1) Theoretical capacity is based on which of the following assumptions?
A) that absorption costing is used
B) that variable costing is used
C) production will occur at peak capacity all the time
D) production will occur at peak capacity where feasible (e.g., except for maintenance downtime)
E) production can never occur at peak capacity
2) Practical capacity is based on which of the following assumptions?
A) that absorption costing is used
B) that variable costing is used
C) Production will occur at peak efficiency all the time.
D) Production will occur at peak capacity where feasible (e.g., except for maintenance downtime, repairs, holidays, etc.).
E) Production can never occur at peak capacity.
3) The denominator-level concept based on capacity utilization that satisfies average customer demand that includes seasonal and
cyclical factors is called
A) theoretical capacity.
B) practical capacity.
C) normal capacity.
D) master-budget capacity.
E) supply capacity.
4) The denominator-level concept based on capacity utilization for the anticipated level of output that will satisfy customer
demand for a single operating cycle is the
A) theoretical budget capacity.
B) practical budget capacity.
C) normal capacity.
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D) master-budget capacity.
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E) supply capacity.
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5) A major reason for choosing ________ utilization over ________, is the difficulty in forecasting.
A) theoretical capacity; master-budget
B) practical capacity; master-budget
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C) normal capacity utilization; master-budget
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D) master-budget; theoretical capacity
E) master-budget; normal capacity utilization
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6) Which of the following is an equation of a variable cost function?
A) Y = ax + bx
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B) Y = a + bx
C) Y = b
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D) Y = a
E) Y = bx
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7) Which of the following describes the intercept in a linear cost function?
A) the component of fixed costs that, within the relevant range, does not vary with changes in the level of the cost driver
B) the component of fixed costs that, within the relevant range, does vary with changes in the level of the cost driver
C) the component of variable costs that, within the relevant range, does not vary with changes in the level of the cost driver
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D) the component of variable costs that, within the relevant range, does vary with changes in the level of the cost driver
E) the sum of the components of both fixed and variable costs that, within the relevant range, do not vary with changes in the level
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of the cost driver
8) For April, the month just ended, the cost components to make tapes were $2 per tape plus fixed costs of $10,000. One thousand
tapes were produced. For May the cost to make tapes will be $2.20 per tape plus fixed costs of $10,000. Fifteen hundred tapes are
expected to be produced. What are the estimates for the intercept and slope coefficient for May, respectively?
A) $2.00 and $10,000.00
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B) $2.20 and $10,000.00
C) $10,000.00 and $2.00
D) $10,000.00 and $2.20
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E) $22,000 and $10,000
9) The cost function y = 1,000 + 5X
A) has a slope coefficient of 1,000.
B) is curvilinear because of the 5X.
C) is a straight line.
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D) represents a fixed cost.
E) is missing the slope coefficient.
10) Which of the following statements related to assumptions about estimating linear cost functions is TRUE?
A) Variations in a single cost driver explain variations in total costs.
B) A cost object is anything for which a separate measurement of costs is desired.
C) A linear function approximates cost behaviour at all ranges of production.
D) Correlation refers to the relationship between fixed and variable costs.
E) The graph of total costs does not form a straight line within the relevant range because of variable costs.
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11) Brandt Cheque Encoders employs 30 individuals. Ten employees are paid $10 per hour for 173 hours a month and the rest are
salaried employees paid $6,000 a month. How would total costs of personnel be classified?
A) variable and fixed
B) a fixed cost within a relevant range
C) a variable cost within a relevant range
D) a mixed cost
E) a fixed cost
12) When choosing between two alternatives, costs that do not differ between the two alternatives can be considered to be
irrelevant to that decision. A: TRUE
13) All fixed costs are irrelevant in relevant-cost analysis. B: FALSE
14) All variable costs are relevant in relevant-cost analysis. B: FALSE
15) The last step in the decision process is normally to
A) evaluate and explain outcomes.
B) make assumptions and predictions.
C) choose alternatives.
D) perform quantitative analysis.
E) gather information.
16) The feedback obtained in the decision process cannot affect
A) future predictions.
B) the prediction method.
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C) the decision model.
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D) implementation.
E) past performance.
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17) The Gameshop manufactures specialized board games. Management is attempting to search for ways to reduce costs and is
considering two alternatives for an upcoming project of special games that must be delivered to the customer in 12 months' time.
Management agreed to the special project job as they have an idle plant that is scheduled for demolition 18 months from now, and
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either alternative will easily meet the delivery deadline.
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Alternative 1 requires 10 machine operators and 2.5 individuals to handle direct materials. Employee pay averages $17.50 per
hour and will increase to $18.50 at the mid-point (July 1) of next year. Each employee currently works 2,500 hours but will
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decrease to 2,400 hours if Alternative 2 is implemented. The second proposal only requires 8.5 workers.
Which of the following items of information are relevant to this decision?
A) property taxes for the idle plant
B) hourly wage rates
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C) the timing of the wage increase
D) the number of employees required in each alternative
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E) the delivery deadline
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18) Which of the following anticipated future costs always differ among alternative courses of actions?
A) direct labour costs
B) historical costs
C) relevant costs
D) direct materials costs
E) indirect costs
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19) When making decisions, it is best to use
A) average costs.
B) fixed costs that would be incurred.
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C) unit cost, rather than total cost.
D) variable costs that would be incurred.
E) relevant costs.
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20) Which of the following should management consider to avoid the pitfalls of relevant-cost analysis?
A) Consider all current revenues and costs.
B) Include any item of revenue or cost that is either an expected future revenue or expected future cost, and, differs between the
alternatives.
C) Historic revenues and costs for items that differ according to alternatives should be considered.
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D) Assume that all fixed costs are irrelevant.
E) Assume that all variable costs are relevant.
21) Sunk costs
A) are relevant.
B) are differential.
C) have future implications.
D) are ignored when evaluating alternatives.
E) are evaluated to determine if they are relevant or not evaluating alternatives.
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22) For February, the cost components of a picture frame include $0.25 for the glass, $.65 for the wooden frame, and $0.80 for
assembly. The assembly desk and tools cost $400. 1,000 frames are expected to be produced in the coming year. What cost
function best represents these costs?
A) y = 1.70 + 400X
B) y = 400 + 1.70X
C) y = 2.10 + 1,000X
D) y = .90 + 400X
E) y = 400 + 0.90X
23) The cost components of a heater include $35 for the compressor, $12 for the sheet molded compound frame, and $80 per unit
for assembly. The factory machines and tools fixed cost is $55,000. The company expects to produce 1,500 heaters in the coming
year. What cost function best represents these costs?
A) y = 1,500 + 127X
B) y = 1,500 + 55,000X
C) y = 55,000 + 1,500X
D) y = 55,000 + 127X
E) y = 55,080 + 47X
24) Compute the estimated costs for each of the following equations assuming the following costs for July:
Fixed manufacturing cost $80,000
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Variable cost per machine-hour 6
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Number of hours used 2,000
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In addition, state whether each is for a variable, fixed, or mixed cost.
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a. Total estimated costs = intercept
b. Total estimated costs = constant
c. Total estimated costs = constant + (slope × cost driver)
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d. Total estimated costs = slope coefficient × cost driver
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25) Compute the estimated costs for each of the following equations, assuming the following costs for July:
Fixed manufacturing cost $40,000
Variable cost per machine-hour 6
Number of hours used 1,000
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In addition, state whether each is for a variable, fixed, or mixed cost.
aC s
a. Total estimated costs = intercept
b. Total estimated costs = constant
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c. Total estimated costs = constant + (slope × cost driver)
d. Total estimated costs = slope coefficient × cost driver
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