verified

Explain how scatter plots are used in the process of developing cost functions.

Correct Answer
verified
A scatter plot is used to increase under...
View Answer

A p-value of 89% for the slope coefficient in a regression of a cost driver against a cost indicates:

Correct Answer
verified

Correct Answer
verified
a)To develop a cost function, I first co...
View Answer

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

Correct Answer
verified

If we want to estimate the cost of lumber for manufacturing chairs, the cost function most likely reflects:

Correct Answer
verified

List the assumptions made when a linear cost function is developed.

Correct Answer
verified
Assumptions:
Fixed costs remai...
View Answer

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

Correct Answer
verified

Which graph shows data that are more suitable for regression analysis?

Correct Answer
verified

The major disadvantage of the high-low method is that:

Correct Answer
verified

The trend line from a scatter plot can be used to identify data points for:

Correct Answer
verified

List one assumption made when a linear cost function is developed and describe a circumstance in which that assumption would not hold.

Correct Answer
verified
Students are asked to list only one assu...
View Answer

Regression analysis works best when the relationship between costs and cost drivers is:

Correct Answer
verified

A firm has the capacity to produce 3,100 units per week. At 80% capacity, the average total cost per unit is $12.50 and the average variable cost per unit is $7.50. What is the total fixed cost per week, assuming the firm is still operating within its relevant range?

Correct Answer
verified

In a regression equation, variable costs are represented by the:

Correct Answer
verified

All of the following are assumptions for developing and using a cost linear function except:

Correct Answer
verified

The relevant range is defined as:

Correct Answer
verified

When the cost object is a unit produced, straight-line depreciation on manufacturing equipment would be a: Variable Cost Fixed Cost Direct Cost

Correct Answer
verified

Exam 2: Cost Concepts, Behaviour, and Estimation

Which of the following is not an assumption when estimating a cost function over the relevant range of activity?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is the most valid criticism of the high-low method?

Correct AnswerverifiedShow Answer

Explain how scatter plots are used in the process of developing cost functions.

Correct AnswerverifiedA scatter plot is used to increase under...View AnswerShow Answer

A p-value of 89% for the slope coefficient in a regression of a cost driver against a cost indicates:

Correct AnswerverifiedShow Answer

Correct Answerverifieda)To develop a cost function, I first co...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

If we want to estimate the cost of lumber for manufacturing chairs, the cost function most likely reflects:

Correct AnswerverifiedShow Answer

List the assumptions made when a linear cost function is developed.

Correct AnswerverifiedAssumptions:Fixed costs remai...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which graph shows data that are more suitable for regression analysis?

Correct AnswerverifiedShow Answer

The major disadvantage of the high-low method is that:

Correct AnswerverifiedShow Answer

The trend line from a scatter plot can be used to identify data points for:

Correct AnswerverifiedShow Answer

List one assumption made when a linear cost function is developed and describe a circumstance in which that assumption would not hold.

Correct AnswerverifiedStudents are asked to list only one assu...View AnswerShow Answer

Regression analysis works best when the relationship between costs and cost drivers is:

Correct AnswerverifiedShow Answer

A firm has the capacity to produce 3,100 units per week. At 80% capacity, the average total cost per unit is $12.50 and the average variable cost per unit is $7.50. What is the total fixed cost per week, assuming the firm is still operating within its relevant range?

Correct AnswerverifiedShow Answer

In a regression equation, variable costs are represented by the:

Correct AnswerverifiedShow Answer

All of the following are assumptions for developing and using a cost linear function except:

Correct AnswerverifiedShow Answer

The relevant range is defined as:

Correct AnswerverifiedShow Answer

When the cost object is a unit produced, straight-line depreciation on manufacturing equipment would be a: Variable Cost Fixed Cost Direct Cost

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A scatter plot is used to increase under...
View Answer

Correct Answer
verified

Correct Answer
verified
a)To develop a cost function, I first co...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Assumptions:
Fixed costs remai...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Students are asked to list only one assu...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified