Cost Concepts Quiz

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Questions and Answers

What is the estimated operating cost formula for truck operating costs using the high-low method?

y = 1,650 + 0.06x (correct)

y = 1,800 + 0.08x

y = 1,500 + 0.07x

y = 2,000 + 0.05x

What is the total variable cost at an activity level of 2,500 units?

P130,000

P122,925 (correct)

P125,000

P118,008

What is the variable cost per unit for ISANGBAGSAK Company?

P1.20 (correct)

P1.30

P1.40

P1.50

What condition must be met for the statement 'My costs will go up by P100,000' to be true?

Production must remain within the relevant range. Signup and view all the answers

What is the total expected costs at the 18,000 unit level of activity for ISANGBAGSAK Company?

P25,200 Signup and view all the answers

What type of costs are considered in a keep-versus-disposal decision?

Relevant Costs Signup and view all the answers

Which of these situations describes sunk costs?

Costs from past investments Signup and view all the answers

What is synonymous with the assumption of relevant range?

Short-run Signup and view all the answers

In the cost function Y = a + bX, what can cause changes in ‘Y ÷ X’?

Changes in unit variable cost Signup and view all the answers

Which of the following types of costs cannot be easily traced to a cost object?

Indirect costs Signup and view all the answers

Which cost estimation method provides the most precise cost production equation?

Regression analysis Signup and view all the answers

What does the term 'outlay cost' mean in financial terms?

Explicit cost Signup and view all the answers

Which cost estimation method is associated with analyzing a graph of cost data points?

Scatter-graph method Signup and view all the answers

Which of the following employees would be classified as direct labor in a boutique hotel?

Hotel Supervisor Signup and view all the answers

What is the correct term for the relationship between cost and activity?

Cost behavior Signup and view all the answers

Which scenario reflects a mixed cost?

An employee's salary plus a commission Signup and view all the answers

What does the variable 'b' represent in the linear cost equation Y = a + bX?

Variable cost per unit of activity Signup and view all the answers

How do total fixed costs and total variable costs change with a decrease in activity within the relevant range?

Total fixed costs remain unchanged, while total variable costs decrease Signup and view all the answers

What will be the expected shipping expense if the company ships 9,000 pounds?

9,750 Signup and view all the answers

Which option describes joint production costs?

Costs to be considered in decisions related to process furthering Signup and view all the answers

Which of the following does not represent a component of mixed costs?

Fixed office rent Signup and view all the answers

What happens to fixed cost per unit as activity increases?

It decreases. Signup and view all the answers

Which statement accurately describes a cost formula?

It may not be valid outside the relevant range of activity. Signup and view all the answers

Which of the following is a characteristic of committed fixed costs?

They result from the ownership or use of long-term assets. Signup and view all the answers

What does the high-low method primarily rely on to estimate costs?

Only two extreme data points. Signup and view all the answers

How can depreciation be categorized in a manufacturing firm?

It can be a product cost. Signup and view all the answers

What is true about differential costs?

They can be either fixed or variable. Signup and view all the answers

Which type of cost is advertising considered when promoting specific products?

It is categorized as a product cost. Signup and view all the answers

What defines the slope of a regression line in cost analysis?

The rate at which the dependent variable varies with the independent variable. Signup and view all the answers

Study Notes

Cost Concepts, Classification, and Segregation

True or False Questions (10 points):
- Fixed cost per unit changes inversely with activity level.
- Cost formulas are typically valid only within a specific activity range.
- Planning horizons for committed and discretionary fixed costs are usually different.
- Two data points are a significant limitation of the high-low method.
- Advertising expenses are product costs when directly related to specific products.
- Direct materials and manufacturing overhead combined are conversion costs.
- Depreciation is typically a period cost in merchandising but may be a product cost in manufacturing.
- Differential costs can be fixed or variable.
- Fixed costs are constant per unit of product.
- Committed fixed costs originate from an organization's structure and facilities.
Multiple Choice Questions (20 points):
- Opportunity cost is a relevant cost not directly included in traditional accounting.
- If activity increases (within relevant range), a fixed cost per unit stays the same, while variable cost per unit remains unchanged.
- Slope of the regression line: rate at which independent variable changes.
- Direct labor for a hotel is a direct cost.
- Increase in activity (within relevant range) typically means no changes to fixed cost per unit.
- Increase in activity (within relevant range) causes a decrease in average per-unit fixed cost and increase in fixed costs overall.
Cost Estimation/Behavior (Pages 2-3):
- Cost analysis & estimation involves examining how costs change with activity.
- Cost formulas, such as Y = a + bX, are linear models where: "Y" is total cost, "a" is total fixed cost, "b" is variable cost per unit, and "X" is activity level.
- High-low method estimates fixed and variable costs using the highest and lowest activity levels.
- Mixed costs have fixed and variable components.
- Relevant range is the activity level where cost behavior assumptions hold.
- Cost behavior refers to how costs change with production or sales activity.
Additional Concepts:
- Relevant cost pertains to decisions for the future.
- Differential costs are relevant costs that differ between alternatives.
- Discretionary costs are those that can be adjusted in short-ter.
- Sunk costs are past costs that are irrelevant.
- Steps costs involve significant costs when crossing a threshold in activity levels

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Description

Test your understanding of cost concepts, classification, and segregation with this quiz. It includes true/false and multiple choice questions covering various aspects of fixed and variable costs, as well as opportunity costs. Perfect for students of accounting or finance.