Question 1

Fixed cost per unit is £9 when 20,000 units are produced and £6 when 30,000 units are produced. What is the total fixed cost when nothing is produced?
A)£120,000
B)£270,000
C)£15
D)£180,000

Accepted Answer

Fixed costs remain constant regardless of the level of production. Therefore, whether 20,000 or 30,000 units are produced, or even none at all, the total fixed cost remains the same. Given the information, we can calculate the total fixed cost at either production level. For 20,000 units at £9 per unit, the total fixed cost is 20,000 * £9 = £180,000. Similarly, for 30,000 units at £6 per unit, the total fixed cost is 30,000 * £6 = £180,000. This confirms that the total fixed cost, regardless of production level, is £180,000.

Question 2

The direct material cost is £10,000 when 2,000 units are produced. What is the direct material cost for 2,500 units produced?
A)£10,000
B)£8,000
C)£15,000
D)£12,500

Accepted Answer

Direct material cost is directly proportional to the number of units produced. Therefore, we can use a proportion to find the direct material cost for 2,500 units:

10,000/2,000 = x/2,500

Solving for x, we get:

x = (10,000 * 2,500) / 2,000 = £12,500

Therefore, the direct material cost for 2,500 units produced is £12,500.

Question 3

Which item is not an example of a sunk cost?
A)materials needed for production
B)purchase cost of machinery
C)depreciation
D)All are sunk costs.

Accepted Answer

Sunk costs are expenses that have already been incurred and cannot be recovered. Materials needed for production are not sunk costs because they are variable costs that can be avoided in the future, unlike the purchase cost of machinery and depreciation, which are costs that have already been incurred.

Question 4

If production volume increases from 8,000 to 10,000 units,
A)total costs will increase by 20 per cent.
B)total costs will increase by 25 per cent.
C)total variable costs will increase by 25 per cent.
D)mixed and variable costs will increase by 25 per cent.

Accepted Answer

Total costs would not necessarily increase by a percentage, as fixed costs would remain the same. However, total variable costs would increase by 25 per cent due to the increase in production volume. The other options are incorrect.

Question 5

Direct materials are an example of a
A)fixed cost.
B)variable cost.
C)step cost.
D)mixed cost.

Accepted Answer

Direct materials are a variable cost because the cost varies based on the amount of materials used in production. As more units are produced, more materials will be required and therefore the cost of direct materials will increase.

Question 6

Holly Ltd. has the following costs for 1,000 units: $\begin{array}{lrr}&\text { Total Cost } & \text { Cost per Unit } \
\text { Direct materials } & £ 1,500 & £ 1.50 \
\text { Direct labour } & 7,500 & 7.50 \
\text { Depreciation on building } & 30,000 & 30.00
\end{array}$ What is the total amount of direct materials for 100 units?
A)£1.50
B)£3.00
C)£150.00
D)£225.00

Accepted Answer

The total amount of direct materials for 100 units is calculated by taking the cost per unit of direct materials (£1.50) and multiplying it by the number of units (100), which equals £150.00.

Question 7

Adams Ltd. rents a truck for a flat fee plus an additional charge per mile. What type of cost is the rent?
A)fixed cost
B)mixed cost
C)variable cost
D)step cost

Accepted Answer

The rent for the truck includes a flat fee (a fixed cost) and an additional charge per mile (a variable cost), making it a mixed cost. Mixed costs consist of both fixed and variable components.

Question 8

Mixed costs contain both
A)product and period costs.
B)fixed and variable costs.
C)direct and indirect costs.
D)controllable and noncontrollable costs.

Accepted Answer

Mixed costs contain both fixed and variable cost components. The fixed component represents the base level of cost that does not change with changes in production or sales volume, while the variable component varies with changes in production or sales volume. Both of these costs are included in mixed costs.

Question 9

An equipment lease that specifies a payment of £5,000 per month plus £8 per machine hour used is an example of a
A)fixed cost.
B)variable cost.
C)step cost.
D)mixed cost.

Accepted Answer

The lease payment has a fixed component of £5,000 per month and a variable component of £8 per machine hour used, making it a mixed cost.

Question 10

Variable costs,
A)in total, remain constant within a relevant range.
B)on a per unit basis, are constant as activity increases or decreases.
C)on a per unit basis, decreases as activity decreases.
D)in total, decrease when activity increases.

Accepted Answer

Variable costs are costs that fluctuate in relation to changes in activity levels. On a per unit basis, variable costs remain constant as activity increases or decreases, but in total they will increase or decrease depending on the level of activity.

Question 11

Salaries paid to shift supervisors is an example of a
A)step-variable cost.
B)step-fixed cost.
C)variable cost.
D)mixed cost.

Accepted Answer

Shift supervisors are typically salaried employees with a fixed rate of pay regardless of the level of production or sales. This makes their salaries a step-fixed cost, where the cost increases only when a new supervisor is hired or when an existing supervisor is promoted to a higher level.

Question 12

A supervisor's salary of £2,000 per month is an example of a
A)fixed cost.
B)variable cost.
C)step cost.
D)mixed cost.

Accepted Answer

A supervisor's salary is a fixed cost because it remains the same regardless of the level of production or sales.

Question 13

Which of the following costs is a variable cost?
A)supervisors' salaries
B)research and development
C)materials used in production
D)rent

Accepted Answer

Variable costs are those that vary in direct proportion to changes in the level of activity or output. Materials used in production are directly related to the level of production, making it a variable cost. Supervisors' salaries and rent are fixed costs as it remains the same regardless of the level of production, while research and development expense is generally considered a period cost.

Question 14

Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that is parallel to the horizontal axis?
A)total direct material costs
B)a consultant paid £75 per hour with a maximum fee of £1,200
C)employees who are paid £10 per hour and guaranteed a minimum weekly wage of £200
D)rent on exhibit space at a convention

Accepted Answer

Rent on exhibit space at a convention does not vary with volume of activity and remains constant. Therefore it would be represented by a line parallel to the horizontal axis.

Question 15

Sunk costs are
A)future costs that have no benefit.
B)relevant costs that have only short-run benefits.
C)target costs.
D)cannot be avoided.

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered or avoided, regardless of future actions.

Question 16

As the volume of activity increases within the relevant range, the variable cost per unit
A)decreases.
B)decreases at first, then increases.
C)remains the same.
D)increases.

Accepted Answer

Variable cost per unit remains the same regardless of the volume of activity within the relevant range. This is because variable costs change in total in direct proportion to changes in activity level, but on a per-unit basis, they stay constant.

Question 17

Which of the following statements is TRUE about fixed and variable costs?
A)Both costs are constant when considered on a per-unit basis.
B)Both costs are constant when considered on a total basis.
C)Fixed costs are constant in total and variable costs are constant per unit.
D)Variable costs are constant in total and fixed costs are constant per unit.

Accepted Answer

Fixed costs are constant in total, meaning they do not change regardless of the number of units produced. Variable costs, on the other hand, are constant per unit, meaning the cost per unit stays the same regardless of the total number of units produced.

Question 18

Which of the following is an example of a step-fixed cost?
A)cost of disposable surgical scissors, which are purchased in increments of 100
B)cost of soaking solution to clean jewelry (Each jar can soak 50 rings before losing effectiveness.)
C)cost of tuition at £300 per credit hour up to 15 credit hours (Hours taken in excess of 15 hours are free.)
D)cost of disposable gowns used by patients in a hospital

Accepted Answer

Step-fixed costs remain constant over a range of activity but will change once that range is exceeded. The cost of disposable surgical scissors, which are purchased in increments of 100, is an example of a step-fixed cost because the cost remains the same until the next increment of 100 scissors is needed.

Question 19

Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that starts at the origin and reaches a maximum value and beyond the point that the line becomes parallel to the horizontal axis?
A)total direct material costs
B)a consultant paid £100 per hour with a maximum fee of £2,000
C)employees who are paid £15 per hour and guaranteed a minimum weekly wage of £300
D)rent on exhibit space at a convention

Accepted Answer

A consultant's fee will increase with the amount of time spent on a project up to a certain point (the maximum fee). The line on a graph representing this cost will start at the origin and increase until it reaches the maximum fee, beyond which the cost will become fixed (represented by a horizontal line).

Question 20

Which of the following is an example of a fixed cost?
A)power cost in the machining department
B)wood in the manufacture of furniture
C)labour cost paid on a piece basis
D)lease payments on machinery

Accepted Answer

Lease payments on machinery are a fixed cost as they remain constant regardless of the level of production or sales activity. Power cost in the machining department, wood in the manufacture of furniture, and labor cost paid on a piece basis are variable costs as they vary with the level of production or sales activity.

Quiz 2: An Introduction to Cost Terms and Concepts

Fixed cost per unit is £9 when 20,000 units are produced and £6 when 30,000 units are produced. What is the total fixed cost when nothing is produced?

The direct material cost is £10,000 when 2,000 units are produced. What is the direct material cost for 2,500 units produced?

Which item is not an example of a sunk cost?

If production volume increases from 8,000 to 10,000 units,

Direct materials are an example of a

Adams Ltd. rents a truck for a flat fee plus an additional charge per mile. What type of cost is the rent?

Mixed costs contain both

An equipment lease that specifies a payment of £5,000 per month plus £8 per machine hour used is an example of a

Variable costs,

Salaries paid to shift supervisors is an example of a

A supervisor's salary of £2,000 per month is an example of a

Which of the following costs is a variable cost?

Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that is parallel to the horizontal axis?

Sunk costs are

As the volume of activity increases within the relevant range, the variable cost per unit

Which of the following statements is TRUE about fixed and variable costs?

Which of the following is an example of a step-fixed cost?

Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that starts at the origin and reaches a maximum value and beyond the point that the line becomes parallel to the horizontal axis?

Which of the following is an example of a fixed cost?