1.

Which of the following statements related to assumptions about estimating linear

cost functions is FALSE?
a. Variations in a single cost driver explain variations in total costs.
b. A cost object is anything for which a separate measurement of costs is desired.
c. A linear function approximates cost behavior within the relevant range of the
cost driver.
d. A high correlation between two variables ensures that a cause-and-effect
relationship exists.
Answer: d Difficulty: 2 Objective: 1
Terms to Learn: cost estimation, linear cost function

2. A high correlation between two variables s and t indicates that:

a. s may cause t, or t may cause s
b. both may be affected by a third variable
c. the correlation may be due to random chance
d. All of these answers are correct.
Answer: d Difficulty: 2 Objective: 2
Terms to Learn: cost function

3. Which of the following does NOT represent a cause-and-effect relationship?

a. Material costs increase as the number of units produced increases.
b. A company is charged 40 cents for each brochure printed and mailed.
c. Utility costs increase at the same time that insurance costs increase.
d. It makes sense that if a complex product has a large number of parts it will
take longer to assemble than a simple product with fewer parts.
Answer: c Difficulty: 3 Objective: 2
Terms to Learn: cost function

4. Dougherty Company employs 20 individuals. Eight employees are paid $12 per
hour and the rest are salaried employees paid $3,000 a month. How would total
costs of personnel be classified?
a. variable
b. mixed
c. a variable cost within a relevant range
d. a fixed cost within a relevant range
Answer: b Difficulty: 2 Objective: 2
Terms to Learn: mixed cost