Acti
MODULE 3 7. A cost that remains constant on a per unit basis in a given period d
ACTIVITY COST AND COST ANALYSIS of activity should be considered a(an):
A. variable cost. C. fixed cost.
THEORIES: B. prime cost. D. overhead cost.
1. Cost behavior analysis is a study of how a firm's costs 8. Malayan Company’s average cost per unit is the same at all leve
A. relate to competitors' costs. following is true?
B. relate to general price level changes. A. MALAYAN must have only variable costs.
C. respond to changes in activity levels within the company. B. MALAYAN must have only fixed costs.
D. respond to changes in the gross national product. Bobadilla C. MALAYAN must have some fixed costs and some variable cos
D. MALAYAN’s cost structure cannot be determined from this info
2. The term “relevant range” as used in cost accounting means the range over which
A. costs may fluctuate C. production may vary 9. Depreciation expense based on the number of units produced is
B. cost relationships are valid D. relevant costs are incurred Bobadilla cost?
A. Out-of-pocket cost. C. Variable cost.
3. Most operating decisions by management focus on a narrow range of activity which is called B. Marginal cost. D. Fixed cost.
the:
A. relevant range of production. C. optimal level of production. Bobadilla 10. When production increases, variable manufacturing cos
B. strategic level of production. D. tactical operating level of production. following ways?
Bobadilla A. B. C
4. An item or event that has a cause-effect relationship with the incurrence of a variable cost is Unit variable cost decreases remains same remains
called a Total variable cost decreases Increases decre
A. mixed cost. C. direct cost.
B. predictor. D. cost driver. Bobadilla
11. When the number of units manufactured increases, the most signifi
be reflected as a(n)
5. If a predetermined overhead rate is not employed and the volume of production is increased
A. increase in the fixed element. C. increase in the
over the level planned, the cost per unit would be expected to
B. decrease in the variable element. D. decrease in the
A. Decrease for fixed costs and remain unchanged for variable costs.
B. Remain unchanged for fixed costs and increase for variable costs.
12. As volume increases,
C. Decrease for fixed costs and increase for variable costs.
A. total fixed costs remain constant and per-unit fixed costs increa
D. Increase for fixed costs and increase for variable costs. Bobadilla
B. total fixed costs remain constant and per-unit fixed costs decre
C. total fixed costs remain constant and per-unit fixed costs remai
6. Which of the following describes the behavior of the variable cost per unit? Variable cost:
D. total fixed costs increase and per-unit fixed costs increase.
A. Varies in increasing proportion with changes in the activity level.
B. Varies in increasing proportion with changes in the activity level.
13. Which of the following best describes a fixed cost?
C. Remains constant with changes in the activity level.
A. It may change in total when such change is unrelated to chang
D. Varies in direct proportion with the activity level. Bobadilla
B. It may change in total when such change is related to changes
C. It is constant per unit of change in production.
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, D. It may change in total when such change depends on production within the relevant 20. Management is considering replacing its existing sales commissio
range. Bobadilla fixed salary plan. If the change is adopted, the company’s
A. Breakeven point must increase. C. Operating leve
14. If activity increases, which of the following statements about cost behavior is true? Bobadilla B. Margin of safety must decrease. D. Profit must incr
A. Fixed cost per unit will increase C. Fixed cost per unit will decrease
B. Variable cost per unit will increase D. Variable cost per unit will decrease 21. The indifference point is the level of volume at which a company
A. earns the same profit under different operating scheme.
15. An increase in the activity level within the relevant range results in: B. earns no profit.
A. an increase in fixed cost per unit. C. earns its target profit.
B. a proportionate increase in total fixed costs. D. any of the above.
C. an unchanged fixed cost per unit.
D. a decrease in fixed cost per unit. Bobadilla 22. Operating leverage is the relative mix of
A. revenues earned and manufacturing costs
16. A cost that remains constant in total but varies on a per-unit basis with changes in activity is B. fixed and variable costs.
called a(n) C. high-volume and low-volume products.
A. expired cost. C. variable cost. D. manufacturing costs and period costs.
B. fixed cost. D. mixed cost. Bobadilla
23. The increased use of automation and less use of the work force i
17. Which of the following statements regarding fixed costs is incorrect? trend towards an increase in
A. Expressing fixed costs on a per unit basis usually is the best approach for decision- A. both variable and fixed costs.
making process. B. fixed costs and a decrease in variable costs.
B. Fixed costs expressed on a per unit basis will react inversely with changes in activity. C. variable costs and a decrease in fixed costs.
C. Assumptions by accountants regarding the behavior of fixed costs rest heavily on the D. variable costs and no change in fixed costs.
concept of the relevant range. Bobadilla
D. Fixed costs frequently represent long-term investments in property, plant, and equipment. 24. If fixed costs decrease while variable cost per unit remains consta
will be
18. Lamang Company changed its cost structure by increasing fixed costs and decreasing its per- A. Unchanged C. Higher
unit variable costs. The change: B. Lower D. Indeterminate
A. Increases risk and increases potential profit.
B. Increases risk and decreases potential profit. 25. Costs that increase as the volume of activity decreases within the r
C. Decreases risk and decreases potential profit. A. Average cost per unit. C. Total fixed cost
D. Decreases risk and increases potential profit. Bobadilla B. Average variable cost per unit. D. Total variable c
19. A management’s preference for a very low degree of operating leverage might indicate that: 26. Which costs will change with an increase in activity within the releva
A. an increase in sales volume is expected. A. Total fixed costs and total variable cost.
B. a decrease in sales volume is expected. B. Per unit fixed costs and total variable cost.
C. the firm is very unprofitable. C. Per unit variable cost and per unit fixed cost.
D. the firm has very high fixed costs. Bobadilla D. Per unit fixed cost and total fixed cost.
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,27. Which of the following best describes the relationship between fixed costs per unit and B. volume of activity is heavy. D. volume of activ
variable costs per unit, as total volume increases?
A. Fixed cost per unit stays the same and variable cost per unit stays the same. 35. The equation(s) required for applying the least squares method in t
B. Fixed cost per unit stays the same and variable cost per unit increases. variable production costs could be expressed as
C. Fixed cost per unit increases and variable cost per unit increases. A. xy = ax + b x2 C. y = na + b x
D. Fixed cost per unit decreases and variable cost per unit stays the same. Bobadilla B. y = a + bx2 D. xy = ax + b
xy = na + b x y = na + bx
28. Within the relevant range, the difference between variable costs and fixed costs is:
A. variable costs per unit fluctuate and fixed cost per unit remains constant. 36. Weaknesses of the high-low method include all of the following exc
B. variable cost per unit is constant and fixed cost per unit fluctuates. A. Only two observations are used to develop the cost function.
C. both total variable cost and total fixed cost are constant. B. The high and low activity levels may not be representative.
D. both total variable cost and total fixed cost fluctuate. Bobadilla C. the method does not detect if the cost behavior is nonlinear.
D. the mathematical calculations are relatively complex.
29. The learning curve in cost estimation is a good example of:
A. non-linear cost behavior. C. simple regression. 37. Which of the following methods estimates costs by identifying cost
B. machine-intensive production. D. a random variable. Bobadilla on qualitative analysis?
A. Regression analysis C. Engineering me
30. Cost estimation is the process of B. Account analysis D. High-low metho
A. estimating the relationship between costs and the cost drivers that cause those costs.
B. documenting costs in terms of direct and indirect costs. 38. Account analysis as compared to the engineering method
C. summarizing past costs into fixed and variable components. A. relies on past data.
D. all of the above. Bobadilla B. relies on present and future data.
C. measures the work involved in the activities that go into a prod
31. Which of the following methods is used to estimate costs? D. a and c.
A. Account analysis C. Engineering method
B. High-low method D. All of the above Bobadilla 39. Which of the following methods may be used to estimate costs
studies to approximate labor time?
32. For analysis purposes, the high-low method usually produces a(n) A. Regression analysis C. Engineering me
A. reasonable estimate. C. overstated estimate. B. Account analysis D. High-low metho
B. precise estimate. D. understated estimate. Bobadilla
40. The cost estimation method that gives the most mathematica
33. The high-low method is criticized because it equation is
A. is not a graphical method. A. the high-low method C. the scatter-diag
B. is a mathematical method. B. the contribution margin method D. regression ana
C. ignores much of the available data by concentrating on only the extreme points.
D. does not provide reasonable estimates. Bobadilla 41. Regression analysis is better than the high-low method of cost est
analysis:
34. The high-low method may give unsatisfactory results if A. is more mathematical. C. fits its data into
A. the data points all fall on a line. C. the points are not representative. B. uses all the data points, not just two. D. takes more tim
53
, 42. In regression analysis, what does the variable "X" stand for in the model Y = a + bX + e? 49. The engineering method of estimating costs:
A. The amount of the dependent variable, the cost to be estimated. A. can be used to estimate costs for totally new activities.
B. The regression error, which is the distance between the regression line and the data point. B. can detail each step required to perform an operation.
C. The value for the independent variable, the cost driver for the cost to be estimated; there C. sometimes can be quite expensive to use.
may be one or more cost drivers. D. all of the above are true.
D. The unit variable cost, also called the coefficient of the independent variable. Bobadilla
50. The correlation coefficient or R-squared (R2) is interpreted as:
43. Simple regression is A. the minimum distance between the regression line and a single
A. a regression equation with more than one independent variable. B. the measure of the linear relationship between two or more var
B. a regression equation with more than one dependent variable. C. a determination of whether the data point is considered to be a
C. a regression equation with more than one independent and dependent variables. D. the proportion of the variation in the dependent variable exp
D. a regression that considers all unknown factors. Bobadilla variable.
44. Regression shows 51. The closeness of the relationship between the cost and the activity
A. the proportion of the variation of dependent variable explained by dependent variables. A. correlation C. spurious
B. the proportion of the variation of independent variable explained by the independent B. regression analysis D. manufacturing
variables.
C. the proportion of the variation of dependent variable explained by the independent 52. R-squared is a measure of
variables. A. the spurious relationship between cost and activity
D. none of the above. Bobadilla B. the fixed cost component
C. the variable cost per unit of activity
45. In the method of least squares, the deviation is the difference between the D. how well the regression line accounts for the changes in the de
A. predicted and estimated costs. C. predicted and average costs.
B. predicted and actual costs. D. average and actual costs. Bobadilla 53. The principal advantage of the scatter-diagram method over th
estimation is that the scatter-diagram method
46. A cost-predicting equation determined through regression analysis A. includes cost outside the relevant range.
A. always gives close predictions. B. considers more than two points.
B. will not work any better than one obtained using the high-low method. C. can be used with more types of costs than the high-low method
C. can be used only for costs that vary with sales of production. D. gives a precise mathematical fit of the points to the line.
D. could be severely affected by outliers. Bobadilla
54. The major objective of preparing a scatter-diagram is to
47. In the cost equation TC = F + VX, the X term is: A. develop an equation to predict future costs.
A. total fixed costs. C. unit variable cost. B. perform regression analysis on the results.
B. total variable costs. D. activity units. Bobadilla C. determine the relevant range.
D. find the high and low points to use for the high-low method of e
48. Which of the following methods would be best for estimating costs for totally new activities?
A. Engineering method C. Scattergraph method 55. Advantages of the method of least squares over the high-low
B. Account analysis method D. High-Low method Bobadilla following except
54
MODULE 3 7. A cost that remains constant on a per unit basis in a given period d
ACTIVITY COST AND COST ANALYSIS of activity should be considered a(an):
A. variable cost. C. fixed cost.
THEORIES: B. prime cost. D. overhead cost.
1. Cost behavior analysis is a study of how a firm's costs 8. Malayan Company’s average cost per unit is the same at all leve
A. relate to competitors' costs. following is true?
B. relate to general price level changes. A. MALAYAN must have only variable costs.
C. respond to changes in activity levels within the company. B. MALAYAN must have only fixed costs.
D. respond to changes in the gross national product. Bobadilla C. MALAYAN must have some fixed costs and some variable cos
D. MALAYAN’s cost structure cannot be determined from this info
2. The term “relevant range” as used in cost accounting means the range over which
A. costs may fluctuate C. production may vary 9. Depreciation expense based on the number of units produced is
B. cost relationships are valid D. relevant costs are incurred Bobadilla cost?
A. Out-of-pocket cost. C. Variable cost.
3. Most operating decisions by management focus on a narrow range of activity which is called B. Marginal cost. D. Fixed cost.
the:
A. relevant range of production. C. optimal level of production. Bobadilla 10. When production increases, variable manufacturing cos
B. strategic level of production. D. tactical operating level of production. following ways?
Bobadilla A. B. C
4. An item or event that has a cause-effect relationship with the incurrence of a variable cost is Unit variable cost decreases remains same remains
called a Total variable cost decreases Increases decre
A. mixed cost. C. direct cost.
B. predictor. D. cost driver. Bobadilla
11. When the number of units manufactured increases, the most signifi
be reflected as a(n)
5. If a predetermined overhead rate is not employed and the volume of production is increased
A. increase in the fixed element. C. increase in the
over the level planned, the cost per unit would be expected to
B. decrease in the variable element. D. decrease in the
A. Decrease for fixed costs and remain unchanged for variable costs.
B. Remain unchanged for fixed costs and increase for variable costs.
12. As volume increases,
C. Decrease for fixed costs and increase for variable costs.
A. total fixed costs remain constant and per-unit fixed costs increa
D. Increase for fixed costs and increase for variable costs. Bobadilla
B. total fixed costs remain constant and per-unit fixed costs decre
C. total fixed costs remain constant and per-unit fixed costs remai
6. Which of the following describes the behavior of the variable cost per unit? Variable cost:
D. total fixed costs increase and per-unit fixed costs increase.
A. Varies in increasing proportion with changes in the activity level.
B. Varies in increasing proportion with changes in the activity level.
13. Which of the following best describes a fixed cost?
C. Remains constant with changes in the activity level.
A. It may change in total when such change is unrelated to chang
D. Varies in direct proportion with the activity level. Bobadilla
B. It may change in total when such change is related to changes
C. It is constant per unit of change in production.
51
, D. It may change in total when such change depends on production within the relevant 20. Management is considering replacing its existing sales commissio
range. Bobadilla fixed salary plan. If the change is adopted, the company’s
A. Breakeven point must increase. C. Operating leve
14. If activity increases, which of the following statements about cost behavior is true? Bobadilla B. Margin of safety must decrease. D. Profit must incr
A. Fixed cost per unit will increase C. Fixed cost per unit will decrease
B. Variable cost per unit will increase D. Variable cost per unit will decrease 21. The indifference point is the level of volume at which a company
A. earns the same profit under different operating scheme.
15. An increase in the activity level within the relevant range results in: B. earns no profit.
A. an increase in fixed cost per unit. C. earns its target profit.
B. a proportionate increase in total fixed costs. D. any of the above.
C. an unchanged fixed cost per unit.
D. a decrease in fixed cost per unit. Bobadilla 22. Operating leverage is the relative mix of
A. revenues earned and manufacturing costs
16. A cost that remains constant in total but varies on a per-unit basis with changes in activity is B. fixed and variable costs.
called a(n) C. high-volume and low-volume products.
A. expired cost. C. variable cost. D. manufacturing costs and period costs.
B. fixed cost. D. mixed cost. Bobadilla
23. The increased use of automation and less use of the work force i
17. Which of the following statements regarding fixed costs is incorrect? trend towards an increase in
A. Expressing fixed costs on a per unit basis usually is the best approach for decision- A. both variable and fixed costs.
making process. B. fixed costs and a decrease in variable costs.
B. Fixed costs expressed on a per unit basis will react inversely with changes in activity. C. variable costs and a decrease in fixed costs.
C. Assumptions by accountants regarding the behavior of fixed costs rest heavily on the D. variable costs and no change in fixed costs.
concept of the relevant range. Bobadilla
D. Fixed costs frequently represent long-term investments in property, plant, and equipment. 24. If fixed costs decrease while variable cost per unit remains consta
will be
18. Lamang Company changed its cost structure by increasing fixed costs and decreasing its per- A. Unchanged C. Higher
unit variable costs. The change: B. Lower D. Indeterminate
A. Increases risk and increases potential profit.
B. Increases risk and decreases potential profit. 25. Costs that increase as the volume of activity decreases within the r
C. Decreases risk and decreases potential profit. A. Average cost per unit. C. Total fixed cost
D. Decreases risk and increases potential profit. Bobadilla B. Average variable cost per unit. D. Total variable c
19. A management’s preference for a very low degree of operating leverage might indicate that: 26. Which costs will change with an increase in activity within the releva
A. an increase in sales volume is expected. A. Total fixed costs and total variable cost.
B. a decrease in sales volume is expected. B. Per unit fixed costs and total variable cost.
C. the firm is very unprofitable. C. Per unit variable cost and per unit fixed cost.
D. the firm has very high fixed costs. Bobadilla D. Per unit fixed cost and total fixed cost.
52
,27. Which of the following best describes the relationship between fixed costs per unit and B. volume of activity is heavy. D. volume of activ
variable costs per unit, as total volume increases?
A. Fixed cost per unit stays the same and variable cost per unit stays the same. 35. The equation(s) required for applying the least squares method in t
B. Fixed cost per unit stays the same and variable cost per unit increases. variable production costs could be expressed as
C. Fixed cost per unit increases and variable cost per unit increases. A. xy = ax + b x2 C. y = na + b x
D. Fixed cost per unit decreases and variable cost per unit stays the same. Bobadilla B. y = a + bx2 D. xy = ax + b
xy = na + b x y = na + bx
28. Within the relevant range, the difference between variable costs and fixed costs is:
A. variable costs per unit fluctuate and fixed cost per unit remains constant. 36. Weaknesses of the high-low method include all of the following exc
B. variable cost per unit is constant and fixed cost per unit fluctuates. A. Only two observations are used to develop the cost function.
C. both total variable cost and total fixed cost are constant. B. The high and low activity levels may not be representative.
D. both total variable cost and total fixed cost fluctuate. Bobadilla C. the method does not detect if the cost behavior is nonlinear.
D. the mathematical calculations are relatively complex.
29. The learning curve in cost estimation is a good example of:
A. non-linear cost behavior. C. simple regression. 37. Which of the following methods estimates costs by identifying cost
B. machine-intensive production. D. a random variable. Bobadilla on qualitative analysis?
A. Regression analysis C. Engineering me
30. Cost estimation is the process of B. Account analysis D. High-low metho
A. estimating the relationship between costs and the cost drivers that cause those costs.
B. documenting costs in terms of direct and indirect costs. 38. Account analysis as compared to the engineering method
C. summarizing past costs into fixed and variable components. A. relies on past data.
D. all of the above. Bobadilla B. relies on present and future data.
C. measures the work involved in the activities that go into a prod
31. Which of the following methods is used to estimate costs? D. a and c.
A. Account analysis C. Engineering method
B. High-low method D. All of the above Bobadilla 39. Which of the following methods may be used to estimate costs
studies to approximate labor time?
32. For analysis purposes, the high-low method usually produces a(n) A. Regression analysis C. Engineering me
A. reasonable estimate. C. overstated estimate. B. Account analysis D. High-low metho
B. precise estimate. D. understated estimate. Bobadilla
40. The cost estimation method that gives the most mathematica
33. The high-low method is criticized because it equation is
A. is not a graphical method. A. the high-low method C. the scatter-diag
B. is a mathematical method. B. the contribution margin method D. regression ana
C. ignores much of the available data by concentrating on only the extreme points.
D. does not provide reasonable estimates. Bobadilla 41. Regression analysis is better than the high-low method of cost est
analysis:
34. The high-low method may give unsatisfactory results if A. is more mathematical. C. fits its data into
A. the data points all fall on a line. C. the points are not representative. B. uses all the data points, not just two. D. takes more tim
53
, 42. In regression analysis, what does the variable "X" stand for in the model Y = a + bX + e? 49. The engineering method of estimating costs:
A. The amount of the dependent variable, the cost to be estimated. A. can be used to estimate costs for totally new activities.
B. The regression error, which is the distance between the regression line and the data point. B. can detail each step required to perform an operation.
C. The value for the independent variable, the cost driver for the cost to be estimated; there C. sometimes can be quite expensive to use.
may be one or more cost drivers. D. all of the above are true.
D. The unit variable cost, also called the coefficient of the independent variable. Bobadilla
50. The correlation coefficient or R-squared (R2) is interpreted as:
43. Simple regression is A. the minimum distance between the regression line and a single
A. a regression equation with more than one independent variable. B. the measure of the linear relationship between two or more var
B. a regression equation with more than one dependent variable. C. a determination of whether the data point is considered to be a
C. a regression equation with more than one independent and dependent variables. D. the proportion of the variation in the dependent variable exp
D. a regression that considers all unknown factors. Bobadilla variable.
44. Regression shows 51. The closeness of the relationship between the cost and the activity
A. the proportion of the variation of dependent variable explained by dependent variables. A. correlation C. spurious
B. the proportion of the variation of independent variable explained by the independent B. regression analysis D. manufacturing
variables.
C. the proportion of the variation of dependent variable explained by the independent 52. R-squared is a measure of
variables. A. the spurious relationship between cost and activity
D. none of the above. Bobadilla B. the fixed cost component
C. the variable cost per unit of activity
45. In the method of least squares, the deviation is the difference between the D. how well the regression line accounts for the changes in the de
A. predicted and estimated costs. C. predicted and average costs.
B. predicted and actual costs. D. average and actual costs. Bobadilla 53. The principal advantage of the scatter-diagram method over th
estimation is that the scatter-diagram method
46. A cost-predicting equation determined through regression analysis A. includes cost outside the relevant range.
A. always gives close predictions. B. considers more than two points.
B. will not work any better than one obtained using the high-low method. C. can be used with more types of costs than the high-low method
C. can be used only for costs that vary with sales of production. D. gives a precise mathematical fit of the points to the line.
D. could be severely affected by outliers. Bobadilla
54. The major objective of preparing a scatter-diagram is to
47. In the cost equation TC = F + VX, the X term is: A. develop an equation to predict future costs.
A. total fixed costs. C. unit variable cost. B. perform regression analysis on the results.
B. total variable costs. D. activity units. Bobadilla C. determine the relevant range.
D. find the high and low points to use for the high-low method of e
48. Which of the following methods would be best for estimating costs for totally new activities?
A. Engineering method C. Scattergraph method 55. Advantages of the method of least squares over the high-low
B. Account analysis method D. High-Low method Bobadilla following except
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