Deck 2: Cost Behavior and Cost Estimation Summary of Questions by Objectives and Blooms Taxonomy

Question 1

A committed fixed cost is one that cannot be changed over the short run.

Answer 1

True

Question 2

Regression is a more precise method of estimating the fixed and variable components of a mixed cost than the high-low method or a scattergraph.

Answer 2

True

Question 3

Like the high-low method of estimating the fixed and variable components of a mixed cost, regression analysis uses a statistical technique that identifies the line of best fit.

Answer 3

False

Question 4

The high-low method of estimating the fixed and variable components of a mixed cost is a precise approach that uses a statistical technique.

Question 5

Once you know how a particular cost behaves,estimating the total cost is relatively simple.

Question 6

With a variable cost,as the level of activity decreases,the total cost remains the same.

Question 7

A variable cost is one that varies in proportion to a business activity.

Question 8

Companies should reduce fixed costs whenever possible during times of falling profits.

Question 9

A scattergraph is simply a graph that shows total costs in relation to volume,or activity level.

Question 10

Three methods used for estimating the fixed and variable portions of a cost include: cost-cover graphs,the high-False - Three methods used for estimating the fixed and variable portions of a cost include scattergraphs,the high-low method and regression analysis.

Question 11

Unlike the scattergraph,the high-low method requires only two data points - the lowest point of activity and the highest point of activity.

Question 12

Discretionary fixed costs are fixed costs that cannot be changed over the short run.

Question 13

With a fixed cost, the cost per unit varies proportionately with changes in the level of activity.

Question 14

An example of a step cost is the natural gas bill you receive for heating your apartment.

Question 15

To estimate total cost using the high-low method,identify the highest and lowest level of activity and compute the slope of the line.

Question 16

An example of a committed fixed cost is when a company signs a 10-year lease on an office building.

Question 17

Since a mixed cost has both a fixed and a variable component, both the total cost and the unit cost will vary with changes in the level of activity.

Question 18

All costs are either fixed or variable.That is,a cost cannot have a fixed and a variable component.

Question 19

A fixed cost is a cost that does not change in total with the activity level.

Question 20

Step costs are fixed over only a small range of activity.

Question 21

If activity level increases,what happens to the total variable cost?

A)It remains the same.
B)It decreases.
C)It increases.
D)It depends on how much the activity level increases.

Question 22

A contribution format income statement just rearranges the individual costs components and produces the same operating income as the traditional functional income statement.

Question 23

The relevant range is the normal level of operating activity.

Question 24

The contribution format income statement presents cost by behavior.

Question 25

If activity level decreases,what happens to the total fixed cost?

A)It remains the same.
B)It decreases.
C)It increases.
D)It depends on how much the activity level increases.

Question 26

When production and sales are equal,a drawback of the contribution format income statement is that is does not produce the same operating income as the traditional functional income statement format.

Question 27

If activity level increases,what happens to the total variable cost?

A)It remains the same.
B)It decreases.
C)It increases.
D)It depends on how much the activity level increases.

Question 28

If activity level increases,what happens to the total fixed cost?

A)It decreases.
B)It increases.
C)It remains the same.
D)It depends on how much the activity level increases.

Question 29

If activity level increases, what happens to the unit fixed cost?

A)It decreases.
B)It increases.
C)It remains the same.
D)It depends on how much the activity level increases.

Question 30

GAAP-based income statements categorize expenses based on

A)product,contribution,selling or administrative
B)product,selling or administrative
C)contribution,product,administrative
D)variable costs and fixed costs

Question 31

The contribution margin is the difference between sales and fixed costs.

Question 32

A basic tool for making business decisions is the contribution margin.

Question 33

If activity level decreases,what happens to the total variable cost?

A)It decreases.
B)It increases.
C)It remains the same.
D)It depends on how much the activity level increases.

Question 34

Contribution margin = Sales revenue - Total variable costs.

Question 35

Cost behaviors and estimates are valid only within what is referred to as a precision range.

Question 36

Operating income = Sales revenue – Variable cost per unit – Total fixed costs.

Question 37

GAAP-based income statements categorize expenses based on

A)Business function
B)Cost behavior
C)Dollar amount
D)Contribution margin

Question 38

Unlike the contribution margin in dollars,the contribution margin ratio cannot be used to determine the increase in profits from a given dollar increase in sales revenue.

Question 39

The contribution margin income statement allows managers to easily assess the impact of sales volume on operating income.

Question 40

Contribution margin is the amount of revenue that remains to cover fixed costs and provide a profit.

Question 41

If activity level decreases, what happens to the unit variable cost?

A)It remains the same.
B)It decreases.
C)It increases.
D)It depends on how much the activity level increases.

Question 42

Assume you are planning a spring break ski trip to Colorado.You are preparing a budget of your costs.You are staying at a lodge that has a special where the lodge charges you a flat fee of $25 for up to ten ski lift rides.You believe you will ride the ski lift 40 times during the week,so you budget $100.The ski lift charge is an example of a

A)Fixed cost.
B)Variable cost.
C)Mixed cost.
D)Step cost.

Question 43

An example of a variable cost for a cell phone manufacturer is

A) Units sold.
B) Units produced.
C) Minutes talked.
D) Touch screens used in production.

Question 44

Which of the following is an example of a variable cost for a bicycle manufacturer?

A)Rent
B)Insurance
C)Tires
D)Depreciation

Question 45

When managers talk about cost behavior,they are referring to

A)Where a cost is reported on the income statement.
B)The way in which total costs change in response to changes in the level of activity.
C)The method used to determine whether a cost is accrued or expensed.
D)None of these ans choice are correct.

Question 46

Any cost that varies in proportion to a business activity is a

A)Fixed cost.
B)Variable cost.
C)Mixed cost.
D)Step cost.

Question 47

As the level of activity increases,the total variable cost

A)Increases proportionally.
B)Changes inversely.
C)Changes conversely.
D)Remains the same.

Question 48

In contrast to a variable cost

A)The total amount of a fixed cost does not change with activity level.
B)The total amount of a fixed cost increases as activity increases.
C)The per unit amount of a fixed cost does not change with activity level.
D)The per unit amount of a fixed cost increases as activity increases.

Question 49

Four common cost behavior patterns that serve as the foundation for cost-volume-profit analysis are

A)Variable cost,fixed cost,selling cost,and administrative cost.
B)Variable cost,fixed cost,mixed cost,and step cost.
C)Variable cost,fixed cost,period cost,and other cost.
D)Selling cost,administrative cost,cost of goods sold,and depreciation.

Question 50

Assume you are planning a spring break ski trip to Colorado.You are preparing a budget of your costs.You are staying at a lodge that has a special where the lodge charges you $80 per week for the ski lift regardless of how many times you ride.You believe you will ride the ski lift 40 times during the week.The ski lift charge is an example of a

A)Fixed cost.
B)Variable cost.
C)Mixed cost.
D)Step cost.

Question 51

A 10 percent increase in sales volume will result in

A)A 10 percent decrease in per unit fixed cost.
B)A 10 percent increase in total fixed cost.
C)A 10 percent increase in per unit fixed cost.
D)No change in total fixed cost.

Question 52

Assume you are planning a spring break ski trip to Colorado.You are preparing a budget of your costs.You are staying at a lodge that has a special where the lodge charges you $2 for each ski lift ride.You believe you will ride the ski lift 40 times during the week,so you budget $80.The ski lift charge is an example of a

A)Fixed cost.
B)Variable cost.
C)Mixed cost.
D)Step cost.

Question 53

When a manager talks about cost behavior,she is referring to

A)The way in which total costs change in response to changes in the level of activity.
B)The method used to determine whether a cost is accrued or expensed.
C)Both A and B.
D)None of these ans choices are correct.

Question 54

Assume you are planning a spring break ski trip to Colorado.You are preparing a budget of your costs.You are staying at a lodge that has a special where the lodge charges you $25 for the first 30 ski lift rides and an additional charge of $5 for each ride in excess of 30.You believe you will ride the ski lift 40 times during the week,so you budget $75.The ski lift charge is an example of a

A)Fixed cost.
B)Variable cost.
C)Mixed cost.
D)Step cost.

Question 55

A characteristic of a variable cost is

A) The total cost varies in proportion to changes in the level of activity.
B) The cost per unit remains constant, regardless of the level of activity.
C) Both that the total cost varies in proportion to changes in the level of activity and that the cost per unit remains constant, regardless of the level of activity.
D) Neither that the total cost varies in proportion to changes in the level of activity nor that the cost per unit remains constant, regardless of the level of activity.

Question 56

Four common cost behavior patterns that serve as the foundation for cost-volume-profit analysis are

A)Variable cost,fixed cost,mixed cost,and step cost.
B)Variable cost,fixed cost,selling cost,and administrative cost.
C)Cost of goods sold,period cost,other cost,and depreciation.
D)Selling cost,administrative cost,cost of goods sold,and depreciation.

Question 57

A 10 percent increase in sales volume will result in

A)A 10 percent decrease in total variable cost.
B)A 10 percent decrease in unit variable cost.
C)A 10 percent increase in total variable cost.
D)A 10 percent increase in unit variable cost.

Question 58

If activity level decreases, what happens to the unit fixed cost?

A)It decreases.
B)It increases.
C)It remains the same.
D)It depends on how much the activity level increases.

Question 59

If activity level increases, what happens to the unit variable cost?

A)It remains the same.
B)It decreases.
C)It increases.
D)It depends on how much the activity level increases.

Question 60

A 10 percent decrease in sales volume will result in

A)A 10 percent decrease in total variable cost.
B)A 10 percent decrease in per unit variable cost.
C)A 10 percent increase in total variable cost.
D)A 10 percent increase in per unit variable cost.

Question 61

Suppose your cell phone company offers a plan under which you can buy time in blocks of 100 minutes.Every 100-minute block costs $15.If you use 101 minutes you will pay $30.This is an example of a

A)Variable cost
B)Mixed cost.
C)Fixed cost.
D)Step cost.

Question 62

Suppose you are charged a $10 per month base charge for your electrical service.You are also charged an additional $0.08 for every kwh of electricity you use.Which of the following statement is not true?

A)The $10 base charge is a fixed cost.
B)The $0.08 charge per kwh is a variable cost.
C)The total cost is an example of a step cost.
D)The total cost is an example of a mixed cost.

Question 63

Some costs have both a fixed and a variable component.These costs are referred to as

A)Discretionary costs.
B)Committed costs.
C)Mixed costs.
D)Step costs.

Question 64

Mike Mounts has a membership at the Marigold Men's Fitness Club.The membership costs $30 per month regardless of how many times the facility is used.The membership cost is classified as a:

A)Variable cost.
B)Fixed cost.
C)Step variable cost.
D)Mixed cost.

Question 65

Mounce Corporation leases a color copier for a monthly fee of $75 plus a charge of $0.02 per copy.Mounce's copy cost is classified as a:

A)Variable cost.
B)Fixed cost.
C)Step variable cost.
D)Mixed cost.

Question 66

A discretionary fixed cost

A)Remains the same per unit regardless of the level of activity.
B)Increases as the level of activity increases.
C)Can be changed in the short run.
D)Can be changed over the long run.

Question 67

Suppose your cell phone company offers a plan under which you pay $15 for a 100-minute block.For each minute over 100 minutes you have to pay $0.10 per minute.This is an example of a

A)Variable cost
B)Mixed cost.
C)Fixed cost.
D)Step cost.

Question 68

Which of the following is not an example of a variable cost for a manufacturer of bicycles?

A)Number of tires.
B)Gallons of paint.
C)Wages for factory workers.
D)President of the company's salary.

Question 69

Step costs are fixed over only a small range of activity.Once that level of activity has been exceeded,total cost

A)Increases because the excess costs become variable.
B)Increases and remains constant over another small range of activity.
C)Remains the same regardless of activity.
D)None of these ans choices is correct.

Question 70

You are considering moving off campus.You have found a one-bedroom apartment very near campus that is clean and safe.However,you do not want to live alone.A one-bedroom apartment is roomy enough to have one or two roommates.The manager discourages having more than one individual in an apartment and so charges rent per person.The relationship between the number of roommates,the total cost,and the cost per person is: This is an example of

A)A fixed cost.
B)A variable cost.
C)A mixed cost.
D)A step cost.

Question 71

Which of the following is a characteristic of a fixed cost?

A)The total cost remains constant,regardless of changes in the level of activity.
B)The cost per unit varies inversely with changes in the level of activity.
C)Both that the total cost remains constant,regardless of changes in the level of activity and that the cost per unit varies inversely with changes in the level of activity.
D)Neither that the total cost remains constant,regardless of changes in the level of activity nor that the cost per varies inversely with changes in the level of activity.

Question 72

Suppose you are charged a $10 per month base charge for your electrical service.You are also charged an additional $0.08 for every kwh of electricity you use.The cost is an example of a

A)Variable cost.
B)Fixed cost.
C)Mixed cost.
D)Step cost.

Question 73

Suppose your cell phone company offers a plan under which you buy time per minute.A one-minute call costs you $0.10.If you talk 100 minutes it costs you $10.This is an example of a

A)Variable cost
B)Mixed cost.
C)Fixed cost.
D)Step cost.

Question 74

The formula,Electricity cost = $10 + $0.08 x kwh used is the formula for a

A)Mixed cost.
B)Fixed cost.
C)Step cost.
D)None of these ans choices is correct.

Question 75

An example of a discretionary fixed cost for a clothing manufacturer is

A)An annual contract for television advertising cost.
B)A 10-year lease on an office building.
C)Yards of fabrics used.
D)None of these ans choices are correct.

Question 76

You are considering moving off campus.You have found a two-bedroom apartment for $1,200 per month,but you cannot afford that much rent.You are considering inviting up to three of your friends to become your roommates.The relationship between the number of roommates,the total cost,and the cost per person is: This is an example of

A)A fixed cost.
B)A variable cost.
C)A mixed cost.
D)A step cost.

Question 77

Since a mixed cost has both a fixed and a variable component,

A)Neither total cost nor
B)Total cost will vary with changes in the level of activity,but
C)
D)Both the total cost and the

Question 78

You and two friends decide to rent an apartment off campus.You have found an apartment for $750 per month.You and your two friends will share the rent equally.This is an example of a

A)Fixed cost.
B)Variable cost.
C)Mixed cost.
D)Step cost.

Question 79

Which of the following is a true statement relating to step costs?

A)Step costs remain constant over only a small range of activity.
B)Step costs do not contain a fixed component.
C)Step costs are also referred to as fixed costs.
D)None of these ans choices is a true statement.

Question 80

An example of a committed fixed cost for a clothing manufacturer is

A)An annual contract for television advertising cost.
B)A 10-year lease on an office building.
C)Yards of fabric used.
D)None of these ans choices are correct.