Chapter 10 Determining How Costs Behave
Objective 10.1
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
Diff: 2
Terms: cost estimation, linear cost function
Objective: 1
AACSB: Reflective thinking
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
Diff: 2
Terms: cost function
Objective: 1
AACSB: Reflective thinking
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
Diff: 3
Terms: cost function
Objective: 1
AACSB: Reflective thinking
1
Copyright © 2012 Pearson Education, Inc.
,4) Bennet Company employs 30 individuals. Eighteen employees are paid $14 per hour and the rest are
salaried employees paid $4,000 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
Diff: 2
Terms: mixed cost
Objective: 1
AACSB: Analytical skills
5) McGuinness Company employs 8 individuals. They are all paid $14.50 per hour. 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: A
Diff: 2
Terms: variable cost
Objective: 1
AACSB: Analytical skills
6) For February, the cost components of a picture frame include $0.25 for the glass, $.65 for the wooden
frame, and $0.80 for assembly. The assembly desk and tools cost $400. 1,000 frames are expected to be
produced in the coming year. What cost function best represents these costs?
A) y = 1.70 + 400X
B) y = 400 +1.70X
C) y = 2.10 + 1,000X
D) y = .90 + 400X
Answer: B
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
7) The cost components of a heater include $35 for the compressor, $12 for the sheet molded compound
frame, and $80 per unit for assembly. The factory machines and tools cost is $55,000. The company
expects to produce 1,500 heaters in the coming year. What cost function best represents these costs?
A) y = 1,500 + 127X
B) y = 1,500 +55,000X
C) y = 55,000 + 1,500X
D) y = 55,000 +127X
Answer: D
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
2
Copyright © 2012 Pearson Education, Inc.
,8) A linear cost function can represent:
A) mixed cost behaviors
B) fixed cost behaviors
C) variable cost behaviors
D) All of these answers are correct.
Answer: D
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Reflective thinking
9) The cost function y = 2,000 + 6X:
A) has a slope coefficient of 2,000
B) has an intercept of 6
C) is a straight line
D) represents a fixed cost
Answer: C
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
10) The cost function y = 150 + 10X:
A) has a slope coefficient of 150
B) has an intercept of 150
C) is a nonlinear
D) represents a fixed cost
Answer: B
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
11) The cost function y = 10,000 + 3X:
A) represents a mixed cost
B) will intersect the y-axis at 3
C) has a slope coefficient of 10,000
D) is a curved line
Answer: A
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
3
Copyright © 2012 Pearson Education, Inc.
, 12) The cost function y = 90 + 8X:
A) has a slope coefficient of -8
B) will intersect the y-axis at 8
C) has a slope coefficient of 8
D) is a curved line
Answer: C
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
13) Which of the following is an equation of a fixed cost function?
A) y = bX + a
B) y = a + bX
C) y = bX
D) y = a
Answer: D
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
14) One assumption frequently made in cost behavior estimation is that changes in total costs can be
explained by changes in the level of a single activity.
Answer: TRUE
Diff: 1
Terms: cost estimation
Objective: 1
AACSB: Analytical skills
15) A cost function is a mathematical description of how a cost changes with changes in the level of an
activity relating to that cost.
Answer: TRUE
Diff: 1
Terms: cost function
Objective: 1
AACSB: Reflective thinking
16) All cost functions are linear.
Answer: FALSE
Explanation: All cost functions are not linear, but for cost-behavior estimation we assume some are
linear within a relevant range.
Diff: 1
Terms: cost function
Objective: 1
AACSB: Reflective thinking
4
Copyright © 2012 Pearson Education, Inc.
Objective 10.1
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
Diff: 2
Terms: cost estimation, linear cost function
Objective: 1
AACSB: Reflective thinking
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
Diff: 2
Terms: cost function
Objective: 1
AACSB: Reflective thinking
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
Diff: 3
Terms: cost function
Objective: 1
AACSB: Reflective thinking
1
Copyright © 2012 Pearson Education, Inc.
,4) Bennet Company employs 30 individuals. Eighteen employees are paid $14 per hour and the rest are
salaried employees paid $4,000 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
Diff: 2
Terms: mixed cost
Objective: 1
AACSB: Analytical skills
5) McGuinness Company employs 8 individuals. They are all paid $14.50 per hour. 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: A
Diff: 2
Terms: variable cost
Objective: 1
AACSB: Analytical skills
6) For February, the cost components of a picture frame include $0.25 for the glass, $.65 for the wooden
frame, and $0.80 for assembly. The assembly desk and tools cost $400. 1,000 frames are expected to be
produced in the coming year. What cost function best represents these costs?
A) y = 1.70 + 400X
B) y = 400 +1.70X
C) y = 2.10 + 1,000X
D) y = .90 + 400X
Answer: B
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
7) The cost components of a heater include $35 for the compressor, $12 for the sheet molded compound
frame, and $80 per unit for assembly. The factory machines and tools cost is $55,000. The company
expects to produce 1,500 heaters in the coming year. What cost function best represents these costs?
A) y = 1,500 + 127X
B) y = 1,500 +55,000X
C) y = 55,000 + 1,500X
D) y = 55,000 +127X
Answer: D
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
2
Copyright © 2012 Pearson Education, Inc.
,8) A linear cost function can represent:
A) mixed cost behaviors
B) fixed cost behaviors
C) variable cost behaviors
D) All of these answers are correct.
Answer: D
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Reflective thinking
9) The cost function y = 2,000 + 6X:
A) has a slope coefficient of 2,000
B) has an intercept of 6
C) is a straight line
D) represents a fixed cost
Answer: C
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
10) The cost function y = 150 + 10X:
A) has a slope coefficient of 150
B) has an intercept of 150
C) is a nonlinear
D) represents a fixed cost
Answer: B
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
11) The cost function y = 10,000 + 3X:
A) represents a mixed cost
B) will intersect the y-axis at 3
C) has a slope coefficient of 10,000
D) is a curved line
Answer: A
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
3
Copyright © 2012 Pearson Education, Inc.
, 12) The cost function y = 90 + 8X:
A) has a slope coefficient of -8
B) will intersect the y-axis at 8
C) has a slope coefficient of 8
D) is a curved line
Answer: C
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
13) Which of the following is an equation of a fixed cost function?
A) y = bX + a
B) y = a + bX
C) y = bX
D) y = a
Answer: D
Diff: 2
Terms: linear cost function
Objective: 1
AACSB: Analytical skills
14) One assumption frequently made in cost behavior estimation is that changes in total costs can be
explained by changes in the level of a single activity.
Answer: TRUE
Diff: 1
Terms: cost estimation
Objective: 1
AACSB: Analytical skills
15) A cost function is a mathematical description of how a cost changes with changes in the level of an
activity relating to that cost.
Answer: TRUE
Diff: 1
Terms: cost function
Objective: 1
AACSB: Reflective thinking
16) All cost functions are linear.
Answer: FALSE
Explanation: All cost functions are not linear, but for cost-behavior estimation we assume some are
linear within a relevant range.
Diff: 1
Terms: cost function
Objective: 1
AACSB: Reflective thinking
4
Copyright © 2012 Pearson Education, Inc.
