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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.

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