Student name:__________ 1) The relationship

between cost and activity

is known as:

D) cost analysis.
A) cost estimation. E) cost
B) cost prediction. approximation.
C) cost behavior.

2) A forecast of a cost at a particular level of activity is

known as:

D) cost analysis.
A) cost estimation. E) cost
B) cost prediction. approximation.
C) cost behavior.

3) Volcano Hot Wings has budgeted the following costs

for a month in which 12,000 wings will be cooked and sold.

Other fixed 4
costs 0
Wings, breading, and sauce $ 4,90 0
0
Direct labor (Variable) 3,50
0 Each wing sells for $1.60
Rent 1,10 each. How much is the
0 budgeted variable cost per
Depreciation 900 unit?

D) $0.80
A) $0.70 E) None of these
B) $0.90 answer choices are correct.
C) $1.60

Version 1 1
4) Volcano Hot Wings has budgeted the following costs
for a month in which 12,000 wings will be cooked and sold.

Other fixed 4
costs 0
Wings, breading, and sauce $ 4,90 0
0
Direct labor (Variable) 3,50
0
Rent 1,10 Each wing sells for $1.60
0 each. What is the budgeted
Depreciation 900 total variable cost?

D) $8,400
A) $10,800 E) None of these
B) $10,400 answer choices is correct.
C) $9,500

5) Volcano Hot Wings has budgeted the following costs

for a month in which 12,000 wings will be cooked and sold.

Other fixed 4
costs 0
Wings, breading, and sauce $ 4,90 0
0
Direct labor (Variable) 3,50
0
Rent 1,10 Each wing sells for $1.60
0 each. What is the budgeted
Depreciation 900 total fixed cost?

D) $10,800
A) $7,300 E) None of these
B) $2,400 answer choices is correct.
C) $8,400

Version 1 2
6) Volcano Hot Wings has budgeted the following costs
for a month in which 12,000 wings will be cooked and sold.

Other fixed 4
costs 0
Wings, breading, and sauce $ 4,90 0
0
Direct labor (Variable) 3,50
0
Rent 1,10 Each wing sells for $1.60
0 each. What is the budgeted
Depreciation 900 fixed cost per unit?

D) $0.34
A) $0.70 E) None of these
B) $1.60 answer choices is correct.
C) $0.20

7) Volcano Hot Wings has budgeted the following costs

for a month in which 12,000 wings will be cooked and sold.

Other fixed 4
costs 0
Wings, breading, and sauce $ 4,90 0
0
Direct labor (Variable) 3,50
0
Rent 1,10 Each wing sells for $1.60
0 each. What is Volcano Hot
Depreciation 900 Wings’ budgeted profit?

D) $10,800
A) $19,200 E) None of these
B) $13,200 answer choices is correct.
C) $8,400

Version 1 3
8) Volcano Hot Wings has budgeted the following costs
for a month in which 12,000 wings will be cooked and sold.

Other fixed 4
costs 0
Wings, breading, and sauce $ 4,90 0
0
Direct labor (Variable) 3,50
0
Rent 1,10 Each wing sells for $1.60
0 each. How much would
Depreciation 900 Volcano Hot Wings’ profit
increase if 100 more wings
were sold?

D) $168.00
A) $160.00 E) None of these
B) $70.00 answer choices are correct.
C) $90.00

9) Fractured Auto Repair projects variable labor costs of the expected labor cost in
$21,500 in March when 8,600 units are produced. If April?
production is expected to drop to 8,000 units in April, what is

D) $20,900
A) $21,500 E) None of these
B) $20,000 answer choices is correct.
C) $23,113

10) Grimaldi Chocolates projects its factory rent to be

$8,000 in July when 4,000 pounds of candy are expected to be
produced. If rent is a fixed cost, and if production is expected
to increase to 6,000 units in August, what is the expected cost
of rent in August?

B) $8,000
A) $12,000 C) $7,000

Version 1 4
 D) $10,667 the answer.
E) Not enough information is provided to determine

11) Polka King Gifts had the following costs in March

when 400 ceramic statues were produced: materials, $4,200;
labor cost, $1,600; depreciation, $800; rent, $700; and other
fixed costs, $500. Which one of the following is the correct
cost for Polka King?

E) None of these
A) The fixed cost per unit is $3.75 answer choices is correct.
B) The variable cost per unit is $14.50
C) The fixed cost per unit is $19.50
D) The total cost per unit is $14.50

12) Polka King Gifts had the following costs in March

when 400 ceramic statues were produced: materials, $4,200;
labor cost, $1,600; depreciation, $800; rent, $700; and other
fixed costs, $500. If production changes to 500 units and
production still remains within the relevant range, which of
the following costs will stay the same?

E) None of these
A) Variable cost per unit answer choices is correct.
B) Fixed cost per unit
C) Total variable cost
D) Total cost per unit

13) Polka King Gifts

had the following costs in

Version 1 5
March when 400 ceramic statues were produced: materials, 500 units, how much will
$4,200; hourly labor, $1,600; depreciation, $800; rent, $700; the total costs be?
and other fixed costs, $500. If the production level changes to

D) $1,950
A) $9,750 E) None of these
B) $7,800 answer choices is correct.
C) $9,250

14) At Medallion Industries, variable cost per unit is instead, production is

budgeted to be $8.00 and fixed cost per unit is budgeted to be actually 5,100 units?
$5.00 in a period when 4,000 units are produced. What is the
expected total cost of the units produced at Medallion, if

D) $40,800
A) $52,000 E) None of these
B) $60,800 answer choices is correct.
C) $66,300

15) At Medallion Industries, during 20x5 the anticipated are actually produced,
production is 5,000 units, budgeted variable costs are what is the expected total
$75,000, and budgeted fixed costs are $24,000. If 5,600 units cost?

D) $88,394
A) $110,600 E) None of these
B) $84,000 answer choices is correct.
C) $108,000

16) During 20x5, Medallion Industries anticipates are actually produced,

production of 20,000 units, budgeted variable costs of what is the expected total
$85,000, and budgeted fixed costs of $45,000. If 15,000 units cost?

C) $108,750
A) $130,000
B) $97,500

Version 1 6
 D) $118,750
E) None of these answer choices is correct.

Version 1 7
17) Command Generators is in the process of preparing a
production cost budget for August. Actual costs in July for the
production of 60 generators were:

Total $15,
300
Materials cost $ 5,200

Labor cost 2,600

Rent 1,200 Materials and labor are the

only variable costs. If
Depreciation 1,700
production and sales are
Other fixed costs 4,600 budgeted to increase to 70
generators in August, how
much is the expected total
cost on the August budget?

D) $15,300
A) $17,850 E) None of these
B) $16,600 answer choices is correct.
C) $9,100

18) Command Generators is in the process of preparing a

production cost budget for August. Actual costs in July for the
production of 60 generators were:

Other fixed 4,6

costs 00
Materials cost $ 5,200
Total $15,
Labor cost 2,600 300

Rent 1,200

Depreciation 1,700

Version 1 8
 how much is the expected
Materials and labor are the only variable costs. If production total variable cost on the
and sales are budgeted to increase to 70 generators in August, August budget?

D) $15,300
A) $17,850 E) None of these
B) $16,600 answer choices is correct.
C) $9,100

19) Brawny Generators is in the process of preparing a

production cost budget for August. Actual costs in July for the
production of 60 generators were:

Total $15,
300
Materials cost $ 5,200

Labor cost 2,600

Rent 1,200 Materials and labor are the

only variable costs. If
Depreciation 1,700
production and sales are
Other fixed costs 4,600 budgeted to increase to 70
generators in August, how
much is the fixed cost per
unit on the August budget?

D) $130.00
A) $107.14 E) None of these
B) $125.00 answer choices is correct.
C) $218.57

20) Brawny Generators is in the process of preparing a production of 60

production cost budget for August. Actual costs in July for the generators were:

Materials cost $ 5,20

0

Version 1 9
 Labor cost 2,600

Rent 1,200 Materials and labor are the

only variable costs. If
Depreciation 1,700
production and sales are
Other fixed costs 4,600 budgeted to increase to 70
generators in August, how
Total $ 15,300 much is the expected total
fixed cost on the August
budget?

D) $15,300
A) $8,750 E) None of these
B) $7,800 answer choices is correct.
C) $7,500

21) Which of the following costs changes in direct

proportion to a change in the activity level?

E) Step-fixed
A) Variable cost. cost.
B) Fixed cost.
C) Semivariable cost.
D) Step-variable cost.

22) Macon Company has a variable selling cost. If sales variable cost per unit
volume increases, how will the total variable cost and the behave?

Total Variable Variable Cost Per

Cost Unit A) Choice A
A. Increase Increase B) Choice B
B. Increase Remain constant C) Choice C
C. Increase Decrease D) Choice D
E) Choice E
D. Remain constant Decrease
E. Decrease Increase

Version 1 10
23) What type of cost exhibits the behavior shown below?

MC )
ao 5 $1
ns 0.
ut ,9
fP 05
ae 0
cr 0
tU 71
un 0.
ri ,9
it 05
n 0
g 0

V
o
l A) Variable cost.
u
m
B) Fixed cost.
e
C) Semivariable
( cost.
U D) Discretionary
n fixed cost.
i E) Step-fixed
t cost.
s

24) Paige Corporation observed that when 25,000 units

were sold, a particular cost amounted to $75,000, or $3.00 per
unit. When volume increased by 10%, the cost totaled
$82,500 (i.e., $3.00 per unit). The cost that Paige is studying
can best be described as a:

C) semivariable
A) variable cost. cost.
B) fixed cost. D) discretionary

Version 1 11
fixed cost.
E) step-fixed cost.

25) When graphed, a typical variable cost appears as:

E) a diagonal line
A) a horizontal line. that slopes upward to the
B) a vertical line. right.
C) a u-shaped line.
D) a diagonal line that slopes downward to the right.

26) Norman Company pays a sales commission of 4% on units sold, how would a
each unit sold. If a graph is prepared, with the vertical axis line that depicts sales
representing per-unit cost and the horizontal axis representing commissions be drawn?

D) As a vertical
A) As a straight diagonal line, sloping upward to the line.
right. E) As a
B) As a straight diagonal line, sloping downward to curvilinear line.
the right.
C) As a horizontal line.

27) A company observed a decrease in the cost per unit.

All other things being equal, which of the following is most
likely true?

volume has decreased.

A) The company is studying a variable cost, and E) The company
total volume has increased. is studying a fixed cost,
B) The company is studying a variable cost, and and total volume has
total volume has decreased. remained constant.
C) The company is studying a fixed cost, and total
volume has increased.
D) The company is studying a fixed cost, and total

Version 1 12
28) Ralston has the following budgeted costs at its
anticipated production level (expressed in hours): variable
overhead, $165,000; fixed overhead, $250,000. If Ralston
now revises its anticipated production slightly upward, it
would expect:

a lower hourly rate for

A) total fixed overhead of $250,000 and a lower variable overhead.
hourly rate for variable overhead. E) total variable
B) total fixed overhead of $250,000 and the same overhead of less than
hourly rate for variable overhead. $165,000 and a higher
C) total fixed overhead of $250,000 and a higher hourly rate for variable
hourly rate for variable overhead. overhead.
D) total variable overhead of less than $165,000 and

29) What type of cost exhibits the behavior shown below?

MT Co (
ao st U
nt Pe n
ua r i
fl Un t
a it s
cC )
to 5 $1 $3
us 0 5.
rt , 00
i 0 ,0
n 0 0
g 0 0
0
V 8 11
o 0 5.
l , 08
u 0 ,8
m 0 0
e 0 0

Version 1 13
 0

A) Variable cost.
B) Fixed cost.
C) Semivariable cost.
D) Step-variable cost.
E) Mixed cost.

30) When graphed, a typical fixed cost appears as:

E) a diagonal line
A) a horizontal line. that slopes upward to the
B) a vertical line. right.
C) a u-shaped line.
D) a diagonal line that slopes downward to the right.

31) Straight-line depreciation is a typical example of a:

D) mixed cost.
A) variable cost. E) curvilinear
B) step-variable cost. cost.
C) fixed cost.

32) Which of the following choices denotes the typical

cost behavior of advertising and sales commissions?

Advertising Sales Commissions

A. Variable Variable
B. Variable Fixed
C. Fixed Variable

Version 1 14
D. Fixed Fixed
E. Semivariable Variable A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

33) If the Malabar Yacht Club expense includes a rent of

$2,000 plus a charge of $40 per member and the club has 80
members,

D) all costs are

A) fixed costs amount to $2,000 and variable costs variable.
amount to $3,200. E) cannot be
B) fixed costs amount to $3,200 and variable costs determined.
amount to $2,000.
C) all costs are fixed.

34) Costs that remain the same over a wide range of

activity, but jump to a different amount outside that range, are
known as:

D) curvilinear
A) step-fixed costs. costs.
B) step-variable costs. E) mixed costs.
C) semivariable costs.

35) When graphed, a typical step-fixed cost appears as:

D) a diagonal line
A) a horizontal line.
B) a vertical line.
C) a series of staggered horizontal lines with the
steps moving upward to the right.

Version 1 15
that slopes downward to the right.
E) a diagonal line that slopes upward to the right.

Version 1 16
36) Each of Boggart’s production managers (annual salary
cost, $45,000) can oversee 60,000 machine hours of
manufacturing activity. Thus, if the company has 50,000
hours of manufacturing activity, one manager is needed; for
75,000 hours, two managers are needed; for 125,000 hours,
three managers are needed; and so forth. Boggart’s salary cost
can best be described as a:

D) fixed cost.
A) variable cost. E) step-fixed
B) semivariable cost. cost.
C) step-variable cost.

37) Sophie Corporation recently produced and sold

100,000 units. Fixed costs at this level of activity amounted to
$50,000; variable costs were $100,000. How much cost would
the company anticipate if during the next period it produced
and sold 102,000 units?

D) $153,000.
A) $150,000. E) None of the
B) $151,000. answers is correct.
C) $152,000.

38) Organize, Inc. has only variable costs and fixed costs. would the firm anticipate
A review of the company's records disclosed that when at an activity level of
200,000 units were produced, fixed manufacturing costs 205,000 units?
amounted to $800,000 and the cost per unit manufactured
totaled $11. On the basis of this information, how much cost

D) $2,200,000.
A) $2,235,000. E) None of the
B) $2,222,000. answers is correct.
C) $2,214,000.

Version 1 17
39) A review of Parson Corporation's accounting records Parson anticipate at a
found that at a volume of 90,000 units, the variable and fixed volume of 85,000 units?
cost per unit amounted to $8 and $4, respectively. On the
basis of this information, what amount of total cost would

D) $1,080,000.
A) $1,020,000. E) None of the
B) $1,040,000. answers is correct.
C) $1,060,000.

40) A cost that has both a fixed and variable component is

known as a:

E) discretionary
A) step-fixed cost. cost.
B) step-variable cost.
C) semivariable cost.
D) curvilinear cost.

41) A mixed cost is also known as a:

E) discretionary
A) semivariable cost. cost.
B) step-fixed cost.
C) variable cost.
D) curvilinear cost.

42) Brock Morton has a fast-food franchise and must pay cost behavior, the fee is
a franchise fee of $45,000 plus 4% of gross sales. In terms of known as a:

C) step-fixed
A) variable cost. cost.
B) fixed cost. D) semivariable

Version 1 18
cost.
E) curvilinear cost.

43) Which of the following is (are) example(s) of a mixed that must be split between
cost?I. A building that is used for both manufacturing and sales and administrative
sales activities.II. An employee's compensation, which offices.
consists of a flat salary plus a commission.III. Depreciation
that relates to five different machines.IV. Maintenance cost

D) I, III, and IV.

A) I only. E) I, II, III, and
B) II only. IV.
C) I and III.

44) Which of the following costs exhibits both decreasing

and increasing marginal costs over a specific range of
activity?

D) Step-variable
A) Semivariable cost. cost.
B) Curvilinear cost. E) Fixed cost.
C) Step-fixed cost.

45) The relevant range is that range of activity:

E) where
A) where a company achieves its maximum expected results are
efficiency. abnormally high.
B) where units produced equal units sold.
C) where management expects the firm to operate.
D) where the firm will earn a profit.

Version 1 19
46) Within the relevant range of activity, costs:

E) cannot be
A) can be estimated with reasonable accuracy. estimated satisfactorily.
B) can be expected to change radically.
C) exhibit decreasing marginal cost patterns.
D) exhibit increasing marginal cost patterns.

47) Within the relevant range, a curvilinear cost function

can sometimes be graphed as a:

D) curved line.
A) sloping straight line. E) horizontal
B) jagged line. straight line.
C) vertical straight line.

48) A variable cost that has a definitive physical

relationship to the activity measure is called a (n):

E) committed
A) discretionary cost. cost.
B) engineered cost.
C) managed cost.
D) programmed cost.

49) Costs that result from a company's ownership or use of

facilities and its basic organizational structure are known as:

E) engineered
A) discretionary fixed costs. costs.
B) committed fixed costs.
C) discretionary variable costs.
D) committed variable costs.

Version 1 20
50) Property taxes are an example of a(n):

E) engineered
A) committed fixed cost. cost.
B) committed variable cost.
C) discretionary fixed cost.
D) discretionary variable cost.

51) Which of the following is not an example of a

committed fixed cost?

E) Equipment
A) Property taxes. rental costs.
B) Depreciation on buildings.
C) Salaries of management personnel.
D) Outlays for advertising programs.

52) Committed fixed costs would include:

E) expenditures
A) advertising. for direct labor.
B) research and development.
C) depreciation on buildings and equipment.
D) contributions to charitable organizations.

53) Amounts spent for charitable contributions are an

example of a(n):

E) engineered
A) committed fixed cost. cost.
B) committed variable cost.
C) discretionary fixed cost.
D) discretionary variable cost.

Version 1 21
54) Which of the following would not typically be
classified as a discretionary fixed cost?

E) Charitable
A) Equipment depreciation. contributions.
B) Employee development (education) programs.
C) Advertising.
D) Outlays for research and development.

55) Which of the following choices correctly classifies a

committed fixed cost and a discretionary fixed cost?

Committed Discretionary develop

ment
A. Promotion Management salaries
B. Building Charitable A) Choice A
depreciation contributions B) Choice B
C. Management training Property taxes C) Choice C
D. Equipment rentals Equipment D) Choice D
depreciation E) Choice E
E. Research and Advertising

56) Which type of fixed cost (1) tends to be more long-

term in nature and (2) can be cut back more easily in bad
economic times without doing serious harm to organizational
goals and objectives?

Long Term in Can be Cut Back More C Discr Committed

Nature Easily . etion
In Bad Economic Times ary
A. Committed Committed D Discr Discretio
B. Committed Discretionary . etion nary
ary

Version 1 22
E. Committed No difference between
committed A) Choice A
and discretionary B) Choice B
C) Choice C
D) Choice D
E) Choice E

57) Which of the following techniques is not used to

analyze cost behavior?

E) Multiple
A) Least-squares regression. regression.
B) High-low method.
C) Visual-fit method.
D) Linear programming.

58) The high-low method and least-squares regression are

used by accountants to:

D) estimate costs.
A) evaluate divisional managers for purposes of E) control
raises and promotions. operations.
B) choose among alternative courses of action.
C) maximize output.

59) Which of the following statements about the visual-fit The method is especially
method is (are) true?I. The method results in the creation of a helpful in the
scatter diagram.II. The method is not totally objective determination of outliers.
because of the manner in which the cost line is determined.III.

D) I and III.
A) I only. E) I, II, and III.
B) II only.
C) I and II.

Version 1 23
60) The nonstatistical method of cost estimation that calls
for the creation of a scatter diagram is the:

E) multiple
A) least-squares regression method. regression method.
B) high-low method.
C) visual-fit method.
D) account analysis method.

61) Which of the following methods of cost estimation

relies on only two data points?

E) Multiple
A) Least-squares regression. regression.
B) The high-low method.
C) The visual-fit method.
D) Account analysis.

62) Gentry Industries has the following information about

maintenance costs in the past six months.

MM Amount y 0 8
oa 0
nc 0
th Feb 3 3
hi rua 5 ,
n ry 0 0
e 0
H 0
o Mar 4 4
u ch 5 ,
r 0 0
s 0
Jan 2 $2 0
uar 0 ,

Version 1 24
 Apr 5 5 e 8 ,
il 0 , 0 8
0 0 0
0 0
0
May 6 5
0 ,
0 2 If the company uses the
0 high-low method to
0 analyze costs, Gentry’s
Jun 5 5 variable cost is:

D) $6.00
A) $8.70 E) None of the
B) $1.60 answers is correct.
C) $7.90

63) Gentry Industries has the following information about

maintenance costs in the past six months.

MM Amount 0
oa 0
nc Mar 4 4
th ch 5 ,
hi 0 0
n 0
e 0
H Apr 5 5
o il 0 ,
u 0 0
r 0
s 0
Jan 2 $2 May 6 5
uar 0 , 0 ,
y 0 8 0 2
0 0
0 0
Feb 3 3 Jun 5 5
rua 5 , e 8 ,
ry 0 0 0 8

Version 1 25
 0
0 Gentry’s monthly fixed
maintenance fee is:

D) $112.
A) $1,600. E) None of the
B) $1,200. answers is correct.
C) $3,600.

64) Gentry Industries has the following information about

maintenance costs in the past six months.

MM Amount 0 0
oa 0
nc 0
th Apr 5 5
hi il 0 ,
n 0 0
e 0
H 0
o May 6 5
u 0 ,
r 0 2
s 0
Jan 2 $2 0
uar 0 , Jun 5 5
y 0 8 e 8 ,
0 0 8
0 0
Feb 3 3 0
rua 5 ,
ry 0 0
0
0 How much would Gentry
Mar 4 4 pay if maintenance
ch 5 , machine hours are 550?

C) $4,900.
A) $9,600.
B) $5,150.

Version 1 26
 D) $5,100.
E) None of the answers is correct.

Version 1 27
65) Gentry Industries has the following information about
maintenance costs in the past six months.

MM Amount 0
oa 0
nc Apr 5 5
th il 0 ,
hi 0 0
n 0
e 0
H May 6 5
o 0 ,
u 0 2
r 0
s 0
Jan 2 $2 Jun 5 5
uar 0 , e 8 ,
y 0 8 0 8
0 0
0 0
Feb 3 3
rua 5 ,
ry 0 0
0 The cost formula that
0 expresses the behavior of
Mar 4 4 Gentry’s maintenance cost
ch 5 ,
is:
0 0

D) Y = $0 + $6X.
A) Y = $0 + $1,600X. E) Y = $1,600 +
B) Y = $160 + $6X. $6X.
C) Y = $16,000 + $6X.

66) Fulton and Sons,

Inc. presently leases a copy
machine under an
agreement that calls for a

Version 1 28
fixed fee each month and a charge for each copy made. Fulton
made 7,000 copies and paid a total of $360 in March; in May, Fulton’s variable cost per
the firm paid $280 for 5,000 copies. The company uses the copy is:
high-low method to analyze costs.

D) $0.056.
A) $0.040. E) None of the
B) $0.051. answers is correct.
C) $0.053.

67) Fulton and Sons, Inc. presently leases a copy machine analyze costs.
under an agreement that calls for a fixed fee each month and a
charge for each copy made. Fulton made 7,000 copies and Fulton’s monthly fixed fee
paid a total of $360 in March; in May, the firm paid $280 for is:
5,000 copies. The company uses the high-low method to

D) $112.
A) $80. E) None of the
B) $102. answers is correct.
C) $106.

68) Fulton and Sons, Inc. presently leases a copy machine analyze costs.
under an agreement that calls for a fixed fee each month and a
charge for each copy made. Fulton made 7,000 copies and How much would Fulton
paid a total of $360 in March; in May, the firm paid $280 for pay if it made 5,500
5,000 copies. The company uses the high-low method to copies?

D) $292.50.
A) $382.50. E) None of the
B) $322. answers is correct.
C) $300.

69) Barkoff Enterprises, which uses the high-low method relevant range of activity
to analyze cost behavior, has determined that machine hours varies from a low of 600
best explain the company's utilities cost. The company's machine hours to a high of

Version 1 29
1,100 machine hours, with the following data being available
for the first six months of the year:

M Ut Machine Hours April 9, 9

o il 36 2
n it 0 0
t ie May 9, 9
h s 62 5
Januar $ 8, 8 5 0
y 70 0 June 9, 9
0 0 15 0
Februa 8, 7 0 0
ry 36 2
0 0
March 8, 8
95 1 The variable utilities cost
0 0 per machine hour for
Barkoff is:

D) $5.50.
A) $0.18. E) None of the
B) $4.50. answers is correct.
C) $5.00.

70) Barkoff Enterprises, which uses the high-low method

to analyze cost behavior, has determined that machine hours
best explain the company's utilities cost. The company's
relevant range of activity varies from a low of 600 machine
hours to a high of 1,100 machine hours, with the following
data being available for the first six months of the year:

M Ut Machine Hours Februa 8, 7

o il ry 36 2
n it 0 0
t ie March 8, 8
h s 95 1
Januar $ 8, 8 0 0
y 70 0 April 9, 9
0 0 36 2

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 0 0 0 0
May 9, 9
62 5
5 0
June 9, 9 The fixed utilities cost per
15 0 month for Barkoff is:

D) $5,100.
A) $3,764. E) None of the
B) $4,400. answers is correct.
C) $4,760.

71) Barkoff Enterprises, which uses the high-low method

to analyze cost behavior, has determined that machine hours
best explain the company's utilities cost. The company's
relevant range of activity varies from a low of 600 machine
hours to a high of 1,100 machine hours, with the following
data being available for the first six months of the year:

M Ut Machine Hours 0 0
o il May 9, 9
n it 62 5
t ie 5 0
h s June 9, 9
Januar $ 8, 8 15 0
y 70 0 0 0
0 0
Februa 8, 7
ry 36 2
0 0 Using the high-low
March 8, 8 method, the utilities cost
95 1 for Barkoff associated with
0 0 980 machine hours would
April 9, 9 be:
36 2

D) $9,790.
A) $9,510. E) None of the
B) $9,660. answers is correct.
C) $9,700.

Version 1 31
72) Swan, Inc. uses the high-low method to analyze cost
behavior. The company observed that at 22,000 machine On the basis of this
hours of activity, total maintenance costs averaged $33.40 per information, the variable
hour. When activity jumped to 25,000 machine hours, which cost per machine hour for
was still within the relevant range, the average total cost per Swan was:
machine hour was $30.40.

D) $30.40.
A) $8.40. E) $33.40.
B) $22.00.
C) $25.00.

73) Swan, Inc. uses the high-low method to analyze cost machine hour was $30.40.
behavior. The company observed that at 22,000 machine
hours of activity, total maintenance costs averaged $33.40 per On the basis of this
hour. When activity jumped to 25,000 machine hours, which information, the fixed cost
was still within the relevant range, the average total cost per for Swan was:

D) $734,800.
A) $184,800. E) $760,000.
B) $210,000.
C) $550,000.

74) Swan, Inc. uses the high-low method to analyze cost

behavior. The company observed that at 22,000 machine On the basis of this
hours of activity, total maintenance costs averaged $33.40 per information, what were
hour. When activity jumped to 25,000 machine hours, which total maintenance costs
was still within the relevant range, the average total cost per when Swan experienced
machine hour was $30.40. 23,000 machine hours?

D) $743,200.
A) $193,200. E) $760,000.
B) $550,000.
C) $734,800.

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75) Tallequah, Inc. uses the high-low method to analyze machine hour was $9.75.
cost behavior. The company observed that at 20,000 machine On the basis of this
hours of activity, total maintenance costs averaged $10.50 per information, the company's
hour. When activity jumped to 24,000 machine hours, which fixed maintenance costs
was still within the relevant range, the average total cost per were:

D) $234,000.
A) $24,000. E) None of the
B) $90,000. answers is correct.
C) $210,000.

76) The following data relate to the Torrence Company for

May and August of the current year:

May August
May and August were the
Maintenance hours 25,00 29,00
lowest and highest activity
0 0
levels, and Torrence uses
Maintenance cost $ 1,175 $ 1,247
,000 ,000
the high-low method to
analyze cost behavior.
Which of the following
statements is true?

month.
A) The variable maintenance cost is $43 per hour. E) More than one
B) The variable maintenance cost is $45 per hour. of the other answers is
C) The variable maintenance cost is $47 per hour. true.
D) The fixed maintenance cost is $725,000 per

77) Data below relate to the Torrence Company for May

and August of the current year:

Version 1 33
 May August
May and August were the
Maintenance hours 25,00 29,00
lowest and highest activity
0 0
levels, and Torrence uses
Maintenance cost $ 1,175 $ 1,247
,000 ,000
the high-low method to
analyze cost behavior.
Which of the following
statements is true?

month.
A) The variable maintenance cost is $18 per hour. E) More than one
B) The variable maintenance cost is $22 per hour. of the other answers is
C) The variable maintenance cost is $24 per hour. true.
D) The fixed maintenance cost is $72,000 per

78) The following data relate to the Torrence Company for

May and August:

May August
May and August were the
Maintenance hours 25,00 29,00
lowest and highest activity
0 0
levels, and Torrence uses
Maintenance cost $ 1,175 $ 1,247
,000 ,000
the high-low method to
analyze cost behavior. If
maintenance hours are
estimated to be 26,000
hours in October, which of
the following statements is
true?

month.
A) The variable maintenance cost is $18 per hour. E) More than one
B) The variable maintenance cost is $22 per hour. of the other answers is
C) The variable maintenance cost is $24 per hour. true.
D) The fixed maintenance cost is $72,000 per

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79) The following data relate to the Torrence Company for May and August:

May August
May and August were the
Maintenance hours 25,00 29,00
lowest and highest activity
0 0
levels, and Torrence uses
Maintenance cost $ 1,175 $ 1,247
,000 ,000
the high-low method to
analyze cost behavior. If
maintenance hours are
estimated to be 26,000
hours in October, which of
the following statements is
true?

E) Total
A) Total maintenance costs will be $1,175,000. maintenance costs will be
B) Total maintenance costs will be $1,182,000. $1,247,000.
C) Total maintenance costs will be $1,193,000.
D) Total maintenance costs will be $1,221,000.

80) Shum Manufacturing, which uses the high-low

method, makes a product called Kwan. The company incurs
three different cost types (A, B, and C) and has a relevant
range of operation between 2,500 units and 10,000 units per
month. Per-unit costs at two different activity levels for each
cost type are presented below.

T T T Total 7u 4 6 3 1
yyy ,n 3
ppp 5i
eee 0t
0s
ABC
5 u $4 $9 $4 $1
,n 7
0i
0t
0s

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 The cost types shown above are identified by behavior as:

Type A Type B Type C

A) Choice A
A. Fixed Variable Semivariable B) Choice B
B. Fixed Semivariable Variable C) Choice C
C. Variable Semivariable Fixed D) Choice D
D. Variable Fixed Semivariable E) Choice E
E. Semivariable Variable Fixed

81) Shum Manufacturing, which uses the high-low

method, makes a product called Kwan. The company incurs
three different cost types (A, B, and C) and has a relevant
range of operation between 2,500 units and 10,000 units per
month. Per-unit costs at two different activity levels for each
cost type are presented below.

T T T Total 7u 4 6 3 1
yyy ,n 3
ppp 5i
eee 0t
0s
ABC
5 u $4 $9 $4 $1
,n 7
0i If Shum produces 10,000
0t units, the total cost would
0s be:

D) $125,000.
A) $90,000. E) None of the
B) $100,000. answers is correct.
C) $110,000.

82) Shum Manufacturing, which uses the high-low method, makes a product

Version 1 36
called Kwan. The company incurs three different cost types different activity levels for
(A, B, and C) and has a relevant range of operation between each cost type are
2,500 units and 10,000 units per month. Per-unit costs at two presented below.

T T T Total 7u 4 6 3 1
yyy ,n 3
ppp 5i
eee 0t
0s
ABC
5 u $4 $9 $4 $1
,n 7
0i The cost formula that
0t expresses the behavior of
0s Shum’s total cost is:

E) Y = $60,000 +
A) Y = $0 + $17X. $5X.
B) Y = $20,000 + $13X.
C) Y = $40,000 + $9X.
D) Y = $45,000 + $4X.

83) In regression analysis, the variable that is being

predicted is known as the:

E) functional
A) independent variable. variable.
B) dependent variable.
C) explanatory variable.
D) interdependent variable.

84) Almed Products has determined that the number of MOH = 240,000 + 8MH
machine hours worked (MH) drives the amount of
manufacturing overhead incurred (MOH). On the basis of this Which of the choices
relationship, a staff analyst has constructed the following correctly depicts the nature
regression equation: of Almed’s variables?

Version 1 37
 Dependent Independent
A) Choice A
A. MOH MOH B) Choice B
B. MOH MH C) Choice C
C. MH MOH D) Choice D
D. MH MH E) Choice E
E. 8 240,000

85) Focus, Inc. operates a small package delivery service intercept would correspond
in the Atlanta suburbs. If the company uses a regression to the:
equation to forecast total operating costs, the equation's

E) total operating
A) variable operating cost per delivery. costs.
B) fixed operating costs.
C) number of deliveries.
D) total variable operating costs.

86) Rushmont, Inc. operates a small package delivery

service in the Nashville suburbs. If the company uses a
regression equation to forecast total operating costs, the
coefficient of the equation's independent variable would
correspond to the:

E) total operating
A) variable operating cost per delivery. costs.
B) fixed operating costs.
C) number of deliveries.
D) total variable operating costs.

87) Corrine
Corporation, which uses
least-squares regression
analysis, has derived the

Version 1 38
following regression equation for estimates of manufacturing
overhead: Y = 495,000 + 5.65X. Which of the following
statements is true if the primary cost driver is machine hours?

E) The company
A) Total manufacturing overhead is represented by anticipates $495,000 of
the variable "X." fixed manufacturing
B) The company anticipates $495,000 of fixed overhead and "X"
manufacturing overhead. represents the number of
C) "X" is commonly known as the dependent machine hours.
variable.
D) "X" represents the number of machine hours.

88) Blaster, Inc. recently conducted a least-squares if the primary cost driver is
regression analysis to predict selling expenses. The company number of units sold?
has constructed the following regression equation: Y =
329,000 + 7.80X. Which of the following statements is false

increase by $7.80.
A) The company anticipates $329,000 of fixed E) "X" represents
selling expenses. the number of hours
B) "Y" represents total selling expenses. worked during the period.
C) The company expects both variable and fixed
selling expenses.
D) For each unit sold, total selling expenses will

89) Trey, Inc. is studying marketing cost and sales

volume, and has generated the following information by use
of a scatter diagram and a least-squares regression analysis:

Scatte Regression Analysis Total monthly fixed cost

r
Diagra
m
Variable cost per unit sold $ 6.50 $ 6.80

Version 1 39
 most accurate sales
Trey is now preparing an estimate for monthly sales of forecast possible.
18,000 units. On the basis of the data presented, compute the

D) $167,400.
A) $159,500. E) None of the
B) $162,000. answers is correct.
C) $164,900.

90) Bogata Enterprises has determined that three variables

play a key role in determining company revenues. To arrive at
an objective forecast of revenues for the next accounting
period, Bogata should use:

E) the high-low
A) simple regression. method.
B) multiple regression.
C) a scatter diagram.
D) complex regression.

91) Which of the following tools is not associated with

cost estimation?

E) Learning
A) Least-squares regression. curves.
B) Multiple regression.
C) Inversion equations.
D) Time and motion (engineering) studies.

92) A staff assistant at

Warrington Corporation
recently determined that
the first five units
completed in a new
manufacturing process

Version 1 40
took 500 hours to complete, or an average of 100 hours per Warrington use if it
unit. The assistant also found that when the cumulative output produces a cumulative
produced doubles, the average labor time declines by 20%. amount of 40 units?
On the basis of this information, how many total hours would

D) 2,048.
A) 128. E) None of the
B) 160. answers is correct.
C) 1,280.

93) Berringer Designs hired a graphic artist. It is estimated

that the artist’s learning rate is at 70% and her first quarter’s What is the total output as
output amounted to 300 relatively equal job outputs, which of the 5th quarter?
took her a total of 50 hours to complete. Output is expected to
double in every succeeding quarter.

D) 4,800.
A) 1,500. E) None of the
B) 3,000. answers is correct.
C) 2,400.

94) Berringer Designs hired a graphic artist. It is estimated What is the total time
that the artist’s learning rate is at 70% and her first quarter’s requirement as of the 5th
output amounted to 300 relatively equal job outputs, which quarter? (Do not round
took her a total of 50 hours to complete. Output is expected to your intermediate
double in every succeeding quarter. calculations.)

D) 192.08 hours.
A) 150 hours. E) None of the
B) 175 hours. answers is correct.
C) 250 hours.

95) Berringer Designs

hired a graphic artist. It is

Version 1 41
estimated that the artist’s learning rate is at 70% and her first should the artist’s average
quarter’s output amounted to 300 relatively equal job outputs, time (in hours) be for the
which took her a total of 50 hours to complete. Output is units of output?
expected to double in every succeeding quarter.

By the 5th quarter, based on learning curve estimates, what

D) 6.9 hours.
A) 17.15 hours. E) None of the
B) 3.5 hours. answers is correct.
C) 12.005 hours.

96) Which of the following is not an issue in the

collection of data for cost estimation?

E) All of the
A) Outliers. answers are issues in data
B) Missing data. collection.
C) Mismatched time periods.
D) Inflation.

97) The determination of cost behavior is called cost

prediction.

⊚ true
⊚ false

98) Cost estimation typically focuses on the future.

⊚ true
⊚ false

Version 1 42
99) Variable costs change in direct proportion to a change in the activity level.

⊚ true
⊚ false

100) Cost that are nearly variable, but increase in small

steps instead of continuously are called step-variable costs.

⊚ true
⊚ false

101) The relevant range is that range of activity where a

company achieves its maximum efficiency.

⊚ true
⊚ false

102) If the organization operates at an activity level outside the relevant range may not
the relevant range, any cost predictions based on data from be very accurate.

⊚ true
⊚ false

103) A committed cost results from a management decision

to spend a particular amount of money for some purpose.

⊚ true ⊚ false

Version 1 43
104) An example of a discretionary cost is the cost of
research and development.

⊚ true
⊚ false

105) The least-squares regression method of cost estimation

relies on only two data points.

⊚ true
⊚ false

106) In regression analysis, the variable that is being

predicted is known as the independent variable.

⊚ true
⊚ false

107) Multiple regression is a statistical method that dependent variable and one
estimates a linear (straight-line) relationship between one independent variable.

⊚ true
⊚ false

108) When the engineering method is applied to costs other

than labor, it is referred to as the experience method.

⊚ true ⊚ false

Version 1 44
109) Mismatched time periods are not issues in the
collection of data for cost estimation.

⊚ true
⊚ false

110) Outliers are a common data collection problem.

⊚ true
⊚ false

111) In the least-squares regression method, the cost line is between the cost line and
estimated so as to maximize the sum of the squared deviations the data points.

⊚ true
⊚ false

112) The slope of a regression line measures how steeply

the cost line rises as activity increases.

⊚ true
⊚ false

Answer Key

Version 1 45
Test name: Chapter 06 Test Bank3

1) C
2) B
3) A
4) D
5) B
6) C
7) C
8) C
9) B
10) B
11) B
12) A
13) C
14) B
15) C
16) C
17) B
18) C
19) A

Version 1 46
20) C
21) A
22) B
23) A
24) A
25) E
26) C
27) C
28) B
29) B
30) A
31) C
32) C
33) A
34) A
35) C
36) E
37) C
38) A
39) B
40) C

Version 1 47
41) A
42) D
43) B
44) B
45) C
46) A
47) A
48) B
49) B
50) A
51) D
52) C
53) C
54) A
55) B
56) B
57) D
58) D
59) E
60) C
61) B

Version 1 48
62) D
63) A
64) C
65) E
66) A
67) A
68) C
69) D
70) B
71) D
72) A
73) C
74) D
75) B
76) D
77) A
78) A
79) C
80) D
81) C
82) E

Version 1 49
83) B
84) B
85) B
86) A
87) E
88) E
89) C
90) B
91) C
92) D
93) D
94) D
95) C
96) E
97) FALSE
98) FALSE
99) TRUE
100) TRUE
101) FALSE
102) TRUE
103) FALSE

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104) TRUE
105) FALSE
106) FALSE
107) FALSE
108) FALSE
109) FALSE
110) TRUE
111) FALSE
112) TRUE

Version 1 51