cost acct test bank chapter 10(7)

28) What is the estimated total cost at an operating level of 8,000 hours? A) $43,740 B) $36,670 C) $46,875 D) $37,125 Answer: B

Explanation: B) b = ($44,160 - $24,900) / (9,750 - 5,250) = $4.28 for the highest and lowest values of the cost driver

$44,160 = a + ($4.28 × 9.750) a = $2,430

Cost function is Y= $2,430 + $4.28X $36,670 = $2,430 + ($4.28 × 8,000) Diff: 3

Terms: high-low method, cost predictions Objective: 4

AACSB: Analytical skills

Answer the following questions using the information below:

Presented below are the production data for the first six months of the year for the mixed costs incurred by Gallup Company. Month Cost Units January $4,890 4,100 February 4,024 3,200 March 6,480 5,300 April 8,840 7,500 May 5,800 4,800 June 7,336 6,600

Gallup Company uses the high-low method to analyze mixed costs.

29) How would the cost function be stated? A) y = $440 + $1.12X

B) y = $3,562.30 + $0.144X C) y = $107.20 + $1.12 D) y = $7,850 + $0.132X Answer: A

Explanation: A) b = ($8,840 - $4,024) / (7,500 - 3,200) = $1.12 $8,840 = a + $1.12 × 7,500 a = $440

Cost function is Y=$440 + $1.12X Diff: 3

Terms: high-low method, cost function Objective: 4

AACSB: Analytical skills

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30) What is the estimated total cost at an operating level of 5,000 units? A) $6,227.20 B) $6,040.00 C) $4,283.20 D) $8,510.00 Answer: B

Explanation: B) b = ($8,840 - $4,024) / (7,500 - 3,200) = $1.12 $8,840 = a + $1.12 × 7,500 a = $440

y = $440 + $1.12 × 5,000 = $6,040 Diff: 3

Terms: high-low method, cost predictions Objective: 4

AACSB: Analytical skills

Answer the following questions using the information below:

The Gangwere Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Gangwere Company has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation. Month Cost Hours January $40,000 3,500 February 24,400 2,000 March 31,280 2,450 April 36,400 3,000 May 44,160 3,900 June 42,400 3,740

31) How is the cost function stated? A) y = $26,672 + $1.84X B) y = $21,360 + $10.40 C) y = $10,112 + $8.64X D) y = $3,600 + $10.40X Answer: D

Explanation: D) b = ($44,160 - $24,400) / (3,900 - 2,000) = $10.40 $44,160 = a + $10.40 × 3,900 a = $3,600 Diff: 3

Terms: cost function, high-low method Objective: 4

AACSB: Analytical skills

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Copyright ? 2012 Pearson Education, Inc.

32) What is the estimated total cost at an operating level of 2,850 hours? A) $25,692 B) $33,240 C) $32,016 D) $34,736 Answer: B

Explanation: B) b = ($44,160 - $24,400) / (3,900 - 2,000) = $10.40 $44,160 = a + $10.40 × 3,900 a = $3,600

y = $3,600 + $10.40 × 2,850 = $33,240 Diff: 3

Terms: high-low method, cost predictions Objective: 4

AACSB: Analytical skills

33) Individual cost items included in the dependent variable should have the same cost driver or more than one cost function should be estimated. Answer: TRUE Diff: 2

Terms: cost function, dependent variable Objective: 4

AACSB: Reflective thinking

34) The last step in estimating a cost function using quantitative analysis is to identify the independent variable.

Answer: FALSE

Explanation: The last step in estimating a cost function using quantitative analysis is to evaluate the cost driver of the estimated cost function. Diff: 2

Terms: cost function, dependent variable Objective: 4

AACSB: Reflective thinking

35) In estimating a cost function using quantitative analysis, the dependent variable is the factor used to predict the independent variable. Answer: FALSE

Explanation: In estimating a cost function using quantitative analysis, the independent variable is the factor used to predict the dependent variable. Diff: 2

Terms: cost function, dependent variable, independent variable Objective: 4

AACSB: Reflective thinking

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Copyright ? 2012 Pearson Education, Inc.

36) Cross-sectional data pertain to the same entity (organization, plant, activity, and so on) over successive past periods. Answer: FALSE

Explanation: Time-series data pertain to the same entity (organization, plant, activity, and so on) over successive past periods. Diff: 1

Terms: cost estimation, cost function Objective: 4

AACSB: Reflective thinking

37) Evidence of relationships and extreme observations are highlighted when costs and their cost drivers are plotted graphically. Answer: TRUE Diff: 2

Terms: cost estimation, cost function Objective: 4

AACSB: Reflective thinking

38) The most common forms of quantitative analysis are the conference method and the account analysis method.

Answer: FALSE

Explanation: The most common forms of quantitative analysis are the high-low method and regression analysis. Diff: 1

Terms: conference, account analysis, high-low method; regression analysis Objective: 4

AACSB: Reflective thinking

39) Regression analysis relies on only two observations to estimate a linear cost function. Answer: FALSE

Explanation: The high-low method relies on only two observations to estimate a linear cost function. Diff: 1

Terms: regression analysis, linear cost function Objective: 4

AACSB: Reflective thinking

40) The y-intercept of a linear cost function is an accurate cost assessment of using zero machine-hours, only if zero machine-hours are within the relevant range. Answer: TRUE Diff: 2

Terms: linear cost function Objective: 4

AACSB: Reflective thinking

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Copyright ? 2012 Pearson Education, Inc.

41) A negative slope of a regression line indicates that total costs are higher for higher values of the cost driver.

Answer: FALSE

Explanation: A positive slope of a regression line indicates that costs are higher for higher values of the cost driver. Diff: 2

Terms: regression analysis Objective: 4

AACSB: Reflective thinking

42) The high-low method is more accurate than the regression method of estimating a cost function. Answer: FALSE

Explanation: The regression method is more accurate than the high-low method since it uses all available data to estimate a cost function. Diff: 1

Terms: high-low method, regression analysis Objective: 4

AACSB: Reflective thinking

43) If inaccurate cost estimates are too low, then a company may unknowingly reward a manager for poor performance. Answer: FALSE

Explanation: If inaccurate cost estimates are too high, then a company may unknowingly reward a manager for poor performance. Diff: 3

Terms: cost estimation Objective: 4

AACSB: Ethical reasoning

44) Simple regression is known as \Answer: TRUE Diff: 2

Terms: simple regression Objective: 4

AACSB: Reflective thinking

45) The high-low method involves choosing the period of highest cost driver activity and the period of lowest cost driver activity. Answer: TRUE Diff: 2

Terms: high-low method Objective: 4

AACSB: Reflective thinking

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Copyright ? 2012 Pearson Education, Inc.

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