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LEARNING OBJECTIVES:
When your students have finished studying this chapter, they should be
able to:
EXERCISES
30 Step Costs
31. Mixed Costs
32. Various Cost-Behavior Patterns
33. Plotting Data
34. Cost Function for Expedia
35. Predicting Costs
36. Identifying Discretionary and Committed Fixed Costs
37. Cost Effects of Technology
38. Mixed Cost, Choosing Cost Drivers, High-Low and
Visual-Fit Methods
39. Account Analysis
40. Linear Cost Functions
41. High-Low Method
42. Economic Plausibility of Regression Analysis Results
PROBLEMS
INTERNET EXERCISE
For many years, most organizations used only one cost driver:
the amount of direct labor. However, previously "hidden"
activities greatly influence cost behavior. Activities related to
the complexity of performing tasks affect costs more directly
than labor usage or other volume-related activity measures.
a. indivisible
b. mixed
c. activity
d. step
a. indivisible
b. fixed
c. variable
d. step
Learning Objective 2
a. technology decisions
b. product and service decisions
c. capacity decisions
d. all of these
e. only A and B
a. slope
b. intercept
c. dependent variable
d. independent variable
Learning Objective 4
a. Apple Inc.
b. Google
c. Price Waterhouse, Coopers LLP (international auditing, tax,
and consulting firm)
d. only A and B
e. only C
f. A, B, and C
d
8. Activity analysis provides cost drivers for cost functions. The cost
functions should _____.
a. predict costs
b. be plausible
c. be reliable
d. have benefits that outweigh the costs
e. A, B, C, and D
e f. only A and D
g. only A, C, and D
10. Using the high-low method of cost estimation, the variable cost per
12. The cost function derived using the high-low method, which can be
used to estimate the costs of running the cafeteria is _____.
a. $630 + $3.54X
b. $10,733 + $2.666X
c. $1,000 + $3.50X
d. $10,928 + $2.76X
e. $10,733 + $2.76
13. Axel Corp. used regression analysis to predict the annual cost of
indirect materials. The results were as follows:
Regression Output:
Constant $21,890
Std Err of Y Est $ 4,560
R Squared 0.7832
Number of Observations 22
X Coefficient(s) 11.75
Std Err of Coef. 2.1876
a. Y = $20,100 + $4.60X
b. Y = $21300 + $2.1876X
c. Y = $21,890 +11.75X
d. Y = $ 4,560 + $5.15X
10. [c] The data for January and August are used since 8,800 is
the low level of activity for the data set and 12,000 is the high
level of meals served. Subtracting the cost for the low
activity level from the cost at the high activity level gives
$11,200 ($43,000 - $31,800). Dividing this by the difference
in the activity levels of 3,200 meals (12,000 - 8,800) gives a
rate of $3.50 per meal.
11. [b] Using the variable cost per meal found above of $3.50
and the low level of activity of 8,800 meals, the variable cost
at that activity level is $30,800. Since the total cost of
operating the cafeteria when 8,800 meals were served is
$31,800, $1,000 is the estimate of fixed costs ($31,800 -
$30,800). The variable cost per meal could also be multiplied
by the high-activity level 12,000 to get $42,000 which can be
deducted from the total cost at that level of $43,000 to also
arrive at the estimate of fixed costs of $1,000.
13. [c]