Chapter 03 Testbank

Student: ___________________________________________________________________________

1. The relationship between cost and activity is called:  

 

A. cost prediction
B. cost behaviour
C.  cost analysis
D. cost approximation
 
2. Forecasting a cost at a particular level of activity is called:  
 

A. cost estimation
B. cost prediction
C.  cost behaviour
D. cost functions
 
3. A cost that has both a fixed and variable component is called a:  
 

A. step-fixed cost
B. step-variable cost
C.  semivariable cost
D. discretionary cost
 
4. A cost that remains unchanged in total as the activity level (or cost driver) changes is called a: 
 

A. fixed cost
B. variable cost
C.  step-fixed cost
D. step-variable cost
 
5. A cost that changes in total in direct proportion to a change in the cost driver is a:  
 

A. variable cost
B. fixed cost
C.  semivariable cost
D. step-variable cost
 
6.A manufacturer plans to increase production within the relevant range of activity. What behaviour can the company expect for each
of the following?

Fixed cost per unit Variable cost per unit

 
 

A. No change Increase

B.  Increase No change
C.  Decrease Increase
D.  Decrease No change
 
7. Variable cost per unit:  
 

A. increases in direct proportion to changes in the cost driver

B. decreases in direct proportion to changes in the cost driver
C.  remains unchanged as the level of the cost driver changes
D. increases, but not in direct proportion to changes in the cost driver
 
8. Fixed costs per unit: 
 

A. is unrelated to activity levels

B. change as activity varies
C.  remain unchanged as activity level changes
D. None of the given answers
 
9. Costs that remain fixed over wide ranges of activity but jump to a different amount outside that range are called: 
 

A. step-fixed costs
B. step-variable costs
C.  semivariable costs
D. curvilinear costs
 
10. The fixed costs per unit are $10 when a company makes 10 000 units. What are the per unit fixed costs when 12 500 units are
produced? 
 

A. $6.00
B. $12.00
C.  $10.00
D. $ 8.00
 
11. The variable costs per unit are $4 when a company makes 10 000 units. What are the per unit variable costs when 8000 units are
produced? 
 

A. $6.00
B. $4.00
C.  $4.50
D. $5.00
 
12. Total costs are $140 000 when 10 000 units are made. Of this amount, variable costs are $4 per unit. What are the total costs
when 8000 units are produced? 
 

A. $140 000
B. $136 000
C.  $132 000
D. $124 000
 
13. Total costs are $80 000 when 8000 units are made. Of this amount, variable costs are $48 000. What are the total costs when 10
000 units are produced? 
 

A. $ 92 000
B. $ 98 000
C.  $100 000
D. $108 000
 
14. Which per unit cost does the slope of the total cost line represent? 
 

A. Fixed
B. Variable
C.  Semivariable
D. Step-variable
 
15. The level of activity within which fixed costs remain unchanged is called the: 
 

A. extreme range
B. relevant range
C.  activity range
D. relevant range AND activity range
 
16. The relevant range is that range of activity where: 
 

A. management may not find it important to concern itself

B. management does not expect the firm to operate
C.  fixed costs remain unchanged
D. the expected costs exceed the benefits from the activity
 
17. Within the relevant range of activity, costs:  
 

A. can be estimated with reasonable accuracy.

B. exhibit decreasing marginal cost patterns.
C.  exhibit increasing marginal cost patterns.
D. None of the given answers.
 
18. As a firm begins to operate outside the relevant range, the accuracy of cost estimates for fixed and variable costs:
Fixed Variable
 
 

A. Increase Increase
B.  Increase Decrease
C.  Decrease Decrease
D.  Do not change  
 
19. Which of the following describes a cost-estimation method that involves a careful examination of the ledger accounts? 
 

A. Least squares regression

B. Visual fit
C.  Account classification
D. Multiple regression
 
20. Which of the following describes a method of cost estimation in which a cost line is drawn through a scatter diagram to help the
analyst visualise the relationship between cost and activity? 
 

A. Least squares regression

B. High–low
C.  Visual fit
D. Multiple regression
 
21. Within the relevant range, a curvilinear cost function can be graphed as a: 
 

A. straight line
B. set of straight lines
C.  solid line
D. curved line
 
22. The method of cost estimation that fits a cost line between two data points is: 
 

A. least squares regression

B. high–low
C.  account classification
D. multiple regression
 
23. The method of cost estimation that minimises the sum of the squared deviations between the cost line and the data points is: 
 

A. least squares regression

B. visual fit
C.  account classification
D. None of the given answers
 
24. In regression analysis, the variable that is being predicted is: 
 

A. the independent variable

B. the dependent variable
C.  the explanatory variable
D. the dependent variable AND the explanatory variable
 
25. Technical Engineering presently leases a copying machine on a monthly basis. The lease agreement requires a fixed fee each
month in addition to a charge per copy. Technical Engineering made 2400 copies and paid a total of $162 in rent in September
and in October they paid $195 for 3500 copies. Determine Technical Engineering's variable cost per copy. 
 

A. $0.06
B. $0.04
C.  $0.03
D. $0.01
 
26. Technical Engineering presently leases a copying machine on a monthly basis. The lease agreement requires a fixed fee each
month in addition to a charge per copy. Technical Engineering made 2400 copies and paid a total of $162 in rent in September
and in October they paid $195 for 3500 copies. Determine Technical's monthly fixed fee. 
 

A. $138
B. $ 90
C.  $ 66
D. $ 55
 
27. Technical Engineering presently leases a copying machine on a monthly basis. The lease agreement requires a fixed fee each
month in addition to a charge per copy. Technical made 2400 copies and paid a total of $162 in rent in September and in October
they paid $195 for 3500 copies. Determine the total amount that would be paid for 1800 copies. 
 

A. $120
B. $138
C.  $144
D. $163
 
28. Yang Manufacturing makes a product called Yin. The relevant range of operations is between 2500 units and 10 000 units of Yin
per month. Per unit costs at two activity levels are as follows: 5000 units at $17.00 per unit; 7500 units at $13.00 per unit.
Determine the cost formula that expresses the behaviour of Yang's total costs: 
 

A. Y $60 000 + $5X

B. Y $20 000 + $13X
C.  Y $45 000 + $4X
D. Y $40 000 + $9X
 
29. Yang Manufacturing makes a product called Yin. The relevant range of operations is between 2500 units and 10 000 units of Yin
per month. Per unit costs at two activity levels are as follows: 5000 units at $17.00 per unit; 7500 units at $13.00 per unit.
Determine their total cost if Yang produces 10 000 units. 
 

A. $130 000
B. $125 000
C.  $110 000
D. $100 000
 
30. The Longreach Toy Factory has determined machine hours to be the cost driver of the company's electricity costs. During the
first six months of the year, the company incurred the following electricity costs:

Using the high–low method, estimate the variable cost per machine hour:  
 

A. $8.38
B. $7.44
C.  $5.50
D. None of the given answers
 
31. The Longreach Toy Factory has determined machine hours to be the cost driver of the company's electricity costs. During the
first six months of the year, the company incurred the following electricity costs:

Using the high–low method, determine the cost formula that expresses the cost behaviour of the company's electricity costs:  
 

A. Y = $3735 + $6.20X

B. Y = $1664 + $8.38X
C.  Y = $4760 + $5.00X
D. Y = $4400 + $5.50X
 
32. A regression model in which more than one independent variable is used to predict the dependent variable is called a: 
 

A. simple regression model

B. multiple regression model
C.  dependent model
D. B and C
 
33. Which of the following are problems frequently encountered in data collection? 
 

A. Outliers
B. Missing data
C.  Mismatched time periods
D. All of the given answers
 
34. Which of the following statement/s is/are true concerning cost estimation methods? 
 

A. Cost behaviour is always assumed to depend on more than one cost driver.
B. Cost behaviour patterns are curvilinear.
C.  Costs and benefits of using sophisticated and costly cost-estimation methods must be evaluated.
D. Cost behaviour is always assumed to depend on more than one cost driver AND costs and benefits of using sophisticated and
costly cost-estimation methods must be evaluated.
 
35. If very short time periods such as a week are used for a regression study, rather than longer periods such as a month: 
 

A. coping with inflation becomes more difficult

B. accounting measurement errors are more likely
C.  time and motion studies will be required to supplement the cost and volume data
D. coping with inflation becomes more difficult AND time and motion studies will be required to supplement the cost and
volume data
 
36. In assessing the costs and benefits of using a particular cost driver, which of the following must be taken into account?
i. The availability of cost data.
ii. The time frame for analysing the cost behaviour.
iii. Whether it is a fixed or variable cost. 
 

A. i
B. i
i
C.  i and ii
D. i and iii
 
37. In activity-based costing analysis, the manufacturing manager's salary is classified as: 
 

A. unit cost.
B. batch cost.
C.  product cost.
D. facility cost.
 
38. In activity-based costing analysis, direct materials are classified as: 
 

A. unit cost
B. batch cost
C.  product cost
D. facility cost
 
39. In activity-based costing analysis, set-up costs are classified as: 
 

A. unit cost
B. batch cost
C.  product cost
D. facility cost
 
40. In activity-based costing analysis, package design is classified as: 
 

A. unit cost
B. batch cost
C.  product cost
D. facility cost
 
41. In which approach to costs estimation, is task analysis used? 
 

A. Account classification
B. Engineering method
C.  High–low method
D. Managerial judgement
 
42. In which approach to cost estimation, is least squares used? 
 

A. Engineering method
B. High–low method
C.  Regression analysis
D. Managerial judgement
 
43. Which of the following statements are assumptions underlying cost estimation? 
 

A. Cost behaviour depends on one or a few activities.

B. All costs are production driven.
C.  There is a strong correlation between the cost and the cost driver.
D. Cost behaviour depends on one or a few activities AND there is a strong correlation between the cost and the cost driver.
 
44. Which of the following are valid reasons for a firm not using objective techniques?
i. Data may not be available.
ii. Cost estimates are sufficiently accurate for the firm's purposes.
iii. Accountants may be ignorant of appropriate techniques.
iv. The firm gives low priority to cost estimation. 
 

A. i and ii
B. i, ii and iii
C.  ii, iii and iv
D. i, ii and iv
 
45. Which of the following are important in estimating the cost of machine maintenance? 
 

A. The relevant range

B. The time period selected
C.  The cost driver selected
D. All of the given answers
 
46. When using regression analysis to determine estimated costs, what criteria are necessary to evaluate a particular regression line? 
 

A. Closeness to pre-analysis guess

B. Goodness of fit
C.  Coefficient of determination
D. Goodness of fit AND coefficient of determination
 
47. In the regression formula Y = a + bX, b is: 
 

A. The slope of the line

B. The cost driver
C.  The intercept on the vertical axis
D. The dependent variable
 
48. Which of the following statements is most complete and correct?  
 

A. Activity-based costing uses non-volume-based cost drivers only.

B. Activity-based costing uses volume-based cost drivers.
C.  Activity-based costing recognises that both volume-based and non-volume-based cost drivers may be appropriate.
D. None of the given answers.
 
49. For a fixed cost, as volume increases: 
 

A. the cost behaviour depends on the type of fixed cost involved

B. total fixed costs remain constant and fixed costs per unit increase
C.  both total fixed costs and fixed costs per unit remain constant
D. total fixed costs remain constant and fixed costs per unit decrease
 
50. Consider the following equation:
Total cost = fixed costs + (cost driver rate × cost driver quantity)
If a cost can be estimated using this equation, it is probably a: 
 

A. fixed cost
B. variable cost
C.  mixed or semivariable cost
D. non-linear cost
 
51. Lawson Lumber uses the high–low method to estimate electricity cost, which varies in relation to machine hours. Based on the
following data, how would the cost function be stated if ‘X' is the number of machine hours?

 
 

A. $525 + $0.35 X
B. $300 + $0.50 X
C.  $500 + $0.50 X
D. $470 + $0.35 X
 
52. For a manufacturer of kitchens, which of the following would you expect to be a fixed cost? 
 

A. Hourly labour cost of employee installing kitchens

B. Material for kitchen benchtops
C.  Cost of adhesive for benchtops
D. Rent of factory premises
 
53. For a manufacturer of kitchens, which of the following would you expect to be a direct cost? 
 

A. Hourly labour cost of employee installing kitchens

B. Material for kitchen benchtops
C.  Hourly labour cost of employee installing kitchens AND material for kitchen benchtops
D. Rent of factory premises
 
54. Which of the following increases as volume of activity decreases? 
 

A. Fixed cost per unit

B. Variable cost per unit
C.  Total fixed cost
D. Total variable cost
 
55. Which of the following can always be physically traced to the cost object? 
 

A. Variable costs
B. Prime costs
C.  Conversion costs
D. Overhead costs
 
56. Which of the following is an example of an engineered cost? 
 

A. Direct materials
B. Advertising
C.  Insurance
D. Factory supervisor's salary
 
57. Which term describes a cost resulting from the existence of the organisational structure and premises used by the firm? 
 

A. Discretionary
B. Fixed
C.  Committed
D. Engineered
 
58. Which of the following would always be a mixed (semivariable) cost for a firm? 
 

A. Raw materials because it includes direct and indirect materials

B. Direct labour
C.  Manufacturing overhead
D. Raw materials AND manufacturing overhead
 
59. An example of a discretionary cost for a firm that manufactures furniture is: 
 

A. direct material
B. advertising
C.  labour
D. glue and nails
 
60. Eldervale Winery is a producer of premium wine. Which of the following is an example of a unit level cost? 
 

A. The costs of the labels on each bottle of wine

B. The costs of designing the labels on a wine bottle
C.  Advertising costs
D. Costs of delivering wine to customers
 
61. Which of the following statements about the coefficient of determination (R2) is correct? 
 

A. R2 is a measure of economic plausibility.

B. The higher the R2, the more confident we are when using a regression model to predict costs.
C.  R2 is a measure of data accuracy.
D. R2 is a useful measure only for simple regressions.
 
62. The results of the regression analysis to estimate delivery costs are as follows

Which of the following statements represent a valid conclusion based on the above regression analysis output?
 
 

A. 54.4% of transportation cost can be explained by the "number of cargos.

B. The F-statistic is considered significant; therefore, the relationship in the regression is unlikely to happen by chance.
C.  The p-value associated with the intercept suggests that the delivery costs are entirely variable.
D. Given the t-statistic, number of cargos is a poor cost driver of delivery cost.
 
63. The results of the regression analysis to estimate delivery costs are as follows

Which of the following is an appropriate cost equation based on the above regression output?  
 

A. Delivery costs = $366.39 + $0.58 X1, where X1 is the number of cargos.

B. Delivery costs = $0.662 + $2.985 X1, where X1 is the number of cargos.
C.  Delivery costs = $242.51 + $1.74 X1, where X1 is the number of cargos.
D. Delivery costs = $48861.07 + $1.74 X1, where X1 is the number of cargos.
 
64. The following is an extract of a cost report for Big Whale Car Wash for the six months from June to November. Management
considers the activities in these six months as within the relevant range for the purpose of cost estimation.

The car washing labour cost is a:  

 

A. Variable cost
B. Fixed cost
C.  Step-fixed cost
D. Semi-variable cost
 
65. The following is an extract of a cost report for Big Whale Car Wash for the six months from June to November. Management
considers the activities in these six months as within the relevant range for the purpose of cost estimation.

The car washing labour cost is a:  

 

A. Variable cost
B. Fixed cost
C.  Step-fixed cost
D. Semi-variable
 
66. The following is an extract of a cost report for Big Whale Car Wash for the six months from June to November. Management
considers the activities in these six months as within the relevant range for the purpose of cost estimation.

The car washing labour cost is a:  

 

A. Variable cost
B. Fixed cost
C.  Step-fixed cost
D. Semi-variable
 
67. ‘Time and motion studies' refers to: 
 

A. the process in which managers use their judgment to estimate the time it takes to carry out each individual work task, in order
to estimate cost
B. the process in which employees complete timesheets each day; the timesheets then form the basis for cost estimation
C.  the process in which employees are observed when they undertake work tasks; these observations are then used to estimate
cost
D. the process in which the cost of work tasks are compared over time and across different divisions
 
68. When a manager notices an outlier during the cost estimation process, the appropriate response is to:  
 

A. No response is required, unless multiple outliers are observed.

B. Attempt to identify the reasons for the outlier.
C.  Divide the outlier by the standard deviation, before including the outlier in the regression model.
D. Re-collect all the data, as an outlier indicates that the data has been corrupted.
 
69. Define the term ‘relevant range' and explain its importance to understanding cost behaviour.  
 

 
70. Compare and contrast the following types of costs:
i. Variable and step-variable
ii. Fixed and step-fixed 
 

 
71. Distinguish between least squares regression (simple) and multiple regression as cost estimation methods. 
 

 
72. Describe how the learning effect will affect cost prediction.  
 

 
73. The results of the regression analysis to estimate the operation costs of the polishing machine ("polishing cost per month") are as
follows:

 
 

 
74. Units produced 12 000 15 000
Direct materials $36 000 $45 000
Based on the above data, the direct material costs for producing 7000 units are $21 000.
Graduate Attribute: Problem Solving 
 
True    False
 
75. Units produced 12 000 15 000
Direct materials $36 000 $45 000
Based on the above data, at the production level of 10 000 units, the fixed costs per unit are $5 per unit and if the firm produced
8000 units the fixed cost per unit would remain constant at $5.
Graduate Attribute: Problem Solving 
 
True    False
 
76. Relevant range is only important when determining fixed costs.
Graduate Attribute: Problem Solving 
 
True    False
 
77. Research and development costs are an example of discretionary costs. 
 
True    False
 
78. If the cost of a complaints department is driven by the number of calls taken, the calls are said to be the dependent variable. 
 
True    False
 
79. Economic plausibility is one of the criteria used to evaluate a particular regression line. 
 
True    False
 
80. Regardless of the approach taken to cost estimation, data collection will affect how ‘good' the estimation is. 
 
True    False
 
81. Regression analysis is a superior statistical method to the high–low method because it utilises all data when determining the line
of best fit. 
 
True    False
 
82. A scatter diagram is most useful in providing insight into whether there is a relationship between a cost and a level of activity. 
 
True    False
 
83. Assume the costs of a service department are driven by the number of service orders and the equation for calculating the costs of
a service department is y = $5 000 + $3x. The cost of the department if there were 6 000 orders would be $25 000. 
 
True    False
 
 Chapter 03 Testbank Key
 
1. The relationship between cost and activity is called:  
(p. 78)  

A.  cost prediction

B.  cost behaviour
C.  cost analysis
D.  cost approximation
 
Difficulty: Easy
Learning Objective: 03-01 Explain the relationships between cost estimation, cost behaviour and cost prediction
 
2. Forecasting a cost at a particular level of activity is called:  
(p. 78)  

A.  cost estimation

B.  cost prediction
C.  cost behaviour
D.  cost functions
 
Difficulty: Easy
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
3. A cost that has both a fixed and variable component is called a:  
(p. 84)  

A.  step-fixed cost

B.  step-variable cost
C.  semivariable cost
D.  discretionary cost
 
Difficulty: Easy
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
4. A cost that remains unchanged in total as the activity level (or cost driver) changes is called a: 
(p. 84)  

A.  fixed cost

B.  variable cost
C.  step-fixed cost
D.  step-variable cost
 
Difficulty: Easy
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
5. A cost that changes in total in direct proportion to a change in the cost driver is a:  
(p. 84)  

A.  variable cost

B.  fixed cost
C.  semivariable cost
D.  step-variable cost
 
Difficulty: Easy
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
6. A manufacturer plans to increase production within the relevant range of activity. What behaviour can the company expect for
(p. 84 each
of the following?
)

Fixed cost per unit Variable cost per unit

 
 

A.  No change Increase

B.  Increase No change
C.  Decrease Increase
D.  Decrease No change
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
7. Variable cost per unit:  
(p. 84)  

A.  increases in direct proportion to changes in the cost driver

B.  decreases in direct proportion to changes in the cost driver
C.  remains unchanged as the level of the cost driver changes
D.  increases, but not in direct proportion to changes in the cost driver
 
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
8. Fixed costs per unit: 
(p. 84)  

A.  is
unre
late
d to
acti
vity
leve
ls
B.  cha
nge
as
acti
vity
vari
es
C.  rem
ain
unc
han
ged
as
acti
vity
leve
l
cha
nge
s
D.  Non
e of
the
give
n
ans
wer
s
 
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
9. Costs that remain fixed over wide ranges of activity but jump to a
(p. 84) different amount outside that range are called: 
 

A.  step
-
fixe
d
cost
s
B.  step
-
vari
able
cost
s
C.  sem
ivar
iabl
e
cost
s
D.  curv
iline
ar
cost
s
 
Difficulty: Easy
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
10. The fixed costs per unit are $10 when a company makes 10 000
(p. 84) units. What are the per unit fixed costs when 12 500 units are
produced? 
 

A.  $6.0
0
B.  $12.
00
C.  $10.
00
D.  $
8.00
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
11. The variable costs per unit are $4 when a company makes 10 000
(p. 84) units. What are the per unit variable costs when 8000 units are
produced? 
 

A.  $6.0
0
B.  $4.0
0
C.  $4.5
0
D.  $5.0
0
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
12. Total costs are $140 000 when 10 000 units are made. Of this
(p. 84) amount, variable costs are $4 per unit. What are the total costs
when 8000 units are produced? 
 

A.  $14
0
000
B.  $13
6
000
C.  $13
2
000
D.  $12
4
000
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
13. Total costs are $80 000 when 8000 units are made. Of this amount,
(p. 84) variable costs are $48 000. What are the total costs when 10 000
units are produced? 
 

A.  $ 92
000
B.  $ 98
000
C.  $10
0
000
D.  $10
8
000
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
14. Which per unit cost does the slope of the total cost line represent? 
(p. 84)  

A.  Fixe
d
B.  Vari
able
C.  Sem
ivar
iabl
e
D.  Step
-
vari
able
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
15. The level of activity within which fixed costs remain unchanged is
(p. 90) called the: 
 

A.  extr
eme
rang
e
B.  rele
vant
rang
e
C.  acti
vity
rang
e
D.  rele
vant
rang
e
AN
D
acti
vity
rang
e
 
Difficulty: Easy
Learning Objective: 03-06 Explain the importance of the relevant range when using a cost behaviour pattern for cost prediction
 
16. The relevant range is that range of activity where: 
(p. 90)  

A.  man
age
men
t
may
not
find
it
imp
orta
nt
to
con
cern
itsel
f
B.  man
age
men
t
doe
s
not
exp
ect
the
firm
to
oper
ate
C.  fixe
d
cost
s
rem
ain
unc
han
ged
D.  the
exp
ecte
d
cost
s
exc
eed
the
ben
efits
fro
 m
the
acti
vity
 
Difficulty: Easy
Learning Objective: 03-06 Explain the importance of the relevant range when using a cost behaviour pattern for cost prediction
 
17. Within the relevant range of activity, costs:  
(p. 90)  

A.  can
be
esti
mat
ed
with
reas
ona
ble
acc
urac
y.
B.  exhi
bit
decr
easi
ng
mar
gina
l
cost
patt
erns
.
C.  exhi
bit
incr
easi
ng
mar
gina
l
cost
patt
erns
.
D.  Non
e of
the
give
n
ans
wer
s.
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-06 Explain the importance of the relevant range when using a cost behaviour pattern for cost prediction
 
18. As a firm begins to operate outside the relevant range, the accuracy
(p. 90) of cost estimates for fixed and variable costs:
Fixe Vari
d able
 
 

A.  Incr
ease
B.  Incr
ease
C.  Decr
ease
D.  Do
not
chan
ge
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-06 Explain the importance of the relevant range when using a cost behaviour pattern for cost prediction
 
19. Which of the following describes a cost-estimation method that
(p. 94) involves a careful examination of the ledger accounts? 
 

A.  Lea
st
squ
ares
regr
essi
on
B.  Vis
ual
fit
C.  Acc
ount
clas
sific
atio
n
D.  Mul
tiple
regr
essi
on
 
Difficulty: Easy
Learning Objective: 03-08 Describe the following approaches to cost estimation: managerial judgment (including account classification), the engineering method, and
quantitative analysis (including high–low, and simple and multiple regression)
 
20. Which of the following describes a method of cost estimation in
(p. 95) which a cost line is drawn through a scatter diagram to help the
analyst visualise the relationship between cost and activity? 
 

A.  Lea
st
squ
ares
regr
essi
on
B.  Hig
h–
low
C.  Vis
ual
fit
D.  Mul
tiple
regr
essi
on
 
Difficulty: Easy
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
21. Within the relevant range, a curvilinear cost function can be
(p. 84) graphed as a: 
 

A.  strai
ght
line
B.  set
of
strai
ght
line
s
C.  soli
d
line
D.  curv
ed
line
 
Difficulty: Easy
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
22. The method of cost estimation that fits a cost line between two data
(p. 95) points is: 
 

A.  leas
t
squ
ares
regr
essi
on
B.  high
–
low
C.  acc
ount
clas
sific
atio
n
D.  mul
tiple
regr
essi
on
 
Difficulty: Easy
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
23. The method of cost estimation that minimises the sum of the
(p. 95) squared deviations between the cost line and the data points is: 
 

A.  leas
t
squ
ares
regr
essi
on
B.  visu
al
fit
C.  acc
ount
clas
sific
atio
n
D.  Non
e of
the
give
n
ans
wer
s
 
Difficulty: Easy
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
24. In regression analysis, the variable that is being predicted is: 
(p. 95)  

A.  the
inde
pen
dent
vari
able
B.  the
dep
end
ent
vari
able
C.  the
expl
anat
ory
vari
able
D.  the
dep
end
ent
vari
able
AN
D
the
expl
anat
ory
vari
able
 
Difficulty: Easy
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
25. Technical Engineering presently leases a copying machine on a
(p. 95) monthly basis. The lease agreement requires a fixed fee each
month in addition to a charge per copy. Technical Engineering
made 2400 copies and paid a total of $162 in rent in September
and in October they paid $195 for 3500 copies. Determine
Technical Engineering's variable cost per copy. 
 

A.  $0.0
6
B.  $0.0
4
C.  $0.0
3
D.  $0.0
1
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
26. Technical Engineering presently leases a copying machine on a
(p. 95) monthly basis. The lease agreement requires a fixed fee each
month in addition to a charge per copy. Technical Engineering
made 2400 copies and paid a total of $162 in rent in September
and in October they paid $195 for 3500 copies. Determine
Technical's monthly fixed fee. 
 

A.  $13
8
B.  $ 90
C.  $ 66
D.  $ 55
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
27. Technical Engineering presently leases a copying machine on a
(p. 95) monthly basis. The lease agreement requires a fixed fee each
month in addition to a charge per copy. Technical made 2400
copies and paid a total of $162 in rent in September and in October
they paid $195 for 3500 copies. Determine the total amount that
would be paid for 1800 copies. 
 

A.  $12
0
B.  $13
8
C.  $14
4
D.  $16
3
 
AACSB: Analytical
Difficulty: Difficult
Graduate Attribute: Problem Solving
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
28. Yang Manufacturing makes a product called Yin. The relevant
(p. 95) range of operations is between 2500 units and 10 000 units of Yin
per month. Per unit costs at two activity levels are as follows: 5000
units at $17.00 per unit; 7500 units at $13.00 per unit. Determine
the cost formula that expresses the behaviour of Yang's total costs: 
 

A.  Y
$60
000
+
$5X
B.  Y
$20
000
+
$13
X
C.  Y
$45
000
+
$4X
D.  Y
$40
000
+
$9X
 
AACSB: Analytical
Difficulty: Difficult
Graduate Attribute: Problem Solving
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
29. Yang Manufacturing makes a product called Yin. The relevant
(p. 95) range of operations is between 2500 units and 10 000 units of Yin
per month. Per unit costs at two activity levels are as follows: 5000
units at $17.00 per unit; 7500 units at $13.00 per unit. Determine
their total cost if Yang produces 10 000 units. 
 

A.  $13
0
000
B.  $12
5
000
C.  $11
0
000
D.  $10
0
000
 
AACSB: Analytical
Difficulty: Difficult
Graduate Attribute: Problem Solving
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
30. The Longreach Toy Factory has determined machine hours to be
(p. 95) the cost driver of the company's electricity costs. During the first
six months of the year, the company incurred the following
electricity costs:

Using the high–low method, estimate the variable cost per

machine hour:  
 

A.  $8.3
8
B.  $7.4
4
C.  $5.5
0
D.  Non
e of
the
give
n
ans
wer
s
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
31. The Longreach Toy Factory has determined machine hours to be
(p. 95) the cost driver of the company's electricity costs. During the first
six months of the year, the company incurred the following
electricity costs:

Using the high–low method, determine the cost formula that

expresses the cost behaviour of the company's electricity costs:  
 

A.  Y =
$37
35
+
$6.2
0X
B.  Y =
$16
64
+
$8.3
8X
C.  Y =
$47
60
+
$5.0
0X
D.  Y =
$44
00
+
$5.5
0X
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
32. A regression model in which more than one independent variable
(p. 95) is used to predict the dependent variable is called a: 
 

A.  sim
ple
regr
essi
on
mod
el
B.  mul
tiple
regr
essi
on
mod
el
C.  dep
end
ent
mod
el
D.  B
and
C
 
Difficulty: Easy
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
33. Which of the following are problems frequently encountered in
(p. 100) data collection? 
 

A.  Outl
iers
B.  Mis
sing
data
C.  Mis
mat
che
d
time
peri
ods
D.  All
of
the
give
n
ans
wer
s
 
Difficulty: Easy
Learning Objective: 03-10 Explain some of the issues that arise in estimating cost functions in practice, including data collection problems, learning curve effects, and
cost–benefit evaluations
 
34. Which of the following statement/s is/are true concerning cost
(p. 80) estimation methods? 
 

A.  Cos
t
beh
avio
ur is
alw
ays
assu
med
to
dep
end
on
mor
e
than
one
cost
driv
er.
B.  Cos
t
beh
avio
ur
patt
erns
are
curv
iline
ar.
C.  Cos
ts
and
ben
efits
of
usin
g
sop
histi
cate
d
and
cost
ly
cost
-
esti
mati
 on
met
hod
s
mus
t be
eval
uate
d.
D.  Cos
t
beh
avio
ur is
alw
ays
assu
med
to
dep
end
on
mor
e
than
one
cost
driv
er
AN
D
cost
s
and
ben
efits
of
usin
g
sop
histi
cate
d
and
cost
ly
cost
-
esti
mati
on
met
hod
s
 mus
t be
eval
uate
d.
 
Difficulty: Easy
Learning Objective: 03-03 Introduce the unit, batch, product and facility level hierarchy of costs and cost drivers
 
35. If very short time periods such as a week are used for a regression
(p. 100) study, rather than longer periods such as a month: 
 

A.  copi
ng
with
infl
atio
n
bec
ome
s
mor
e
diffi
cult
B.  acc
ount
ing
mea
sure
men
t
erro
rs
are
mor
e
likel
y
C.  time
and
mot
ion
stud
ies
will
be
requ
ired
to
sup
ple
men
t the
cost
and
volu
me
data
D.  copi
ng
with
 infl
atio
n
bec
ome
s
mor
e
diffi
cult
AN
D
time
and
mot
ion
stud
ies
will
be
requ
ired
to
sup
ple
men
t the
cost
and
volu
me
data
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-10 Explain some of the issues that arise in estimating cost functions in practice, including data collection problems, learning curve effects, and
cost–benefit evaluations
 
36. In assessing the costs and benefits of using a particular cost driver,
(p. 100) which of the following must be taken into account?
i. The availability of cost data.
ii. The time frame for analysing the cost behaviour.
iii. Whether it is a fixed or variable cost. 
 

A.  i
B.  ii
C.  i
and
ii
D.  i
and
iii
 
AACSB: Reflective
 Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-10 Explain some of the issues that arise in estimating cost functions in practice, including data collection problems, learning curve effects, and
cost–benefit evaluations
 
37. In activity-based costing analysis, the manufacturing manager's
(p. 80) salary is classified as: 
 

A.  unit
cost
.
B.  batc
h
cost
.
C.  pro
duct
cost
.
D.  facil
ity
cost
.
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-03 Introduce the unit, batch, product and facility level hierarchy of costs and cost drivers
 
38. In activity-based costing analysis, direct materials are classified
(p. 80) as: 
 

A.  unit
cost
B.  batc
h
cost
C.  pro
duct
cost
D.  facil
ity
cost
 
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 03-03 Introduce the unit, batch, product and facility level hierarchy of costs and cost drivers
 
39. In activity-based costing analysis, set-up costs are classified as: 
(p. 80)  

A.  unit
cost
B.  batc
h
cost
C.  pro
duct
cost
D.  facil
ity
cost
 
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 03-03 Introduce the unit, batch, product and facility level hierarchy of costs and cost drivers
 
40. In activity-based costing analysis, package design is classified as: 
(p. 80)  

A.  unit
cost
B.  batc
h
cost
C.  pro
duct
cost
D.  facil
ity
cost
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-03 Introduce the unit, batch, product and facility level hierarchy of costs and cost drivers
 
41. In which approach to costs estimation, is task analysis used? 
(p. 94)  

A.  Acc
ount
clas
sific
atio
n
B.  Eng
inee
ring
met
hod
C.  Hig
h–-
low
met
hod
D.  Ma
nag
erial
judg
eme
nt
 
Difficulty: Easy
Learning Objective: 03-08 Describe the following approaches to cost estimation: managerial judgment (including account classification), the engineering method, and
quantitative analysis (including high–low, and simple and multiple regression)
 
42. In which approach to cost estimation, is least squares used? 
(p. 94)  

A.  Eng
inee
ring
met
hod
B.  Hig
h–
low
met
hod
C.  Reg
ress
ion
anal
ysis
D.  Ma
nag
erial
judg
eme
nt
 
Difficulty: Easy
Learning Objective: 03-08 Describe the following approaches to cost estimation: managerial judgment (including account classification), the engineering method, and
quantitative analysis (including high–low, and simple and multiple regression)
 
43. Which of the following statements are assumptions underlying cost
(p. 94) estimation? 
 

A.  Cos
t
beh
avio
ur
dep
end
s on
one
or a
few
acti
vitie
s.
B.  All
cost
s
are
pro
duct
ion
driv
en.
C.  The
re is
a
stro
ng
corr
elati
on
bet
wee
n
the
cost
and
the
cost
driv
er.
D.  Cos
t
beh
avio
ur
dep
end
s on
one
 or a
few
acti
vitie
s
AN
D
ther
e is
a
stro
ng
corr
elati
on
bet
wee
n
the
cost
and
the
cost
driv
er.
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-08 Describe the following approaches to cost estimation: managerial judgment (including account classification), the engineering method, and
quantitative analysis (including high–low, and simple and multiple regression)
 
44. Which of the following are valid reasons for a firm not using
(p. 94) objective techniques?
i. Data may not be available.
ii. Cost estimates are sufficiently accurate for the firm's purposes.
iii. Accountants may be ignorant of appropriate techniques.
iv. The firm gives low priority to cost estimation. 
 

A.  i
and
ii
B.  i, ii
and
iii
C.  ii,
iii
and
iv
D.  i, ii
and
iv
 
AACSB: Reflective
Difficulty: Medium
 Graduate Attribute: Problem Solving
Learning Objective: 03-08 Describe the following approaches to cost estimation: managerial judgment (including account classification), the engineering method, and
quantitative analysis (including high–low, and simple and multiple regression)
 
45. Which of the following are important in estimating the cost of
(p. 94) machine maintenance? 
 

A.  The
rele
vant
rang
e
B.  The
time
peri
od
sele
cted
C.  The
cost
driv
er
sele
cted
D.  All
of
the
give
n
ans
wer
s
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-08 Describe the following approaches to cost estimation: managerial judgment (including account classification), the engineering method, and
quantitative analysis (including high–low, and simple and multiple regression)
 
46. When using regression analysis to determine estimated costs, what
(p. 95) criteria are necessary to evaluate a particular regression line? 
 

A.  Clo
sene
ss
to
pre-
anal
ysis
gue
ss
B.  Goo
dne
ss
of
fit
C.  Coe
ffici
ent
of
dete
rmi
nati
on
D.  Goo
dne
ss
of
fit
AN
D
coef
ficie
nt
of
dete
rmi
nati
on
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
47. In the regression formula Y = a + bX, b is: 
(p. 95)  

A.  The
slop
e of
the
line
B.  The
cost
driv
er
C.  The
inte
rcep
t on
the
vert
ical
axis
D.  The
dep
end
ent
vari
able
 
Difficulty: Easy
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
48. Which of the following statements is most complete and correct?  
(p. 80)  

A.  Acti
vity
-
base
d
cost
ing
uses
non
-
volu
me-
base
d
cost
driv
ers
only
.
B.  Acti
vity
-
base
d
cost
ing
uses
volu
me-
base
d
cost
driv
ers.
C.  Acti
vity
-
base
d
cost
ing
reco
gnis
es
that
both
volu
me-
base
d
and
 non
-
volu
me-
base
d
cost
driv
ers
may
be
appr
opri
ate.
D.  Non
e of
the
give
n
ans
wer
s.
 
Difficulty: Easy
Learning Objective: 03-03 Introduce the unit, batch, product and facility level hierarchy of costs and cost drivers
 
49. For a fixed cost, as volume increases: 
(p. 84)  

A.  the
cost
beh
avio
ur
dep
end
s on
the
type
of
fixe
d
cost
invo
lved
B.  total
fixe
d
cost
s
rem
ain
con
stan
t
and
fixe
d
cost
s
per
unit
incr
ease
C.  both
total
fixe
d
cost
s
and
fixe
d
cost
s
per
unit
rem
ain
con
 stan
t
D.  total
fixe
d
cost
s
rem
ain
con
stan
t
and
fixe
d
cost
s
per
unit
decr
ease
 
Difficulty: Medium
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
50. Consider the following equation:
(p. 84) Total cost = fixed costs + (cost driver rate × cost driver quantity)
If a cost can be estimated using this equation, it is probably a: 
 

A.  fixe
d
cost
B.  vari
able
cost
C.  mix
ed
or
sem
ivar
iabl
e
cost
D.  non
-
line
ar
cost
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
51. Lawson Lumber uses the high–low method to estimate electricity
(p. 95) cost, which varies in relation to machine hours. Based on the
following data, how would the cost function be stated if ‘X' is the
number of machine hours?

 
 

A.  $52
5+
$0.3
5X
B.  $30
0+
$0.5
0X
C.  $50
0+
$0.5
0X
D.  $47
0+
$0.3
5X
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
52. For a manufacturer of kitchens, which of the following would you
(p. 84) expect to be a fixed cost? 
 

A.  Hou
rly
labo
ur
cost
of
emp
loye
e
inst
allin
g
kitc
hen
s
B.  Mat
erial
for
kitc
hen
ben
chto
ps
C.  Cos
t of
adh
esiv
e
for
ben
chto
ps
D.  Ren
t of
fact
ory
pre
mis
es
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
53. For a manufacturer of kitchens, which of the following would you
(p. 84) expect to be a direct cost? 
 

A.  Hou
rly
labo
ur
cost
of
emp
loye
e
inst
allin
g
kitc
hen
s
B.  Mat
erial
for
kitc
hen
ben
chto
ps
C.  Hou
rly
labo
ur
cost
of
emp
loye
e
inst
allin
g
kitc
hen
s
AN
D
mat
erial
for
kitc
hen
ben
chto
ps
D.  Ren
t of
 fact
ory
pre
mis
es
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
54. Which of the following increases as volume of activity decreases? 
(p. 84)  

A.  Fixe
d
cost
per
unit
B.  Vari
able
cost
per
unit
C.  Tot
al
fixe
d
cost
D.  Tot
al
vari
able
cost
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
55. Which of the following can always be physically traced to the cost
(p. 79) object? 
 

A.  Vari
able
cost
s
B.  Pri
me
cost
s
C.  Con
vers
ion
cost
s
D.  Ove
rhea
d
cost
s
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-02 Explain the concept of cost drivers, including volume-based and non-volume-based cost drivers
 
56. Which of the following is an example of an engineered cost? 
(p. 90)  

A.  Dire
ct
mat
erial
s
B.  Adv
ertis
ing
C.  Insu
ranc
e
D.  Fact
ory
sup
ervi
sor's
sala
ry
 
AACSB: Reflective
Difficulty: Easy
Learning Objective: 03-07 Define and provide examples of engineered, committed and discretionary costs
 
57. Which term describes a cost resulting from the existence of the
(p. 90) organisational structure and premises used by the firm? 
 

A.  Dis
creti
onar
y
B.  Fixe
d
C.  Co
mm
itted
D.  Eng
inee
red
 
AACSB: Reflective
Difficulty: Easy
Learning Objective: 03-07 Define and provide examples of engineered, committed and discretionary costs
 
58. Which of the following would always be a mixed (semivariable)
(p. 84) cost for a firm? 
 

A.  Ra
w
mat
erial
s
bec
ause
it
incl
ude
s
dire
ct
and
indi
rect
mat
erial
s
B.  Dire
ct
labo
ur
C.  Ma
nufa
ctur
ing
over
hea
d
D.  Ra
w
mat
erial
s
AN
D
man
ufac
turi
ng
over
hea
d
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
59. An example of a discretionary cost for a firm that manufactures
(p. 90) furniture is: 
 

A.  dire
ct
mat
erial
B.  adv
ertis
ing
C.  labo
ur
D.  glue
and
nail
s
 
AACSB: Reflective
Difficulty: Medium
Learning Objective: 03-07 Define and provide examples of engineered, committed and discretionary costs
 
60. Eldervale Winery is a producer of premium wine. Which of the
(p. 80) following is an example of a unit level cost? 
 

A.  The
cost
s of
the
labe
ls
on
eac
h
bott
le
of
win
e
B.  The
cost
s of
desi
gnin
g
the
labe
ls
on a
win
e
bott
le
C.  Adv
ertis
ing
cost
s
D.  Cos
ts of
deli
veri
ng
win
e to
cust
ome
rs
 
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 03-03 Introduce the unit, batch, product and facility level hierarchy of costs and cost drivers
 
61. Which of the following statements about the coefficient of
(p. 95) determination (R2) is correct? 
 

A.  R2
is a
mea
sure
of
eco
nom
ic
plau
sibil
ity.
B.  The
high
er
the
R2,
the
mor
e
conf
iden
t we
are
whe
n
usin
ga
regr
essi
on
mod
el to
pred
ict
cost
s.
C.  R2
is a
mea
sure
of
data
acc
urac
y.
D.  R2
is a
usef
ul
mea
 sure
only
for
sim
ple
regr
essi
ons.
 
Difficulty: Easy
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
62. The results of the regression analysis to estimate delivery costs are
(p. 107) as follows

Which of the following statements represent a valid conclusion

based on the above regression analysis output?
 
 

A.  54.4
%
of
tran
spor
tatio
n
cost
can
be
expl
 aine
d by
the
"nu
mbe
r of
carg
os.
B.  The
F-
stati
stic
is
con
side
red
sign
ifica
nt;
ther
efor
e,
the
relat
ions
hip
in
the
regr
essi
on
is
unli
kely
to
hap
pen
by
cha
nce.
C.  The
p-
valu
e
asso
ciat
ed
with
the
inte
rcep
t
sug
gest
 s
that
the
deli
very
cost
s
are
enti
rely
vari
able
.
D.  Giv
en
the
t-
stati
stic,
num
ber
of
carg
os
is a
poo
r
cost
driv
er
of
deli
very
cost
.
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-11 After studying the appendix, use Microsoft Excel ® to estimate and evaluate a regression equation
 
63. The results of the regression analysis to estimate delivery costs are
(p. 107) as follows

Which of the following is an appropriate cost equation based on

the above regression output?  
 

A.  Deli
very
cost
s=
$36
6.39
+
$0.5
8
X 1,
whe
 re
X1
is
the
num
ber
of
carg
os.
B.  Deli
very
cost
s=
$0.6
62
+
$2.9
85
X 1,
whe
re
X1
is
the
num
ber
of
carg
os.
C.  Deli
very
cost
s=
$24
2.51
+
$1.7
4
X 1,
whe
re
X1
is
the
num
ber
of
carg
os.
D.  Deli
very
cost
s=
$48
 861.
07
+
$1.7
4
X 1,
whe
re
X1
is
the
num
ber
of
carg
os.
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-11 After studying the appendix, use Microsoft Excel ® to estimate and evaluate a regression equation
 
64. The following is an extract of a cost report for Big Whale Car
(p. 84) Wash for the six months from June to November. Management
considers the activities in these six months as within the relevant
range for the purpose of cost estimation.

The car washing labour cost is a:  

 

A.  Vari
able
cost
B.  Fixe
d
cost
C.  Step
-
fixe
d
cost
D.  Sem
i-
vari
able
cost
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
65. The following is an extract of a cost report for Big Whale Car
(p. 84) Wash for the six months from June to November. Management
considers the activities in these six months as within the relevant
range for the purpose of cost estimation.

The car washing labour cost is a:  

 

A.  Vari
able
cost
B.  Fixe
d
cost
C.  Step
-
fixe
d
cost
D.  Sem
i-
vari
able
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
66. The following is an extract of a cost report for Big Whale Car
(p. 84) Wash for the six months from June to November. Management
considers the activities in these six months as within the relevant
range for the purpose of cost estimation.

The car washing labour cost is a:  

 

A.  Vari
able
cost
B.  Fixe
d
cost
C.  Step
-
fixe
d
cost
D.  Sem
i-
vari
able
 
AACSB: Analytical
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
67. ‘Time and motion studies' refers to: 
(p. 94)  

A.  the
proc
ess
in
whi
ch
man
ager
s
use
thei
r
judg
men
t to
esti
mat
e
the
time
it
take
s to
carr
y
out
eac
h
indi
vidu
al
wor
k
task
, in
orde
r to
esti
mat
e
cost
B.  the
proc
ess
in
whi
ch
emp
loye
es
com
 plet
e
time
shee
ts
eac
h
day;
the
time
shee
ts
then
for
m
the
basi
s
for
cost
esti
mati
on
C.  the
proc
ess
in
whi
ch
emp
loye
es
are
obs
erve
d
whe
n
they
und
erta
ke
wor
k
task
s;
thes
e
obs
erva
tion
s
are
then
 use
d to
esti
mat
e
cost
D.  the
proc
ess
in
whi
ch
the
cost
of
wor
k
task
s
are
com
pare
d
over
time
and
acro
ss
diff
eren
t
divi
sion
s
 
Difficulty: Medium
Learning Objective: 03-08 Describe the following approaches to cost estimation: managerial judgment (including account classification), the engineering method, and
quantitative analysis (including high–low, and simple and multiple regression)
 
68. When a manager notices an outlier during the cost estimation
(p. 95) process, the appropriate response is to:  
 

A.  No
resp
ons
e is
requ
ired
,
unle
ss
mul
tiple
outl
iers
are
obs
erve
d.
B.  Atte
mpt
to
iden
tify
the
reas
ons
for
the
outl
ier.
C.  Divi
de
the
outl
ier
by
the
stan
dard
devi
atio
n,
befo
re
incl
udin
g
the
outl
ier
in
 the
regr
essi
on
mod
el.
D.  Re-
coll
ect
all
the
data
, as
an
outl
ier
indi
cate
s
that
the
data
has
bee
n
corr
upte
d.
 
AACSB: Reflective
Difficulty: Medium
Graduate Attribute: Problem Solving
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
69. Define the term ‘relevant range' and explain its importance to
(p. 90) understanding cost behaviour.  
 

 
AACSB: Communication
Difficulty: Medium
Graduate Attribute: Communication
Learning Objective: 03-06 Explain the importance of the relevant range when using a cost behaviour pattern for cost prediction
 
70. Compare and contrast the following types of costs:
(p. 84) i. Variable and step-variable
ii. Fixed and step-fixed 
 

i. A variable cost changes in total in direct proportion to the change

in activity level or cost drivers (direct material). A step-variable
cost is nearly variable, but it increases in small steps, instead of
continuously (e.g. additional direct labour).
ii. A fixed cost remains unchanged as the activity level varies in
total (e.g. rent). A step-fixed cost remains fixed over a sizeable
range of activity, but steps up for activities outside that range (e.g.
the salaries of hiring additional employees).

 
AACSB: Communication
Difficulty: Easy
Graduate Attribute: Communication
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
71. Distinguish between least squares regression (simple) and multiple
(p. 95) regression as cost estimation methods. 
 

In the least squares regression (LSR) method, the cost line is

positioned to minimise the sum of the squared deviations between
the cost line and the data points. The cost line fit to the data using
LSR is called a regression line. The statistical equation for this line
is represented by the formula: Y = a + bX, with X denoting activity
level (independent variable) and Y denoting the total cost
(dependent variable). The intercept of the line on the vertical axis
is denoted as a and the slope of the line is denoted as b. The fixed
cost component a and b is an estimate of the variable cost per unit
of activity.
The multiple regression line has all the same properties of the
simple LSR line, but more than one independent variable is taken
into consideration. The equation is similar and looks like this: Y =
a + b1X1 +b2X2. The use of more explanatory variables can explain
more of the cost behaviour than simple regression.

 
AACSB: Communication
Difficulty: Easy
Graduate Attribute: Communication
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
72. Describe how the learning effect will affect cost prediction.  
(p. 100)  

 
AACSB: Communication
Difficulty: Medium
Graduate Attribute: Communication
Learning Objective: 03-10 Explain some of the issues that arise in estimating cost functions in practice, including data collection problems, learning curve effects, and
cost–benefit evaluations
  
73. The results of the regression analysis to estimate the operation
(p. 107) costs of the polishing machine ("polishing cost per month") are as
follows:

 
 

 
AACSB: Communication
AACSB: Reflective
Difficulty: Difficult
Graduate Attribute: Communication
Graduate Attribute: Problem Solving
Learning Objective: 03-11 After studying the appendix, use Microsoft Excel ® to estimate and evaluate a regression equation
 
74. Units produced 12 000 15 000
(p. 84) Direct materials $36 000 $45 000
Based on the above data, the direct material costs for producing
7000 units are $21 000.
Graduate Attribute: Problem Solving 
 
TRUE
 
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
75. Units produced 12 000 15 000
(p. 84) Direct materials $36 000 $45 000
Based on the above data, at the production level of 10 000 units,
the fixed costs per unit are $5 per unit and if the firm produced
8000 units the fixed cost per unit would remain constant at $5.
Graduate Attribute: Problem Solving 
 
FALSE
 
AACSB: Analytical
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 03-05 Define and analyse the behaviour of the following types of costs: variable, fixed, stepfixed, semivariable (or mixed) and curvilinear
 
76. Relevant range is only important when determining fixed costs.
(p. 90) Graduate Attribute: Problem Solving 
 
FALSE
 
AACSB: Reflective
Difficulty: Easy
Graduate Attribute: Problem Solving
Learning Objective: 03-06 Explain the importance of the relevant range when using a cost behaviour pattern for cost prediction
 
77. Research and development costs are an example of discretionary
(p. 90) costs. 
 
TRUE
 
AACSB: Reflective
Difficulty: Easy
Learning Objective: 03-07 Define and provide examples of engineered, committed and discretionary costs
 
78. If the cost of a complaints department is driven by the number of
(p. 95) calls taken, the calls are said to be the dependent variable. 
 
FALSE
 
AACSB: Reflective
Difficulty: Easy
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
79. Economic plausibility is one of the criteria used to evaluate a
(p. 95) particular regression line. 
 
TRUE
 
Difficulty: Easy
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
80. Regardless of the approach taken to cost estimation, data collection
(p. 100) will affect how ‘good' the estimation is. 
 
TRUE
 
AACSB: Reflective
Difficulty: Easy
Learning Objective: 03-10 Explain some of the issues that arise in estimating cost functions in practice, including data collection problems, learning curve effects, and
cost–benefit evaluations
 
81. Regression analysis is a superior statistical method to the high–low
(p. 95) method because it utilises all data when determining the line of
best fit. 
 
TRUE
 
Difficulty: Easy
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
82. A scatter diagram is most useful in providing insight into whether
(p. 95) there is a relationship between a cost and a level of activity. 
 
TRUE
 
Difficulty: Easy
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
83. Assume the costs of a service department are driven by the number
(p. 95) of service orders and the equation for calculating the costs of a
service department is y = $5 000 + $3x. The cost of the department
if there were 6 000 orders would be $25 000. 
 
FALSE
 
Difficulty: Easy
Learning Objective: 03-09 Estimate cost functions using the high–low method and regression analysis
 
Chapter 03 Testbank Summary
 
Cat #  o
ego f  Q
ry ues
tio
ns
AA 23
CS
B: 
An
alyt
ical
AA 5
CS
B: 
Co
mm
uni
cati
on
AA 26
CS
B: 
Ref
lect
ive
Dif 4
ficu
lty: 
Dif
ficu
lt
Dif 41
ficu
lty: 
Eas
y
Dif 38
ficu
lty: 
Me
diu
m
Gra 5
dua
te 
Attr
ibut
e: 
Co
mm
uni
cati
on
Gra 45
dua
te 
Attr
ibut
e: P
robl
em 
Sol
vin
g
Lea 1
rnin
g O
bje
ctiv
e: 0
3-
01 
Exp
lain 
the 
rela
tion
shi
ps 
bet
wee
n c
ost 
esti
mat
ion, 
cost 
beh
avi
our 
and 
cost 
pre
dict
ion
Lea 1
rnin
g O
bje
ctiv
e: 0
3-
02 
Exp
lain 
the 
con
cep
t of 
cost 
driv
ers, 
incl
udi
ng 
vol
um
e-
bas
ed 
and 
non
-
vol
um
e-
bas
ed 
cost 
driv
ers
Lea 7
rnin
g O
bje
ctiv
e: 0
3-
03 I
ntro
duc
e th
e u
nit, 
bat
ch, 
pro
duc
t an
d fa
cilit
y le
vel 
hier
arc
hy 
of c
osts 
and 
cost 
driv
ers
Lea 26
rnin
g O
bje
ctiv
e: 0
3-
05 
Def
ine 
and 
ana
lyse 
the 
beh
avi
our 
of t
he f
ollo
win
g ty
pes 
of c
osts
: va
riab
le, f
ixe
d, s
tepf
ixe
d, s
emi
vari
abl
e (o
r m
ixe
d) a
nd 
cur
vili
nea
r
Lea 6
rnin
g O
bje
ctiv
e: 0
3-
06 
Exp
lain 
the 
imp
orta
nce 
of t
he r
ele
van
t ra
nge 
wh
en 
usi
ng 
a c
ost 
beh
avi
our 
patt
ern 
for 
cost 
pre
dict
ion
Lea 4
rnin
g O
bje
ctiv
e: 0
3-
07 
Def
ine 
and 
pro
vid
e e
xa
mpl
es o
f en
gin
eer
ed, 
co
mm
itte
d a
nd 
disc
reti
ona
ry c
osts
Lea 7
rnin
g O
bje
ctiv
e: 0
3-
08 
Des
crib
e th
e fo
llo
win
g a
ppr
oac
hes 
to c
ost 
esti
mat
ion: 
ma
nag
eria
l ju
dg
me
nt (
incl
udi
ng 
acc
oun
t cl
assi
fica
tion
), th
e e
ngi
nee
ring 
met
hod
, an
d q
uan
titat
ive 
ana
lysi
s (i
ncl
udi
ng 
hig
h–
low
, an
d si
mpl
e a
nd 
mul
tipl
e re
gre
ssio
n)
Lea 23
rnin
g O
bje
ctiv
e: 0
3-
09 
Esti
mat
e c
ost 
fun
ctio
ns 
usi
ng t
he 
hig
h–
low 
met
hod 
and 
regr
essi
on 
ana
lysi
s
Lea 5
rnin
g O
bje
ctiv
e: 0
3-
10 
Exp
lain 
so
me 
of t
he i
ssu
es t
hat 
aris
e in 
esti
mat
ing 
cost 
fun
ctio
ns i
n pr
acti
ce, 
incl
udi
ng 
dat
a c
olle
ctio
n pr
obl
ems
, le
arni
ng 
cur
ve 
effe
cts, 
and 
cost
–
ben
efit 
eva
luat
ion
s
Lea 3
rnin
g O
bje
ctiv
e: 0
3-
11 
Aft
er s
tud
yin
g th
e a
ppe
ndi
x, u
se 
Mic
ros
oft 
Exc
el 
® t
o es
tim
ate 
and 
eva
luat
e a 
regr
essi
on 
equ
atio
n