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Module 15 - Multiple Choice in Class with Answers

accounting
Course

Operations management (MBA 706)

23 Documents
Students shared 23 documents in this course
Academic year: 2023/2024
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Lagos State University

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Chapter 15 – Multiple Choice for in Class with Answers

  1. The range of operations that falls within the capacity of the current level of fixed costs is referred to as the: A) Linear average B) Relevant range C) Marginal range D) Operating range Answer: B Rationale: When developing a cost model for a firm or segment of a firm, that model is only relevant within the range of capacity of the fixed costs. For example if the current level of fixed cost of $ million represents a capacity of 2 million units of output, that cost model cannot be used to estimate the cost of producing more than 2 million units.
  2. The scatter diagram method of cost estimation: A) Is influenced by extreme observations B) Is superior to other methods in its ability to distinguish between discretionary and committed fixed costs C) Requires the use of judgment D) Provides a measure of the goodness of fit Answer: C Rationale: The scatter diagram method depends of visual observation of the data points on a graph to fit the cost curve to the data. The position of the curve on the graph depends on the judgment of the person observing the data points.
  3. John Anderson uses gas to heat his home. He has accumulated the following information regarding his monthly gas bill and monthly heating degree-days. The heating degree-days value for a month is found by first subtracting the average temperature for each day from 65 degrees and then summing these daily amounts together for the month. Month Heating Degree-Days Gas Bill February 850 $ April 300 $ What will be the increase in John’s monthly gas bill per heating degree-day using the high-low method? A) $0. B) $6. C) $0. D) $5. Answer: A Rationale: ($129 – $52) / (850 – 300) = $0.
  4. Marci Johnson uses gas to heat her home. She has accumulated the following information regarding her monthly gas bill and monthly heating degree-days. The heating degree-days value for a month is found by first subtracting the average temperature for each day from 65 degrees and then summing these daily amounts together for the month. Month Heating Degree-Days Gas Bill February 850 $

April 300 $ The equation representing the relationship between the gas bill (Y) and heating degree-days (X) is: A) Y = $0. B) Y =$10 + $0 C) Y =$10 – $0 D) Y =$60 + $0 Answer: B Rationale: ($129 – $52) / (850– 300) = $0 = variable cost per heating degree day $129 – (850 × $0) = $10 or $52 – (300 × $0) = $10 = fixed costs Therefore, Y = $10 + $0 5. The Heartland Delivery Service has the following information about its truck fleet miles and operating costs: Year Miles Operating Costs 2015 125,000 $80, 2016 150,000 $87, 2017 175,000 $105, What is the best estimate of fixed costs for fleet operating expenses in 2017 using the high-low method? A) $50, B) $17, C) $17, D) $25, Answer: C

Rationale: ($105,000 – $80,000) / (175,000 – 125,000) = $0 per mile variable cost

$105,000 – (175,000 × $0) = $17,

  1. Comparing least-squares regression to high-low estimation: A) Least-squares regression is preferred to high-low estimation because with this method, the computer can make all the decisions after data entry B) Least-squares regression provides superior estimates to high-low estimation when using unreliable data C) Least-squares regression provides a means of estimating how well the data fit the model D) All of the above Answer: C Rationale: Least-squares regression is a mathematical model that not only uses the data points to determine the cost curve, but it provides statistics to enable the user to know how well the data fit the cost curve and how reliable the model is in estimating costs.
  2. Which one of the following statements about difficulties of cost estimation is true? A) Data may not be based on normal operating conditions B) Linear relationships between total costs and activity levels may exist C) Both A and B D) None of the above Answer: A
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Module 15 - Multiple Choice in Class with Answers

Course: Operations management (MBA 706)

23 Documents
Students shared 23 documents in this course

University: Lagos State University

Was this document helpful?
Chapter 15 – Multiple Choice for in Class with Answers
1. The range of operations that falls within the capacity of the current level of fixed costs is referred to as
the:
A) Linear average
B) Relevant range
C) Marginal range
D) Operating range
Answer: B
Rationale: When developing a cost model for a firm or segment of a firm, that model is only relevant
within the range of capacity of the fixed costs. For example if the current level of fixed cost of $10
million represents a capacity of 2 million units of output, that cost model cannot be used to estimate
the cost of producing more than 2 million units.
2. The scatter diagram method of cost estimation:
A) Is influenced by extreme observations
B) Is superior to other methods in its ability to distinguish between discretionary and committed fixed
costs
C) Requires the use of judgment
D) Provides a measure of the goodness of fit
Answer: C
Rationale: The scatter diagram method depends of visual observation of the data points on a graph to
fit the cost curve to the data. The position of the curve on the graph depends on the judgment of the
person observing the data points.
3. John Anderson uses gas to heat his home. He has accumulated the following information regarding
his monthly gas bill and monthly heating degree-days. The heating degree-days value for a month is
found by first subtracting the average temperature for each day from 65 degrees and then summing
these daily amounts together for the month.
Month Heating Degree-Days Gas Bill
February 850 $129
April 300 $52
What will be the increase in John’s monthly gas bill per heating degree-day using the high-low
method?
A) $0.14
B) $6.59
C) $0.17
D) $5.77
Answer: A
Rationale: ($129 – $52) / (850 – 300) = $0.14
4. Marci Johnson uses gas to heat her home. She has accumulated the following information regarding
her monthly gas bill and monthly heating degree-days. The heating degree-days value for a month is
found by first subtracting the average temperature for each day from 65 degrees and then summing
these daily amounts together for the month.
Month Heating Degree-Days Gas Bill
February 850 $129

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