cost acct test bank chapter 10

Cost Accounting, 14e (Horngren/Datar/Rajan) Chapter 10 Determining How Costs Behave

Objective 10.1

1) Which of the following statements related to assumptions about estimating linear cost functions is FALSE?

A) Variations in a single cost driver explain variations in total costs.

B) A cost object is anything for which a separate measurement of costs is desired.

C) A linear function approximates cost behavior within the relevant range of the cost driver. D) A high correlation between two variables ensures that a cause-and-effect relationship exists. Answer: D Diff: 2

Terms: cost estimation, linear cost function Objective: 1

AACSB: Reflective thinking

2) A high correlation between two variables s and t indicates that: A) s may cause t, or t may cause s

B) both may be affected by a third variable

C) the correlation may be due to random chance D) All of these answers are correct. Answer: D Diff: 2

Terms: cost function Objective: 1

AACSB: Reflective thinking

3) Which of the following does NOT represent a cause-and-effect relationship? A) Material costs increase as the number of units produced increases. B) A company is charged 40 cents for each brochure printed and mailed. C) Utility costs increase at the same time that insurance costs increase.

D) It makes sense that if a complex product has a large number of parts it will take longer to assemble than a simple product with fewer parts. Answer: C Diff: 3

Terms: cost function Objective: 1

AACSB: Reflective thinking

1

Copyright ? 2012 Pearson Education, Inc.

4) Bennet Company employs 30 individuals. Eighteen employees are paid $14 per hour and the rest are salaried employees paid $4,000 a month. How would total costs of personnel be classified? A) variable B) mixed

C) a variable cost within a relevant range D) a fixed cost within a relevant range Answer: B Diff: 2

Terms: mixed cost Objective: 1

AACSB: Analytical skills

5) McGuinness Company employs 8 individuals. They are all paid $14.50 per hour. How would total costs of personnel be classified? A) variable B) mixed

C) a variable cost within a relevant range D) a fixed cost within a relevant range Answer: A Diff: 2

Terms: variable cost Objective: 1

AACSB: Analytical skills

6) For February, the cost components of a picture frame include $0.25 for the glass, $.65 for the wooden frame, and $0.80 for assembly. The assembly desk and tools cost $400. 1,000 frames are expected to be produced in the coming year. What cost function best represents these costs? A) y = 1.70 + 400X B) y = 400 +1.70X C) y = 2.10 + 1,000X D) y = .90 + 400X Answer: B Diff: 2

Terms: linear cost function Objective: 1

AACSB: Analytical skills

7) The cost components of a heater include $35 for the compressor, $12 for the sheet molded compound frame, and $80 per unit for assembly. The factory machines and tools cost is $55,000. The company expects to produce 1,500 heaters in the coming year. What cost function best represents these costs? A) y = 1,500 + 127X B) y = 1,500 +55,000X C) y = 55,000 + 1,500X D) y = 55,000 +127X Answer: D Diff: 2

Terms: linear cost function Objective: 1

AACSB: Analytical skills

2

Copyright ? 2012 Pearson Education, Inc.

8) A linear cost function can represent: A) mixed cost behaviors B) fixed cost behaviors C) variable cost behaviors

D) All of these answers are correct. Answer: D Diff: 2

Terms: linear cost function Objective: 1

AACSB: Reflective thinking

9) The cost function y = 2,000 + 6X: A) has a slope coefficient of 2,000 B) has an intercept of 6 C) is a straight line

D) represents a fixed cost Answer: C Diff: 2

Terms: linear cost function Objective: 1

AACSB: Analytical skills

10) The cost function y = 150 + 10X: A) has a slope coefficient of 150 B) has an intercept of 150 C) is a nonlinear

D) represents a fixed cost Answer: B Diff: 2

Terms: linear cost function Objective: 1

AACSB: Analytical skills

11) The cost function y = 10,000 + 3X: A) represents a mixed cost B) will intersect the y-axis at 3

C) has a slope coefficient of 10,000 D) is a curved line Answer: A Diff: 2

Terms: linear cost function Objective: 1

AACSB: Analytical skills

3

Copyright ? 2012 Pearson Education, Inc.

12) The cost function y = 90 + 8X: A) has a slope coefficient of -8 B) will intersect the y-axis at 8 C) has a slope coefficient of 8 D) is a curved line Answer: C Diff: 2

Terms: linear cost function Objective: 1

AACSB: Analytical skills

13) Which of the following is an equation of a fixed cost function? A) y = bX + a B) y = a + bX C) y = bX D) y = a Answer: D Diff: 2

Terms: linear cost function Objective: 1

AACSB: Analytical skills

14) 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. Answer: TRUE Diff: 1

Terms: cost estimation Objective: 1

AACSB: Analytical skills

15) A cost function is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost. Answer: TRUE Diff: 1

Terms: cost function Objective: 1

AACSB: Reflective thinking

16) All cost functions are linear. Answer: FALSE

Explanation: All cost functions are not linear, but for cost-behavior estimation we assume some are linear within a relevant range. Diff: 1

Terms: cost function Objective: 1

AACSB: Reflective thinking

4

Copyright ? 2012 Pearson Education, Inc.

17) When plotted on a graph, cost functions are usually displayed by having the level of activity (machine hours, etc.) plotted on the horizontal axis (called the x-axis ) and the amount of total costs corresponding to (or dependent on) the levels of that activity on the vertical axis (called the y-axis). Answer: TRUE Diff: 1

Terms: cost function Objective: 1

AACSB: Reflective thinking

18) When estimating a cost function, cost behavior can be approximated by a linear cost function within the relevant range. Answer: TRUE Diff: 2

Terms: cost estimation, cost function Objective: 1

AACSB: Reflective thinking

19) y = a + bX represents the general form of the linear cost function. which is expressed in Excel as y=mx+b.

Answer: TRUE Diff: 1

Terms: cost function, linear cost function Objective: 1

AACSB: Reflective thinking

20) The longer the time horizon, the more likely a cost will be variable. Answer: TRUE Diff: 2

Terms: cost function, linear cost function Objective: 1

AACSB: Reflective thinking

21) Outside of the relevant range, variable and fixed cost-behavior patterns remain constant. Answer: FALSE

Explanation: Outside of the relevant range, variable and fixed cost-behavior patterns may change. Diff: 2

Terms: cost function, linear cost function Objective: 1

AACSB: Reflective thinking

22) Any linear cost function can be graphed by knowing only the slope coefficient. Answer: FALSE

Explanation: A linear function can be graphed if the slope coefficient and the intercept are known. Diff: 1

Terms: cost function, linear cost function Objective: 1

AACSB: Reflective thinking

5

Copyright ? 2012 Pearson Education, Inc.

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