Multiple Choice Questions

1. In the bottom-up approach to cost estimating:

(a) Required price is an input variable.

(b) Cost estimates are an output variable.

(c) Required price is an output variable.

(d) Both (a) and (b) are correct.

2. A ratio of the cost of something today to its cost at some time in the past is called a:

(a) Cost-capacity index

(b) Cost index

(c) Buyer’s guide

(d) Bluebook index

3. Index values could probably be obtained from all of the following places except:

(a) Trade organizations

(b) Engineering News Record magazine

(c) Government organizations

(d) Home Depot or Lowe’s home improvement stores

4. The equipment for applying specialty coatings that provide a high angle of skid for the paperboard and corrugated box industries has a delivered cost of $390,000. If the overall cost factor for the complete system is 2.96, the total plant cost is approximately:

(a) $954,400

(b) $1,054,400

(c) $1,154,400

(d) $1,544,400

5. A police department wants to allocate the indirect cost of speed monitoring to the three toll roads around the city. An allocation basis that may not be reasonable is:

(a) Miles of toll road monitored

(b) Average number of cars patrolling per hour

(c) Amount of car traffic per section of toll road

(d) Cost to operate a patrol car

6. If the engineering department is the activity to receive indirect cost allocation for the year, cost drivers for the ABC method that seem reasonable may be:

1. Cost of engineering changes processed

2. Size of the workforce

3. Administrative cost to process a change order

(a) 1

(b) 2

(c) 3

(d) 1 and 3

7. Advantages of the ABC method are:

1. It is an excellent replacement for a traditional cost accounting system.

2. It is always cheaper to operate than a traditional allocation system.

3. It can help explain the economic impact of management decisions.

(a) 1

(b) 2

(c) 3

(d) 1 and 3