Activity based questions
ACTIVITY ANALYSIS,COST – BEHAVIOUR AND COST ESTIMATION
Multiple Choice Questions
1. Which of the following is not an example of a committed fixed cost?
A. Property taxes.
B. Depreciation on buildings.
C. Salaries of management personnel.
D. Outlays for advertising programs.
E. Equipment rental costs.
2. Committed fixed costs would include:
A. advertising.
B. research and development.
C. depreciation on buildings and equipment.
D. contributions to charitable organizations.
E. expenditures for direct labor.
3. Amounts spent for charitable contributions are an example of a(n):
A. committed fixed cost.
B. committed variable cost.
C. discretionary fixed cost.
D. discretionary variable cost.
E. engineered cost.
4. Which of the following would not typically be classified as a discretionary fixed cost?
A. Equipment depreciation.
B. Employee development (education) programs.
C. Advertising.
D. Outlays for research and development.
E. Charitable contributions.
5. Which of the following choices correctly classifies a committed fixed cost and a discretionary fixed cost?
Committed 
Discretionary 

A. 
Promotion 
Management salaries 

B. 
Building depreciation 
Charitable contributions 

C. 
Management training 
Property taxes 

D. 
Equipment rentals 
Equipment depreciation 

E. 
Research and development 
Advertising 
6. Which type of fixed cost (1) tends to be more longterm in nature and (2) can be cut back more easily in bad economic times without doing serious harm to organizational goals and objectives?
Long Term in Nature 
Can be Cut Back More Easily In Bad Economic Times 

A. 
Committed 
Committed 

B. 
Committed 
Discretionary 

C. 
Discretionary 
Committed 

D. 
Discretionary 
Discretionary 

E. 
Committed 
No difference between 

committed and discretionary 
7. Hightech automation combined with a downsizing of a company's hourly labor force often results in:
A. increased fixed costs and increased variable costs.
B. increased fixed costs and reduced variable costs.
C. reduced fixed costs and increased variable costs.
D. reduced fixed costs and reduced variable costs.
E. increased discretionary fixed costs and reduced committed fixed costs.
8. Which of the following techniques is not used to analyze cost behavior?
A. Leastsquares regression.
B. Highlow method.
C. Visualfit method.
D. Linear programming.
E. Multiple regression.
9. The highlow method and leastsquares regression are used by accountants to:
A. evaluate divisional managers for purposes of raises and promotions.
B. choose among alternative courses of action.
C. maximize output.
D. estimate costs.
E. control operations.
10. Which of the following statements about the visualfit method is (are) true?
I. The method results in the creation of a scatter diagram.
II. The method is not totally objective because of the manner in which the cost line is determined.
III. The method is especially helpful in the determination of outliers.
A. I only.
B. II only.
C. I and II.
D. I and III.
E. I, II, and III.
11. The nonstatistical method of cost estimation that calls for the creation of a scatter diagram is the:
A. leastsquares regression method.
B. highlow method.
C. visualfit method.
D. account analysis method.
E. multiple regression method.
12. Which of the following methods of cost estimation relies on only two data points?
A. Leastsquares regression.
B. The highlow method.
C. The visualfit method.
D. Account analysis.
E. Multiple regression.
Use the following to answer questions 1314:
Swanson and Associates presently leases a copy machine under an agreement that calls for a fixed fee each month and a charge for each copy made. Swanson made 7,000 copies and paid a total of $360 in March; in May, the firm paid $280 for 5,000 copies. The company uses the highlow method to analyze costs.
13. Swanson's variable cost per copy is:
A. $0.040.
B. $0.051.
C. $0.053.
D. $0.056.
E. an amount other than those given above.
14. Swanson's monthly fixed fee is:
A. $80.
B. $102.
C. $106.
D. $112.
E. an amount other than those given above.
Use the following to answer questions 1517:
Atlanta, Inc., which uses the highlow method to analyze cost behavior, has determined that machine hours best explain the company's utilities cost. The company's relevant range of activity varies from a low of 600 machine hours to a high of 1,100 machine hours, with the following data being available for the first six months of the year:
Month 
Utilities 
Machine Hours 

January 
$8,700 
800 

February 
8,360 
720 

March 
8,950 
810 

April 
9,360 
920 

May 
9,625 
950 

June 
9,150 
900 
15. The variable utilities cost per machine hour is:
A. $0.18.
B. $4.50.
C. $5.00.
D. $5.50.
E. an amount other than those listed above.
16. The fixed utilities cost per month is:
A. $3,764.
B. $4,400.
C. $4,760.
D. $5,100.
E. an amount other than those listed above.
17. Using the highlow method, the utilities cost associated with 980 machine hours would be:
A. $9,510.
B. $9,660.
C. $9,700.
D. $9,790.
E. an amount other than those listed above.
18. Hitchcock, Inc., uses the highlow method to analyze cost behavior. The company observed that at 12,000 machine hours of activity, total maintenance costs averaged $7.00 per hour. When activity jumped to 15,000 machine hours, which was still within the relevant range, the average cost per machine hour totaled $6.40. On the basis of this information, the variable cost per machine hour was:
A. $4.00.
B. $6.40.
C. $6.70.
D. $7.00.
E. an amount other than those listed above.
19. Northridge, Inc., uses the highlow method to analyze cost behavior. The company observed that at 20,000 machine hours of activity, total maintenance costs averaged $10.50 per hour. When activity jumped to 24,000 machine hours, which was still within the relevant range, the average cost per machine hour totaled $9.75. On the basis of this information, the company's fixed maintenance costs were:
A. $24,000.
B. $90,000.
C. $210,00.
D. $234,000.
E. an amount other than those listed above.
20. The following data relate to the Hodges Company for May and August of the current year:
May 
August 

Maintenance hours 
10,000 
12,000 

Maintenance cost 
$260,000 
$300,000 
May and August were the lowest and highest activity levels, and Hodges uses the highlow method to analyze cost behavior. Which of the following statements is true?
A. The variable maintenance cost is $25 per hour.
B. The variable maintenance cost is $25.50 per hour.
C. The variable maintenance cost is $26 per hour.
D. The fixed maintenance cost is $60,000 per month.
E. More than one of the above statements is true.
Use the following to answer questions 2123:
Yang Manufacturing, which uses the highlow method, makes a product called Yin. The company incurs three different cost types (A, B, and C) and has a relevant range of operation between 2,500 units and 10,000 units per month. Perunit costs at two different activity levels for each cost type are presented below.
Type A 
Type B 
Type C 
Total 

5,000 units 
$4 
$9 
$4 
$17 

7,500 units 
$4 
$6 
$3 
$13 
21. The cost types shown above are identified by behavior as:
Type A 
Type B 
Type C 

A. 
Fixed 
Variable 
Semivariable 

B. 
Fixed 
Semivariable 
Variable 

C. 
Variable 
Semivariable 
Fixed 

D. 
Variable 
Fixed 
Semivariable 

E. 
Semivariable 
Variable 
Fixed 
22. If Yang produces 10,000 units, the total cost would be:
A. $90,000.
B. $100,000.
C. $110,000.
D. $125,000.
E. an amount other than those given above.
23. The cost formula that expresses the behavior of Yang's total cost is:
A. Y = $0 + $17X.
B. Y = $20,000 + $13X.
C. Y = $40,000 + $9X.
D. Y = $45,000 + $4X.
E. Y = $60,000 + $5X.
24. In regression analysis, the variable that is being predicted is known as the:
A. independent variable.
B. dependent variable.
C. explanatory variable.
D. interdependent variable.
E. functional variable.
25. Mohawk Products has determined that the number of machine hours worked (MH) drives the amount of manufacturing overhead incurred (MOH). On the basis of this relationship, a staff analyst has constructed the following regression equation:
MOH = 240,000 + 8MH
Which of the choices correctly depicts the nature of Mohawk's variables?
Dependent 

Independent 

A. 
MOH 
MOH 

B. 
MOH 
MH 

C. 
MH 
MOH 

D. 
MH 
MH 

E. 
8 
240,000 
26. Checkers Corporation, which uses leastsquares regression analysis, has derived the following regression equation for estimates of manufacturing overhead: Y = 495,000 + 5.65X. Which of the following statements is true if the primary cost driver is machine hours?
A. Total manufacturing overhead is represented by the variable "X."
B. The company anticipates $495,000 of fixed manufacturing overhead.
C. "X" is commonly known as the dependent variable.
D. "X" represents the number of machine hours.
E. Both "B" and "D" are true.
27. Boulder, Inc., recently conducted a leastsquares regression analysis to predict selling expenses. The company has constructed the following regression equation: Y = 329,000 + 7.80X. Which of the following statements is false if the primary cost driver is number of units sold?
A. The company anticipates $329,000 of fixed selling expenses.
B. "Y" represents total selling expenses.
C. The company expects both variable and fixed selling expenses.
D. For each unit sold, total selling expenses will increase by $7.80.
E. "X" represents the number of hours worked during the period.
28. Tempe, Inc., is studying marketing cost and sales volume, and has generated the following information by use of a scatter diagram and a leastsquares regression analysis:

Scatter Diagram 

Regression Analysis 

Variable cost per unit sold 
$6.50 
$6.80 

Total monthly fixed cost 
$45,000 
$42,500 
Tempe is now preparing an estimate for monthly sales of 18,000 units. On the basis of the data presented, compute the most accurate sales forecast possible.
A. $159,500.
B. $162,000.
C. $164,900.
D. $167,400.
E. An amount other than those listed above.
29. Waller Enterprises has determined that three variables play a key role in determining company revenues. To arrive at an objective forecast of revenues for the next accounting period, Waller should use:
A. simple regression.
B. multiple regression.
C. a scatter diagram.
D. complex regression.
E. the highlow method.
30. Which of the following tools is not associated with cost estimation?
A. Leastsquares regression.
B. Multiple regression.
C. Inversion equations.
D. Time and motion (engineering) studies.
E. Learning curves.
31. A staff assistant at Washington Corporation recently determined that the first four units completed in a new manufacturing process took 800 hours to complete, or an average of 200 hours per unit. The assistant also found that when the cumulative output produced doubles, the average labor time declines by 20%. On the basis of this information, how many total hours would Washington use if it produces 16 units?
A. 128.
B. 160.
C. 1,280.
D. 2,048.
E. An amount other than those listed above.
32. Which of the following is not an issue in the collection of data for cost estimation?
A. Outliers.
B. Missing data.
C. Mismatched time periods.
D. Inflation.
E. All of the above are issues in data collection.
33. A high R2 measure in regression analysis is preferred because:
A. it indicates a good fit of the regression line through the data points.
B. it shows that a great deal of the change in the dependent variable is explained by change in the independent variable.
C. it means that the independent variable is a good predictor of the dependent variable.
D. it means that the cost analyst can be relatively confident in his or her cost predictions.
E. all of the preceding statements are true.

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Solution: Activity based questions