COST TERMS, CONCEPTS, AND BEHAVIOR
1. It is important to know how costs change as output changes in which function of management?
A. Planning and controlling
B. Controlling and decision making
C. Planning, controlling and decision making
D. None of the above
2. Which factor would cause or lead to change a cost or activity?
A. Driver
C. Mixed cost
B. Step cost
D. Cost formula
3. Cost drivers are
A. Accounting techniques used to control costs
B. Activities that cause costs to increase as the activity increases.
C. Accounting measurements used to evaluate whether performance is proceeding according to
plan.
D. A mechanical basis, such as machine hours, computer time, size of equipment, or square
footage of factory, used to assign costs to activities.
4. A cost driver
A. Has a direct cause-effect relationship to a cost.
B. Causes fixed costs to rise because of production changes.
C. Can predict the cost behavior of variable costs, but not fixed costs.
D. Is an overhead cost that causes distribution costs to change in distinct increments with changes
in production volume.
5. A cost pool is
A. All costs that have the same cost driver.
B. All the costs of a particular department.
C. All costs relate to a product or product line.
D. All costs in a group such as variable costs or discretionary fixed costs.
6. The choices below depict four costs of ABC Corporation and a possible driver for each cost. Which
of these choices likely contain an inappropriate cost driver?
A. Sales commissions; gross sales revenue.
B. Gasoline consumed; number of miles driven.
C. Building maintenance cost; building square footage.
D. Manufacturing overhead incurred in a heavily automated facility; direct labor hours.
7. Which of the following should a company try to eliminate?
A. Direct costs
C. Non-value adding
B. Avoidable costs
D. Discretionary cost
8. Managerial judgment.
A. Is the least used method in practice.
B. Is critically important in determining cost behavior.
C. Is the most accurate way to determine cost behavior.
D. None of the above.
9. If an automobile manufacturer changes from skilled labor to computer- controlled assembly
procedures, the past data
A. Are representative of future costs.
B. Are useful in predicting future costs.
C. Are of little or no value in predicting future costs.
D. Should be used without adjustments to predict future costs.
10. Classifying a cost as either direct or indirect depends upon
A. The cost object to which the cost is being related.
B. The behavior of the cost in response to volume changes.
C. Whether the cost is expensed in the period in which it is incurred.
D. Whether an expenditure is unavoidable because it cannot be changed regardless of any action
taken.
11. In a traditional manufacturing operation, direct costs would normally include
A. Wood in a furniture factory.
B. Electricity in an electronic plant.
C. Commissions paid to sales personnel.
D. Machine repairs in an automobile factory.
12. A fixed cost that would be considered as a direct cost is
A. A cost accountant's salary when the cost objective is a unit of product.
B. Board of directors' fees when the cost objective is the Marketing Department
C. A production supervisor's salary when the cost objective is the Production Department.
D. The rental cost of a warehouse to store inventory when the cost objective is the Purchasing
Department.
13. A controllable expense
A. Is an expected future expense that will be different under various alternatives.
B. Is an expense whose actual amount will not normally differ from the standard (budget) amount.
C. Is an expense that will remain semi-variable in total over the relevant range in a given time
period.
D. Is one that is directly influenced at a given level of managerial authority within a given
time period.
14. The components of a manufacturing costs are
A. Materials, direct labor, and overhead.
B. Purchases, wages, and manufacturing overhead.
C. Variable costs, fixed costs, and overhead costs.
D. Wages and salaries, maintenance and repairs, utilities, and depreciation.
15. Inventoriable costs
A. Are regarded as assets before the products are sold.
B. Include only the prime costs of manufacturing a product.
C. Include only the conversion costs of manufacturing a product.
D. Are expensed when products become part of finished goods inventory.
16. Which statement is true for a manufacturer?
A. Cost-volume-profit analysis is not appropriate.
B. The concepts of fixed and variable costs do not apply.
C. Many costs vary with production activities, not with sales.
D. It cannot use the contribution-margin format of the income statement.
17. Which of the following statements is true?
A. Period costs affect only the balance sheet.
B. Product costs affect only the income statement.
C. Neither product costs nor period costs affect the statement of retained earnings
D. Product costs eventually affect both the balance sheet and the income statement.
18. ABC Company is deciding whether it should replace an old equipment. Which is irrelevant?
A. The cost of the old computer
B. The cost of the new computer
C. The cost of a service plan on the new computer
D. The cost of repair the old computer if a new computer is not purchased
19. In joint-product costing and analysis, which one of the following costs is relevant when deciding
the point at which a product should be sold to maximize profits?
A. Joint costs to the split-off point.
B. Separable costs after the split-off point.
C. Sales salaries for the period when the units were produced.
D. Purchase costs of the materials required for the joint products.
20. Discretionary fixed costs
A. Cannot be easily changed
B. Increases as output increases
C. Often involve a long-term contract
D. Can be changed relatively easy at management discretion
21. Committed costs are costs that
A. Were capitalized and amortized in prior periods.
B. Result from a clear measurable relationship between inputs and outputs.
C. Establish the current level of operating capacity and cannot be altered in the short run.
D. Management decides to incur in the current period that do not have a clear cause and effect
relationship between inputs and outputs.
22. Costs that arise from periodic budgeting decisions that have no strong input-output relationship
are commonly called
A. Committed costs
C. Discretionary costs
B. Opportunity costs
D. Differential costs
23. Which of the following is an example of a discretionary fixed cost?
A. Advertising costs
C. Insurance on automobiles
B. Rental of machinery
D. Depreciation of equipment
24. What is a committed fixed cost?
A. Can easily be changed.
B. Often involves a long-term contract.
C. Changes when the level of output changes.
D. All of the choices.
25. Fixed costs that cannot be reduced with a short period of time are
A. Variable
C. Committed
B. Avoidable
D. Unnecessary
26. Which costs is most likely to be committed?
A. Advertising.
B. Repairs and maintenance.
C. Fee for a consultant on the company's long-range planning.
D. Sum-of-the-years'-digits depreciation on the factory building.
27. Which of the following would be a committed fixed cost for a law firm?
A. Lease of computers
C. Rent on the office building
B. Property taxes on office building
D. All of the choices
28. Which of the following pertains to the relevant range?
A. The normal range of output
B. It may change from period to period
C. The range of output where cost relationships are valid
D. All of the above
29. The relevant rage refers to the activity levels over which
A. Costs fluctuate
C. Relevant costs are incurred
B. Production varies
D. Cost relationships hold constant
30. When identifying fixed and variable costs, which one of the following is a typical assumption
concerning cost behavior?
A. The relevant time period is assumed to be 5 years.
B. Total costs are assumed to be linear when plotted on a graph.
C. General and administrative costs are assumed to be variable costs.
D. Cost behavior is assumed to be realistic for all levels of activity from zero to maximum
capacity.
31. Variable costs within the relevant range
A. Increase in total as output increases
B. Decrease in total as output decreases
C. Stay constant on a per unit basis as output changes
D. All of the above
32. Total variable costs
A. Increases as output increases
B. Decreases as output decreases
C. Equal to a variable rate multiplied by the amount of output
D. All of the above
33. Which of the following statements is true?
A. The lower the production within the relevant range, the lower is the total fixed cost
B. The lower the production within the relevant range, the lower is the total variable cost
C. The higher the production within the relevant range, the higher is the fixed cost per unit
D. The higher the production within the relevant range, the higher is the variable cost per unit
34. A cost is variable if it varies with the
A. Number of units sold
B. Level of some activity
C. Number of units manufactured
D. Selling price of the product
35. Which of the following is the best example of a variable cost?
A. Property taxes
C. Interest charges
B. Cost of raw materials
D. Corporate president's salary
36. ABC Company's average cost per unit is the same at all levels of volume. Which of the following
is true?
A. It must have only fixed costs
B. It must have only variable costs
C. It must have some fixed costs and some variable costs
D. Its cost structure cannot be determined from this information.
37. ABC Company has discovered that the cost of processing customer invoices is strictly variable
within the relevant range. Which one of the following statements concerning the cost of processing
customer invoices is Incorrect?
A. The total cost of processing customer invoices will increase as the volume of customer Invoices
increases.
B. The cost per unit for processing customer invoices will decline as the volume of customer
invoices increases.
C. The cost of processing the 100th customer invoice will be the same as the cost of processing
the first customer invoice.
D. The average cost per unit for processing a customer invoice will equal the incremental cost of
processing one more customer invoice.
38. ABC Company has found that its total electricity cost has both a fixed component and a variable
component within the relevant range. The variable component seems to vary directly with the
number of units produced. Which one of the following statements concerning ABC's electricity
cost is Incorrect?
A. The total electricity cost will increase as production volume increases.
B. The total electricity cost per unit of production will increase as production volume
increases.
C. The fixed electricity cost per unit of production will decline as production volume increases.
D. The variable electricity per unit of production will remain constant as production volume
increases.
39. Fixed costs within the relevant rage
A. Decreases in total as output increases.
B. Increases in total as output decreases.
C. Does not change in total as output changes.
D. None of the choices.
40. As volume increases
A. Total fixed costs increase, and per-unit fixed costs increase
B. Total fixed costs remain constant and per unit fixed costs decrease
C. Total fixed costs remain constant and per unit fixed costs increase
D. Total fixed costs and per unit fixed costs remain constant
41. Which of the following is true regarding fixed costs on a per-unit basis?
A. It increases as output Increases.
B. It decreases as output decreases.
C. It remains the same as output changes.
D. It can be misleading and lead to poor decisions.
42. The main distinction between a variable and a fixed cost is
A. Whether the total cost is relevant to a particular decision
B. Whether the total cost can be traced to a specific cost object
C. Whether the total cost changes when activity levels change
D. Whether the total cost is related to manufacturing or nonmanufacturing activities
43. If there is an increase in the application activity base that is within the relevant range of activity
for the assembly plant, which one of the following relationships regarding variable and fixed costs
is true?
A. The variable cost per unit and the total fixed costs remain constant.
B. The variable cost per unit is constant, and the total fixed costs increase.
C. The variable cost per unit is constant, and the total fixed costs decrease.
D. The variable cost per unit increases, and the total fixed costs remain constant.
44. If output Increases by 50% and is still within the relevant range
A. Net Income will increase by 50%.
B. Total fixed costs will increase by 50%.
C. Per unit fixed cost will remain the same.
D. Total variable costs will increase by 50%.
45. In relation to peso amount of sales, which of the following cost classifications is appropriate for
(1) advertising and (2) sales salaries costs?
A. (1) Variable cost; (2) Fixed cost.
C. (1) Mixed cost; (2) Mixed cost.
B. (1) Fixed cost; (2) Variable cost.
D. (1) Fixed cost; (2) Fixed cost.
46. A mixed cost
A. Stays the same regardless of output
B. Has the same cost behavior as a step cost
C. Will decrease in total when output decreases
D. Will vary in direct proportion to changes in output
47. In the equation Y = a +bX:
A. X = total cost
B. Y = total fixed cost
C. a = variable cost in total
D. b = variable cost per unit of activity
48. Which of the following costs would most likely be 'mixed' for a manufacturer?
A. Direct labor
C. Manufacturing overhead
B. Raw materials
D. None of the choices
49. Which of the following is an advantage of the scatter-diagram method over the high-low method
of cost estimation?
A. Considers more than two points
B. Includes costs outside the relevant range
C. Gives a precise mathematical fit of the points to the line
D. Can be used with more types of costs than the high-low method
50. The scatter-graph method
A. Is objective.
B. Only uses two data points.
C. Allows a cost analyst to inspect data visually.
D. None of the choices.
51. The main objective of preparing a scatter-diagram is to
A. Determine the relevant range
B. Perform regression analysis on the results
C. Derive an equation to predict future costs
D. Find the high and low points to use for the high-low method of estimating costs
52. Which of the following is an advantage of using the scatter-graph method over the high-low
method to eliminate costs?
A. It is a statistical method to determine "best fit".
B. A cost analyst can review the data visually and eliminate outliers.
C. The cost formula can be determined simply by looking at two points of data.
D. The quality of the cost formula relies on the objective judgment of the analysts.
53. The high-low method
A. Is the most accurate
B. Has the advantage of objectivity
C. Has the advantage of subjectivity
D. Is not affected by the presence of outliers
54. When a mixed cost is graphed, the Y-intercept represents the
A. Step cost
C. Variable rate
B. Fixed cost
D. Price of the units sold
55. When a mixed cost is graphed, the slope of the line represents
A. Total fixed cost
B. Total variable cost
C. Sales price per unit
D. Variable cost per unit of the activity driver
56. The least exact method for separating fixed and variable costs is
A. The least squares method
C. Matrix algebra
B. The high-low method
D. Computer simulation
57. The cost estimation method that gives the most mathematically precise cost prediction equation is
A. The high-low method
C. The scatter-diagram method
B. Regression analysis
D. The contribution margin method
58. The least-squares method
A. Is a statistical way of separating a mixed cost
B. Is a way to find the 'best fitting' line through a set of data points
C. Always produces the same cost formula when used on the same data set
D. All of the above
59. The method of least squares
A. Is the least accurate method.
B. Can easily be calculated by hand.
C. Uses the results of regression analysis to construct a cost formula.
D. Analyzes a cost relationship by plotting the data points on a graph.
60. An advantage of the method of least squares over the high-low method include all of the following
except
A. Only two points are used to develop the cost function.
B. A statistical method is used to mathematically derive the cost function.
C. The squared differences between actual observations and the line (cost function) are
minimized.
D. All the observations have an effect on the cost function.
61. Correlation is a term frequently used in conjunction with regression analysis and is measured by
the value of the coefficient of correlation, r. The best explanation of the value r is that it
A. Is always positive.
B. Ranges in size from negative infinity to positive infinity.
C. Interprets variances in terms of the independent variable.
D. Is a measure of the relative relationship between two variables
62. The correlation coefficient that indicates the weakest linear association between two variables is
A. -0.73
C. 0.12
B. -0.11
D. 0.35
63. R-squared is a measure of
A. The fixed component.
B. The variable cost per unit of activity.
C. The spurious relationship between cost and activity.
D. How well the regression line accounts for the changes in the dependent variable.