Measurement of Cost Behavior

Introduction to Management Accounting, 16e, Global Edition
(Horngren)
Chapter 3 Measurement of Cost Behavior

3.1 Questions

1) Managers can influence the amount of fixed and variable costs in a firm through
decisions about ________.
A) product attributes
B) capacity level
C) amount of high technology equipment used for manufacturing products
D) all of the above
Answer: D
Diff: 1
LO: 3-1
AACSB: Reflective thinking skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs

2) The use of high technology equipment to manufacture products instead of highly skilled
labor usually results in ________.
A) higher discretionary fixed costs
B) higher discretionary variable costs
C) lower risk
D) higher operating leverage
Answer: D
Diff: 2
LO: 3-1
AACSB: Reflective thinking skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs

3) Which of the following costs can be canceled in the short run?
A) salary of CEO of company
B) mortgage payment on factory building
C) lease payments on two-year lease for leased equipment in factory
D) management consulting services engaged to change company logo
Answer: D
Diff: 2
LO: 3-1
AACSB: Reflective thinking skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs




1
Copyright © 2014 Pearson Education

,4) A hospital adds a new addition and needs to acquire some new equipment for the
addition. The cost driver for the equipment is patient-days per month. The new addition
increases the patient-days per month outside the relevant range. What type of equipment
costs will change as a result of the addition?
A) discretionary fixed costs
B) discretionary variable costs
C) committed fixed costs
D) committed variable costs
Answer: C
Diff: 2
LO: 3-1
AACSB: Reflective thinking skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs

5) Managers can eliminate ________ costs entirely for a given year in dire times such as a
major recession. However, managers cannot eliminate ________ costs.
A) discretionary variable costs; committed variable costs
B) discretionary fixed costs; committed fixed costs
C) discretionary variable costs; committed fixed costs
D) committed fixed costs; committed variable costs
Answer: B
Diff: 2
LO: 3-1
AACSB: Reflective thinking skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs

6) If a company eliminates all discretionary costs due to a severe recession, this could
________.
A) ensure that the company reports a net loss
B) ensure that the company reports a net profit
C) reestablish a company's competitive position in an industry
D) impair a company's competitive position in an industry
Answer: D
Diff: 2
LO: 3-1
AACSB: Reflective thinking skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs

7) Many organizations use a linear relationship with a single cost driver to describe a cost
even though the cost may have multiple cost drivers. Why?
A) This approach is easier and less expensive.
B) The cost of developing a more complex function is greater than the benefit.
C) Cost estimates from the simple function are accurate enough for most decisions.
D) All of the above
Answer: D
Diff: 2
LO: 3-1
AACSB: Analytic skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs

8) It may be difficult to trace costs to products or services if the costs are ________.
A) volume-driven
B) driven by activities directly related to volume
C) driven by multiple cost drivers
D) none of the above
Answer: C
2
Copyright © 2014 Pearson Education

,Diff: 2
LO: 3-1
AACSB: Analytic skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs

9) Simon Inc. currently produces 110,000 units at a cost of $440,000. The cost is variable.
Next year Simon Inc. expects to produce 115,000 units. Simon's relevant range for
production is 100,000 to 120,000 units. If 115,000 units are produced next year, what is
the expected variable cost?
A) $420,000
B) $430,000
C) $440,000
D) $460,000
Answer: D
Diff: 1
LO: 3-1
AACSB: Analytic skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs

10) Donahue currently produces 120,000 units at a cost of $400,000. Of the $400,000 cost,
$200,000 is a fixed cost. Next year Donahue expects to produce 145,000 units. Donahue's
relevant range for production activities is 100,000 to 150,000 units. If 145,000 units are
produced next year, what is the expected fixed cost for next year?
A) $200,000
B) $241,667
C) $441,667
D) $483,333
Answer: A
Diff: 2
LO: 3-1
AACSB: Analytic skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs




3
Copyright © 2014 Pearson Education

, 11) The following data points are available. This is an example of a ________ cost.

Units Costs
600 $560
650 $565
800 $580
900 $590
A) variable
B) fixed
C) mixed
D) none of the above
Answer: C
Diff: 1
LO: 3-1
AACSB: Analytic skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs

12) A car lease payment is computed based solely on the number of miles driven. This is an
example of a ________.
A) variable cost
B) mixed cost
C) step cost
D) stair cost
Answer: A
Diff: 1
LO: 3-1
AACSB: Analytic skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs

13) Knowledge about the behavior of different costs in a service department such as
maintenance can be used to ________.
A) plan costs
B) provide feedback to managers
C) make decisions about the most efficient use of resources
D) all of the above
Answer: D
Diff: 1
LO: 3-1
AACSB: Reflective thinking skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs




4
Copyright © 2014 Pearson Education