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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
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
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
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