Q: A company incurs $\$1,000$ in fixed costs and $\$5$ in variable costs per unit. If the company produces 200 units, what is the total cost?

$\$2,000$ = \$1,000 + (\$5 \times 200)$

Q: A regression analysis yields the equation $y = 300 + 10X$. What is the predicted total cost when the cost driver $X = 50$?

$\$300 + (10 \times 50) = \$800$

Q: In the cost function $y = a + bX$, if $a = 500$ and $b = 8$, what is the total cost when $X = 75$?

$\$1,100 = 500 + (8 \times 75)$

Question 1

Which of the following best describes a mixed cost?

Accepted Answer

A cost that contains both fixed and variable components.

Question 2

Given the linear cost function $y = a + bX$, what does the variable $b$ represent?

Accepted Answer

The variable cost per unit of the cost driver.

Question 3

A company incurs $\$1,000$ in fixed costs and $\$5$ in variable costs per unit. If the company produces 200 units, what is the total cost?

Accepted Answer

$\$2,000$ = \$1,000 + (\$5 	imes 200)$

Question 4

Which of the following is NOT an assumption made when estimating a linear cost function?

Accepted Answer

The relationship between cost and activity is non-linear across all activity levels.

Question 5

Which method of cost estimation uses all available data points to estimate the cost function?

Accepted Answer

Regression analysis

Question 6

A regression analysis yields the equation $y = 300 + 10X$. What is the predicted total cost when the cost driver $X = 50$?

Accepted Answer

$\$300 + (10 	imes 50) = \$800$

Question 7

In regression analysis, what does the 'goodness of fit' indicate?

Accepted Answer

The strength of the relationship between the cost driver and the costs.

Question 8

Which of the following is a key criterion for selecting an appropriate cost driver when estimating a cost function?

Accepted Answer

All of the above

Question 9

If the residual term in a regression analysis is large, what does this imply?

Accepted Answer

There is a weak relationship between the cost driver and the cost.

Question 10

A company is analyzing its utility costs using the high-low method. In the highest activity month (1,000 machine hours), the cost was $\$2,500$. In the lowest activity month (400 machine hours), the cost was $\$1,300$. What is the estimated variable cost per machine hour?

Accepted Answer

$\$2.00 = (\$2,500 - \$1,300) / (1,000 - 400)$

Question 11

Which of the following best describes the dependent variable in a cost function?

Accepted Answer

The cost to be predicted or managed

Question 12

In the cost function $y = a + bX$, if $a = 500$ and $b = 8$, what is the total cost when $X = 75$?

Accepted Answer

$\$1,100 = 500 + (8 	imes 75)$

Question 13

Which of the following statements about regression analysis is TRUE?

Accepted Answer

It estimates the cost function using all available data points.

Question 14

A company wants to predict its future maintenance costs. Which of the following steps should it perform FIRST when using quantitative analysis?

Accepted Answer

Choose the dependent variable (the cost to be predicted).

Question 15

If a cost function is $y = 200 + 4X$, and the company expects to use 300 units of the cost driver, what is the predicted total cost?

Accepted Answer

$\$1,400 = 200 + (4 	imes 300)$

Question 16

Which of the following is an example of a mixed cost?

Accepted Answer

A utility bill with a fixed monthly charge plus a charge per kilowatt-hour used

Question 17

Why is identifying the correct cost driver important when estimating costs?

Accepted Answer

It helps management make accurate and cost-effective decisions.

Question 18

Which of the following is a limitation of the high-low method compared to regression analysis?

Accepted Answer

It uses only two data points, which may not represent the overall cost behavior.

Question 19

If the regression equation for total maintenance cost is $y = 150 + 12X$, and the actual cost for 10 units of the cost driver is $\$300$, what is the residual for this observation?

Accepted Answer

$\$30 = 300 - (150 + 12 	imes 10)$

Cost Behavior and Cost Estimation in Financial Accounting

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