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CHAPTER 10: DETERMINING HOW COSTS BEHAVE TRUE/FALSE 1. One assumption frequently made in cost behavior estimation is that changes in total costs can be explained by changes in the level of a single activity. Answer : True Difficulty : 1 Objective : 1 2. All cost functions are linear. Answer : False Difficulty : 1 Objective : 1 All cost functions are not linear, but for cost-behavior estimation we assume some are within a relevant range. . 3. y = a + bX represents the general form of the linear cost function. Answer : True Difficulty : 1 Objective : 2 4. A linear cost function can only represent fixed cost behavior. Answer : False Difficulty : 1 Objective : 2 A linear cost function can represent fixed, mixed, or variable cost behavior. 5. In a graphical display of a cost function, the steepness of the slope represents the total amount of fixed costs. Answer : False Difficulty : 1 Objective : 2 In a graphical display of a cost function, the constant or the y-intercept represents the amount of fixed costs. 6. The longer the time horizon, the more likely that a cost will have a fixed cost behavior. Answer : False Difficulty : 2 Objective : 2 The longer the time horizon, the more likely that a cost will be variable . 7. Outside of the relevant range, variable and fixed cost-behavior patterns may change. Answer : True Difficulty : 2 Objective : 2 8. Any linear cost function can be graphed by knowing only the slope coefficient. Answer : False Difficulty : 1 Objective : 2 A linear function can be graphed if the slope coefficient and the intercept are known. 9. Knowing the proper relevant range is essential to properly classify costs. Answer : True Difficulty : 1 Objective : 2 Chapter 10 Page 1 10. It can be inferred that when there is a high correlation between two variables, one is the cause of the other. Answer : False Difficulty : 2 Objective : 2 It cannot be inferred that a high correlation between two variables indicates that one is the cause of the other. A high correlation simply indicates that the variables move together. 11. An example of a physical cause-and-effect relationship is when additional units of production increase total direct material costs. Answer : True Difficulty : 2 Objective : 2 12. The industrial engineering method of cost estimation is based on opinions from various departments and is quick and of low cost to apply. Answer : False Difficulty : 1 Objective : 3 The conference method of cost estimation is based on opinions from various departments and is quick and of low cost to apply. 13. The account analysis method of cost estimation classifies account costs as fixed, mixed, or variable using qualitative judgments. Answer : True Difficulty : 1 Objective : 3 14. The industrial engineering method uses a formal mathematical method to identify cause-and-effect relationships among past data observations.... View Full Document