COST BEHAVIOR, ANALYSIS AND USE QUIZZER

Maria Cristina P. Obeso, CPA,MBA

MULTIPLE CHOICE THEORY AND PROBLEM. Write the letter of the correct answer in your
answer sheet
1. A mathematical technique used to fit a straight line to a set of plotted points is:
A. integral calculus
B. the EOQ model
C. the method of least squares
D. linear programming
E. PERT network analysis

2. Hoyden Co. developed the following equation to predict certain components of its
budget for the coming period:

Costs = $50,000 + ($5 x direct labor hours)

The $5 would approximate:

A. total cost
B. direct labor rate per hour
C. fixed cost per direct labor hour
D. the coefficient of determination
E. variable costs per direct labor hour

3. Within a relevant range, the amount of fixed cost per unit:

A. differs at each production level on a per-unit basis
B. remains constant in total
C. decreases as production increases on a per-unit basis
D. increases as production decreases on a per-unit basis
E. all of the above

4. Multiple regression analysis:

A. is not a sampling technique
B. involves the use of independent variables only
C. assumes that the independent variables are not correlated
D. establishes a cause-and-effect relationship
E. all of the above

5. For a simple regression-analysis model that is used to allocate factory overhead, an

internal auditor finds that the intersection of the line of best fit for the overhead allocation on
the y-axis is $50,000. The slope of the trend line is .20. The independent variable, factory
wages, amounts to $900,000 for the month. What is the estimated amount of factory overhead
to be allocated for the month?
A. $910,000
B. $950,000
C. $ 50,000
D. $180,000
E. $230,000

6. As a result of analyzing the relationship of total factory overhead to changes in machine

hours, the following relationship was found:

y bar = $1,000 + $2 x bar

The use of such a relationship of total factory overhead to changes in machine hours is said to
be valid only within the relevant range, which means:
A. within the range of reasonableness as judged by the department supervisor
B. within the budget allowance for overhead
C. within a reasonable dollar amount for machine costs
D. within the range of observations of the analysis
E. none of the above

7. A measure of the extent to which two variables are related linearly is referred to as:
A. sensitivity analysis
B. input-output analysis
C. coefficient of correlation
D. cause-effect ratio
E. cost-benefit analysis

8. The appropriate range for the coefficient of correlation (r) is:

A. -infinity  r  infinity
B. 0r1
C. -1  r  1
D. -100  r  100
E. none of the above

9. The covariation between two variables, such as direct labor hours and electricity expense,
can best be measured by:
A. correlation analysis
B. simple regression analysis
C. multiple regression analysis
D. high-low method
E. scattergraph method

10. The quantitative method that will separate a semivariable cost into its fixed and variable
components with the highest degree of precision is:
A. simplex method
B. least squares method
C. scattergraph method
D. account analysis
E. high-low method

11. If the coefficient of correlation between two variables is zero, a scatter diagram of these
variables would appear as:
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
E. none of the above

12. A company using regression analysis to correlate income to a variety of sales indicators
found that the relationship between the number of sales managers in a territory and net
income for the territory had a correlation coefficient of -1. The best description of this situation
is:
A. that more sales managers should be hired
B. imperfect negative correlation
C. perfect inverse correlation
D. no correlation
E. perfect positive correlation

13. The correlation coefficient that indicates the weakest linear association between two
variables is:
A. -0.73
B. -0.11
C. 0.12
D. 0.35
E. 0.72

14. If regression was applied to the data shown in Figure 3-1, the coefficients of correlation
and determination would indicate the existence of a:

A. low linear relationship, high explained variation ratio

B. high inverse linear relationship, high explained variation ratio
C. high direct linear relationship, high explained variation ratio
D. high inverse linear relationship, low explained variation ratio

15. . A large value for standard error of the estimate indicates that:
A. the actual cost will likely vary greatly from the estimated cost as portrayed by the
regression line
B. the actual cost will be greater than the estimate cost as portrayed by the regression line
C. the actual cost will be less than the estimate cost as portrayed by the regression line
D. the actual cost will likely vary little from the estimated cost as portrayed by the
regression line
E. none of the above

16. The confidence interval represents:

A. the percentage of variance in the dependent variable as explained by the independent
variable
B. the measure of the extent to which variables are related linearly
C. the standard deviation about the regression line
D. a range of values within which the dependent variable is expected to fall a certain
percentage of the time
E. none of the above

17. Expenses that are fixed at management's discretion at a certain level for the period are
referred to as:
A. committed fixed costs
B. mixed costs
C. opportunity costs
D. sunk costs
E. programmed fixed costs

18. . Which of the following activity bases would be the most appropriate for food costs of a
hospital?
a. Number of cooks scheduled to work
b. Number of x-rays taken
c. Number of patients who stay in the hospital
d. Number of scheduled surgeries

19. Which of the following is NOT an example of a cost that varies in total as the number of
units produced changes?
a. Electricity per KWH to operate factory equipment
b. Direct materials cost
c. Straight-line depreciation on factory equipment
d. Wages of assembly worker

20. Which of the following costs is a mixed cost?

a. Salary of a factory supervisor
b. Electricity costs of $2 per kilowatt-hour
c. Rental costs of $5,000 per month plus $.30 per machine hour of use
d. Straight-line depreciation on factory equipment

21. Ingram Co. manufactures office furniture. During the most productive month of the year,
3,500 desks were manufactured at a total cost of $84,400. In its slowest month, the company
made 1,100 desks at a cost of $46,000. Using the high-low method of cost estimation, total
fixed costs are:
a. $56,000
b. $28,400
c. $17,600
d. cannot be determined from the data given

22. Given the following cost and activity observations for Sanchez Company’s utilities, use the
high-low method to calculate Sanchez’s variable utilities costs per machine hour.
Cost Machine Hours
May $8,300 15,000
June 10,400 20,000
July 7,200 12,000
August 9,500 18,000

a. $10.00
b. $.60
c. $.40
d. $.52

23. Given the following cost and activity observations for Johnson Company’s utilities, use the
high-low method to calculate Johnson’s fixed costs per month.
Cost Machine Hours
January $52,600 20,000
February 75,100 29,000
March 57,000 22,000
April 64,000 24,500

a. $2,600
b. $50,000
c. $12,500
d. $5,000

24. Given the following cost and activity observations for Wondrous Company’s utilities, use
the high-low method to calculate Wondrous’ variable utilities costs per machine hour.
Cost Machine Hours
March $3,100 15,000
April 2,700 10,000
May 2,900 12,000
June 3,500 18,000

a. $10.00
b. $.67
c. $.63
d. $.10

25. Which of the following statements is true regarding fixed and variable costs?
a. Both costs are constant when considered on a per unit basis.
b. Both costs are constant when considered on a total basis.
c. Fixed costs are fixed in total, and variable costs are fixed per unit.
d. Variable costs are fixed in total, and fixed costs vary in total.

26. As production increases, what would you expect to happen to fixed cost per unit?
a. Increase
b. Decrease
c. Remain the same
d. Either increase or decrease, depending on the variable costs

27. Knowing how costs behave is useful to management for all the following reasons except
for
a. predicting customer demand.
b. predicting profits as sales and production volumes change.
c. estimating costs.
d. changing an existing product production.

28. The manufacturing cost of Lancer Industries for three months of the year are provided
below:

Total Cost Production

April $ 61,900 1,200 Units
May 80,920 1,800
June 100,300 2,400

Using the high-low method, the variable cost per unit, and the total fixed costs are:
a. $32.30 per unit and $77,520 respectively.
b. $32 per unit and $23,500 respectively.
c. $32 per unit and $76,800 respectively.
d. $32.30 per unit and $22,780 respectively.

29. Sanchez Company manufactures and sells commercial air conditioners. Because of
current trends, it expects to increase sales by 15 percent next year. If this expected level of
production and sales occurs and plant expansion is not needed, how should this increase affect
next year’s total amounts for the following costs.

Variable Costs Fixed Costs Mixed Costs

a. increase increase increase
b. increase no change increase
c. no change no change increase
d. decrease increase increase

30. In the standard cost formula Y = a + bX, what does the “a” represent?
A) total cost
B) total fixed cost
C) total variable cost
D) variable cost per unit

31. In the standard cost formula Y = a + bX, what does the “X” represent?
A) total cost
B) total fixed cost
C) units of activity
D) variable cost per unit

32. Which of the following would usually be considered a discretionary fixed cost for a soft
drink bottling company?
A) the cost of advertising its products
B) the cost of fire insurance on its factory building
 C) depreciation on its manufacturing equipment
D) both a and b above

33. Which of the following is a weakness of the quick-and-dirty scattergraph method of

analyzing mixed cost?
A) It is impossible to determine variable cost per unit.
B) Only two data points are used and the rest are ignored in drawing the
scattergraph.
C) Different people will have different answers even though they are analyzing the
same set of data.
D) Both B and C above

34. Which of the following statements is true when referring to the high-low method of cost
analysis?
A) The high-low method has no major weaknesses.
B) The high-low method is very hard to apply.
C) In essence, the high-low method draws a straight line through two data points.
D) None of the above is true.

35. The least-squares regression method:

A) fits a regression line by minimizing the sum of the squared errors from the
regression line.
B) is generally less accurate than the scattergraph method.
C) can be used only if the fixed cost element is larger than the variable cost
element.
D) is the only method acceptable under generally accepted accounting principles.

36. Multiple regression analysis is used when:

A) more than one cost category must be analyzed.
B) when more than one factor causes variation in a cost.
C) the high-low method cannot be used because there is only one observation.
D) all of the points on a scattergraph fall exactly on a regression line.

37. . Utility costs at Service, Inc. are a mixture of fixed and variable components. Records
indicate that utility costs are an average of $0.40 per hour at an activity level of 9,000 machine
hours and $0.25 per hour at an activity level of 18,000 machine hours. Assuming that this
activity is within the relevant range, what is the expected total utility cost if the company works
13,000 machine hours?
A) $4,225
B) $5,200
C) $4,000
D) $3,250

38. Clerical costs in the billing department of Craig Company are a mixture of variable and
fixed components. Records indicate that average unit processing costs are $0.50 per account
processed at an activity level of 32,000 accounts. When only 22,000 accounts are processed,
the total cost of processing is $12,500. Assuming that this activity is within the relevant range,
at a budgeted level of 25,000 accounts:
A) processing costs are expected to total $8,750.
B) fixed processing costs are expected to be $10,400.
C) the variable processing costs are expected to be $0.35 per account processed.
D) processing costs are expected to total $14,975.

39. Larson Brothers, Inc., used the high-low method to derive its cost formula for electrical
power cost. According to the cost formula, the variable cost per unit of activity is $3 per
machine-hour. Total electrical power cost at the high level of activity was $7,600 and at the low
level of activity was $7,300. If the high level of activity was 1,200 machine hours, then the low
level of activity was:
A) 800 machine hours
 B) 900 machine hours
C) 1,000 machine hours
D) 1,100 machine hours

40.. Bakeman Corporation has provided the following production and average cost data for
two levels of monthly production volume. The company produces a single product.

Production volume 2,000 units 3,000 units

Direct materials $36.10 per unit $36.10 per unit
Direct labor $48.00 per unit $48.00 per unit
Manufacturing overhead $51.00 per unit $40.90 per unit

The best estimate of the total variable manufacturing cost per unit is:
A) $104.80
B) $36.10
C) $20.70
D) $84.10

41. The following production and average cost data for a month's operations have been
supplied by a company that produces a single product.

Production volume 1,000 units 2,000 units

Direct materials $4.00 per unit $4.00 per unit
Direct labor $3.50 per unit $3.50 per unit
Manufacturing overhead $10.00 per unit $6.20 per unit

The total fixed manufacturing cost and variable manufacturing cost per unit are
as follows:
A) $3,600; $7.50
B) $3,600; $9.90
C) $7,600; $7.50
D) $7,600; $9.90

42. A company produces a single product. The following volume and average cost data for two
accounting periods have been provided by management:

Number of units 500 800

Direct materials $2.00 $2.00
Direct labor $1.50 $1.50
Manufacturing overhead $2.50 $1.75
Other overhead $1.00 $0.625

The best estimate for the cost formula for the total cost of producing and selling
the product (where X is the number of units produced and sold in a period) is:
A) $1,000 + $1.125 X
B) $1,000 + $3.50 X
C) $1,500 + $3.50 X
D) $1,500 + $4.00 X

43. At a volume of 20,000 direct labor hours, Tirso Company incurs $50,000 in
factory overhead costs, including $10,000 in fixed costs. Assuming that this activity is within the
relevant range, if volume increases to 25,000 direct labor hours, Tirso Company would expect
to incur total factory overhead costs of:
A) $50,000
B) $60,000
C) $62,500
D) $72,500
44. The Frandsen Company has estimated the following cost formulas for overhead:

Cost Formula
Lubricants $1,500 plus $0.50 per machine-hour
Utilities $2,000 plus $0.60 per machine-hour
Depreciation $1,000
Maintenance $200 plus $0.10 per machine-hour
Machine setup $0.30 per machine-hour

Based on these cost formulas, the total overhead cost expected at an activity
level of 300 machine hours is:
A) $4,950
B) $5,000
C) $4,700
D) $5,150

45. Jackson, Inc., is preparing a budget for next year and requires a breakdown of the cost of
steam used in its factory into fixed and variable components. The following data on the
cost of steam used and direct labor hours worked are available for the last six months:

Cost of Steam Direct Labor-Hours

July................... $ 15,850 3,000
August.............. 13,400 2,050
September........ 16,370 2,900
October............. 19,800 3,650
November......... 17,600 2,670
December.........    18,500  2,650
Total................. $101,520 16,920

If Jackson uses the high-low method of analysis, the estimated variable cost of
steam per direct labor hour would be:
A) $4.00
B) $5.42
C) $5.82
D) $6.00

46. Shown below are units produced and total manufacturing costs for the past four months at
Minga Manufacturing Corporation:

Units
Produced Total Cost
Jul............... 120 $446,000
Aug............. 150 $508,000
Sep.............. 180 $668,000
Oct.............. 160 $574,000

What is Minga's cost formula for total manufacturing cost under the high-low
method?
A) Y = $2,000 + $3,700X
B) Y = $3,700 + $2,000X
C) Y = $14,000 + $3,600X
D) Y = $62,000 + $3,200X

47, .Electrical costs at one of Finfrock Corporation's factories are listed below:

Machine- Electrical Cost

 Hours
March..................... 3,642 $40,537
April....................... 3,616 $40,319
May........................ 3,667 $40,706
June........................ 3,634 $40,462
July......................... 3,665 $40,703
August.................... 3,659 $40,680
September.............. 3,644 $40,547
October................... 3,612 $40,268
November............... 3,624 $40,364

Management believes that electrical cost is a mixed cost that depends on machine-hours.
Using the high-low method to estimate the variable and fixed components of this cost,
these estimates would be closest to:
A) $7.96 per machine-hour; $11,517 per month
B) $11.13 per machine-hour; $40,510 per month
C) $9.61 per machine-hour; $5,533 per month
D) $0.13 per machine-hour; $40,246 per month

48. Supply costs at Coulthard Corporation's chain of gyms are listed below:

Client-Visits Supply Cost

March 12,855 $23,598
April 12,283 $23,278
May 13,104 $23,742
June 12,850 $23,607
July 12,493 $23,415
August 12,794 $23,562
September 12,686 $23,496
October 12,765 $23,541
November 13,018 $23,687

Management believes that supply cost is a mixed cost that depends on client-
visits. Using the high-low method to estimate the variable and fixed components of this cost,
those estimates would be closest to:
A) $1.85 per client-visit; $23,547 per month
B) $1.77 per client-visit; $557 per month
C) $0.55 per client-visit; $16,579 per month
D) $0.57 per client-visit; $16,273 per month

49. Sales for a retail store were $250,000. Net operating income totaled $30,000 and cost of
goods sold was $110,000. If the contribution margin was $100,000, total variable selling and
administrative expenses must have been:
A) $40,000
B) $100,000
C) $70,000
D) $150,000

50. Gudwill Corporation, a manufacturing company, has provided the following financial data
for April:

Sales........................................................... $340,000
Variable production expense...................... $43,000
Variable selling expense............................ $21,000
Variable administrative expense................ $33,000
Fixed production expense.......................... $62,000
Fixed selling expense................................. $67,000
Fixed administrative expense..................... $88,000

The company had no beginning or ending inventories. The contribution margin for April
was:
A) $243,000
B) $235,000
C) $26,000
D) $123,000