Module 14

Question 1

Which of the following costs is best classified as fixed costs with respect to volume?
A. Parts used in manufacturing digital cameras
B. Electricity used to heat, light, and cool a hospital
C. Depreciation of a copy machine in the Human Resource Department
D. Salaries of quality inspectors in a production facility

Answer 1

Depreciation of a copy machine in the Human Resource Department

Question 2

Step costs:
A. Are constant within certain ranges of activity but differ outside those ranges of activity
B. Are variable within narrowly defined ranges of activity, but constant over wider ranges of activity
C. Increase with each additional unit produced
D. Have no relation to number of units produced

Answer 2

Are constant within certain ranges of activity but differ outside those ranges of activity

Question 3

Fixed costs do not respond to:
A. Capital expenditures made by the company
B. Short-term changes in the amount of activity
C. Changes in committed expenditures
D. Discretionary investments in the company

Answer 3

Short-term changes in the amount of activity

Question 4

The range of operations that falls within the capacity of the current level of fixed costs is referred to as the:
A. Linear average
B. Relevant range
C. Marginal range
D. Operating range

Answer 4

Relevant range

Question 5

Discretionary fixed costs are also known as:
A. Committed fixed costs
B. Capacity costs
C. Managed fixed costs
D. Mixed costs

Answer 5

Managed fixed costs

Question 6

Which of the following is an example of a discretionary fixed cost?
A. Depreciation of manufacturing facilities
B. Donations to charitable organizations
C. Salaries of production supervisors
D. Property taxes on manufacturing facilities

Answer 6

Donations to charitable organizations

Question 7

The determination of the mathematical relationship between activity level and cost is known as:
A. Cost control
B. Cost estimation
C. Cost prediction
D. Regression analysis

Answer 7

Cost estimation

Question 8

The scatter diagram method of cost estimation:
A. Is influenced by extreme observations
B. Is superior to other methods in its ability to distinguish between discretionary and committed fixed costs
C. Requires the use of judgment
D. Provides a measure of the goodness of fit

Answer 8

Requires the use of judgment

Question 9

Which one of the following tools of analyses is not commonly used in cost estimation?
A. High-low estimation
B. Linear programming 
C. Least-squares regression
D. Scatter diagrams

Answer 9

Linear programming

Question 10

Fairport Machine Shop

Answer 10

Y = $1,000 + $8X

Question 11

Comparing least-squares regression to high-low estimation:
A. Least-squares regression is preferred to high-low estimation because with this method, the computer can make all the decisions after data entry
B. Least-squares regression provides superior estimates to high-low estimation when using unreliable data
C. Least-squares regression provides a means of estimating how well the data fit the model
D. All of the above

Answer 11

Least-squares regression provides superior estimates to high-low estimation when using unreliable data

Question 12

Which one of the following statements about difficulties in cost estimation is true?
A. Changes in the company’s production technology make estimating the company’s production costs easier
B. The shorter the time period, the higher the probability of inappropriately matching activity and cost
C. The stronger the economy, the harder it is to accurately match activity and cost
D. When prices of a company’s raw materials or labor are rapidly increasing, cost estimations based on previous periods will overestimate future costs

Answer 12

The shorter the time period, the higher the probability of inappropriately matching activity and cost

Question 13

Which one of the following statements about difficulties of cost estimation is true?
A. Data may not be based on normal operating conditions
B. Linear relationships between total costs and activity levels may exist
C. Both A and B
D. None of the above

Answer 13

Data may not be based on normal operating conditions

Question 14

This creates difficulties in cost estimations:
A. Changes in technology or prices
B. Identifying cost drivers
C. Matching activity and cost within each observation
D. All of the above

Answer 14

All of the above

Question 15

In cost estimation:
A. Care must be taken to make sure that data used in developing cost estimates are based on currently employed technology
B. Changes in technology and prices make cost estimation difficult
C. Only data reflecting a single price level should be used in cost estimation
D. All of the above

Answer 15

All of the above

Question 16

In cost estimation:
A. Old price data of cost elements should be used cautiously, if at all
B. Only data reflecting historical price levels should be used in cost estimation
C. The prices of various cost elements are likely to change at the same rates and at the same times
D. All of the above

Answer 16

Old price data of cost elements should be used cautiously, if at all

Question 17

The development of accurate cost-estimating equations requires the matching of the activity to:
A. Changes in technology and prices
B. Production
C. Related costs within each observation
D. All of the above

Answer 17

Related costs within each observation

Question 18

As a consequence of automation and product diversity, in cost estimation:
A. A facility level approach to estimating costs is increasingly important
B. Companies no longer need to pay attention to estimating overhead
C. Cost estimation is improved with the inclusion of non-unit cost drivers
D. Direct labor is playing an increasingly important role in cost determination

Answer 18

Cost estimation is improved with the inclusion of non-unit cost drivers

Question 19

Facility level activities of an organization would not include:
A. Building maintenance
B. Machine set up
C. Property taxes
D. The production supervisor’s salary

Answer 19

B. Machine set up

Question 20

The following procedure performed at the United States mint is not a batch level activity:
A. Inspecting the first units produced to verify proper set-up
B. Movement of manufactured coins to finishing stations
C. Setting up machinery for the stamping process
D. Stamping each individual coin

Answer 20

Stamping each individual coin

Question 21

The following procedure performed by a dairy is the best example of a unit level activity within a manufacturing cost hierarchy:
A. Delivering dairy products to a grocery store
B. Filling milk into half-gallon cartons
C. Homogenizing milk in specially designed tanks
D. Receiving milk from farms

Answer 21

Filling milk into half-gallon cartons

Question 22

The following procedure performed by a candy manufacturer is the best example of a product level activity within a manufacturing cost hierarchy:
A. Cleaning the mixing machine for the next production run of candy, a special Halloween candy
B. Developing an advertising campaign for a special Halloween candy
C. Inspecting the quality of the candy produced during one of the special Halloween package production runs
D. Resetting the packaging equipment to wrap a special 36-count Halloween package

Answer 22

Developing an advertising campaign for a special Halloween candy

Question 23

The following procedure performed by a food wholesaler is the best example of a unit level activity within a customer cost hierarchy:
A. Calling a retail customer to inquire if the customer is satisfied with the wholesaler’s service
B. Driving the delivery truck to the retail customer’s store
C. Sending the retail customer a bill for a recent order
D. Stacking items on the shelf of a retail customer’s store

Answer 23

Stacking items on the shelf of a retail customer’s store

Question 24

The following procedure performed by a home oil delivery company is the best example of a unit level activity within a customer cost hierarchy:
A. Opening an account for a new customer
B. Processing monthly customer billings
C. Pumping home heating oil into a customer’s oil tank
D. Purchasing a new delivery truck

Answer 24

Pumping home heating oil into a customer’s oil tank