cost-accounting-test-bank-chapter-10

Cost Accounting, 15e (Horngren/Datar/Rajan)Chapter 10 Determining How Costs BehaveObjective 10.11) A cost function is a _.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 outputsAnswer: CDiff: 2Objective: 1AACSB: Analytical thinking2) 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? A) y = a + bXB) y = bC) y = bXD) y = aAnswer: ADiff: 2Objective: 1AACSB: Analytical thinking3) Crimson Services, Inc., employs 8 individuals. They are all paid $16.50 per hour. How would total costs of personnel be classified?A) variable costB) mixed costC) irrelevant costD) fixed cost Answer: ADiff: 2Objective: 1AACSB: Analytical thinking4) For February, the cost components of a picture frame include $0.30 for the glass, $0.75 for the wooden frame, and $0.80 for assembly. The assembly desk and tools cost $500. Two hundred fifty frames are expected to be produced in the coming year. What cost function best represents these costs? A) y = 1.85 + 500X B) y = 500 + 1.85X C) y = 3.85 + 600X D) y = 1.05 + 500X Answer: BDiff: 2Objective: 1AACSB: Analytical thinking5) The cost components of a heater include $30 for the compressor, $10 for the sheet molded compound frame, and $75 per unit for assembly. The factory machines and tools cost is $60,000. The company expects to produce 1,000 heaters in the coming year. What cost function best represents these costs? A) y = 60,000 + 115X B) y = 1,000 + 60,000X C) y = 60,000 + 1,000X D) y = 1,000 + 115X Answer: ADiff: 2Objective: 1AACSB: Analytical thinking6) Which of the following statements is true of a linear cost function?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.Answer: ADiff: 2Objective: 1AACSB: Analytical thinking7) 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?A) y = 200 + 5XB) y = 200 + 5.50XC) y = 200 + 4.50XD) y = 200 + 4.70XAnswer: CDiff: 3Objective: 1AACSB: Analytical thinking8) If the total cost function is y = 5,000 + 7X, calculate the variable cost for 4,000 units.A) $33,000B) $28,000C) $20,000D) $5,000Answer: BExplanation: B) Explanation: Variable cost for 4,000 units = $7 4,000 units = $28,000Diff: 2Objective: 1AACSB: Application of knowledge9) 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: CDiff: 2Objective: 1AACSB: Analytical thinking10) 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: BDiff: 2Objective: 1AACSB: Analytical thinking11) The cost function y = 10,000 + 3X _.A) represents a mixed cost B) will intersect the y-axis at 3C) has a slope coefficient of 10,000 D) is a curved line Answer: ADiff: 2Objective: 1AACSB: Analytical thinking12) Which of the following functions represents the least total cost assuming the number of units is equal in each case?A) y = 180 + 7XB) y = 90 + 6XC) y = 90 + 7XD) y = 180 + 6XAnswer: BDiff: 3Objective: 1AACSB: Analytical thinking13) Which of the following is an equation of a fixed cost function? A) y = (a + b)X B) y = a + bX C) y = bX D) y = a Answer: DDiff: 2Objective: 1AACSB: Analytical thinking14) 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: TRUEDiff: 1Objective: 1AACSB: Analytical thinking15) 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: TRUEDiff: 1Objective: 1AACSB: Analytical thinking16) All cost functions are linear. Answer: FALSEExplanation: All cost functions are not linear, but for cost-behavior estimation we assume some are linear within a relevant range.Diff: 1Objective: 1AACSB: Analytical thinking17) In a cost function y = 18,000, the slope coefficient is zero.Answer: TRUEDiff: 2Objective: 1AACSB: Analytical thinking18) When estimating a cost function, cost behavior can be approximated by a linear cost function within the relevant range. Answer: TRUEDiff: 2Objective: 1AACSB: Analytical thinking19) y = a + bX, y = a, and y = bX are the three basic types of linear cost functions.Answer: TRUEDiff: 1Objective: 1AACSB: Analytical thinking20) All other things being equal, the longer the time horizon the more likely a cost will be fixed.Answer: FALSEExplanation: All other things being equal, the longer the time horizon, the more likely the cost will be variable.Diff: 1Objective: 1AACSB: Analytical thinking21) Outside of the relevant range, variable and fixed cost-behavior patterns remain constant. Answer: FALSEExplanation: Outside of the relevant range, variable and fixed cost-behavior patterns may change. Diff: 2Objective: 1AACSB: Analytical thinking22) A particular cost item could be variable for one cost object and fixed for another cost object. Answer: TRUEDiff: 1Objective: 1AACSB: Analytical thinking23) Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver. a.Direct manufacturing labor is $10 per hour.b.Direct materials cost $15.60 per cubic yard.c.Utilities have a minimum charge of $5,000, plus a charge of $0.30 per kilowatt-hour.d.Machine operating costs include $300,000 of machine depreciation per year, plus $100 of utility costs for each day the machinery is in operation.Answer: a.y = $10Xb.y = $15.60Xc.y = $5,000 + $0.30Xd.y = $300,000 + $100 XDiff: 2Objective: 1AACSB: Analytical thinking24) Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver. a.Direct materials cost is $1.70 per pound b.Total cost is fixed at $8,000 per month regardless of the number of units produced.c.Auto rental has a fixed fee of $80.00 per day plus $2.00 per mile driven.d.Machine operating costs include $1,000 of maintenance per month, and $12.00 of coolant usage costs for each day the machinery is in operation. Answer: a.y = $1.70Xb.y = $8,000c.y = $80 + $2.00Xd.y = $1,000 + $12X Diff: 2Objective: 1AACSB: Analytical thinkingObjective 10.21) A linear cost function can only represent fixed cost behavior. Answer: FALSEExplanation: A linear cost function can represent fixed, mixed, or variable cost behavior.Diff: 1Objective: 2AACSB: Analytical thinking2) In a graphical display of a cost function, the steepness of a line represents the total amount of fixed costs. Answer: FALSEExplanation: In a graphical display of a cost function, the constant or the y-intercept represents the amount of fixed costs whereas the steepness of a line represents the variable cost.Diff: 2Objective: 2AACSB: Analytical thinking3) It can be inferred that when there is a high correlation between two variables, one is the cause of the other. Answer: FALSEExplanation: It cannot be inferred that a high correlation between two variables indicates that one is the cause of the other. A high correlation simply indicates that the variables move together.Diff: 2Objective: 2AACSB: Analytical thinking4) An example of a physical cause-and-effect relationship is when additional units of production increase total direct material costs. Answer: TRUEDiff: 2Objective: 2AACSB: Analytical thinking5) Managers should use past data to create a cost function and then use the exact information provided by that cost function to create the budgetary forecast for the next year.Answer: FALSEExplanation: Managers are interested in estimating past cost-behavior functions because the estimates can help them make more accurate cost predictions, or forecasts, about future costs. But better management decisions, cost predictions, and estimation of cost functions can be achieved only if managers correctly identify the factors that affect costs.Diff: 2Objective: 2AACSB: Analytical thinking6) What are the two assumptions behind a simple linear cost function? Briefly explain the three ways that a linear cost function may behave? Answer: The two usual assumptions behind a simple linear cost function are:1) Variations in the level of a single activity (the cost driver) explain the variations in the related total costs; and2) Cost behavior is approximated by a linear cost function within the relevant range. This means that total cost versus the level of a single activity that is related to that cost is a straight line within the relevant range. Once linearity is established, there are three possible types of linearity:1) A strictly variable cost of the form Y = bX, where b is the slope of the straight line and is the variable cost per unit of the cost driver;2) A strictly constant cost of the form Y = a, where a is the total fixed cost or constant; and3) A mixed or semivariable cost of the form Y = a + bX, where a is the total fixed cost or constant, and b is the variable cost per unit of the driver or the slope of the straight line. Diff: 2Objective: 2AACSB: Analytical thinkingObjective 10.31) The conference method estimates cost functions _.A) using quantitative methods that can be very time consuming and costly B) based on analysis and opinions gathered from various departments C) using time-and-motion studies D) by mathematically analyzing the relationship between inputs and outputs in physical termsAnswer: BDiff: 2Objective: 3AACSB: Analytical thinking2) The account analysis method estimates cost functions _.A) by classifying cost accounts as variable, fixed, or mixed based on qualitative analysis B) using time-and-motion studies C) at a high cost, which renders it seldom used D) in a manner that cannot be usefully combined with any other cost estimation methods Answer: ADiff: 2Objective: 3AACSB: Analytical thinking3) Quantitative analysis methods estimate cost functions _.A) using the time-and-motion studiesB) based on analysis and opinions gathered from various departments C) using a formal mathematical method to fit cost functions to past data observationsD) using the pooling of knowledge from each value chain function Answer: CDiff: 2Objective: 3AACSB: Analytical thinking4) Variable cost per labor-hour is $8.50. Fixed cost is $10,500. Calculate the total cost for 350 labor hours. Machine hours during the period are 50.A) $10,925B) $13,475C) $13,900D) $3,400Answer: BExplanation: B) Total cost = $10,500 + ($8.50 350) = $13,475Diff: 2Objective: 3AACSB: Application of knowledge5) Which cost estimation method analyzes accounts in the subsidiary ledger as variable, fixed, or mixed using qualitative methods? A) the account analysis method B) the conference method C) the marginal costing method D) the incremental costing method Answer: ADiff: 1Objective: 3AACSB: Analytical thinking6) Which cost estimation method uses a formal mathematical method to develop cost functions based on past data? A) the cash accounting method B) the conference method C) the accrual accounting method D) the quantitative analysis method Answer: DDiff: 1Objective: 3AACSB: Analytical thinking7) Which cost estimation method may use time-and-motion studies to analyze the relationship between inputs and outputs in physical terms? A) the accrual accounting method B) the high-low method C) the industrial engineering method D) the cash accounting method Answer: CDiff: 1Objective: 3AACSB: Analytical thinkingAt the Auric Company, the cost of the personnel department has always been charged to production departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs.Total personnel department costs are $287,500.DepartmentABCNumber of employees70280225Number of new hires2513128) If the number of employees is considered the cost driver, what amount of personnel costs will be allocated to Department A? A) $35,000 B) $10,667 C) $140,000 D) $43,700 Answer: AExplanation: A) Personnel costs of Department A = 70 / (70 + 280 + 225) $287,500 = $35,000 Diff: 2Objective: 3AACSB: Application of knowledge9) If the number of new hires is considered the cost driver, what amount of personnel costs will be allocated to Department A? A) $35,000 B) $10,667 C) $143,750 D) $43,700 Answer: CExplanation: C) Personnel costs of Department A = 25 / (25 + 13 + 12) $287,500 = $143,750Diff: 2Objective: 3AACSB: Application of knowledge10) Which cost estimation method is being used by Auric Company? A) the simple regression method B) the conference method C) the account analysis method D) the marginal costing method Answer: BDiff: 3Objective: 3AACSB: Analytical thinkingAnswer the following questions using the information below: At the Verill Company, the cost of the library and information center has always been charged to the various departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of engineers within a department might be a better predictor of library and information center costs.Total library and information center costs are $200,000.DepartmentABCNumber of employees135530135Number of engineers0802011) Which cost estimation method is being used by Verill Company? A) the regression analysis method B) the marginal costing methodC) the conference method D) the operating costing methodAnswer: CDiff: 3Objective: 3AACSB: Analytical thinking12) If the number of employees is considered the cost driver, what amount of library and information center costs will be allocated to Department A? A) $30,000 B) $33,750C) $0D) $66,667Answer: BExplanation: B) Library and information costs of Department A = 135/ (135 + 530 + 135) $200,000 = $33,750Diff: 2Objective: 3AACSB: Application of knowledge13) If the number of engineers is considered the cost driver, what amount of library and information center costs will be allocated to Department A? A) $30,000 B) $33,750 C) $0D) $66,667Answer: CExplanation: C) Library and information costs of Department A = 0 / (0 + 80 + 20) $200,000 = $0Diff: 2Objective: 3AACSB: Application of knowledgeIsondos TV and Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2015 operations.Sales (1,200 televisions)$ 1,200,000Cost of goods sold540,000Store managers salary per year108,000Operating costs per year216,000Advertising and promotion per year24,000Commissions (3% of sales)36,00014) What was the variable cost per unit sold for 2015? A) $30 B) $480C) $770 D) $450 Answer: BExplanation: B) Variable cost per unit = ($540,000 + $36,000) / 1,200 = $480 per unit Diff: 2Objective: 3AACSB: Application of knowledge15) What were total fixed costs for 2015? A) $924,000 B) $576,000 C) $348,000 D) $224,000 Answer: CExplanation: C) Fixed costs = $108,000 + $216,000 + $24,000 = $348,000 Diff: 2Objective: 3AACSB: Application of knowledge16) What are the estimated total costs if the company expects to sell 3,500 units next year? A) $2,028,000 B) $3,619,000 C) $3,271,000 D) $1,429,000 Answer: AExplanation: A) Total cost = fixed costs ($108,000 + $216,000 + $24,000) + variable costs (3,500 units $480variable costs per unit) = $1,680,000 = $2,028,000 total estimated costs.Diff: 3Objective: 3AACSB: Application of knowledge17) Which cost estimation method is being used by Isondos TV and Appliance Store? A) the operating costing method B) the marginal costing method C) the account analysis method D) the cost-volume-profit analysis method Answer: CDiff: 3Objective: 3AACSB: Analytical thinkingAnswer the following questions using the information below: Genends Good Value Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2015 operations.Sales (6,000 microwave ovens)$ 1,740,000Cost of goods sold960,000Store managers salary per year100,000Operating costs per year250,000Advertising and promotion per year30,000Commissions (3% of sales)52,20018) Which cost estimation method