Determining How Costs Behave

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Questions Bank

The Manager and Management Accounting
An Introduction to Cost Terms and Purposes
Cost-Volume-Profit Analysis
Job Costing
Activity-Based Costing and Activity-Based Management
Master Budget and Responsibility Accounting
Flexible Budgets, Direct-Cost Variances, and Management Control
Flexible Budgets, Overhead Cost Variances, and Management Control
Inventory Costing and Capacity Analysis
Determining How Costs Behave
Decision Making and Relevant Information
Strategy, Balanced Scorecard, and Strategic Profitability Analysis
Pricing Decisions and Cost Management
Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
Allocation of Support-Department Costs, Common Costs, and Revenues
Cost Allocation: Joint Products and Byproducts
Process Costing
Spoilage, Rework, and Scrap
Balanced Scorecard: Quality and Time
Inventory Management, Just-in-Time, and Simplified Costing Methods
Capital Budgeting and Cost Analysis
Management Control Systems, Transfer Pricing, and Multinational Considerations
Performance Measurement, Compensation, and Multinational Considerations

All Questions

Question 1

Free

Multiple Choice

A cost function is a ________ .

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process of calculating present value of projected cash flows

process of allocating costs to cost centers or cost objects

mathematical description of how a cost changes with changes in the level of an activity relating to that cost

is a very thorough and detailed way to identifying a cost object when there is a physical relationship between inputs and outputs

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Question 2

Free

Multiple Choice

Bennet Company employs 20 individuals. Eighteen employees are paid $18 per hour and the rest are salaried employees paid $3,000 a month. Which of the following is the total cost function of personnel?

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y = a + bX

y = b

y = bX

y = a

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Question 3

Free

Multiple Choice

Crimson Services, Inc., employs 8 individuals. They are all paid $16.50 per hour. How would total costs of personnel be classified?

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variable cost

mixed cost

irrelevant cost

fixed cost

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Question 4

Free

Multiple Choice

For February, the cost components of a picture frame include $0.40 for the glass, $0.67 for the wooden frame, and $0.83 for assembly. The assembly desk and tools cost $570. Two hundred fifty frames are expected to be produced in the coming year. What cost function best represents these costs?

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y = 1.90 + 570X

y = 570 + 1.90X

y = 570 + 1.07X

y = 1.07 + 570X

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Question 5

Free

Multiple Choice

The cost components of a heater include $35 for the compressor, $11 for the sheet molded compound frame, and $74 per unit for assembly. The factory machines and tools cost is $55,000. The company expects to produce 1,300 heaters in the coming year. What cost function best represents these costs?

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y = 55,000 + 120X

y = 1,300 + 55,000X

y = 55,000 + 1,300X

y = 1,300 + 120X

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Question 6

Multiple Choice

Which of the following statements is true of a linear cost function?

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It presents variable cost as a slope coefficient.

It presents total cost as an intercept.

It presents variable cost as an intercept.

It presents total cost as slope coefficient.

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Question 7

Multiple Choice

A finance manager has to select one of the four different suppliers of raw materials. The total cost functions under the four options are given below. Assume the quality of the raw material to be the same, which of the following is preferred by the finance manager?

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y = 600 + 4.96X

y = 600 + 5.49X

y = 600 + 4.41X

y = 600 + 4.67X

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Question 8

Multiple Choice

If the total cost function is y = 6,500 + 9X, calculate the variable cost for 4,400 units.

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$46,100

$39,600

$58,500

$6,500

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Question 9

Multiple Choice

The cost function y = 2,700 + 8X ________ .

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has a slope coefficient of 2,700

has an intercept of 8

is a straight line

represents a fixed cost

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Question 10

Multiple Choice

The cost function y = 300 + 2X ________ .

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has a slope coefficient of 300

has an intercept of 300

is a nonlinear

represents a fixed cost

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Question 11

Multiple Choice

The cost function y = 13,000 + 9X ________ .

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represents a mixed cost

will intersect the y-axis at 9

has a slope coefficient of 13,000

is a curved line

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Question 12

Multiple Choice

Which of the following functions represents the least total cost assuming the number of units is equal in each case?

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y = 180 + 9X

y = 90 + 5X

y = 90 + 9X

y = 180 + 5X

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Question 13

Multiple Choice

Which of the following is an equation of a fixed cost function?

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y = (a + b)?

y = a + bX

y = bX

y = a

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Question 14

True/False

One assumption frequently made in cost behavior estimation is that changes in total costs can be explained by changes in the level of a single activity.

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True

False

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Question 15

True/False

A cost function is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost.

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True

False

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Question 16

True/False

All cost functions are linear.

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True

False

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Question 17

True/False

In a cost function y = 18,000, the slope coefficient is zero.

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True

False

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Question 18

True/False

When estimating a cost function, cost behavior can be approximated by a linear cost function within the relevant range.

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True

False

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Question 19

True/False

If a cost item is fixed for one cost object, it will be fixed for all cost objects for which it is associated.

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True

False

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Question 20

True/False

All other things being equal, the longer the time horizon the more likely a cost will be fixed.

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True

False

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