21. A) whether the cost can be easily identified 28.

C) A direct cost of one cost object can be an

with the cost object indirect cost of another cost object.
Explanation: The classification of a cost as either Explanation: Direct costs related to one cost
direct or indirect typically depends on whether object can become indirect costs when
the cost can be easily and directly traced to a allocated to a different cost object. This is
specific cost object, such as a product, common in cost allocation and accounting
department, or project. practices.

22. C) monthly lease payments for a specialized 29. D) a cost with fixed and variable elements
piece of equipment needed to manufacture the Explanation: A mixed cost combines both fixed
golf driver and variable elements. It has components that
Explanation: Direct costs are costs that can be remain constant (fixed) and components that
specifically traced to a particular cost object, vary with changes in activity levels (variable).
such as a product line. Lease payments for
specialized equipment directly related to the 30. A) fixed; variable
golf equipment line are considered direct costs. Explanation: Within the relevant range, the total
amount of fixed cost remains constant and does
23. D) shift supervisor for the soccer line not change in direct proportion to changes in
Explanation: Indirect costs are costs that cannot the cost driver, while variable cost changes in
be directly traced to a specific cost object but direct proportion to changes in the cost driver.
are incurred to support the overall production
process. The shift supervisor for the soccer line 31. B) Variable costs per unit of cost driver
oversees the entire line and is an indirect cost. decrease.
Explanation: When the cost-driver activity level
24. B) The salary of a maintenance supervisor in increases within the relevant range, variable
a multiproduct manufacturing plant; Product B costs per unit of the cost driver typically
is the cost object. decrease because of economies of scale.
Explanation: A direct cost is a cost that can be
traced directly to a specific cost object. In this 32. A) Variable costs per unit of cost driver
case, the salary of the maintenance supervisor increase.
is directly related to Product B in a multiproduct Explanation: When the cost-driver level
manufacturing plant, making it a direct cost for increases within the relevant range, variable
Product B. costs per unit of the cost driver usually increase
due to decreasing efficiencies at higher activity
25. D) may include both variable and fixed costs levels.
Explanation: Indirect manufacturing costs can
encompass a variety of expenses that support 33. C) Fixed costs per unit of cost driver
the production process but cannot be easily decrease.
traced directly to a specific product. These costs Explanation: When the cost-driver activity level
can include both variable (costs that change decreases within the relevant range, fixed costs
with production levels) and fixed costs (costs per unit of the cost driver decrease because
that remain constant regardless of production these costs are spread over a smaller
levels). production volume.

26 C) vary with the selection of the cost object 34. D) step costs; mixed costs
Explanation: Indirect costs can vary depending Explanation: Step costs and mixed costs are two
on how they are allocated or assigned to types of costs that combine fixed and variable
different cost objects (e.g., products or cost behaviors. Step costs remain constant
services). Therefore, they may change when the within a range of activity levels and then jump
cost object changes. to a new level, while mixed costs have both
fixed and variable components.
27. B) Because of a cost-benefit tradeoff, some
direct costs may be treated as indirect costs. 35. D) mixed cost
Explanation: Not all direct costs are Explanation: A compensation plan that includes
automatically treated as indirect costs. both a salary (fixed component) and a
Sometimes, for practical reasons or cost-benefit commission (variable component) is an example
considerations, certain direct costs may be of a mixed cost.
treated as indirect costs.
36. D) all of the above 44. A) reliability and validity
Explanation: Managers can influence both fixed Explanation: Managers apply the criteria of
and variable costs in a firm through decisions reliability (how well the cost function explains
about capacity level, product attributes, and the past cost behavior) and validity (whether the
amount of high-technology equipment used for cost function accurately reflects the underlying
manufacturing products. cost relationships) to obtain accurate and useful
cost functions.
37. B) variable cost
Explanation: A car lease payment based solely 45. C) how well the cost function predicts future
on the number of miles driven is a variable cost costs
because it directly varies with the activity level Explanation: In relation to a cost function,
(miles driven). reliability means how well the cost function can
predict future costs based on past cost behavior.
38. B) line with a break for fixed costs
Explanation: A mixed-cost function is often 46. A) variable cost per unit of cost driver
graphed as a straight line with a break, where Explanation: In a linear cost function, the slope
the straight-line portion represents variable measures the variable cost per unit of the cost
costs, and the break represents fixed costs. driver, indicating how much the cost changes
with changes in the level of the cost driver.
39. B) independent of the intercept
Explanation: In a linear cost function, the fixed 47. C) mixed cost; volume in units
cost is independent of the intercept and Explanation: In a graph of a mixed cost function,
remains constant regardless of the level of the the y-axis typically represents the mixed cost,
cost driver. while the x-axis represents the volume of the
cost driver activity (e.g., units produced).
40. B) goodness of fit
Explanation: When estimating a cost function, 48. D) all of the above
the reliability of the estimate is assessed using Explanation: Knowledge about the behavior of
goodness of fit measures, such as R-squared, to different costs in a service department like
determine how well the estimated function fits maintenance can be used to make efficient
the actual data. resource allocation decisions, cost planning, and
provide feedback to managers for better
41. B) fixed; variable decision-making.
Explanation: In a linear cost function with one
cost driver, the intercept (where the cost 49. B) committed fixed costs
function intersects the y-axis) represents the Explanation: Committed fixed costs are the fixed
fixed cost, while the slope (the rate at which the costs required to achieve a desired level of
cost changes with changes in the cost driver) production or service while maintaining certain
represents the variable cost. attributes. They are not easily adjustable in the
short term and are typically associated with
42. D) cost driver; cost function long-term decisions.
Explanation: To obtain accurate and useful cost
functions, a cause-and-effect relationship 50. D) Committed fixed costs
between a cost driver (independent variable) Explanation: Committed fixed costs arise as a
and a cost function (dependent variable) is result of strategic decisions about the scale and
desirable. scope of an organization's activities. These costs
are typically difficult to change in the short term
43. A) fixed cost; variable cost and are committed to supporting the
Explanation: In a mixed-cost linear function with organization's overall strategy.
one cost driver, the intercept represents the
fixed cost (the cost that remains constant at 51. B) committed fixed cost
zero activity), and the slope represents the Explanation: Property taxes are typically
variable cost (the cost that varies with changes committed fixed costs because they are
in the cost driver). mandatory payments that a company must
make to maintain its facilities and property,
regardless of the level of output or activity.
52. A) capacity costs
Explanation: Costs arising from the possession 60. A) advertising and promotion
of facilities, equipment, and a basic Explanation: In an economic downturn, a
organizational structure are often referred to as company could temporarily reduce or eliminate
capacity costs because they are associated with discretionary costs such as advertising and
maintaining the organization's capacity to promotion to conserve resources and reduce
produce or operate. expenses.

53. A) Discretionary fixed costs 61. D) depreciation expense on factory

Explanation: Discretionary fixed costs have no machines
obvious relationship to levels of output activity Explanation: Depreciation expense on factory
and are determined as part of the periodic machines is a non-cash expense associated with
planning process. They can be adjusted or the wear and tear of assets over time. It cannot
eliminated in response to management be eliminated in the short term because it
decisions. represents the allocation of the cost of those
assets over their useful life.
54. C) discretionary fixed cost
Explanation: The reduction of charitable 62. C) Discretionary fixed costs preserve
donations to community groups is an example management's flexibility.
of a discretionary fixed cost that a company can Explanation: Discretionary fixed costs, unlike
choose to reduce when facing economic committed fixed costs, can be adjusted or
challenges. eliminated in the short term, which can help
preserve management's flexibility in responding
55. B) employee training program to changing economic conditions or business
Explanation: In an economic downturn, a needs.
company could temporarily reduce or eliminate
discretionary costs such as employee training 63. D) management consulting services engaged
programs, as they are not essential for to change the company logo
immediate operations. Explanation: Management consulting services to
change a company logo are typically
56. D) property taxes on factory building discretionary costs and can be canceled in the
Explanation: Property taxes on a factory short run. The other options represent either
building are an example of a cost that may be committed fixed costs (e.g., mortgage payment
temporarily reduced or eliminated in an on factory building) or fixed costs that are
economic downturn, as they can be considered difficult to eliminate (e.g., CEO's salary).
a discretionary cost.
64. B) discretionary fixed costs
57. A) committed fixed costs; discretionary fixed Explanation: Discretionary fixed costs are costs
costs that can be adjusted or canceled in the short
Explanation: Only major changes in the scale or run. If the addition to the hospital increases
scope of operations can change committed fixed patient-days per month outside the relevant
costs in future periods. Managers can vary range, discretionary fixed costs associated with
spending levels for discretionary fixed costs in equipment (e.g., additional equipment
the short run because these costs are more acquisition) may change as a result.
flexible.
65. D) discretionary variable costs; committed
58. D) discretionary fixed costs variable costs
Explanation: Costs that may be essential to the Explanation: Managers can eliminate
long-run achievement of the organization's discretionary variable costs (such as variable
goals but can be reduced to almost zero in the costs related to discretionary expenses) entirely
short run are referred to as discretionary fixed for a given year in dire times, like a major
costs. recession. However, committed variable costs,
as well as committed fixed costs, are not easily
59. C) committed fixed cost eliminated and continue to be incurred.
Explanation: A mortgage payment in a
corporate setting would typically be identified
as a committed fixed cost because it is a regular,
fixed obligation necessary to maintain property
ownership.