Title: Cost Behavior Patterns
Course: Question Banks

Q: Product costs include:
- Indirect labor and payroll preparation
- Advertising and office rent.
- Components, production labor and overhead
A: Components, production labor and overhead

Q: The matching principle states:.
- Costs should be recognized when payment is made.
- Revenues should be recorded when payment is received.
- Costs should be recognized in the same period as the revenue earned from the expenditure of such costs.
A: Costs should be recognized in the same period as the revenue earned from the expenditure of such costs.

Q: When purchasing raw materials, the cost incurred will:
- Recorded directly to cost of goods sold.
- Initially be recorded to an inventory account, but moved to cost of goods sold as soon as it is moved to production.
- Initially be recorded in an inventory account on the balance sheet.
A: Initially be recorded in an inventory account on the balance sheet.

Q: The plant manager oversees all of production. His wages would be considered:
- Manufacturing overhead-Direct expense
- Manufacturing overhead-indirect expense
- It would depend on the cost object. His wages might be direct or indirect.
A: It would depend on the cost object. His wages might be direct or indirect.

Q: Review the following information:
Direct Materials $50,000
Direct Labor $25,000
Manufacturing overhead $20,000
Selling expenses $20,000
Administrative expense $30,000
What is the prime cost?
- $45,000.
- $95,000.
- $75,000
A: $75,000

Q: Cost objects might include:
- Wages of the plant supervisor.
- Direct and indirect materials and labor.
- A product, customer or job.
A: A product, customer or job.

Q: As the manager of a small retail store, you have been asked to calculate the fixed costs of operating the store. These costs might include:
- Packaging materials, sales commissions and rent.
- Property taxes, inventory purchases and advertising.
- Rent, property taxes, wages of the store manager
A: Rent, property taxes, wages of the store manager

Q: A restaurant serves 1,000 meals in a period. Their fixed costs per period are $15,000 and the variable cost per meal is $4. What is their total cost per meal?
- $15 per meal
- We do not have enough information to determine the total cost per meal.
- $19 per meal
A: $19 per meal

Q: The relevant range is defined as:
- The assumption that cost behavior is not linear is reasonably valid.
- The assumption that each additional product manufactured will add to fixed costs.
- The assumption that cost behavior is linear is reasonably valid.
A: The assumption that cost behavior is linear is reasonably valid.

Q: If your plant has a capacity of 5,000 producing 5,000 widgets, what will happen when you need to produce 5,001 widgets?
- Your company will need to reject the order.
- Your company will need to outsource production, since there is not enough space.
- Your company will need to add capacity, increasing your fixed costs.
A: Your company will need to add capacity, increasing your fixed costs.

Q: When the quantity of a product manufactured and sold goes up, the rise is variable costs may be:
- Linear since you will be purchasing more materials.
- Non-linear, due to discounts at higher purchase quantities of raw materials.
- Linear or non-linear, since the costs could decrease as the quantities of raw materials purchased goes up after a certain point.
A: Linear or non-linear, since the costs could decrease as the quantities of raw materials purchased goes up after a certain point.

Q: Mixed costs include:
- Fixed costs that rise after the relevant range.
- Variable costs that rise after a relevant range.
- A fixed component plus a variable component of cost
A: A fixed component plus a variable component of cost

Q: The scattergraph is completed as:
- The calculation of mixed costs.
- The calculation of variable costs.
- A first step in the process of calculating the correlation between a dependent and independent variable
A: A first step in the process of calculating the correlation between a dependent and independent variable

Q: In order to complete the cost analysis by using a scattergraph, you will need:
- At least a month’s worth of data to see how the costs rise with additional activity.
- A year’s worth of financial statements to calculate the cost per unit sold.
- Several months worth of actual quantities of services or products expenses to determine the dependent and independent variables and how the costs behave.
A: Several months worth of actual quantities of services or products expenses to determine the dependent and independent variables and how the costs behave.

Q: The high-low method of mixed cost analysis can be used when:
- There are mixed costs.
- The mixed costs include a fixed and variable component and we need to know the additional cost per item.
- There is a somewhat linear correlation between cost and quantity when a scattergram is prepared.
A: There is a somewhat linear correlation between cost and quantity when a scattergram is prepared.

Q: Review the following data:

What is the variable cost of custodial services per widget manufactured?
- $.80 per widget
- $12.50 per widget
- $.08 per widget
A: $.08 per widget

Q: If the total maintenance cost of the highest month is $2,500 and the variable cost per unit is $1, with 500 units produced, what is the fixed portion of the mixed cost using the high-low method?
- $3,000
- $2,500
- $2,000
A: $2,000

Q: Between the high-low method and the least-squares regression:
- Both will give you a similar division of fixed and variable costs.
- High-low is a more difficult calculation.
- The least squares method will be more accurate, since it uses all the points of data, rather than just two.
A: The least squares method will be more accurate, since it uses all the points of data, rather than just two.

Q: The least squares regression method uses:
- Only the highest and lowest periods of data.
- Just the dependent variables to calculate the cost behavior.
- All of the available data, rather than just the highest and lowest periods used by the high-low method.
A: All of the available data, rather than just the highest and lowest periods used by the high-low method.

Q: The formula y = z +bx can be used to:
- Only the high-low method.
- Only the least squares regression method.
- Calculate the variable cost per unit of activity and the fixed cost per month with either the high-low method or the least squares regression method.
A: Calculate the variable cost per unit of activity and the fixed cost per month with either the high-low method or the least squares regression method.