Chapter 3: Cost-Volume-Profit Analysis

1)Can CVP be used with absorption costing?

Chapter 10: determining how costs behave

1)A mixed cost function has a constant component of $20,000. If the total cost is $60,000 and the independent variable has the value 200, what is the value of the slope coefficient?

(show calculation)

a. $200

b. $400

c. $600

d. $40,000

2)Of the following methods, the one that would not be appropriate for analyzing how a specific cost behaves is

a. the scattergraph method.

b. the industrial engineering approach.

c. linear programming.

d. statistical regression analysis.

3)When the high-low method is used to estimate a cost function, the variable cost per unit is found by

a. performing regression analysis on the associated cost and cost driver database.

b. subtracting the fixed cost per unit from the total cost per unit based on either the highest or lowest observation of the cost driver.

c. dividing the difference between the highest and lowest observations of the cost driver by the difference between costs associated with the highest and lowest observations of the cost driver.

d. dividing the difference between costs associated with the highest and lowest observations of the cost driver by the difference between the highest and lowest observations of the cost driver.

4)Three criteria to use in identifying cost drivers from the potentially large set of independent variables that can be included in a regression model are

a. goodness of fit, size of the intercept term, and specification analysis.

b. independence between independent variables, economic plausibility, and specification analysis.

c. economic plausibility, goodness of fit, and significance of independent variable.

d. spurious correlation, expense of gathering data, and multicollinearity.

5)Companies that take advantage of quantity discounts in purchasing their materials have

a. decreasing cost functions.

b. linear cost functions.

c. nonlinear cost functions.

d. stationary cost functions.

With the cumulative average-time learning model

6)a. the cumulative time per unit declines by a constant percentage when production doubles.

b. the time needed to produce the last unit declines by a constant percentage when production doubles.

c. costs increase in total by a constant percentage as production increases.

d. the total cumulative time increases in proportion to production increases.

7)Which of the following is not a common problem encountered in collecting data for cost estimation?

a. Lack of observing extreme values

b. Missing data

c. Changes in technology

d. Distortions resulting from inflation

8)Why do we need to cost estimation?