Test bank cost and management accounting 4e by barfield ch03

CHAPTER 3
ORGANIZATIONAL COST FLOWS
MULTIPLE CHOICE
1.

The term “relevant range” as used in cost accounting means the range over which
a.
b.
c.
d.

costs may fluctuate.
cost relationships are valid.
production may vary.
relevant costs are incurred.

ANSWER:
2.

Total cost reaction
to increase in activity
remains constant
remains constant
increases
increases

ANSWER:

d

Cost per unit reaction

to increase in activity
remains constant
increases
increases
remains constant

EASY

When cost relationships are linear, total variable prime costs will vary in proportion to
changes in
a.
b.
c.
d.

direct labor hours.
total material cost.
total overhead cost.
production volume.

ANSWER:
4.

EASY

Which of the following defines variable cost behavior?

a.
b.
c.

d.

3.

b

d

EASY

Which of the following would not generally be considered a fixed overhead cost?

a.
b.
c.
d.

Straight-line
depreciation
no
yes
yes
no

ANSWER:

c

Factory
insurance

no
no
yes
yes

Units-of-production
depreciation
no
yes
no
no

EASY

3–1


3–2

5.

Chapter 3

An example of a fixed cost is
a.
b.
c.
d.

total indirect material cost.

total hourly wages.
cost of electricity.
straight-line depreciation.

ANSWER:
6.

EASY

expired cost.
fixed cost.
variable cost.
mixed cost.

ANSWER:

b

EASY

A(n) ________ cost increases or decreases in intervals as activity changes.
a.
b.
c.
d.

historical cost
fixed cost
step cost
budgeted cost

ANSWER:
8.

d

A cost that remains constant in total but varies on a per-unit basis with changes in
activity is called a(n)
a.
b.
c.
d.

7.

Organizational Cost Flows

c

EASY

When the number of units manufactured increases, the most significant change in unit
cost will be reflected as a(n)
a.
b.
c.
d.

increase in the fixed element.
decrease in the variable element.

increase in the mixed element.
decrease in the fixed element.

ANSWER:

d

EASY


Chapter 3

9.

Organizational Cost Flows

Which of the following always has a direct cause-effect relationship to a cost?
a.
b.
c.
d.

Predictor
yes
yes
no
no

ANSWER:
10.

causes fixed costs to rise because of production changes.
has a direct cause-effect relationship to a cost.
can predict the cost behavior of a variable, but not a fixed, cost.
is an overhead cost that causes distribution costs to change in distinct increments
with changes in production volume.

ANSWER:

b

EASY

Product costs are deducted from revenue
a.
b.
c.
d.

as expenditures are made.
when production is completed.
as goods are sold.
to minimize taxable income.

ANSWER:
12.

MEDIUM

A cost driver

a.
b.
c.
d.

11.

c

Cost driver
yes
no
yes
no

c

EASY

A selling cost is a(n)
a.
b.
c.
d.

product cost
yes
yes
no
no

ANSWER:

c

period cost
yes
no
yes
yes
EASY

inventoriable cost
no
no
no
yes


3–4

13.

Chapter 3

Which of the following is not a product cost component?
a.
b.
c.
d.

rent on a factory building
indirect production labor wages
janitorial supplies used in a factory
commission on the sale of a product

ANSWER:
14.

EASY

are generally expensed in the same period in which they are incurred.
are always variable costs.
remain unchanged over a given period of time.
are associated with the periodic inventory method.

ANSWER:

a

EASY

Period costs include
a.
b.
c.
d.

distribution costs
yes

no
no
yes

ANSWER:
16.

d

Period costs
a.
b.
c.
d.

15.

Organizational Cost Flows

a

outside processing costs
no
yes
no
yes

sales commissions
yes
yes

no
yes

EASY

The three primary inventory accounts in a manufacturing company are
a.
b.
c.
d.

Merchandise Inventory, Supplies Inventory, and Finished Goods Inventory.
Merchandise Inventory, Work in Process Inventory, and Finished Goods
Inventory.
Supplies Inventory, Work in Process Inventory, and Finished Goods Inventory.
Raw Material Inventory, Work in Process Inventory, and Finished Goods
Inventory.

ANSWER:

d

EASY


Chapter 3

17.

Organizational Cost Flows

Cost of Goods Sold is an
a.
b.
c.
d.

unexpired product cost.
expired product cost.
unexpired period cost.
expired period cost.

ANSWER:
18.

period costs.
prime costs.
overhead costs.
conversion costs.

ANSWER:

b

EASY

Conversion of inputs to outputs is recorded in the
a.
b.
c.

d.

Work in Process Inventory account.
Finished Goods Inventory account.
Raw Material Inventory account.
both a and b.

ANSWER:

a

EASY

The distinction between direct and indirect costs depends on whether a cost
a.
b.
c.
d.

is controllable or non-controllable.
is variable or fixed.
can be conveniently and physically traced to a cost object under consideration.
will increase with changes in levels of activity.

ANSWER:
22.

EASY

direct labor.

direct material.
factory depreciation.
supervisors’ salaries.

ANSWER:

21.

c

Conversion cost does not include
a.
b.
c.
d.

20.

EASY

The indirect costs of converting raw material into finished goods are called
a.
b.
c.
d.

19.

b

c

MEDIUM

GSWS is a construction company that builds houses on special request. What is the
proper classification of the carpenters’ wages?


3–6

Chapter 3

a.
b.
c.
d.

Product
yes
yes
no
no

ANSWER:
23.

Direct
no
no
yes

yes

ANSWER:

EASY

Fixed
no
yes
yes
no
d

EASY

Which of the following costs would be considered overhead in the production of
chocolate chip cookies?
a.
b.
c.
d.

flour
chocolate chips
sugar
oven electricity

ANSWER:
25.

Direct
no
yes
no
yes

GSWS is a construction company that builds houses on special request. What is the
proper classification of the cost of the cement building slab used?
a.
b.
c.
d.

24.

b

Period
yes
no
no
yes

Organizational Cost Flows

d

EASY

All costs related to the manufacturing function in a company are

a.
b.
c.
d.

prime costs.
direct costs.
product costs.
conversion costs.

ANSWER:

c

EASY


Chapter 3

26.

Organizational Cost Flows

Prime cost consists of
a.
b.
c.
d.

direct material

no
yes
yes
no

ANSWER:
27.

prime cost
no
yes
yes
yes

ANSWER:

EASY

d

product cost
yes
no
yes
yes

direct cost
yes
yes
no

yes

fixed cost
yes
no
yes
no

EASY

GSWS is a construction company that builds houses on special request. What is the
proper classification of indirect material used?
a.
b.
c.
d.

Prime
no
no
yes
yes

ANSWER:
29.

overhead
no
no
yes

yes

Plastic used to manufacture dolls is a
a.
b.
c.
d.

28.

b

direct labor
yes
yes
no
yes

Conversion
no
yes
yes
no
b

Variable
no
yes
yes
no

EASY

The term “prime cost” refers to
a.
b.
c.
d.

all manufacturing costs incurred to produce units of output.
all manufacturing costs other than direct labor and raw material costs.
raw material purchased and direct labor costs.
the raw material used and direct labor costs.

ANSWER:

d

EASY


3–8

30.

Chapter 3

In a perpetual inventory system, the sale of items for cash consists of two entries. One
entry is a debit to Cash and a credit to Sales. The other entry is a debit to
a.

b.
c.
d.

Work in Process Inventory and a credit to Finished Goods Inventory.
Finished Goods Inventory and a credit to Cost of Goods Sold.
Cost of Goods Sold and a credit to Finished Goods Inventory.
Finished Goods Inventory and a credit to Work in Process Inventory.

ANSWER:
31.

b.
c.
d.

EASY

beginning Work in Process Inventory plus purchases of raw material minus
ending Work in Process Inventory.
beginning Work in Process Inventory plus direct labor plus direct material used
plus overhead incurred minus ending Work in Process Inventory.
direct material used plus direct labor plus overhead incurred.
direct material used plus direct labor plus overhead incurred plus beginning
Work in Process Inventory.

ANSWER:

b

EASY

The final figure in the Schedule of Cost of Goods Manufactured represents the
a.
b.
c.
d.

cost of goods sold for the period.
total cost of manufacturing for the period.
total cost of goods started and completed this period.
total cost of goods completed for the period.

ANSWER:
33.

c

The formula to compute cost of goods manufactured is
a.

32.

Organizational Cost Flows

d

EASY

The formula for cost of goods sold for a manufacturer is

a.
b.
c.
d.

beginning Finished Goods Inventory plus Cost of Goods Manufactured minus
ending Finished Goods Inventory.
beginning Work in Process Inventory plus Cost of Goods Manufactured minus
ending Work in Process Inventory.
direct material plus direct labor plus applied overhead.
direct material plus direct labor plus overhead incurred plus beginning Work in
Process Inventory.

ANSWER:

a

EASY


Chapter 3

34.

Organizational Cost Flows

Which of the following replaces the retailing component “Purchases” in computing Cost
of Goods Sold for a manufacturing company?
a.
b.

c.
d.

direct material used
cost of goods manufactured
total prime cost
cost of goods available for sale

ANSWER:
35.

EASY

Which of the following would need to be allocated to a cost object?
a.
b.
c.
d.

direct material
direct labor
direct production costs
indirect production costs

ANSWER:
36.

b

d

EASY

Sonja Svenson earns $8 per hour and is paid time-and-a-half for work in excess of 40
hours per week. During a given week, she works 45 hours. How much of her week’s
wages should be charged to overhead?
a.
b.
c.
d.

$0
$20
$40
$60

ANSWER:

b

EASY

Use the following information for questions 37–40.
The following information has been taken from the cost records of T Co. for the past year:
Raw material used in production
Total manufacturing costs charged to
production during the year (includes
direct material, direct labor, and
overhead equal to 60% of direct labor cost)
Cost of goods available for sale

Selling and Administrative expenses
Inventories
Raw Material
Work in Process
Finished Goods

Beginning
$75
80
90

Ending
$ 85
30
110

$326

686
826
25


3–10

37.

Chapter 3

The cost of raw material purchased during the year was

a.
b.
c.
d.

$316.
$336.
$360.
$411.

ANSWER:
38.

$135.
$216.
$225.
$360.

ANSWER:

c

EASY

Cost of Goods Manufactured was
a.
b.
c.
d.

$636.
$716.
$736.
$766.

ANSWER:
40.

MEDIUM

Direct labor cost charged to production during the year was
a.
b.
c.
d.

39.

b

c

MEDIUM

Cost of Goods Sold was
a.
b.
c.
d.

$691.
$716.
$736.
$801.

ANSWER:

b

MEDIUM

Organizational Cost Flows


Chapter 3

Organizational Cost Flows

3–

Use the following information for questions 41–44.
BCW Co. manufactures wood file cabinets. The following information is available for June
2001:
Raw Material Inventory
Work in Process Inventory
Finished Goods Inventory
41.

$58,500
$46,500

$43,500
$43,100

ANSWER:

c

MEDIUM

Direct labor is paid $9.60 per hour and overhead for the month was $9,600. What are
prime costs and conversion costs, respectively if there were 1,500 direct labor hours and
$21,000 of raw material was purchased?
a.
b.
c.
d.

$29,100 and $33,900
$33,900 and $24,000
$33,900 and $29,100
$24,000 and $33,900

ANSWER:
43.

Ending
$ 7,500
11,700
16,300

Direct labor is $9.60 per hour and overhead for the month was $9,600. Compute total
manufacturing costs for June, if there were 1,500 direct labor hours and $21,000 of raw
material was purchased.
a.
b.
c.
d.

42.

Beginning
$ 6,000
17,300
21,000

b

MEDIUM

Direct labor is paid $9.60 per hour and overhead for the month was $9,600. Cost of
Goods Manufactured, if there were 1,500 direct labor hours and $21,000 of raw material
was purchased is
a.
b.
c.
d.

$49,100.
$45,000.
$51,000.

$49,500.

ANSWER:

a

MEDIUM


3–12

44.

Chapter 3

Direct labor is paid $9.60 per hour and overhead for the month was $9,600. Cost of
Goods Sold, if there were 1,500 direct labor hours and $21,000 of raw material was
purchased is
a.
b.
c.
d.

$64,500.
$59,800.
$38,800.
$53,800.

ANSWER:
45.

MEDIUM

$26,400.
$34,100.
$37,300.
$29,600.

ANSWER:

a

EASY

If raw material used was $80,000 and Raw Material Inventory at the beginning and end
of the period, respectively, was $17,000 and $21,000, what was raw material purchases?
a.
b.
c.
d.

$76,000
$118,000
$84,000
$101,000

ANSWER:
47.

d

The beginning balance of Raw Material Inventory was $4,500; raw material purchases
of $29,600 were made during the month. At month end, $7,700 of raw material was on
hand. Raw material used during the month was
a.
b.
c.
d.

46.

Organizational Cost Flows

c

EASY

What is the beginning balance of Finished Goods Inventory if Cost of Goods Sold is
$107,000; the ending balance of Finished Goods Inventory is $20,000; and Cost of
Goods Manufactured is $50,000 less than Cost of Goods Sold?
a.
b.
c.
d.

$70,000
$77,000
$157,000
$127,000

ANSWER:

a

EASY


Chapter 3

Organizational Cost Flows

3–

Use the following information pertaining to Arp Co.’s manufacturing operations for questions
48–50.
Inventories:
Raw material
Work in process
Finished goods

March 1
$18,000
9,000
27,000

Additional information for March:
Raw material purchased
Direct labor payroll
Direct labor rate per hour
Overhead rate per direct labor hour

48.

For March, prime cost incurred was
a.
b.
c.
d.

$75,000.
$69,000.
$45,000.
$39,000.

ANSWER:
49.

EASY

For March, conversion cost incurred was
a.
b.
c.
d.

$30,000.
$40,000.
$70,000.
$72,000.

ANSWER:

50.

a

c

EASY

For March, Cost of Goods Manufactured was
a.
b.
c.
d.

$118,000.
$115,000.
$112,000.
$109,000.

ANSWER:

a

EASY

March 31
$15,000
6,000
36,000
$42,000

30,000
7.50
10.00


3–14

51.

Chapter 3

Since overhead costs are indirect costs,
a.
b.
c.
d.

they require some process of allocation.
they can be easily traced to production.
a predetermined overhead rate is not advantageous.
they cannot be allocated.

ANSWER:
52.

direct
yes
yes
no
no

ANSWER:

EASY

indirect
yes
no
no
yes
d

EASY

An actual cost system differs from a normal cost system in that an actual cost system
a.
b.
c.
d.

assigns overhead as it occurs during the manufacturing cycle.
assigns overhead at the end of the manufacturing process.
does not assign overhead at all.
does not use an Overhead Control account.

ANSWER:
54.

a

Cost allocation is the assignment of ______ costs to one or more products using a
reasonable basis.
a.
b.
c.
d.

53.

Organizational Cost Flows

b

EASY

In a normal cost system, which of the following is used?
a.
b.
c.
d.

Actual direct materials
yes
yes
yes
no

ANSWER:

c

EASY

Actual direct labor
no
yes
yes
yes

Actual overhead
yes
yes
no
no


Chapter 3

55.

Organizational Cost Flows

Predetermined overhead rates are computed based on
a.
b.
c.
d.

estimated overhead costs
yes

yes
no
no

ANSWER:
56.

EASY

because of seasonal variability of overhead costs.
to help budget overhead costs.
to minimize the overhead cost assigned to products.
to maximize the overhead cost assigned to products.

ANSWER:

a

EASY

Which of the following is not a reason to use predetermined overhead rates?
a.
b.
c.
d.

to overcome the problems of assigning overhead to diverse types of products
to compensate for fluctuations in monthly overhead costs
to provide a means for assigning overhead during the period rather than at the
end of the period

to smooth out the amount of overhead cost assigned to products when monthly
production activity differs

ANSWER:
58.

a

estimated level of activity
yes
no
yes
no

One reason annual overhead application rates are used is
a.
b.
c.
d.

57.

3–

a

MEDIUM

When a manufacturing company has a highly automated manufacturing plant producing
many different products, which of the following is the more appropriate basis of

applying manufacturing overhead costs to work in process?
a.
b.
c.
d.

direct labor hours
direct labor dollars
machine hours
cost of materials used

ANSWER:

c

EASY


3–16

59.

Chapter 3

A mixed cost has which of the following components?
a.
b.
c.
d.

Variable component
yes
yes
no
no

ANSWER:
60.

EASY

fixed costs.
total cost.
variable costs.
mixed costs.

ANSWER:

b

EASY

In the formula y = a + bX, a represents
a.
b.
c.
d.

mixed cost.
variable cost.

total cost.
fixed cost.

ANSWER:
62.

b

Fixed component
no
yes
no
yes

In the formula y = a + bX, y represents
a.
b.
c.
d.

61.

Organizational Cost Flows

d

EASY

In relationship to changes in activity, variable overhead changes
a.

b.
c.
d.

in total
no
no
yes
yes

ANSWER:

per unit
no
yes
yes
no
d

EASY


Chapter 3

63.

Organizational Cost Flows

In relationship to changes in activity, fixed overhead changes
a.

b.
c.
d.

in total
yes
no
no
yes

ANSWER:
64.

EASY

c

EASY

Weaknesses of the high-low method include all of the following except
a.
b.
c.
d.

only two observations are used to develop the cost function.
the high and low activity levels may not be representative.
the method does not detect if the cost behavior is nonlinear.
the mathematical calculations are relatively complex.

ANSWER:

d

EASY

If there is no “a” value in a linear cost equation, this is an indication that the cost is
a.
b.
c.
d.

fixed.
mixed.
variable.
either fixed or mixed.

ANSWER:
67.

c

variable cost per unit and total fixed costs increase.
fixed cost per unit and total variable cost increase.
total cost will increase and fixed cost per unit will decrease.
variable cost per unit and total cost increase.

ANSWER:

66.

per unit
yes
no
yes
no

If the level of activity increases,
a.
b.
c.
d.

65.

3–

c

EASY

An outlier is
a.
b.
c.
d.

something that happens outside the organization that does not affect production.
always used in analyzing a mixed cost.
something that happens inside the organization that does not affect production.

never used in analyzing a mixed cost.

ANSWER:

d

EASY


3–18

68.

Chapter 3

Applied overhead consists of which of the following?
a.
b.
c.
d.

actual activity times predetermined overhead rate
estimated activity times predetermined overhead rate
actual activity times actual overhead rate
estimated activity times actual overhead rate

ANSWER:
69.

EASY

actual overhead.
applied overhead.
both would receive an equal number of debits.
impossible to determine without additional information.

ANSWER:

a

EASY

If underapplied overhead is considered to be immaterial, it is closed to which of the
following accounts?
a.
b.
c.
d.

Work in Process
yes
no
yes
no

ANSWER:
71.

a

If a company used two overhead accounts (actual overhead and applied overhead), the
one that would receive the most debits would be
a.
b.
c.
d.

70.

Organizational Cost Flows

d

Finished Goods
yes
yes
no
no

Cost of Goods Sold
yes
yes
no
yes

EASY

All other things being equal, if actual cost per unit is greater than budgeted cost per
unit, variable overhead will be
a.

b.
c.
d.

overapplied.
the same as fixed overhead.
underapplied.
applied to Finished Goods.

ANSWER:

c

EASY


Chapter 3

72.

Organizational Cost Flows

Overapplied overhead will result if
a.
b.
c.
d.

the plant is operated at less than expected capacity.
overhead costs incurred were greater than estimated overhead costs.

overhead costs incurred were less than overhead costs charged to production.
overhead costs incurred were greater than overhead charged to production.

ANSWER:
73.

Overhead is
underapplied
overapplied
overapplied
underapplied

ANSWER:

EASY

a

Cost of Goods Sold will
increase
decrease
increase
decrease
EASY

If actual overhead is less than applied overhead, which of the following will be true?
Upon closing,
a.
b.
c.

d.

Overhead is
underapplied
underapplied
overapplied
overapplied

ANSWER:
75.

c

Actual overhead exceeds applied overhead and the amount is immaterial. Which of the
following will be true? Upon closing,
a.
b.
c.
d.

74.

3–

d

Cost of Goods Sold is
credited
debited
debited

credited
EASY

An item or event that has a cause-effect relationship with the incurrence of a variable
cost is called a
a.
b.
c.
d.

mixed cost.
predictor.
direct cost.
cost driver.

ANSWER:

d

EASY


3–20

76.

Chapter 3

Organizational Cost Flows

Caty Weymann owns a tailor shop and has gathered information on utility costs for the
past year. She has decided that utilities are a function of the hours worked during the
month. The following information is available and representative of her utility costs:
Low point
High point

Hours worked
1,300
1,680

Utility cost incurred
$ 903
1,074

If 1,425 hours are worked in a month, total utility cost (rounded to the nearest dollar)
using the high-low method should be
a.
b.
c.
d.

$947.
$954.
$959.
$976.

ANSWER:
77.

c

MEDIUM

Nevada Company uses a predetermined overhead application rate of $.30 per direct
labor hour. During the year it incurred $345,000 dollars of actual overhead, but it
planned to incur $360,000 of overhead. The company applied $363,000 of overhead
during the year. How many direct labor hours did the company plan to incur?
a.
b.
c.
d.

1,150,000
1,190,000
1,200,000
1,210,000

ANSWER:

c

EASY


Chapter 3

78.

Organizational Cost Flows

3–

Smith Machinery had the following experience regarding power costs:
Month
Jan.
Feb.
Mar.
Apr.

Machine hours
300
600
400
200

Power cost
$680
720
695
640

Assume that management expects 500 machine hours in May. Using the high-low
method, calculate May’s power cost using machine hours as the basis for prediction.
a.
b.
c.
d.

$700
$705

$710
$1,320

ANSWER:
79.

a

EASY

Ashley Co. has developed the following flexible budget formula for monthly overhead:
For output of less than 200,000 units:
For output of 200,000 units or more:

$36,600 + $.80(units)
$43,000 + $.80(units)

How much overhead should Ashley expect if the firm plans to produce 200,000 units?
a.
b.
c.
d.

$52,600
$59,000
$196,600
$203,000

ANSWER:
80.

d

EASY

Sams Co. wants to develop a single predetermined overhead rate. The company’s
expected annual fixed overhead is $340,000 and its variable overhead cost per machine
hour is $2. The company’s relevant range is from 200,000 to 600,000 machine hours.
Sams expects to operate at 425,000 machine hours for the coming year. The plant’s
theoretical capacity is 850,000. The predetermined overhead rate per machine hour
should be
a.
b.
c.
d.

$2.40.
$2.57.
$2.80.
$2.85.

ANSWER:

c

EASY


3–22

Chapter 3

Organizational Cost Flows

The following information relates to Ciulla Co. and should be used for questions 81–82.
Month
Jan.
Feb.
Mar.
Apr.
May
81.

Cost
$750
775
550
650
570

Using the high-low method, what is the variable cost element?
a.
b.
c.
d.

$1.02
$.98
$1.31
$1.19

ANSWER:
82.

Usage
600
650
420
500
450

b

EASY

Using the high-low method, what is the fixed cost element (to the nearest whole dollar)?
a.
b.
c.
d.

$225
$138
$411
$364

ANSWER:

b

EASY

Use the following information for questions 83–86.
The records of XYZ Co. revealed the following data for 2001:
Work in Process
Finished Goods
Cost of Goods Sold
Direct Labor
Direct Material

$ 73,150
115,000
133,650
111,600
84,200


Chapter 3

83.

Organizational Cost Flows

Assume, for this question only, actual overhead is $98,700 and applied overhead is
$93,250. Manufacturing Overhead is
a.
b.
c.
d.

overapplied by $12,900.
underapplied by $18,350.
overapplied by $5,450.
underapplied by $5,450.

ANSWER:
84.

b.
c.
d.

a

MEDIUM

Assume that XYZ has underapplied overhead of $10,000 for 2001 and that this amount
is immaterial. What is the balance in Cost of Goods Sold after the underapplied
overhead is closed?
a.
b.
c.
d.

$133,650
$123,650
$143,650
$137,803

ANSWER:

c

EASY

Assume that XYZ has overapplied overhead of $25,000 for 2001 and that this amount is
material. What is the balance in Cost of Goods Sold after the overapplied overhead is
closed?
a.
b.
c.
d.

$123,267
$144,033
$158,650
$108,650

ANSWER:
87.

EASY

Debit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold
$15,450 and credit Overhead $37,200
Debit Overhead $37,200 and credit Work in Process $8,456; Finished Goods
$13,294; Cost of Goods Sold $15,450
Debit Work in Process $37,200 and credit Overhead $37,200
Debit Cost of Goods Sold $37,200 and credit Overhead $37,200

ANSWER:

86.

d

Assume that XYZ has underapplied overhead of $37,200 for 2001 and that this amount
is material. What journal entry is needed to close the Overhead account? (Round
decimals to nearest whole percent.)
a.

85.

3–

a

MEDIUM

Smart Company is relocating its facilities. The company estimates that it will take three
trucks to move office contents. If the per truck rental charge is $1,000 plus 25 cents per
mile, what is the expected cost to move 800 miles?


3–24

Chapter 3

a.
b.

c.
d.

Organizational Cost Flows

$1,000
$1,200
$2,400
$3,600

ANSWER:

d

EASY

Use the following information for questions 88 and 89.
Danny’s Crushing Service provided the following information:
Monthly handling cost
$19,000
$23,700
$30,000
88.

Using the high-low method, how much of Danny’s handling cost is made up of fixed
costs?
a.
b.
c.
d.

$9,000
$8,000
$7,250
$11,000

ANSWER:
89.

Miles traveled
20,000
28,000
40,000

b

EASY

Using the high-low method, what would Danny expect handling costs to be in a month
in which 32,000 miles are traveled?
a.
b.
c.
d.

$25,600
$25,800
$26,050
$17,600

ANSWER:

a

EASY


Chapter 3

90.

Organizational Cost Flows

3–

(Appendix) The following information pertains to data that have been gathered in the
process of estimating a simple least squares regression:
Mean value of the dependent variable
Mean value of the independent variable
Coefficient of the independent variable
Number of observations

30
10
3
12

What is the “a” value for the least squares regression model?
a.
b.

c.
d.

20
6
0
The intercept term cannot be computed from the information given.

ANSWER:
91.

MEDIUM

(Appendix) In the equation y = $4,000 + $3X; y is the cost of workers’ compensation
insurance and X is direct labor hours. According to this equation, a 100-hour change in
total direct labor hours will change the cost of workers compensation insurance by
a.
b.
c.
d.

$4,000.
$300.
$4,300.
none of the above amounts.

ANSWER:
92.

c

b

MEDIUM

(Appendix) In the equation y = $4,000 + $3X; y is the cost of workers’ compensation
insurance and X is direct labor hours. Assume that the model is based on a least squares
regression estimate. If the mean value of direct labor hours was 2,000 in the
observations that were used to estimate the model’s parameters, what was the mean
level of the cost of workers’ compensation insurance?
a.
b.
c.
d.

$4,000
$2,000
$8,000
none of the above

ANSWER:

d

MEDIUM