Test Bank For Introduction To Management Accounting 16th Edition By Horngren

Chapter 3 Measurement of Cost Behavior

3.1 Questions

1) Managers can influence the amount of fixed and variable costs in a firm through decisions about ________.

A) product attributes

B) capacity level

C) amount of high technology equipment used for manufacturing products

D) all of the above

Answer: D

Diff: 1

LO: 3-1

AACSB: Reflective thinking skills

Learning Outcome: Define and distinguish between variable, fixed and mixed costs

2) The use of high technology equipment to manufacture products instead of highly skilled labor usually results in ________.

A) higher discretionary fixed costs

B) higher discretionary variable costs

C) lower risk

D) higher operating leverage

Answer: D

Diff: 2

LO: 3-1

AACSB: Reflective thinking skills

Learning Outcome: Define and distinguish between variable, fixed and mixed costs

3) Which of the following costs can be canceled in the short run?

A) salary of CEO of company

B) mortgage payment on factory building

C) lease payments on two-year lease for leased equipment in factory

D) management consulting services engaged to change company logo

Answer: D

Diff: 2

LO: 3-1

AACSB: Reflective thinking skills

Learning Outcome: Define and distinguish between variable, fixed and mixed costs

4) A hospital adds a new addition and needs to acquire some new equipment for the addition. The cost driver for the equipment is patient-days per month. The new addition increases the patient-days per month outside the relevant range. What type of equipment costs will change as a result of the addition?

A) discretionary fixed costs

B) discretionary variable costs

C) committed fixed costs

D) committed variable costs

Answer: C

Diff: 2

LO: 3-1

AACSB: Reflective thinking skills

Learning Outcome: Define and distinguish between variable, fixed and mixed costs

5) Managers can eliminate ________ costs entirely for a given year in dire times such as a major recession. However, managers cannot eliminate ________ costs.

A) discretionary variable costs; committed variable costs

B) discretionary fixed costs; committed fixed costs

C) discretionary variable costs; committed fixed costs

D) committed fixed costs; committed variable costs

Answer: B

Diff: 2

LO: 3-1

AACSB: Reflective thinking skills

Learning Outcome: Define and distinguish between variable, fixed and mixed costs

6) If a company eliminates all discretionary costs due to a severe recession, this could ________.

A) ensure that the company reports a net loss

B) ensure that the company reports a net profit

C) reestablish a company’s competitive position in an industry

D) impair a company’s competitive position in an industry

Answer: D

Diff: 2

LO: 3-1

AACSB: Reflective thinking skills

Learning Outcome: Define and distinguish between variable, fixed and mixed costs

7) Many organizations use a linear relationship with a single cost driver to describe a cost even though the cost may have multiple cost drivers. Why?

A) This approach is easier and less expensive.

B) The cost of developing a more complex function is greater than the benefit.

C) Cost estimates from the simple function are accurate enough for most decisions.

D) All of the above

Answer: D

Diff: 2

LO: 3-1

AACSB: Analytic skills

Learning Outcome: Define and distinguish between variable, fixed and mixed costs

8) It may be difficult to trace costs to products or services if the costs are ________.

A) volume-driven

B) driven by activities directly related to volume

C) driven by multiple cost drivers

D) none of the above

Answer: C

Diff: 2

LO: 3-1

AACSB: Analytic skills

Learning Outcome: Define and distinguish between variable, fixed and mixed costs

9) Simon Inc. currently produces 110,000 units at a cost of $440,000. The cost is variable. Next year Simon Inc. expects to produce 115,000 units. Simon’s relevant range for production is 100,000 to 120,000 units. If 115,000 units are produced next year, what is the expected variable cost?

A) $420,000

B) $430,000

C) $440,000

D) $460,000

Answer: D

Diff: 1

LO: 3-1

AACSB: Analytic skills

Learning Outcome: Define and distinguish between variable, fixed and mixed costs

10) Donahue currently produces 120,000 units at a cost of $400,000. Of the $400,000 cost, $200,000 is a fixed cost. Next year Donahue expects to produce 145,000 units. Donahue’s relevant range for production activities is 100,000 to 150,000 units. If 145,000 units are produced next year, what is the expected fixed cost for next year?

A) $200,000

B) $241,667

C) $441,667

D) $483,333

Answer: A

Diff: 2

LO: 3-1

AACSB: Analytic skills

Learning Outcome: Define and distinguish between variable, fixed and mixed costs