Chapter 10

Cost Accounting: A Managerial Emphasis, 16e (Horngren)
Chapter 10 Determining How Costs Behave
10.1 Objective 10.1
1) A cost function is a ________.

A) process of calculating present value of projected cash flows
B) process of allocating costs to cost centers or cost objects
C) mathematical description of how a cost changes with changes in the level of an activity relating to that
cost
D) is a very thorough and detailed way to identifying a cost object when there is a physical relationship
between inputs and outputs
Answer: C
Diff: 2
Objective: 1
AACSB: Analytical thinking
2) Bennet Company employs 20 individuals. Eighteen employees are paid $18 per hour and the rest are
salaried employees paid $3,000 a month. Which of the following is the total cost function of personnel?
A) y = a + bX
B) y = b
C) y = bX
D) y = a
Answer: A
Diff: 2
Objective: 1
3) Crimson Services, Inc., employs 8 individuals. They are all paid $16.50 per hour. How would total costs
of personnel be classified?
A) variable cost
B) mixed cost
C) irrelevant cost
D) fixed cost
Answer: A
Diff: 2
Objective: 1
4) For February, the cost components of a picture frame include $0.40 for the glass, $0.67 for the wooden
frame, and $0.83 for assembly. The assembly desk and tools cost $570. Two hundred fifty frames are
expected to be produced in the coming year. What cost function best represents these costs?
A) y = 1.90 + 570X
B) y = 570 + 1.90X
C) y = 570 + 1.07X
D) y = 1.07 + 570X
Answer: B
Explanation: Per unit costs: 0.40 + 0.67 + 0.83 = 1.90
Diff: 2
Objective: 1
5) The cost components of a heater include $35 for the compressor, $11 for the sheet molded compound
frame, and $74 per unit for assembly. The factory machines and tools cost is $55,000. The company
expects to produce 1,300 heaters in the coming year. What cost function best represents these costs?
A) y = 55,000 + 120X
B) y = 1,300 + 55,000X
C) y = 55,000 + 1,300X
D) y = 1,300 + 120X
Answer: A
Explanation: Per unit costs: 35 + 11 + 74 = 120
Diff: 2
Objective: 1
6) Which of the following statements is true of a linear cost function?

A) It presents variable cost as a slope coefficient.
B) It presents total cost as an intercept.
C) It presents variable cost as an intercept.
D) It presents total cost as slope coefficient.
Answer: A
Diff: 2
Objective: 1
7) A finance manager has to select one of the four different suppliers of raw materials. The total cost
functions under the four options are given below. Assume the quality of the raw material to be the same,
which of the following is preferred by the finance manager?
A) y = 600 + 4.96X
B) y = 600 + 5.49X
C) y = 600 + 4.41X
D) y = 600 + 4.67X
Answer: C
Diff: 3
Objective: 1
8) If the total cost function is y = 6,500 + 9X, calculate the variable cost for 4,400 units.
A) $46,100
B) $39,600
C) $58,500
D) $6,500
Answer: B
Explanation: Explanation: Variable cost for 4,400 units = $9 × 4,400 units = $39,600
Diff: 2
Objective: 1
AACSB: Application of knowledge
9) The cost function y = 2,700 + 8X ________.

A) has a slope coefficient of 2,700
B) has an intercept of 8
C) is a straight line
D) represents a fixed cost
Answer: C
Diff: 2
Objective: 1
10) The cost function y = 300 + 2X ________.

A) has a slope coefficient of 300
B) has an intercept of 300
C) is a nonlinear
D) represents a fixed cost
Answer: B
Diff: 2
Objective: 1
11) The cost function y = 13,000 + 9X ________.

A) represents a mixed cost
B) will intersect the y-axis at 9
C) has a slope coefficient of 13,000
D) is a curved line
Answer: A
Diff: 2
Objective: 1
12) Which of the following functions represents the least total cost assuming the number of units is equal
in each case?
A) y = 180 + 9X
B) y = 90 + 5X
C) y = 90 + 9X
D) y = 180 + 5X
Answer: B
Diff: 3
Objective: 1
13) Which of the following is an equation of a fixed cost function?

A) y = (a + b)X
B) y = a + bX
C) y = bX
D) y = a
Answer: D
Diff: 2
Objective: 1
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
Objective: 1
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
Objective: 1
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
Objective: 1
17) In a cost function y = 18,000, the slope coefficient is zero.

Answer: TRUE
Diff: 2
Objective: 1
18) When estimating a cost function, cost behavior can be approximated by a linear cost function within
the relevant range.
Answer: TRUE
Diff: 2
Objective: 1
19) If a cost item is fixed for one cost object, it will be fixed for all cost objects for which it is associated.
Answer: FALSE
Explanation: A particular cost item could be variable for one cost object and fixed for another cost object.
Diff: 1
Objective: 1
20) All other things being equal, the longer the time horizon the more likely a cost will be fixed.
Answer: FALSE
Explanation: All other things being equal, the longer the time horizon, the more likely the cost will be
variable.
Diff: 1
Objective: 1
21) Outside of the relevant range, variable and fixed cost-behavior patterns change, causing costs to
become nonlinear.
Answer: TRUE
Explanation:
Diff: 2
Objective: 1
22) A particular cost item could be variable for one cost object and fixed for another cost object.
Answer: TRUE
Diff: 1
Objective: 1
23) A linear cost function can only represent fixed cost behavior.
Answer: FALSE
Explanation: A linear cost function can represent fixed, mixed, or variable cost behavior.
Diff: 1
Objective: 2
24) In a graphical display of a cost function, the steepness of a line represents the total amount of fixed
costs.
Answer: FALSE
Explanation: In a graphical display of a cost function, the constant or the y-intercept represents the
amount of fixed costs whereas the steepness of a line represents the variable cost.
Diff: 2
Objective: 2
25) Write a linear cost function equation for each of the following conditions. Use y for estimated costs
and X for activity of the cost driver.
a. Direct manufacturing labor is $15 per hour.
b. Direct materials cost $25.60 per cubic yard.
c. Utilities have a minimum charge of $500, plus a charge of $0.25 per kilowatt-hour.
d. Machine operating costs include $250,000 of machine depreciation per year, plus $100 of utility
costs for each day the machinery is in operation.
Answer:
a. y = $15X
b. y = $25.60X
c. y = $500 + $0.25X
d. y = $250,000 + $100 X
Diff: 2
Objective: 1
26) Write a linear cost function equation for each of the following conditions. Use y for estimated costs
and X for activity of the cost driver.
a. Direct materials cost is $2.70 per pound
b. Total cost is fixed at $800 per month regardless of the number of units produced.
c. Auto rental has a fixed fee of $90.00 per day plus $1.75 per mile driven.
d. Machine operating costs include $1,000 of maintenance per month, and $15.00 of coolant usage
costs for each day the machinery is in operation.
Answer:
a. y = $2.70X
b. y = $800
c. y = $90 + $1.75X
d. y = $1,000 + $15X
Diff: 2
Objective: 1
10.2 Objective 10.2
1) Which of the following is not true about the cause-and-effect criterion when estimating a cost function?
A) Correlation of variables proves cause-and-effect
B) Managers must be careful not to equate high correlation between two variables to mean that either
variable causes the other
C) Knowledge of operations can help managers discover cause-and-effect relationships
D) Contractual arrangements may show a direct cause and effect between two variables
Answer: A
Diff: 2
Objective: 2
2) It can be inferred that when there is a high correlation between two variables, one is the cause of the
other.
Answer: FALSE
Explanation: It cannot be inferred that a high correlation between two variables indicates that one is the
cause of the other. A high correlation simply indicates that the variables move together.
Diff: 2
Objective: 2
3) An example of a physical cause-and-effect relationship is when additional units of production increase

total direct material costs.
Answer: TRUE
Diff: 2
Objective: 2
4) Managers should use past data to create a cost function and then use the exact information provided
by that cost function to create the budgetary forecast for the next year.
Answer: FALSE
Explanation: Managers are interested in estimating past cost-behavior functions because the estimates
can help them make more accurate cost predictions, or forecasts, about future costs. But better
management decisions, cost predictions, and estimation of cost functions can be achieved only if
managers correctly identify the factors that affect costs.
Diff: 2
Objective: 2
5) A contractual agreement that specifies a fee per mile driven, such as with a rental of a truck, is not
considered a cause-and-effect relationship between an activity and a cost.
Answer: FALSE
Explanation: A contractual agreement is a common example of a cause-and-effect relationship between
an activity and cost incurrence.
Diff: 2
Objective: 2
6) What are the two assumptions behind a simple linear cost function? Briefly explain the three ways that
a linear cost function may behave?
Answer: The two usual assumptions behind a simple linear cost function are:
1) Variations in the level of a single activity (the cost driver) explain the variations in the related total
costs; and
2) Cost behavior is approximated by a linear cost function within the relevant range. This means that total
cost versus the level of a single activity that is related to that cost is a straight line within the relevant
range.
Once linearity is established, there are three possible types of linearity:

1) A strictly variable cost of the form Y = bX, where b is the slope of the straight line and is the variable
cost per unit of the cost driver;
2) A strictly constant cost of the form Y = a, where a is the total fixed cost or constant; and
3) A mixed or semivariable cost of the form Y = a + bX, where a is the total fixed cost or constant, and b is
the variable cost per unit of the driver or the slope of the straight line.
Diff: 2
Objective: 2
10.3 Objective 10.3
1) The conference method estimates cost functions ________.

A) using quantitative methods that can be very time consuming and costly
B) based on analysis and opinions gathered from various departments
C) using time-and-motion studies
D) by mathematically analyzing the relationship between inputs and outputs in physical terms
Answer: B
Diff: 2
Objective: 3
2) The account analysis method estimates cost functions ________.

A) by classifying cost accounts as variable, fixed, or mixed based on qualitative analysis
B) using time-and-motion studies
C) at a high cost, which renders it seldom used
D) in a manner that cannot be usefully combined with any other cost estimation methods
Answer: A
Diff: 2
Objective: 3
3) Quantitative analysis methods estimate cost functions ________.
A) using the time-and-motion studies
B) based on analysis and opinions gathered from various departments
C) using a formal mathematical method to fit cost functions to past data observations
D) using the pooling of knowledge from each value chain function
Answer: C
Diff: 2
Objective: 3
4) Variable cost per labor-hour is $0.82 Fixed cost is $18,500. Machine hours during the period are 90.
Calculate the total cost for 360 labor hours.
A) $18,574
B) $18,795
C) $18,869
D) $369
Answer: B
Explanation: Total cost = $18,500 + ($0.82 × 360) = $18,795
Diff: 2
Objective: 3
5) Which cost estimation method would involve analyzing direct labor subsidiary accounts and
classifying costs as as variable, fixed, or mixed to derive cost estimation formulas?
A) the account analysis method
B) the conference method
C) the marginal costing method
D) the incremental costing method
Answer: A
Diff: 1
Objective: 3
6) Which cost estimation method uses a formal statistical method such as regression analysis to develop
cost functions based on past data?
A) the cash accounting method
C) the accrual accounting method
D) the quantitative analysis method
Answer: D
Diff: 1
Objective: 3
7) Which cost estimation method uses time-and-motion studies to reveal that to make a high quality
men's suit jacket , it takes of 3 hours of direct labor effort per jacket and 5 minutes of a salaried manager
to perform quality control?
A) the accrual accounting method
B) the high-low method
C) the industrial engineering method
D) the cash accounting method
Answer: C
Diff: 1
Objective: 3
8) At the Spring Valley Company, the cost of the personnel department has always been charged to
production departments based upon number of employees. Recently, opinions gathered from the
department managers indicate that the number of new hires might be a better predictor of personnel
costs.
Total personnel department costs are $299,000.
Department A B C
Number of employees 80 280 225
Number of new hires 15 17 16
If the number of employees is considered the cost driver, what amount of personnel costs will be
allocated to Department A? (Round any intermediary calculations to two decimal places and your final
answer to the nearest dollar.)
A) $41,860
B) $7,085
C) $143,111
D) $44,874
Answer: A
Explanation: 80 / (80 + 280 + 225) = 0.14
0.14 x $299,000 = $41,860
Diff: 2
Objective: 3
9) At the Spring Valley Company Company, the cost of the personnel department has always been
charged to production departments based upon number of employees. Recently, opinions gathered from
the department managers indicate that the number of new hires might be a better predictor of personnel
costs.
Department A B C
If the number of new hires is considered the cost driver, what amount of personnel costs will be allocated
to Department A? (Round any intermediary calculations to two decimal places and your final answer to
the nearest dollar.)
A) $43,759
B) $6,845
C) $109,980
D) $47,913
Answer: C
Explanation: Personnel costs of Department A = 15 / (15 + 12 + 11) = 0.39
0.39 x $282,000 = $109,980
Diff: 2
Objective: 3
10) At the Spring Valley Company, the cost of the personnel department has always been charged to
department managers indicate that the number of new hires might be a better predictor of personnel
costs.
Department A B C
Which cost estimation method is being used by Spring Valley Company?

A) the simple regression method
C) the account analysis method
D) the marginal costing method
Answer: B
Diff: 3
Objective: 3
11) At the Wild Cat Group Company, the cost of the library and information center has always been
charged to the various departments based upon number of employees. Recently, opinions gathered from
the department managers indicate that the number of engineers within a department might be a better
predictor of library and information center costs.
Total library and information center costs are $202,000.
Department A B C
Number of engineers 5 85 35
Which cost estimation method is being used by Wild Cat Group Company?
A) the regression analysis method
B) the marginal costing method
C) the conference method
D) the operating costing method
Answer: C
Diff: 3
Objective: 3
Department A B C
If the number of employees is considered the cost driver, what amount of library and information center
costs will be allocated to Department A? (Round any intermediary calculations to two decimal places and
your final answer to the nearest dollar.)
A) $42,377
B) $44,730
C) $20,286
D) $130,306
Answer: B
Explanation: 180 / (180 + 520 + 150) = 0.21
0.21 x $213,000 = $44,730
Diff: 2
Objective: 3
Department A B C
If the number of engineers is considered the cost driver, what amount of library and information center
costs will be allocated to Department A? (Round any intermediary calculations two decimal places and
your final answer to the nearest dollar.)
A) $40,524
B) $45,331
C) $8,600
D) $130,813
Answer: C
Explanation: 5 / (5 + 85 + 35) = 0.04
0.04 x $215,000 = $8,600
Diff: 2
Objective: 3
14) M & G TV and Appliance Store is a small company that has hired you to perform some management
advisory services. The following information pertains to 2017 operations.
Sales (1,200 televisions) $1,200,000

Cost of goods sold 540,000
Store manager's salary per year 108,000
Operating costs per year 216,000
Advertising and promotion per year 24,000
Commissions (3.0% of sales) 36,000
What was the variable cost per unit sold for 2017?
A) $30
B) $480
C) $770
D) $450
Answer: B
Explanation: Variable cost per unit = ($540,000 + $36,000) / 1,200 = $480 per unit
Diff: 2
Objective: 3

What were total fixed costs for 2017?

A) $945,000
B) $597,000
C) $348,000
D) $330,000
Answer: C
Explanation: Fixed costs = $120,000 + $210,000 + $18,000 = $348,000
Diff: 2
Objective: 3

What are the estimated total costs if the company expects to sell 3,300 units next year?
A) $1,458,400
B) $2,803,700
C) $2,361,700
D) $517,900
Answer: A
Explanation: Variable costs per unit = ($570,000 + $46,000) / 2,000 = $308 per unit
Total cost = fixed costs ($130,000 + $280,000 + $32,000) + variable costs (3,300 units × $308
variable costs per unit) = $1,016,400 = $1,458,400 total estimated costs.
Diff: 3
Objective: 3

Which cost estimation method is being used by M & G TV and Appliance Store?
A) the operating costing method
B) the marginal costing method
C) the account analysis method
D) the cost-volume-profit analysis method
Answer: C
Diff: 3
Objective: 3
18) South Coast Appliance Store is a small company that has hired you to perform some management
Sales (5,000 microwave ovens) $5,000,000

Which cost estimation method is being used by South Coast Appliance Store?
A) the account analysis method
B) the operating costing method
C) the marginal costing method
D) the cost-volume-profit analysis method
Answer: A
Diff: 2
Objective: 3

What was the variable cost per unit sold for 2017?
A) $32.00
B) $175
C) $207.00
D) $277.72
Answer: C
Explanation: Variable cost per unit = ($962,500 + $176,000) / 5,500 = $207.00 per unit
Diff: 2
Objective: 3

What were the total fixed costs for 2017?

A) $1,531,320
B) $366,520
C) $335,000
D) $1,164,800
Answer: B
Diff: 2
Objective: 3

What are the estimated total costs if South Coast's store expects to sell 8,900 units next year?
A) $3,567,950
B) $2,192,400
C) $4,104,950
D) $901,900
Answer: B
Explanation: Total cost = fixed cost ($192,000 + $305,000 + $40,000) + variable costs (8,900 units × $186.00
variable costs per unit) = $1,655,400 = $2,192,400.
Diff: 3
Objective: 3
22) High Tech Manufacturing Inc., incurred total indirect manufacturing labor costs of $490,000. The
company is labor intensive. Total labor hours during the period were 4,100. Using qualitative analysis,
the manager and the management accountant determine that over the period the indirect manufacturing
labor costs are mixed costs with only one cost driver–labor-hours. They separated the total indirect
manufacturing labor costs into costs that are fixed ($120,000 based on 8,600 hours of labor) and costs that
are variable ($370,000) based on the number of labor-hours used. The company has estimated 7,300 labor
hours during the next period.
Which of the following represents the correct linear cost function?

A) y = $370,000 + $43.02X
B) y = $120,000 + $119.51X
C) y = $120,000 + $90.24X
D) y = $370,000 + $56.98X
Answer: C
Explanation: Fixed costs are given at $120,000 based on 8,600 hours of labor; variable costs are $370,000
during the period divided by 4,100 labor hours during the period = $90.24 variable cost per labor hour.
Diff: 2
Objective: 3
What will be the variable cost per hour?

A) $68.00
B) $40.00
C) $56.47
D) $96.00
Answer: A
Explanation: Variable cost per hour = ($340,000/5,000) = $68.00
Diff: 2
Objective: 3
What will be the total variable cost for the estimated 6,900 hours? (Round any intermediary calculations
to the nearest cent and your final answer to the nearest dollar.)
A) $341,034
B) $674,337
C) $862,500
D) $436,207
Answer: B
Explanation: $430,000 / 4,400 = $97.73
$97.73 x 6,900 = $674,337
Diff: 2
Objective: 3
are variable based on the number of labor-hours used. The company has estimated 7,700 labor
What will be the total cost for the estimated 7,700 hours? (Round any intermediary calculations to the
nearest cent and your final answer to the nearest dollar.)
A) $462,716
B) $586,296
C) $840,000
D) $742,535
Answer: D
Explanation: $350,000 / 4,400 = $79.55
$130,000 + ($79.55 x 7,700) = $742,535
Diff: 2
Objective: 3
26) When management develops cost estimations, they must chose one method, such as industrial
engineering, conference, account analysis, or quantitative analysis, and stay consistently with that
method as each method is mutually exclusive of the others.
Answer: FALSE
Explanation: The methods are not mutually exclusive rather, many organizations use combination of
methods to estimate costs.
Diff: 1
Objective: 3
27) The account analysis method of cost estimation classifies account costs as fixed, mixed, or variable
using qualitative judgments.
Answer: TRUE
Diff: 1
Objective: 3
28) The account analysis method estimates cost functions by classifying various cost accounts as variable,
fixed, or mixed with respect to the identified level of activity.
Answer: TRUE
Diff: 1
Objective: 3
29) The quantitative analysis method uses a formal mathematical method to identify cause-and-effect
relationships among past data observations.
Answer: TRUE
Diff: 1
Objective: 3
30) The cost of the personnel department at the Speedy Process Company has always been charged to the
department managers indicated that the number of new hires might also be a predictor of personnel costs
to be assigned. Total personnel department costs are $200.000.
Department Department Department

Cost Driver A B C
The number of new hires 30 40 25
Required:
Using the above data, prepare a report that contrasts the different amounts of personnel department cost
that would be allocated to each of the production departments if the cost driver used is:
a. number of employees.
b. the number of new hires.
c. Which cost estimation method is being used by Speedy Company?
Answer: Department Department Department
Cost Driver A B C
a. Number of employees 390/780 × 200,000 325/780 × 200,000 65/780 × 200,000
$100,000 $83,333 $16,667
b. The number of new hires 30/95×180,000 40/95×200,000 25/95×200,000
$63,158 $84,211 $52,631
c. The Speedy Company is using the conference method for cost estimation.
Diff: 3
Objective: 3
31) June Lockett, controller, gathered data on overhead costs and direct labor-hours over the past 12
months. List and discuss the different approaches June can use to estimate a cost function for overhead
costs using direct labor-hours as the cost driver.
Answer: The four approaches to cost estimation are:
1. industrial engineering method

2. conference method
3. account analysis method
4. quantitative analysis of current or past cost relationships
The industrial engineering method, also called the work-measurement method, estimates cost functions by
analyzing the relationship between inputs and outputs in physical terms.
The conference method estimates cost functions on the basis of analysis and opinions about costs and their
drivers gathered from various departments of an organization (purchasing, process engineering,
manufacturing, employee relations, etc.).
The account analysis method estimates cost functions by classifying cost accounts in the ledger as variable,
fixed, or mixed with respect to the identified cost driver.
Quantitative analysis of cost relationships are formal methods, such as the high-low method or regression
analysis, to fit linear cost functions to past data observations.
Diff: 2
Objective: 3
10.4 Objective 10.4
1) The cost to be predicted and managed is referred to as the ________.

A) independent variable
B) dependent variable
C) cost driver
D) regression
Answer: B
Diff: 2
Objective: 4
2) In the estimation of a cost function using quantitative analysis, the independent variable ________.
A) is the cost to be predicted
B) is the product of fixed costs and slope coefficient
C) is the factor used to predict the dependent variable
D) is the product of total costs and slope coefficient
Answer: C
Diff: 2
Objective: 4
3) A cost driver should be measurable and have an economically plausible relationship with the
dependent variable which means:
A) that the cost driver can be identified in an economically feasible way
B) that the relationship is based on correlation
C) that the relationship is based on a cause -and-effect criterion and makes economic sense to
management
D) that the relationship must be based on a physical relationship
Answer: C
Diff: 2
Objective: 4
4) Place the following steps in order for estimating a cost function using quantitative analysis.
A = Plot the data

B = Collect data on the dependent variable and the cost driver.
C = Choose the dependent variable
D = Identify the independent variable, or cost driver
E = Estimate the cost function
A) D C E A B
B) C D B A E
C) A D C E B
D) E D C B A
Answer: B
Diff: 2
Objective: 4
5) Which of the following is an example of time-series data:

A) loan processing times in each of 26 similar branch offices over the last 12 months
B) Direct labor hours in the Boston, Massachusetts and the New York City facility for each of the last 12
months
C) indirect labor costs and machine-hours in a manufacturer's assembly department each month for the
last 12 months
D) Store sales for each U.S. based Wal-Mart for each the last 10 years.
Answer: C
Diff: 2
Objective: 4
6) Which of the following represents cross-sectional data?

A) indirect manufacturing labor costs for the past 5 years
B) number of machine-hours used for the past 10 years
C) personnel costs of a month at 10 different organizations
D) maintenance cost of machine in a plant for the past 3 years
Answer: C
Diff: 2
Objective: 4
7) A plot of cost driver data and cost data may show all but the following:
A) a strong relationship
B) cause-and-effect relationship
C) a positive relationship
D) linear relationship
Answer: B
Diff: 3
Objective: 4
8) A plot of data that results in one extreme observation most likely indicates that ________.
A) more than one cost pool should be used
B) an unusual event such as a plant shutdown occurred during that month
C) the cost-allocation base has been incorrectly identified
D) individual cost items do not have the same cost driver
Answer: B
Diff: 2
Objective: 4
9) Cross-sectional data analysis includes ________.

A) using a variety of time periods to measure the dependent variable
B) using the highest and lowest observation
C) observing different entities during the same time period
D) comparing information in different cost pools
Answer: C
Diff: 2
Objective: 4
10) Time-series data analysis includes ________.

A) using a variety of time periods to measure the dependent variable of the same entity (organization,
plant, or activity)
B) using the highest and lowest observation for the same entity (organization, plant, or activity)
C) observing different entities during the same time period for the same entity (organization, plant, or
activity)
D) comparing information in different cost pools for the same entity (organization, plant, or activity)
Answer: A
Diff: 2
Objective: 4
11) When using the high-low method, the two observations used are the high and low observations of the
________.
A) cost driver
B) fixed cost component
C) slope coefficient
D) direct cost
Answer: A
Diff: 2
Objective: 4
12) When using the high-low method, the numerator of the equation that determines the slope is the
________.
A) difference between the positive and negative values of dependent and independent variables
B) difference between the fixed cost and variable cost associated with the cost driver
C) difference between the high and low observations of the cost driver
D) difference between the costs associated with highest and lowest observations of the cost driver
Answer: D
Diff: 2
Objective: 4
13) The high-low method ________.

A) measures the difference between actual cost and estimated cost for each observation of the cost driver
B) calculates the standard deviation of residuals
C) calculates the slope coefficient using only two observed values within the relevant range and their
respective costs
D) measures how well the predicted values, y, based on the cost driver, X, match actual cost observations,
Y
Answer: C
Diff: 3
Objective: 4
14) Put the following steps in order for using the high-low method of estimating a cost function:
A = Identify the cost function

B = Calculate the constant
C = Calculate the slope coefficient
D = Identify the highest and lowest observed values
A) D C A B
B) C D A B
C) A D C B
D) D C B A
Answer: C
Diff: 2
Objective: 4
15) Regression analysis ________.

A) calculates the slope coefficient using only two observed values within the relevant range and their
respective costs
B) measures the average amount of change in the dependent variable associated with a unit change in one
or more independent variables
C) estimates the cost functions using the time-and-motion studies
D) measures the variability or dispersion in a set of data points
Answer: B
Diff: 3
Objective: 4
16) Which of the following statements shows a difference between simple regression and multiple
regression?
A) Simple regression uses more than one dependent and independent variables, whereas multiple
regression uses only one dependent and independent variable.
B) Simple regression uses only the independent variables, whereas multiple regression uses only
dependent variables.
C) Simple regression uses only one dependent and one independent variable, whereas multiple
regression uses one dependent and more than one independent variable.
D) Simple regression uses only one dependent variable and more than one independent variables,
whereas multiple regression uses more than one dependent variable and only one independent variable.
Answer: C
Diff: 2
Objective: 4
17) The slope of the line of regression is the ________.
A) rate at which the dependent variable varies
B) rate at which the independent variable varies
C) difference between the fixed cost and variable cost associated with the cost driver
D) difference between actual cost and estimated cost for each observation of the cost driver
Answer: A
Diff: 2
Objective: 4
18) Quantum Company uses the high-low method to estimate the cost function. The information for 2017
is provided below:
Machine-hours Labor Costs
Highest observation of cost driver 400 $20,000
Lowest observation of cost driver 100 $8,000
What is the slope coefficient?

A) $80.00
B) $56.00
C) $40.00
D) $50.00
Answer: C
Explanation: Slope = ($20,000 − $8,000) / (400 − 100) = $40.00
Diff: 2
Objective: 4
is provided below:
Highest observation of cost driver 1,000 $32,000
What is the constant for the estimated cost equation?

A) $12,000
B) $16,000
C) $20,000
D) $32,000
Answer: A
Explanation: Slope ($32,000 - $16,000) / ($1,000 - 200) = $20.00
Using highest observation: Constant = $32,000 − ($20.00 × 1,000 hours) = $12,000
OR: Using lowest observation: Constant = $16,000 − ($20.00 × 200 hours) = $12,000
Diff: 2
Objective: 4
is provided below:
What is the estimated cost function for the above data?

A) y = 26,000 + 62.00X
B) y = 6,000 + 50.00X
C) y = 36,000 + 60.00X
D) y = 30,000 + 65.00X
Answer: B
Explanation: Slope = ($36,000 - $26,000) / (600 - 400) = $50.00
Constant (using highest observation): $36,000 - ($50.00 x 600) hours = $6,000
Constant (using lowest observation): $26,000 - ($50.00 x 400) hours = $6,000
Diff: 2
Objective: 4
is provided below:
What is the estimated total cost when 450 machine-hours are used?
A) $63,000
B) $32,000
C) $18,000
D) $23,625
Answer: D
Explanation: Slope = ($36,000 - $14,000) / (900 - 100) = $27.50
Constant (using highest observation): $36,000 - ($27.50 x 900) hours = $11,250
Constant (using lowest observation): $14,000- ($27.50 x 100) hours = $11,250
The total cost, y = $11,250 + ($27.50 × 450) = $23,625
Diff: 3
Objective: 4
22) Taunton Company uses the high-low method to estimate its cost function. The information for 2017 is
provided below:
Machine-hours Costs
Lowest observation of cost driver 2,500 $315,000

A) $115.00
B) $126.00
C) $60.00
D) $120.00
Answer: C
Explanation: Slope = ($345,000 − $315,000) / (3,000 − 2,500) = $60.00
Diff: 2
Objective: 4
provided below:
Machine-hours Costs
What is the constant for the estimated cost equation?

A) $277,500
B) $300,000
C) $165,000
D) $135,000
Answer: C
Explanation: Slope = ($300,000 - $277,500) / (3,000 - 2,500) = $45.00
Constant (using highest observation) = $300,000 − ($45.00 × 3,000 hours) = $165,000
Constant (using lowest observation) = $277,500 − ($45.00 × 2,500 hours) = $165,000
Diff: 2
Objective: 4
provided below:
Machine-hours Costs
What is the estimated cost function for the above data?

A) y = 332,000 + 83X
B) y = 312,000 + 104X
C) y = 252,000 + 20.00X
D) y = 92.00X
Answer: C
Constant (using highest observation): $332,000 - ($20.00 x 4,000) hours = $252,000
Constant (using lowest observation): $312,000 - ($20.00 x 3,000) hours = $252,000
Diff: 2
Objective: 4
provided below:
Machine-hours Costs
What is the estimated total cost when 1,900 machine-hours are used?
A) $509,600
B) $290,000
C) $489,700
D) $157,700
Answer: B
Constant (using highest observation): $332,000 - ($20.00 x 4,000) hours = $252,000
Constant (using lowest observation): $312,000 - ($20.00 x 3,000) hours = $252,000
The total cost, y = $252,000 + ($20.00 × 1,900) = $290,000
Diff: 2
Objective: 4
26) For Heavy Manufacturing Company, labor-hours are 40,000 and wages $144,000 at the high point of
the relevant range, and labor-hours are 24,000 and wages $96,000 at the low point of the relevant range.

A) $3.75
B) $3.00
C) $3.60
D) $4.00
Answer: B
Explanation: Slope = ($144,000 − $96,000) / (40,000 − 24,000) = $3.00 per labor-hour
Diff: 2
Objective: 4
What is the constant?

A) $24,000
B) $64,000
C) $120,000
D) $184,000
Answer: A
Constant (using highest observation): $184,000 − ($4.00 × 40,000) = $24,000
Constant (using lowest observation): $120,000 − ($4.00 × 24,000) = $24,000
Diff: 2
Objective: 4
What is the estimated total labor costs at Heavy Manufacturing Company when 11,400 labor-hours are
used?
A) $38,190
B) $55,350
C) $39,900
D) $37,050
Answer: B
Constant (using highest observation): $156,000 − ($2.75 × 48,000) = $24,000
Constant (using lowest observation): $112,000 − ($2.75 × 32,000) = $24,000
Total labor costs, y = $24,000 + ($2.75 × 11,400) = $55,350
Diff: 3
Objective: 4
29) The Connors Company has assembled the following data pertaining to certain costs that cannot be
easily identified as either fixed or variable. Connors Company has heard about a method of measuring
cost functions called the high-low method and has decided to use it in this situation.
Cost Hours
$24,000 5,000
$26,100 6,300
$34,700 7,900
$48,000 11,000
$38,300 9,250
What is the cost function?

A) y = $48,000 + $4.80X
B) y = $24,000 + $4.36X
C) y = $34,700 + $4.80X
D) y = $4,000 + $4.00X
Answer: D
Explanation: b = ($48,000 − $24,000) / (11,000 − 5,000) = $4.00 for the highest and lowest values of the cost
driver
Using highest observation: $48,000 = a + ($4.00 × 11,000)
a = $4,000
Cost function is Y = $4,000 + $4.00X
Diff: 3
Objective: 4
30) The Connors Company has assembled the following data pertaining to certain costs that cannot be
easily identified as either fixed or variable. Connors Company has heard about a method of measuring
cost functions called the high-low method and has decided to use it in this situation.
Cost Hours
$23,000 5,000
$26,000 6,450
$34,600 7,650
$42,000 10,000
$38,000 9,350
What is the estimated total cost at an operating level of 9,000 hours?

A) $34,200
B) $38,200
C) $41,400
D) $37,800
Answer: B
Explanation: b = ($42,000 − $23,000) / (10,000 − 5,000) = $3.80 for the highest and lowest values of the cost
driver
$42,000 = a + ($3.80 × 10,000)
a = $4,000
Y = $4,000 + ($3.80 × 9,000)
Y = $38,200
Diff: 3
Objective: 4
31) Presented below are the production data for the first six months of the year for the mixed costs
incurred by Venus Company.
Month Cost Units

January $5,260 4,100
February $5,000 4,000
March $6,810 5,520
April $9,900 9,000
May $5,900 4,960
June $7,390 6,510
Venus Company uses the high-low method to analyze mixed costs.
How would the cost function be stated?

A) y = $1,080 + $0.98X
B) y = $4,900 + $1.25X
C) y = $2,510 + $0.98X
D) y = $9,900 + $1.10X
Answer: A
Explanation: b = ($9,900 − $5,000) / (9,000 − 4,000) = $0.98
$9,900 = a + $0.98 × 9,000
a = $1,080
Diff: 3
Objective: 4
32) Presented below are the production data for the first six months of the year for the mixed costs
incurred by Venus Company.
Month Cost Units

January $5,210 4,100
February $4,800 3,200
March $6,780 5,470
April $10,250 8,200
May $5,900 5,030
June $7,370 6,570
Venus Company uses the high-low method to analyze mixed costs.
What is the estimated total cost at an operating level of 6,300 units?

A) $9,450
B) $8,179
C) $6,867
D) $7,875
Answer: B
Explanation: b = ($10,250 − $4,800) / (8,200 − 3,200) = $1.09
$10,250 = a + $1.09 × 8,200
a = $1,312
Cost function is: Y = $1,312 + $1.09X
Y = $1,312 + $1.09 × 6,300 = $8,179
Diff: 3
Objective: 4
33) The White Company has assembled the following data pertaining to certain costs that cannot be easily
identified as either fixed or variable. White Company has heard about a method of measuring cost
functions called the high-low method and has decided to use it in this situation.
Month Cost Hours

January $40,000 3,630
February $34,500 3,000
March $43,100 3,410
April $51,600 5,030
May $69,300 7,000
June $60,300 4,250
How is the cost function stated?

A) y = $34,500 + $9.90X
B) y = $69,300 + $8.70X
C) y = $34,800 + $11.50X
D) y = $8,400 + $8.70X
Answer: D
Explanation: b = ($69,300 − $34,500) / (7,000 − 3,000) = $8.70
$69,300 = a + ($8.70 × 7,000)
a = $8,400
Diff: 3
Objective: 4
34) The White Company has assembled the following data pertaining to certain costs that cannot be easily
identified as either fixed or variable. White Company has heard about a method of measuring cost
functions called the high-low method and has decided to use it in this situation.
Month Cost Hours

January $40,000 3,730
February $37,600 3,200
March $42,800 3,480
April $50,200 5,000
May $68,400 6,000
June $61,200 4,250
What is the estimated total cost at an operating level of 3,400 hours?

A) $70,750
B) $39,800
C) $37,400
D) $37,725
Answer: B
Explanation: b = ($68,400 − $37,600) / (6,000 − 3,200) = $11.00
$68,400 = a + ($11.00 × $6,000)
a = $2,400
y = $2,400 + ($11.00 × 3,400) = $39,800
Diff: 3
Objective: 4
35) Because the cost driver is the same for the fringe benefits of life insurance and pension benefits cost is
the same, those costs can be aggregated into one homogeneous cost pool.
Answer: TRUE
Diff: 2
Objective: 4
36) The first step in estimating a cost function using quantitative analysis is to plot the data.
Answer: FALSE
Explanation: The first step in estimating a cost function using quantitative analysis is to choose the
dependent variable.
Diff: 2
Objective: 4
37) In estimating a cost function using quantitative analysis, the dependent variable is the factor used to
predict the independent variable.
Answer: FALSE
Explanation: In estimating a cost function using quantitative analysis, the independent variable is the
factor used to predict the dependent variable.
Diff: 2
Objective: 4
38) Cross-sectional data pertain to the same entity (organization, plant, activity, and so on)
over successive past periods.
Answer: FALSE
Explanation: Time-series data pertain to the same entity (organization, plant, activity, and so on)
over successive past periods.
Diff: 1
Objective: 4
39) Simple regression analysis estimates the relationship between the dependent variable
and one independent variable.
Answer: TRUE
Diff: 2
Objective: 4
40) Two common forms of quantitative analysis methods of cost estimation are the high-low method and
regression analysis.
Answer: TRUE
Diff: 1
Objective: 4
41) The high-low method relies on only two observations, the highest and lowest, to estimate a linear cost
function.
Answer: TRUE
Diff: 1
Objective: 4
42) The dependent variable is a cost to be predicted and managed, whereas an independent variable or
cost driver is the factor used to predict the dependent variable.
Answer: TRUE
Diff: 2
Objective: 4
43) The vertical difference, called the residual term, measures the distance between actual cost of one
period and estimated cost of the next period.
Answer: FALSE
Explanation: The vertical difference, called the residual term, measures the distance between actual cost
and estimated cost for each observation of the cost driver.
Diff: 2
Objective: 4
44) Regression analysis is a statistical method that measures the average amount of change in the
dependent variable associated with a unit change in one or more independent variables.
Answer: TRUE
Diff: 1
Objective: 4
45) In using high-low method, the slope coefficient is calculated by dividing the difference between
highest and lowest observations of the cost driver by the difference between costs associated with highest
and lowest observations of the cost driver.
Answer: FALSE
Explanation: In high-low method, slope coefficient is calculated by dividing the difference between costs
associated with highest and lowest observations of the cost driver by the difference between highest and
lowest observations of the cost driver.
Diff: 2
Objective: 4
46) Simple regression analysis estimates the relationship between the dependent variable and one
independent variable.
Answer: TRUE
Diff: 2
Objective: 4
47) The advantages of the high-low method to estimate a cost function is that it is easy and accurate.
Answer: FALSE
Explanation: The method is easy to use but it produces an estimate , provides quick initial insight
however it is not necessarily accurate and is dangerous for managers to rely on only two observations to
estimate a cost function.
Diff: 2
Objective: 4
48) Multiple regression analysis uses only independent variables and not dependent variables.
Answer: FALSE
Explanation: Multiple regression analysis estimates the relationship between the dependent variable and
two or more independent variables.
Diff: 2
Objective: 4
49) In regression analysis, the term "goodness of fit" indicates the strength of the relationship between the
cost driver and the costs.
Answer: TRUE
Diff: 2
Objective: 4
50) Multiple regression analysis estimates the relationship between the dependent variable and two or
more independent variables.
Answer: TRUE
Diff: 2
Objective: 4
51) The managers of the production department have decided to use the production levels of 2017 and
2018 as examples of the highest and lowest years of operating levels. Data for those years are as follows:
Year Chemicals used Overhead Costs

2017 336,000 gallons $292,800
2018 288,000 gallons $254,400
Required:
What is the cost estimating equation for the department if gallons of chemicals are used as the cost
driver?
Answer: Slope (variable cost) = ($292,800 − $254,400) / (336,000 − 288,000) = $0.80
Constant (fixed cost) = $292,800 - ($0.80 × 336,000) = $24,000
Estimating equation = $24,000 + ($0.80 per gallon of direct material × total number of gallons)
Diff: 2
Objective: 4
52) Mountain Manufacturing Inc. ran its machines in March, a slow month, for 410 hours for a total cost
of $63,000. In July, a peak month, the freezer ran for 756 hours for a total cost of $92,800.
Required:
a. What is the cost estimating equation for the department if hours of freezer use are used as the cost
driver?
b. What is the estimated total cost at an operating level of 600 hours?
Answer:
a. Slope (variable costs) = ($92,800 − $63,000) / (756 − 410) = $86.13
Constant (fixed cost) = $92,800 − (756 × $86.13) = $27,688
Estimating equation = $27,688 + ($86.13 per direct labor hour × number of direct labor hours)
b. Total costs of 600 hours = $27,688 + ($86.13 × 600) = $79,364
Diff: 2
Objective: 4
53) The Michigan Manufacturing Company has provided the following information:
Units of Output 31,000 Units 45,000 Units

Direct materials $ 316,800 $ 443,520
Workers' wages 1,188,000 1,663,200
Supervisors' salaries 361,000 322,000
Equipment depreciation 166,320 166,320
Maintenance 75,000 86,000
Utilities 422,400 580,800
Total $2,528,720 $3,261,840
Using the high-low method and the information provided above,

a. identify the linear cost function equation and
b. estimate the total cost at 38,000 units of output.
Answer:
a. Variable cost = ($3,261,840 − $2,528,720) / (45,000 − 31,000) = $52.37
Fixed cost = $3,261,840 - ($52.37 × 45,000) = $905,190
Cost function is y = $905,190 + $52.37X
b. Output level of 38,000 units= $905.190 + ($52.37 × 38,000) =
= $2,895,250 total cost
Diff: 2
Objective: 4
54) As part of his job as cost analyst, John Kelly collected the following information concerning the
operations of the Machining Department:
Observation Machine-hours Total Operating Costs

January 4,700 $43,000
February 5,060 45,395
March 4,180 42,535
April 4,500 43,600
May 4,250 42,890
Required:
a. Use the high-low method to determine the estimating cost function with machine-hours as the cost
driver.
b. If June's estimated machine-hours are 4,300, calculate the total estimated costs of the Machining
Department?
Answer:
a. Slope coefficient = ($45,395 − $42,535) / (5,060 − 4,180) = $3.25 per machine-hour
Constant = $45,395 − ($3.25 × 5,060) = $28,950
Estimating equation = $28,950 + $3.25X
b. June's estimated costs = $28,950 + ($3.25 × 4,300) = $42,925
Diff: 2
Objective: 4
55) Salter Manufacturing Company produces inventory in a highly automated assembly plant in Fall
River, Massachusetts. The automated system is in its first year of operation and management is still
unsure of the best way to estimate the overhead costs of operations for budgetary purposes. For the first
six months of operations, the following data were collected:
Machine-hours Kilowatt-hours Total Overhead Costs

January 4,560 5,424,000 $405,600
February 4,380 5,208,000 404,160
March 4,680 5,400,000 407,040
April 3,960 5,148,000 404,160
May 3,900 5,040,000 391,200
June 3,720 4,944,000 384,000
Required:
a. Use the high-low method to determine the estimating cost function with machine-hours as the cost
driver.
b. Use the high-low method to determine the estimating cost function with kilowatt-hours as the cost
driver.
c. For July, the company ran the machines for 4,000 hours and used 4,550,000 kilowatt-hours of
power. The overhead costs totaled $365,000. Which cost driver was the best predictor for July?
Answer:
a. Machine-hours:
Slope coefficient = ($407,040 − $384,000) / (4,680 − 3,720)
= $24.00 per machine-hour
Constant = $384,000 − ($24 × 3,720) = $294,720
Machine-hour estimating equation = $294,720 + $24X
b. Kilowatt-hours:
Slope coefficient = ($407,040 − $384,000) / (5,400,000 − 4,944,000) = $0.0505 per kilowatt-hour
Constant = $407,040 − ($0.0505 × 5,400,000) = $134,198
Kilowatt-hour estimating equation =$134,198 + ($0.0505 per KWH × number of KWH)
c. Julyʹs estimated costs:

with machine-hours = $294,720 + ($24 × 4,000) = $390,720
with kilowatt-hours = $134,198 + ($0.0505 × 4,550,000) = $363,973
The best estimator for July was the kilowatt-hour cost driver.
Diff: 3
Objective: 4
56) Patrick Ross, the president of M & M Materials Company, has asked for information about the cost
behavior of manufacturing overhead costs. Specifically, he wants to know how much overhead cost is
fixed and how much is variable. The following data are the only records available:
Month Machine-hours Overhead Costs

February 1,870 $22,500
March 3,080 24,475
April 1,100 24,321
May 2,750 23,650
June 3,850 31,196
Required:
Using the high-low method, determine the overhead cost equation. Use machine-hours as your cost
driver.
Answer: High: June 3,850 $31,196
Low: April 1,100 24,321
Difference 2,750 $ 6,875
Variable cost per MH: $6,875/2,750 = $2.50 per MH
Fixed cost: $24,321 = a + $2.50 × 1,100

a = $21,571
Diff: 2
Objective: 4
57) List and briefly describe the six steps in estimating a cost function under quantitative analysis.
Answer: The first step is to select the dependent variable. Selection of which dependent variable to use
will depend on the cost function being estimated. Once the dependent variable has been selected, it is
necessary to identify the independent variable or cost driver. The cost driver is the factor that is used to
predict the dependent variable costs. The cost driver should have an economically plausible relationship
with the dependent variable and be measurable. The third step involves collecting data on the dependent
variable and the cost driver. The data may be time-series data or they may be cross-sectional data. Once
the data are collected, they need to be plotted, which is step four. Plotting the data allows for the
relationship between the cost driver and the dependent variable to be more readily observed. This also
allows for the identification of extreme observations that should be further investigated. The fifth step is
to estimate the cost function, using some form of quantitative analysis. The last step is to evaluate the cost
driver of the estimated cost function to determine if the cost function provides a good estimation.
Diff: 2
Objective: 4
10.5 Objective 10.5
1) If cost accountants decide to use production of prior periods as a cost driver for repair cost of the
current period they understand that
A) there is no correlation between repair costs and levels of production
B) repair costs tend to lag periods of high production
C) cost accountants do not need to understand operations
D) there is no cause-and-effect between production and repair costs
Answer: B
Diff: 2
Objective: 5
2) Why is choosing the correct cost driver to estimate indirect manufacturing costs important?
A) Identifying the wrong driver can lead management to incorrect and costly decisions
B) Identifying the wrong driver can increase actual overhead costs
C) Identifying the wrong driver can increase the usage of the correct driver
D) Identifying the wrong driver can increase the direct costs of the cost object
Answer: A
Diff: 2
Objective: 5
3) The trend in large corporations is a movement away from quantitative analysis of cost drivers to the
conference method.
Answer: FALSE
Explanation: Many companies are switching from the conference method to performing in-depth
quantitative analysis on their "bif-data" systems.
Diff: 2
Objective: 5
4) What is a plausible explanation of a cost function has a slope coefficient of $30 for purchases of 1 to
1,000 units and $25 for production of 1,100 - 2,000 units, and $20 for production of 2,001 - 3,000 units
A) the fixed cost per unit has decreased because of efficiencies
B) economies of scale allowing for lower cost purchases with larger orders
C) their is a linear cost function in effect
D) contribution margins are decreasing
Answer: B
Diff: 2
Objective: 5
5) If machine maintenance is scheduled at a time when production is at a low level, then ________.
A) low production is the cost driver of high repair costs
B) an understanding of operations is needed to determine an appropriate cost driver
C) low production should be avoided since it is the cause of machine maintenance
D) machine maintenance cannot be accurately predicted
Answer: B
Diff: 3
Objective: 5
6) Goodness-of-fit measures how well the predicted values in a cost estimating equation ________.
A) match the cost driver
B) determine the level of activity
C) match the actual cost observations
D) rely on the independent variable
Answer: C
Diff: 2
Objective: 5
7) A step cost functions indicates that there are

A) costs that remain the same over various ranges of activity but increases by discrete amounts as the
level of activity increases
B) greater proportions of fixed costs than variable costs at lower levels of activities
C) increases in the number of units produced during the each month of the period
D) strong relationships between fixed costs and variable costs
Answer: A
Diff: 3
Objective: 5
8) Which of the following best describes a step variable-cost function?

A) a step cost function in which cost remains the same over narrow ranges of the level of activity in each
relevant range
B) a step cost function in which cost remains the same over narrow ranges of the level of activity outside
the relevant range
C) step cost function where the cost remains the same over wide ranges of the activity in each relevant
range
D) step cost function where the cost remains the same over wide ranges of the activity outside the
relevant range
Answer: A
Diff: 2
Objective: 5
9) Which of the following statements is true of activity-based costing?
A) There is a clear cause-and-effect relationship between costs and the cost driver in the long run.
B) There is no variety of cost drivers and cost pools.
C) The system focuses on activities in together and not on individual activities.
D) A single cost driver should be identified for all the activities.
Answer: A
Diff: 2
Objective: 5
10) Which of the following statements is true of choosing cost drivers under activity-based costing?
A) All the cost drivers should be unit-level cost drivers.
B) There should be a clear cause-and-effect relationship between cost drivers and cost pools.
C) Cost drivers are independent variables.
D) A single cost driver should be identified for all the activities.
Answer: C
Diff: 2
Objective: 5
11) Machine-hours is a more economically plausible cost driver of machine maintenance than number of
direct manufacturing labor-hours.
Answer: TRUE
Diff: 2
Objective: 5
12) The larger the vertical difference between actual costs and predicted costs the better the goodness of
fit.
Answer: FALSE
Explanation: The smaller the vertical difference between actual costs and predicted costs the better the
goodness of fit.
Diff: 2
Objective: 5
13) The major advantages of quantitative methods are that they are objective, so managers can use them
to evaluate different cost drivers.
Answer: TRUE
Diff: 2
Objective: 5
14) A flat or slightly sloped regression line indicates a strong relationship between the cost driver and
costs.
Answer: FALSE
Explanation: A flat or slightly sloped regression line indicates a weak relationship between the cost driver
and costs.
Diff: 2
Objective: 5
15) When choosing among cost drivers, managers trade off level of detail, accuracy, feasibility, and costs
of estimating functions.
Answer: TRUE
Diff: 1
Objective: 5
16) Activity-based costing systems use the quantitative analysis method exclusively for cost estimation
because of its accuracy.
Answer: FALSE
Explanation: Because ABC systems have a great number and variety of cost drivers and cost pools it
requires many cost relationships to be estimated. ABC systems use a variety of estimation methods -
industrial engineering, conference, and quantitative analysis. In making the choice of method to use,
managers trade off detail, accuracy, feasibility, and costs of estimating cost functions.
Diff: 2
Objective: 5
17) When estimating the cost function for each cost pool, the manager must pay careful attention to the
cost hierarchy because the cost pool may have more than one cost driver from different levels of the cost
hierarchy.
Answer: TRUE
Diff: 3
Objective: 5
18) What are the three criteria a company should use to evaluate and choose a cost driver? Briefly explain
each of the three criteria.
Answer: The three criteria a company should use to evaluate a cost driver are economic plausibility,
goodness of fit, and significance of the independent variable.
Economic plausibility involves the theoretical existence of a causal relationship between a driver and the
costs it is supposed to drive.
Goodness of fit involves the observed differences between predictions of costs based on the cost driver
and the actual costs that occurred.
Significance of the independent variable involves the steepness of the slope of the cost driver relative to
the slope of other possible cost drivers. The steeper the slope (given the same goodness of fit) the stronger
is the relationship between the cost driver and the related costs.
Diff: 2
Objective: 5
10.6 Objective 10.6
1) Which of the following is not a nonlinear cost function?

A) increase of $20,000 revenues with increase in sales in units
B) total fixed cost of $25,000
C) variable cost of $5 per unit
D) a step cost function
Answer: D
Diff: 2
Objective: 6
2) Which of the following is an example of nonlinear cost function?

A) variable-cost functions
B) fixed-cost functions
C) learning curves
D) mixed cost functions
Answer: C
Diff: 2
Objective: 6
3) With a step fixed-cost function ________.

A) the cost varies with the changes in the activity
B) fixed cost is often approximated with a continuous variable-cost function
C) fixed cost changes proportionally with the level of activity
D) the cost remains the same over wide ranges of the activity in each relevant range
Answer: D
Diff: 2
Objective: 6
4) A step variable-cost function ________.

A) is fixed over the long run but not over the short run
B) is often approximated with a continuous variable-cost function
C) remains the same over a wide range of activity
D) example includes adding additional warehouse space
Answer: B
Diff: 2
Objective: 6
5) A learning curve is a function ________.
A) that measures the decline in labor-hours per unit due to workers becoming better at a job
B) that increases at a greater rate as workers become more familiar with their tasks
C) where unit costs increase as productivity increases
D) that is linear
Answer: A
Diff: 2
Objective: 6
6) An experience curve ________.

A) is a narrower application of the learning curve
B) measures the decline in cost per unit as production decreases for various value-chain functions such as
marketing as production increases
C) only measures the decline in labor-hours per unit as units produced increases
D) measures the increase in cost per unit as productivity increases
Answer: B
Diff: 2
Objective: 6
7) To complete the first setup on a new machine took an employee 320 minutes. Using an 70% cumulative
average-time learning curve indicates that the second setup on the new machine is expected to take
________.
A) 112 minutes
B) 128 minutes
C) 272 minutes
D) 224 minutes
Answer: B
Explanation: The time taken for the second set up on machine = 320 × 0.7 = 224; (320 + X) / 2 = 224; X = 128
minutes
Diff: 3
Objective: 6
8) To complete the first setup on a new machine took an employee 200 minutes. Using an 64%
incremental unit-time learning model indicates that the second setup on the new machine is expected to
take ________.
A) 128.0 minutes
B) 312.5 minutes
C) 328.0 minutes
D) 72.0 minutes
Answer: A
Explanation: The time taken for the second set up on machine = 200 × 0.64 = 128.0 minutes
Diff: 2
Objective: 6
9) As a result of learning curve, ________.
A) unit costs increase as productivity increases and the unit-cost function behaves nonlinearly
B) unit costs decrease as productivity increases and the unit-cost function behaves nonlinearly
C) unit costs increase as productivity increases and the unit-cost function behaves linearly
D) unit costs decrease as productivity increases and the unit-cost function behaves linearly
Answer: B
Diff: 2
Objective: 6
10) The learning-curve models presented in the text examine ________.

A) how quality increases over time
B) how efficiency increases as more units are produced
C) how setup costs decline as more workers are added
D) the change in variable costs when quantity discounts are available
Answer: B
Diff: 2
Objective: 6
11) Which of the following is a learning-curve model?

A) the cumulative average-time learning model and the incremental unit-time learning model
B) the simple regression model and the multiple regression model
C) the multicollinearity learning model and the goodness of fit learning model
D) the account analysis learning model and the conference learning method model
Answer: A
Diff: 2
Objective: 6
12) An "economy of scale" function is an example of a linear cost function.

Answer: FALSE
Explanation: A nonlinear cost function is a cost function for which the graph of total costs is not a
straight line within the relevant range. In an economy of scale situation, where there is a possibility of
producing double the product for less than double the cost; the function would be nonlinear.
Diff: 1
Objective: 6
13) A step cost function is an example of a linear cost function.

Answer: FALSE
Explanation: A step cost function is an example of a nonlinear cost function.
Diff: 1
Objective: 6
14) Step fixed-cost functions are variable over the long run.
Answer: TRUE
Diff: 2
Objective: 6
15) An experience curve is a function that measures the decline in cost per unit in various business
functions of the value chain as the amount of these activities increases.
Answer: TRUE
Diff: 1
Objective: 6
16) Nonlinear cost functions can result because of learning curves.

Answer: TRUE
Diff: 2
Objective: 5
17) In the cumulative average-time learning model, cumulative average time per unit declines by a
constant percentage each time the cumulative quantity of units produced doubles.
Answer: TRUE
Diff: 2
Objective: 6
18) When new products are introduced, learning-curve effects can have a major influence on production
scheduling.
Answer: TRUE
Diff: 2
Objective: 6
19) It is appropriate to incorporate expected learning-curve efficiencies when evaluating performance.

Answer: TRUE
Diff: 1
Objective: 6
20) The cumulative average-time learning model with a 85% learning curve indicates that if it takes 200
minutes to manufacture the first unit of a new model, then the second unit will take only 170 minutes to
manufacture.
Answer: FALSE
Explanation: Second unit set up time = 200 × .85 = 170; (200 + X)/2 = 170; X = 140 minutes
Diff: 2
Objective: 6
21) The incremental unit-time learning model with a 80% learning curve indicates that if it takes 150
minutes to manufacture the first unit of a new model, then the second unit will take only 120 minutes to
manufacture.
Answer: TRUE
Explanation: Second unit set up time = 150 ×.80 = 120 minutes
Diff: 2
Objective: 6
22) A learning curve is a function that measures how labor-hours per unit decrease, as units of
production decrease.
Answer: FALSE
Explanation: A learning curve is a function that measures how labor-hours per unit decrease, as units of
production increase.
Diff: 2
Objective: 6
23) Harold's Picture manufactures various picture frames. Each new employee takes 6 hours to make the
first picture frame and 4.8 hours to make the second. The manufacturing overhead charge per hour is $25.
Required:
a. What is the learning-curve percentage, assuming the cumulative average method?
b. What is the time needed to build 8 picture frames by a new employee using the cumulative average-
time method? You may use an index of −0.1520.
c. What is the time needed to produce the 16th frame by a new employee using the incremental unit-
time method? You may use an index of −0.3219.
d. How much manufacturing overhead would be charged to the 16 picture frames using the
average-time approach?
Answer:
a. Job Hours Cumulative Cumulative Average
1 6 6 6
2 4.8 10.8 5.4
Learning percentage = 4.8/6 = 0.90
b. Y = p × q
= 6 × 8− 0.1520
= 4.37 hours
or 1 unit = 6
2 units = 6 × 0.9 = 5.4
4 units = 5.4 × 0.9 = 4.86
8 units = 4.86 × 0.9 = 4.37 hours
Time to build 8 units: 8 × 4.37 = 35 hours
c. Y =p×q
= 6 × 16−.0.3219
= 2.458 hours
or 1 unit = 6
2 units = 6 × 0.8 = 4.8
4 units = 4.8 × 0.8 = 3.84
8 units = 3.84 × 0.8 = 3.072
16 units = 3.072 × .8 = 2.458 hours
d. Total time = 2.458 × 16 = 39.328 hours
Overhead charge = 39.328 × $25 = $983.20
Diff: 3
Objective: 6
24) Each time Mayberry Nursery hires a new employee, it must wait for some period of time before the
employee can meet production standards. Management is unsure of the learning curve in its operations
but it knows the first job by a new employee averages 40 hours and the second job averages 32 hours.
Assume all jobs to be equal in size.
Required:
a. What is the learning-curve percentage, assuming the cumulative average-time method?
b. What is the time for a new employee to build 16 units with this learning curve using the
cumulative average-time method? You may use an index of −0.1520.
Answer:
a. Job Hours Cumulative Cumulative Average
1 40 40 40
2 32 72 36
Learning percentage = 36/40 = 0.90
b. Y = p × q
= 40 × 16−.1520
= 26.244 hours
or 1 unit = 40
2 units = 40 × 0.9 = 36
4 units = 36 × 0.9 = 32.4
8 units = 32.4 × 0.9 = 29.16
16 units = 29.16 × 0.9 = 26.244 hours
16 × 26.244 = 419.904 hours
Diff: 3
Objective: 6
25) Jake's Copy Center hires a new employee. Jake knows he has to be patient with the employee until the
employee gains enough experience to meet production standards. Jake is unsure of the learning curve in
his operation, but he knows the first job by a new employee averages 50 minutes and the second job
averages 40 minutes. Assume all jobs to be equal in size.
Required:
a. What is the learning-curve percentage, assuming the cumulative average-time method?
b. What is the time for a new employee to do 32 jobs with this learning curve using the cumulative
average-time method? You may use an index of −0.1520.
Answer:
a. Job Minutes Cumulative Cumulative Average
1 50 50 50
2 40 90 45
Learning percentage = 45/50 = 0.90
b. Y = p × q
= 50 × 16−.1520
= 29.525 minutes
or 1 unit = 50
2 units = 50 × 0.9 = 45
4 units = 45 × 0.9 = 40.5
8 units = 40.5 × 0.9 = 36.45
16 units = 36.45 × 0.9 = 32.805
32 units = 32.805 × 0.9 = 29.525 minutes
32 × 29.525 = 944.784 minutes = Approximately 15 hours and 45 minutes
Diff: 3
Objective: 6
26) Discuss the potential use of nonlinear curves in cost functions and cost analysis. Give some examples.
Answer: Cost functions are not always linear. A nonlinear cost function is a cost function for which the
graph of total costs is not a straight line within the relevant range of operations. One example is a series of
straight line segments that change their slopes at critical intersection points within the range of operation.
Another example would be a step function. A step function is a function where the cost remains the same
over various ranges of the level of activity, but the cost increases by discrete amounts (or steps) as the
level of activity advances from one range to another. In addition to the examples mentioned above, there
are situations where the cost or use of resources can be represented by a curve instead of a single straight
line or a group of segmented straight lines. One example of a curve is a learning curve. A learning curve
is a function that measures how labor-hours per unit decline as units of production increase because
workers are learning and becoming better at their jobs.
Diff: 2
Objective: 6
27) Explain the difference between the cumulative average-time learning model and the incremental unit-
time learning model.
Answer: In the cumulative average-time learning model, cumulative average time per unit declines by a
constant percentage each time the cumulative quantity of units produced doubles.
In the incremental unit-time learning model, incremental time needed to produce the last unit declines by
a constant percentage each time the cumulative quantity of units produced doubles.
Diff: 2
Objective: 6
10.7 Objective 10.7
1) The ideal database for estimating cost functions contains ________.

A) numerous cost driver observations
B) only the independent variable and not the dependent variable
C) cost driver observations spanning a narrow range
D) a few values of the cost driver that are grouped closely together
Answer: A
Diff: 1
Objective: 7
2) Data collection problems arise when ________.

A) data are recorded electronically rather than manually
B) accrual-basis costs are used rather than cash-basis costs
C) fixed and variable costs are not separately identified and both are allocated to products on a per unit
basis
D) purely inflationary price effects are removed
Answer: C
Diff: 3
Objective: 7
3) Which of the following is a step to overcome problems related to data collection for estimating cost
function?
A) The analyst should remove the inflationary effects.
B) The analyst should consider fixed costs as variable.
C) The analyst should also use extreme values while calculating cost functions.
D) The analyst should not use accrual accounting.
Answer: A
Diff: 2
Objective: 7
4) Which of the following is a step followed by an analyst to overcome problems related to data collection
for estimating cost function?
A) to use cash accounting
B) to consider fixed costs as variable costs and treat allocated fixed cost per unit as a variable cost
C) to eliminate unusual observations if extreme values of observations occur
D) to include the inflationary price effects in the data
Answer: C
Diff: 2
Objective: 7
5) Which of the following is a problem related to cost analysis?

A) fixed costs are allocated as if they are variable costs
B) extreme observations are adjusted or removed
C) a company keeps accounting records on the accrual basis
D) inflationary effects are removed
Answer: A
Diff: 2
Objective: 7
6) Data collection problems can arise when extreme values of observations occur.
Answer: TRUE
Diff: 1
Objective: 7
7) Misinterpretation of data can arise when fixed costs are reported on a per unit basis.
Answer: TRUE
Diff: 2
Objective: 7
8) Inflation can distort data that are compared over time so purely inflationary effects should be removed.
Answer: TRUE
Diff: 2
Objective: 7
9) Fixed costs are sometimes allocated to individual products as part of the standard costing system.
When this is the case, they should be treated as variable costs for purposes of future cost estimation.
Answer: FALSE
Explanation: The danger is to regard these costs as variable rather than fixed. The analyst should
distinguish carefully fixed costs from variable costs and not treat allocated fixed cost per unit as a variable
cost.
Diff: 2
Objective: 7
10) Jack Williams has just purchased the film studio of a movie company that specializes in comedies. He
found that the company did not try to estimate the cost of making a movie. Instead, it just gave the
producer a budget and told him/her to make a movie within budget. Mr. Williams does not like the
former movie-budget concept and desires to establish a formal cost estimation system.
Required:
What are some of the potential problems that may be encountered in changing from a budget to a cost
estimation movie making system?
Answer: One of the first problems will be the timing of matching the cost drivers with the actual movie
production process. Under the former budget system, the relationships with many of the cost drivers
were probably forced to meet budget, or else poorly kept because they were substantially under budget
and control over them was weak.
Next will be the problem of determining which costs are fixed and which are variable under the budget
system. It may be difficult to determine those that are truly variable.
Timing problems will also have to be reconciled. Some costs may be incurred monthly rather than by
movie, and some type of accrual will have to be made to keep the costs allocated to the proper cost driver.
Finally, there may be gaps in the historical data because only total costs had to be maintained within the
budget. There was probably little attention paid to cost categories, thereby causing reliable cost data to be
scarce.
Diff: 2
Objective: 7
10.8 Objective 10.A
1) The coefficient of determination is important in explaining variances in estimating equations. For a

certain estimating equation, the unexplained variation was given as 22,000. The total variation was given
as 55,000. What is the coefficient of determination for the equation?
A) 2.50
B) 0.40
C) 0.60
D) 1.40
Answer: C
Diff: 2
Objective: A
2) The H.W. Grant Corporation used regression analysis to predict the annual cost of indirect materials.
The results were as follows:
Indirect Materials Cost Explained by Units Produced

Constant $15,640
Standard error of Y estimate $3,600
r2 0.7704
Number of observations 22
X coefficient(s) 11.25
Standard error of coefficient(s) 2.19
What is the cost estimation equation?

A) Y = $15,640 + $11.25X
B) Y = $3,600 + $8.67X
C) Y = $19,240 + $5.14X
D) Y = $12,040 + $11.25X
Answer: A
Diff: 2
Objective: A
3) Grandy's Beer was to manufacture 600 cases of ale next week. The accountant provided the following
analysis of total manufacturing costs.
Variable Coefficient Standard Error t-Value

Constant 150 82.39 1.29
Independent variable 245 103.25 2.19
r2 = 0.83
What is the estimated cost of producing the 600 cases of ale?

A) $147,150
B) $90,245
C) $61,950
D) $49,434
Answer: A
Explanation: y = $150 + ($245 × 600) = $147,150
Diff: 2
Objective: A
4) Ben and Mildred's Stables used two different independent variables (trainer hours and number of
horses) in two different equations to evaluate the cost of training horses. The most recent results of the
two regressions are as follows:
Trainer's hours:
Constant $1,005.45 $217.52 4.61
Independent Variable $22.54 $3.23 7.40
r2 = 0.56
Number of horses:
Constant $5,240.20 $1,180.32 4.44
r2 = 0.63
What is the estimated total cost for the coming year if 14,700 trainer hours are incurred and the stable has
310 horses to be trained, based upon the best cost driver?
A) $7,992.85
B) $300,276.50
C) $332,343.45
D) $13,995,671.20
Answer: B
Explanation: y = $5,240.20 + ($951.73 × 310) = $300,276.50 based on highest r2, which uses # of horses as
the cost driver
Diff: 3
Objective: A
5) A major concern that arises with multiple regression is multicollinearity, which exists when ________.
A) the dependent variable is not normally distributed
B) the standard errors of the coefficients of the individual variables decrease
C) the R2 statistic is low
D) two or more independent variables are highly correlated with one another
Answer: D
Diff: 2
Objective: A
6) In multiple regression, when two or more independent variables are highly correlated with one
another, the situation is known as ________.
A) heteroscedasticity
B) homoscedasticity
C) multicollinearity
D) autocorrelation
Answer: C
Diff: 2
Objective: A
7) Which of the following is the mathematical expression to calculate the coefficient of determination?
A) Coefficient of determination = 1 - (Unexplained variation / Total variation)
B) Coefficient of determination = (1 + Total variation ) / Unexplained variation)
C) Coefficient of determination = (1 - Unexplained variation ) / Total variation)
D) Coefficient of determination = 1 - Unexplained variation + Total variation)
Answer: A
Diff: 2
Objective: A
8) The coefficient of determination (r2) measures the percentage of variation in X (the independent
variable) explained by Y (the dependent variable).
Answer: FALSE
Explanation: The coefficient of determination (r2) measures the percentage of variation in Y (the
dependent variable) explained by X (the independent variable).
Diff: 1
Objective: A
9) Generally a coefficient of determination (r2) of 0.30 or higher passes a goodness of fit test.
Answer: TRUE
Diff: 2
Objective: A
10) Goodness of fit has meaning only if the relationship between the cost drivers and costs is
economically plausible.
Answer: TRUE
Diff: 2
Objective: A
11) Multicollinearity exists in multiple regression when two or more independent variables are highly
correlated with each other.
Answer: TRUE
Diff: 2
Objective: A
12) The t-value of a coefficient measures how large the value of the estimated coefficient is relative to its
standard error.
Answer: TRUE
Diff: 2
Objective: A
13) The standard error of the estimated coefficient indicates how much the estimated value, b, is likely to
be affected by random factors.
Answer: TRUE
Diff: 1
Objective: A
14) The new cost analyst in your accounting department has just received a computer-generated report
that contains the results of a simple regression program for cost estimation. The summary results of the
report appear as follows:

Constant $74.79 $16.82 4.45
Independent variable $1,081.76 $215.67 5.02
r2 = 0.75
Required:
a. What is the cost estimation equation according to the report?
b. What is the goodness of fit? What does it tell about the estimating equation?
Answer:
a. y = $74.79 + $1,081.76X
b. Goodness of fit is 0.75. It measures how well the predicted values match the actual observations. In
this case, the equation passes the goodness of fit test because it is substantially above 0.30, the threshold
of acceptance.
Diff: 1
Objective: A
15) South by Southwest Company used least squares regression analysis to obtain the following output:
Payroll Department Cost

Explained by Number of Employees
Constant $7,540
Standard error of Y estimate 819
r 2 0.8924
Number of observations 20
X coefficient(s) $2.473
Standard error of coefficient(s) 0.0966
Required:
a. What is the total fixed cost?
b. What is the variable cost per employee?
c. Prepare the linear cost function.
d. What is the coefficient of determination? Comment on the goodness of fit.
Answer:
a. The constant or intercept is the total fixed cost of $7,540.
b. The variable cost per employee is the X coefficient of $2.473.
c. y = $7,540 + $2.473X
d. The coefficient of determination is the r2 of 0.8924. This represents a very high goodness of fit. The
closer to 1.0, the better the cost driver explains the cost. Therefore, the conclusion can be drawn that there
is a significant relationship between the cost of the payroll department and the number of employees.
Diff: 2
Objective: A
16) Dandy Manufacturing Company uses two different independent variables (machine-hours and
number of packages) in two different equations to evaluate costs of the packaging department. The most
recent results of the two regressions are as follows:
Machine-hours:
Constant $748.30 $341.20 2.19
r2 = 0.33
Number of packages:
Constant $242.90 $75.04 3.24
r2 = 0.73
Required:
a. What are the estimating equations for each cost driver?
b. Which cost driver is best and why?
Answer:
a. Machine-hours y = $748.30 + $52.90X
Number of packages y = $242.90 + $5.60X
b. Machine-hours has a low r2 which implies that a small proportion of the variance is explained by
machine-hours, thereby making it less attractive than number of packages as a cost predictor.
Also, for the independent variable, number of packages, the t-value of 2.80 indicates that a
relationship exists between the independent and dependent variables. For machine-hours, the t-value
(1.50) is below 2.00, indicating that the coefficient is not significantly different from zero and that there
may not be a relationship between the independent and dependent variables.
The t-values of the constant terms (g) for both drivers is greater than 2.00, therefore, there is no
distinguishing characteristic between the constants.
Given the above findings, it appears that number of packages is the best predictor of costs of the
packing department.
Diff: 2
Objective: A
17) Yancy Company manufactures chairs. Because the efforts of manufacturing are approximately equal
between labor and machinery, management is considering other possible cost drivers. By considering
different cost drivers, it is anticipated that the estimating process can be improved. The following cost
estimating equations with their r2 values have been determined for 2017:
1. X = cutting time y = $19,500 + $20X r2 = 0.65

2. X = labor y = $5,000 + $25X r2 = 0.49
3. X = machinery y = $44,500 + $5X r2 = 0.55
Required:
a. Which equation should be selected for the analysis?
b. What other factors should be included in the selection of the estimating equation?
Answer:
a. Equation 1 for cutting time is slightly better than the other two equations based on r2 values.
Generally, an r2 above 0.30 indicates a goodness of fit that is acceptable for most situations. Therefore, all
three equations are acceptable when considering only the coefficient of determination.
However, because the values are so close together, other factors should be considered.
b. Other factors to be considered are economic plausibility, the significance of independent variables,
and specification analysis. The best cost drivers of the dependent variables are those that meet all these
criteria plus that of best coefficient of determination.
Diff: 2
Objective: A

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Cost Accounting: A Managerial Emphasis, 16e (Horngren)

Chapter 10 Determining How Costs Behave

10.1 Objective 10.1

1) A cost function is a ________.

6) Which of the following statements is true of a linear cost function?

9) The cost function y = 2,700 + 8X ________.

10) The cost function y = 300 + 2X ________.

11) The cost function y = 13,000 + 9X ________.

13) Which of the following is an equation of a fixed cost function?

16) All cost functions are linear.

17) In a cost function y = 18,000, the slope coefficient is zero.

3) An example of a physical cause-and-effect relationship is when additional units of production increase

Once linearity is established, there are three possible types of linearity:

10.3 Objective 10.3

1) The conference method estimates cost functions ________.

2) The account analysis method estimates cost functions ________.

Total personnel department costs are $299,000.

Total personnel department costs are $282,000.

Total personnel department costs are $298,000.

Which cost estimation method is being used by Spring Valley Company?

Total library and information center costs are $202,000.

Total library and information center costs are $213,000.

Total library and information center costs are $215,000.

Sales (1,200 televisions) $1,200,000

Sales (1,500 televisions) $1,500,000

What were total fixed costs for 2017?

Sales (2,000 televisions) $2,000,000

Sales (1,400 televisions) $1,400,000

Sales (5,000 microwave ovens) $5,000,000

Sales (5,500 microwave ovens) $5,500,000

Sales (5,600 microwave ovens) $5,600,000

What were the total fixed costs for 2017?

Sales (6,000 microwave ovens) $6,000,000

Which of the following represents the correct linear cost function?

What will be the variable cost per hour?

Department Department Department

1. industrial engineering method

10.4 Objective 10.4

1) The cost to be predicted and managed is referred to as the ________.

A = Plot the data

5) Which of the following is an example of time-series data:

6) Which of the following represents cross-sectional data?

9) Cross-sectional data analysis includes ________.

10) Time-series data analysis includes ________.

13) The high-low method ________.

A = Identify the cost function

15) Regression analysis ________.

What is the slope coefficient?

What is the constant for the estimated cost equation?

What is the estimated cost function for the above data?

What is the slope coefficient?

What is the constant for the estimated cost equation?

What is the estimated cost function for the above data?

What is the slope coefficient?

What is the constant?

What is the cost function?

What is the estimated total cost at an operating level of 9,000 hours?

Month Cost Units

Venus Company uses the high-low method to analyze mixed costs.

How would the cost function be stated?

Month Cost Units

Venus Company uses the high-low method to analyze mixed costs.