W2 - Cost Behaviour & CVP Analysis

Question 1

What are the advantages of the high-low method?

Answer 1

Simple method of quantitative analysis.

Question 2

What are the disadvantages of the high-low method?

Answer 2

Highest and lowest observations are only used.
- These points may not be accurate (as they might be outliers).
- If the two points are extreme, choose more representative points.

Question 3

What are the advantages of the regression analysis method?

Answer 3

• Can include more than one independent variable (e.g. advertising and promotion affect revenues).
• Makes use of all available data points.
• More accurate technique of estimating a and b.

Question 4

True or False: A positive slope of regression line indicates that total costs are lower for higher values of the cost driver.

Answer 4

It is false. When it is a positive slope, it means that as the cost driver increases, the total costs will increase.

Question 5

True or False: Machine-hours is a more economically plausible cost driver of machine maintenance than number of direct manufacturing labour-hours.

Answer 5

True?

Question 6

True or False: An example of a step variable-cost function is the cost of material-handling labour when inputs are acquired in discrete quantities.

Answer 6

True. If workers exceed a discrete quantity, the cost will become higher as it takes more time now.

Question 7

A learning curve measures the effect of learning on efficiency.

Answer 7

True. As workers learn, they become more efficient. The curve demonstrates this. As a result of becoming more efficient, the total costs will reduce and more production will be made.

Question 8

What is a sales mix?

Answer 8

The relative combination of quantities of products that constitute total sales.