Cost Behavior W/ Regression Analysis

Question 1

Which of the following costs is most likely a variable cost?

a. P 20 total costs at 10 units; P 20 total costs at 20 units
b. P 8 per unit at 10 units; P 8 per unit at 20 units
c. P 50 per unit at 1 unit; P 25 per unit at 2 units
d. P 4 per unit at 10 units; P 3 per unit at 20 units

Answer 1

b. P 8 per unit at 10 units; P 8 per unit at 20 units

(Unit variable cost stays constant)

Question 2

In cost analysis using the line equation Y = a + bX, “b” (unit variable cost) is regarded as the

a. Dependent variable
b. Independent variable
c. Slope of the line
d. Y-axis intercept

Answer 2

c. Slope of the line

Question 3

A company has developed a production cost function for its lone product: Y = 70 + 4X, where X is based
on the number of labor hours. Based on a relevant range of 10 to 20 labor hours, what is the estimated
production cost at zero (0) labor hour?

a. P 70
b. P 110
c. P 150
d. The exact amount cannot be determined without additional information

Answer 3

d. The exact amount cannot be determined without additional information

Question 4

When compared to the high-low method, the graphic approach to cost estimation is usually

a. Less accurate
b. More representative
c. Less representative
d. Equally representative

Answer 4

b. More representative

Question 5

What is the appropriate range for the coefficient of determination (r2)?
a. 0 to +1
c. - 1 to 0
b. 0 to -1
d. -1 to +1

Answer 5

a. 0 to +1

Question 6

Which of the following corresponds to (1) line of VISUAL FIT method and (2) line of BEST FIT method?

a. (1) High-low method (2) Scattergraph method
b. (1) High-low method (2) Least-squares regression method
c. (1) Scattergraph method (2) Least-squares regression method
d. (1) Least-squares regression method (2) Scattergraph method

Answer 6

c. (1) Scattergraph method (2) Least-squares regression method

Question 7

What cost segregation method gives the most mathematically precise cost estimate?

a. Scatter diagram method
c. High-low method
b. Least-squares regression method
d. Withdrawal method

Answer 7

b. Least-squares regression method

Question 8

Using statistical normal relationships, the least-squares method uses what equations?

Answer 8

Ey = na + bEx
Exy = aEx + bEx^2

Question 9

Simple regression analysis involves the use of

a. One dependent variable and one independent variable
b. One dependent variable and many independent variables
c. Many dependent variables and one independent variable
d. Many dependent variables and many independent variables

Answer 9

a. One dependent variable and one independent variable

Question 10

Under Cost-Volume-Profit (CVP) analysis, a mixed cost should be:

a. Disregarded
c. Treated as a variable cost
b. Treated as a fixed cost
d. Separated into fixed & variable components

Answer 10

d. Separated into fixed & variable components

Question 11

Which of the following is the best example of a variable cost?

a. Property taxes
c. Cost of raw material
b. Interest charges
d. Corporate president’s salary

Answer 11

c. Cost of raw material

Question 12

Which of the following categories of cost is most likely not considered a component of fixed factory overhead?

a. Rent
c. Depreciation
b. Power
d. Property taxes

Answer 12

b. Power

Question 13

Which of the following statements is true?

a. The higher is the production within the relevant range, the higher is the variable cost per unit
b. The higher is the production within the relevant range, the higher is the fixed cost per unit
c. The lower is the production within the relevant range, the lower is the total fixed cost
d. The lower is the production within the relevant range, the lower is the total variable cost

Answer 13

d. The lower is the production within the relevant range, the lower is the total variable cost

Question 14

Within the relevant range, the amount of variable cost per unit

a. Differs at each production level
c. Decreases as production increases
b. Increases as production increases
d. Remains constant at each production level

Answer 14

d. Remains constant at each production level

Question 15

Which of the following best describes a fixed cost?

a. It is constant per unit of changes in production.
b. It may change in total when such change is related to changes in production.
c. It may change in total when such change is unrelated to changes in production.
d. It may change in total when such change depends upon production or within the relevant range.

Answer 15

c. It may change in total when such change is unrelated to changes in production.

Question 16

Committed fixed costs

a. Can never be changed
c. Are difficult to change in the short run
b. Can usually be changed in the short run
d. Are the result of factors outside the organization

Answer 16

c. Are difficult to change in the short run

Question 17

What would be an example of a discretionary fixed cost?

a. Depreciation on equipment
c. Salaries of top management
b. Rent on a factory building
d. Research and development

Answer 17

d. Research and development

Question 18

A cost that is fixed over a short range of activity, then rises abruptly and remains fixed over another short range is called

a. Step cost
c. Mixed cost
b. Fixed cost
d. Variable cost

Answer 18

a. Step cost

Question 19

Which of the following best describes a step cost?

a. It is partly variable and partly fixed
c. It increases proportionately with volume
b. It remains constant in all cases
d. It increases abruptly outside the relevant range

Answer 19

d. It increases abruptly outside the relevant range

Question 20

Mixed costs or semi-variable costs

a. Do not exist
b. Are part fixed and part variable
c. Are variable costs which increase gradually
d. Are ignored in cost analysis because they are difficult to interpret

Answer 20

b. Are part fixed and part variable

Question 21

The fixed cost of a semi-variable cost is comparable to the mathematical concept of

a. Y-intercept
c. Dependent variable
b. Slope of the line
d. Independent variable

Answer 21

a. Y-intercept

Question 22

In describing the cost formula equation Y = a + bX, which of the following statements is correct?

a. ‘Y’ is the independent variable
b. ‘a’ is the variable rate
c. ‘a’ and ‘b’ are valid for all levels of activity
d. In the high-low method, ‘b’ equals the change in cost (Y) divided by the change in activity (X)

Answer 22

d. In the high-low method, ‘b’ equals the change in cost (Y) divided by the change in activity (X)

Question 23

The high-low method may give unsatisfactory results if:

a. Volume is low
c. Data points all fall on a line
b. Volume is heavy
d. Data points are unrepresentative

Answer 23

d. Data points are unrepresentative

Question 24

The method of cost analysis in which the accountant draws a straight line through plotted points, keeping as close as
possible to most of the points, is called:

a. High-low method
c. Simple regression approach
b. Graphic approach
d. Multiple regression approach

Answer 24

b. Graphic approach

Question 25

A data point that falls far away from other data points in a scatter diagram is called a (an)

a. Outlier
c. Standard deviation
b. Margin of error
d. Coefficient of determination

Answer 25

a. Outlier

Question 26

The major objective of preparing a scatter diagram is to

a. Determine the relevant range
b. Derive an equation to predict future costs
c. Perform regression analysis on the results
d. Find the high and low points to use for the high-low method of estimating costs

Answer 26

b. Derive an equation to predict future costs

Question 27

The principal advantage of the scatter-diagram method over the high-low method is that the scatter-diagram method

a. Considers more than two points
b. Includes cost 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

Answer 27

a. Considers more than two points

Question 28

Multiple regression analysis involves

a. One dependent variable and one independent variable
b. One dependent variable and many independent variables
c. Many dependent variables and one independent variable
d. Many dependent variables and many independent variables

Answer 28

b. One dependent variable and many independent variables

Question 29

In determining cost behavior, the cost function is often expressed as Y = a+ bX. Which of the following cost estimation
methods should not be used in estimating fixed and variable costs for the equation?

a. Graphic method
c. High and low point
b. Simple regression
d. Multiple regression

Answer 29

d. Multiple regression

Question 30

A scatter diagram that manifests a regression line sloping down to the right would most likely show a correlation
coefficient (r) of

a. + 0.99
c. - 0.99
b. + 9.90
d. - 9.90

Answer 30

c. - 0.99

Question 31

If coefficient of correlation (r) between two variables is zero, how might a scatter diagram of these variables appear?

a. Random points
b. A least squares line that slopes up to the right
c. A least squares line that slopes down to the right
d. Under this condition, a scatter diagram could not be plotted on a graph.

Answer 31

a. Random points

Question 32

R-squared (r2) is a measure of

a. The fixed cost 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

Answer 32

d. How well the regression line accounts for the changes in the dependent variable