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Chapter 10 Determining How Costs Behave
1) A cost function is a ________.
A) process of calculating present value of projected cash flows
B) process of allocating costs to cost centers or cost objects
C) mathematical description of how a cost changes with changes in the level of an activity relating to that cost
D) is a very thorough and detailed way to identifying a cost object when there is a physical relationship between inputs and outputs
2) Bennet Company employs 20 individuals. Eighteen employees are paid $18 per hour and the rest are salaried employees paid $3,000 a month. Which of the following is the total cost function of personnel?
A) y = a + bX
B) y = b
C) y = bX
D) y = a
3) Crimson Services, Inc., employs 8 individuals. They are all paid $16.50 per hour. How would total costs of personnel be classified?
A) variable cost
B) mixed cost
C) irrelevant cost
D) fixed cost
4) For February, the cost components of a picture frame include $0.30 for the glass, $0.75 for the wooden frame, and $0.80 for assembly. The assembly desk and tools cost $500. Two hundred fifty frames are expected to be produced in the coming year. What cost function best represents these costs?
A) y = 1.85 + 500X
B) y = 500 + 1.85X
C) y = 3.85 + 600X
D) y = 1.05 + 500X
5) The cost components of a heater include $30 for the compressor, $10 for the sheet molded compound frame, and $75 per unit for assembly. The factory machines and tools cost is $60,000. The company expects to produce 1,000 heaters in the coming year. What cost function best represents these costs?
A) y = 60,000 + 115X
B) y = 1,000 + 60,000X
C) y = 60,000 + 1,000X
D) y = 1,000 + 115X
6) Which of the following statements is true of a linear cost function?
A) It presents variable cost as a slope coefficient.
B) It presents total cost as an intercept.
C) It presents variable cost as an intercept.
D) It presents total cost as slope coefficient.
7) A finance manager has to select one of the four different suppliers of raw materials. The total cost functions under the four options are given below. Assume the quality of the raw material to be the same, which of the following is preferred by the finance manager?
A) y = 200 + 5X
B) y = 200 + 5.50X
C) y = 200 + 4.50X
D) y = 200 + 4.70X
8) If the total cost function is y = 5,000 + 7X, calculate the variable cost for 4,000 units.
9) The cost function y = 2,000 + 6X ________.
A) has a slope coefficient of 2,000
B) has an intercept of 6
C) is a straight line
D) represents a fixed cost
10) The cost function y = 150 + 10X ________.
A) has a slope coefficient of 150
B) has an intercept of 150
C) is a nonlinear
D) represents a fixed cost