Determining How Costs Behave

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Question 1
Free
Multiple Choice

A cost function is a ________ .

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A

process of calculating present value of projected cash flows

B

process of allocating costs to cost centers or cost objects

C

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

D

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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A

y = a + bX

B

y = b

C

y = bX

D

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?

Choose correct answer/s
A

variable cost

B

mixed cost

C

irrelevant cost

D

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?

Choose correct answer/s
A

y = 1.90 + 570X

B

y = 570 + 1.90X

C

y = 570 + 1.07X

D

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?

Choose correct answer/s
A

y = 55,000 + 120X

B

y = 1,300 + 55,000X

C

y = 55,000 + 1,300X

D

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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A
It presents variable cost as a slope coefficient.
B
It presents total cost as an intercept.
C
It presents variable cost as an intercept.
D
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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A
y = 600 + 4.96X
B
y = 600 + 5.49X
C
y = 600 + 4.41X
D
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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A
$46,100
B
$39,600
C
$58,500
D
$6,500
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Question 9
Multiple Choice

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

Choose correct answer/s
A
has a slope coefficient of 2,700
B
has an intercept of 8
C
is a straight line
D
represents a fixed cost
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Question 10
Multiple Choice

The cost function y = 300 + 2X ________ .

Choose correct answer/s
A
has a slope coefficient of 300
B
has an intercept of 300
C
is a nonlinear
D
represents a fixed cost
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Question 11
Multiple Choice

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

Choose correct answer/s
A
represents a mixed cost
B
will intersect the y-axis at 9
C
has a slope coefficient of 13,000
D
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?

Choose correct answer/s
A
y = 180 + 9X
B
y = 90 + 5X
C
y = 90 + 9X
D
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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A
y = (a + b)?
B
y = a + bX
C
y = bX
D
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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