cost acct test bank chapter 10(9)

3) A cost function with a lower constant than a year ago could indicate all of the following EXCEPT: A) last year's cost function was inaccurate

B) a new operations manager is being effective C) the sales commission percentage has decreased D) insurance premiums have decreased Answer: C Diff: 3

Terms: cost function, cost estimation Objective: 5

AACSB: Reflective thinking

4) A cost function with a lower slope coefficient than a year ago could indicate that: A) total variable costs have decreased

B) new cost-cutting initiatives are beneficial C) production has decreased D) rental costs have decreased Answer: B Diff: 3

Terms: cost function, cost estimation, slope coefficient Objective: 5

AACSB: Analytical skills

5) If machine maintenance is scheduled at a time when production is at a low level, then: A) low production is the cost driver of high repair costs

B) an understanding of operations is needed to determine an appropriate cost driver C) low production should be avoided since it is the cause of machine maintenance D) machine maintenance cannot be accurately predicted Answer: B Diff: 3

Terms: cost function, cost estimation Objective: 5

AACSB: Reflective thinking

6) Goodness-of-fit measures how well the predicted values in a cost estimating equation: A) match the cost driver

B) determine the level of activity C) match the actual cost observations D) rely on the independent variable Answer: C Diff: 2

Terms: cost function, cost estimation, regression analysis Objective: 5

AACSB: Reflective thinking

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7) A steeply sloped regression line indicates:

A) a strong relationship between the cost driver and costs B) a greater proportion of fixed costs than variable costs C) an economically plausible relationship exists D) management should cut costs Answer: A Diff: 3

Terms: regression analysis, slope coefficient Objective: 5

AACSB: Reflective thinking

8) The smaller the residual term the:

A) stronger the relationship between the cost driver and costs B) weaker the relationship between the cost driver and costs C) steeper the slope of the cost function D) gentler the slope of the cost function Answer: A Diff: 2

Terms: regression analysis, cost function Objective: 5

AACSB: Reflective thinking

9) When using activity-based costing all of the following are true EXCEPT that: A) all cost drivers should be output unit-level cost drivers

B) there are a great number and variety of cost drivers and cost pools

C) industrial engineering, conference, and regression analysis can be used to estimate slope coefficients D) the more cost pools, the greater the chance of estimation error Answer: A Diff: 2

Terms: cost function, cost estimation Objective: 5

AACSB: Reflective thinking

10) When evaluating and choosing cost drivers all of the following are true EXCEPT: A) the cost driver is economically plausible.

B) there is a significance of effect of the independent variable

C) there is an independent verification of the relationship by a committee of cost accountants D) there is a goodness of fit between the various data points and the regression line Answer: C Diff: 2

Terms: cost function, cost estimation Objective: 5

AACSB: Reflective thinking

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11) Machine-hours is a more economically plausible cost driver of machine maintenance than number of direct manufacturing labor-hours. Answer: TRUE Diff: 2

Terms: cost function Objective: 5

AACSB: Reflective thinking

12) The larger the vertical difference between actual costs and predicted costs the better the goodness of fit.

Answer: FALSE

Explanation: The smaller the vertical difference between actual costs and predicted costs the better the goodness of fit. Diff: 2

Terms: residual term, regression analysis Objective: 5

AACSB: Reflective thinking

13) Choosing an economically plausible cost driver for indirect costs is fairly simple and knowledge of operations is unnecessary. Answer: FALSE

Explanation: Finding an economically plausible cost driver is not always simple and many times knowledge of operations is necessary. Diff: 2

Terms: cost function Objective: 5

AACSB: Reflective thinking

14) A flat or slightly sloped regression line indicates a strong relationship. Answer: FALSE

Explanation: A flat or slightly sloped regression line indicates a weak relationship. Diff: 3

Terms: regression analysis Objective: 5

AACSB: Reflective thinking

15) To implement ABC systems, managers must identify a cost driver for each activity. Answer: TRUE Diff: 1

Terms: cost function, cost driver Objective: 5

AACSB: Reflective thinking

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16) Activity-based costing systems use the quantitative analysis method exclusively for cost estimation because of its accuracy. Answer: FALSE

Explanation: Because ABC systems have a great number and variety of cost drivers and cost pools it requires many cost relationships to be estimated. ABC systems use a variety of estimation methods - industrial engineering, conference, and quantitative analysis. In making the choice of method to use, managers trade off detail, accuracy, feasibility, and costs of estimating cost functions. Diff: 2

Terms: cost function, cost driver Objective: 5

AACSB: Reflective thinking

17) Economic plausibility is an important criterion for choosing a cost driver. Answer: TRUE Diff: 1

Terms: cost function Objective: 5

AACSB: Reflective thinking

18) What are the three criteria a company should use to evaluate and choose a cost driver? Briefly explain each of the three criteria.

Answer: The three criteria a company should use to evaluate a cost driver are economic plausibility, goodness of fit, and significance of the independent variable.

Economic plausibility involves the theoretical existence of a causal relationship between a driver and the costs it is supposed to drive.

Goodness of fit involves the observed differences between predictions of costs based on the cost driver and the actual costs that occurred.

Significance of the independent variable involves the steepness of the slope of the cost driver relative to the slope of other possible cost drivers. The steeper the slope (given the same goodness of fit) the stronger is the relationship between the cost driver and the related costs. Diff: 2

Terms: cost function, cost estimation Objective: 5

AACSB: Reflective thinking

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Copyright ? 2012 Pearson Education, Inc.

Objective 10.6

1) Over the short run, a nonlinear cost function would most likely result from all of the following EXCEPT:

A) quantity discounts for each additional 10,000 parts purchased

B) purchasing another $250,000 printing machine to double production C) hiring a third production supervisor

D) incurring greater total utility costs for each machine-hour of operation Answer: D Diff: 3

Terms: cost function, nonlinear cost function Objective: 6

AACSB: Analytical skills

2) Examples of nonlinear cost functions include all of the following EXCEPT: A) step variable-cost functions B) step fixed-cost functions C) learning curves

D) mixed cost functions Answer: D Diff: 2

Terms: nonlinear cost function Objective: 6

AACSB: Reflective thinking

3) A step fixed-cost function:

A) is fixed over the short run but not over the long run

B) is often approximated with a continuous variable-cost function C) remains the same over a narrow range of activity D) example includes setup costs Answer: A Diff: 2

Terms: step cost function Objective: 6

AACSB: Reflective thinking

4) A step variable-cost function:

A) is fixed over the long run but not over the short run

B) is often approximated with a continuous variable-cost function C) remains the same over a wide range of activity

D) example includes adding additional warehouse space Answer: B Diff: 2

Terms: step cost function Objective: 6

AACSB: Reflective thinking

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