Question 1

Within the relevant range of activity,how will variable cost per unit behave?
A) It will increase in proportion with the level of activity.
B) It will remain constant.
C) It will vary inversely with the level of activity.
D) Its behaviour cannot be determined without additional information.

Accepted Answer

Variable cost per unit will remain constant within the relevant range of activity, assuming that there are no changes in production efficiency or other factors influencing the cost of producing each unit. This is a characteristic of variable costs, which are expenses that increase or decrease as the level of activity changes, but on a per-unit basis, their cost remains consistent.

Question 2

What is a cost driver?
A) It is the largest single category of cost in a company.
B) It is a fixed cost that cannot be avoided.
C) It is a factor that causes variations in a cost.
D) It is an indirect cost that is essential to the business.

Accepted Answer

A cost driver is a factor that causes variations in a cost. It could be the number of units produced, the level of activity, or the amount of time spent on a particular task that impacts the cost. Identifying and understanding these cost drivers is essential for companies to manage and control their costs effectively.

Question 3

An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine hour at an activity level of 10,000 machine hours and $0.25 per machine hour at an activity level of 8,000 machine hours.Assuming that this activity is within the relevant range,what is the total expected maintenance cost if the activity level is 8,700 machine hours?
A) $400.
B) $1,740.
C) $2,000.
D) $2,250.

Accepted Answer

C

Question 4

The linear equation Y = a + bX is often used to express cost formulas.Which of the following representations in this equation is correct?
A) The b term represents variable cost per unit of activity.
B) The a term represents variable cost in total.
C) The X term represents total costs.
D) The Y term represents total fixed costs.

Accepted Answer

The b term in the equation Y = a + bX represents the variable cost per unit of activity, which means the cost that varies with the level of activity. The a term represents the fixed cost in total, which remains constant regardless of the level of activity. The X term represents the level of activity, which is usually measured in units. The Y term represents the total cost, which is the sum of fixed and variable costs.

Question 5

In describing the cost formula equation Y = a + bX,which of the following statements is correct?
A) The X term is the dependent variable.
B) The a term is the fixed component.
C) In the high-low method,the b term equals change in activity divided by change in costs.
D) As the X term increases,the Y term decreases.

Accepted Answer

The a term represents the fixed costs in the cost formula equation Y = a + bX, where Y is the total cost, a is the total fixed cost, b is the variable cost per unit of activity, and X is the level of activity.

Question 6

Contribution margin is the excess of revenues over which of the following?
A) Cost of goods sold.
B) Manufacturing cost.
C) All direct costs.
D) All variable costs.

Accepted Answer

Contribution margin is the excess of revenues over all variable costs, not just cost of goods sold or manufacturing cost. This includes all direct costs that vary with the level of output.

Question 7

Which of the following is an example of a committed fixed cost?
A) A training program for salespersons.
B) Executive travel expenses.
C) Property taxes on the factory building.
D) New product research and development.

Accepted Answer

Property taxes on the factory building are an example of a committed fixed cost because it is a recurring expense that does not change with fluctuations in business activity or volume. A training program for salespersons (A) and new product research and development (D) are examples of discretionary fixed costs, while executive travel expenses (B) are an example of a variable cost.

Question 8

At an activity level of 10,000 units,total variable costs were $35,000 while total fixed costs were $20,800.If 16,000 units are produced and this activity is within the relevant range,which of the following statements is correct?
A) Total costs would equal $89,280.
B) Total unit cost would equal $4.80.
C) Fixed cost per unit would equal $5.58.
D) Total costs would equal $55,800.

Accepted Answer

The answer of At an activity level of 10,000 units,total...

Question 9

What will result from an increase in the activity level within the relevant range?
A) An increase in fixed cost per unit.
B) A proportionate increase in total fixed costs.
C) An unchanged fixed cost per unit.
D) A decrease in fixed cost per unit.

Accepted Answer

Fixed costs per unit decrease as activity level increases within the relevant range because the total fixed costs are spread over more units.

Question 10

Which of the following is an example of a cost that is variable with respect to the number of units produced and sold?
A) Insurance on the headquarters building.
B) Power to run production equipment.
C) Supervisory salaries.
D) Amortization of factory facilities.

Accepted Answer

Power to run production equipment is a variable cost that changes as the number of units produced and sold increases or decreases. The more units produced, the more energy is required to run the equipment, resulting in a higher cost. The other options, insurance on the headquarters building, supervisory salaries, and amortization of factory facilities, are fixed costs that do not change with the number of units produced and sold.

Question 11

Which costs will change with a decrease in activity within the relevant range?
A) Total fixed costs and total variable costs.
B) Unit fixed cost and total variable costs.
C) Unit variable cost and unit fixed cost.
D) Unit fixed cost and total fixed costs.

Accepted Answer

Unit fixed costs remain constant within the relevant range, so they will not change with a decrease in activity. However, total fixed costs will remain the same, so they will not change either. Unit variable costs may or may not change depending on the specific situation, but total variable costs will decrease with a decrease in activity because there will be fewer units produced or sold. Therefore, the best choice is B, which states that unit fixed cost and total variable costs will change with a decrease in activity within the relevant range.

Question 12

Which of the following is an example of a discretionary fixed cost?
A) Insurance.
B) Taxes on real estate.
C) Management training.
D) Amortization of buildings and equipment.

Accepted Answer

Discretionary fixed costs are expenses that can be adjusted or eliminated depending on the company's budget or management decision. Management training is a discretionary cost since it's not obligatory, and management can decide whether or not to invest in training for employees. Insurance is a fixed cost, but it's not discretionary since it is mandatory in most cases, and the company cannot eliminate it. Taxes on real estate are also fixed costs, but they are not discretionary since they are imposed by the government and cannot be adjusted by the company. Amortization of buildings and equipment is a fixed cost, but it's not a discretionary cost since it's required to be paid in order to maintain the assets.

Question 13

The following data pertain to activity and costs for two months:

Assuming that these activity levels are within the relevant range,what were the mixed costs for July?
A) $10,000.
B) $15,000.
C) $35,000.
D) $40,000.

Accepted Answer

The answer of The following data pertain to activity and...

Question 14

Expense A is a fixed cost; expense B is a variable cost.During the current year,the activity level has increased but is still within the relevant range.In terms of cost per unit of activity,you would expect which of the following statements to be true?
A) Expense A has remained unchanged.
B) Expense B has decreased.
C) Expense A has decreased.
D) Expense B has increased.

Accepted Answer

Fixed costs per unit decrease as the activity level increases, while variable costs per unit remain constant. Since Expense A is a fixed cost, its cost per unit of activity would decrease with increased activity levels.

Question 15

Shipping expense is $9,000 for 8,000 kilograms shipped and $11,250 for 11,000 kilograms shipped.Assuming that this activity is within the relevant range,if the company ships 9,000 kilograms,its expected shipping expense would be closest to which of the following?
A) $8,583.
B) $9,750.
C) $9,972.
D) $10,125.

Accepted Answer

To find the expected shipping expense for 9,000 kilograms, we first calculate the variable cost per kilogram based on the information provided. The difference in cost ($11,250 - $9,000 = $2,250) divided by the difference in kilograms shipped (11,000 - 8,000 = 3,000 kg) gives us a variable cost of $0.75 per kilogram. For 9,000 kilograms, the total cost would be the cost for 8,000 kilograms plus the variable cost for the additional 1,000 kilograms: $9,000 + ($0.75 * 1,000) = $9,750.

Question 16

Which of the following best describes the contribution approach to the income statement?
A) It organizes costs on a functional basis.
B) It is useful to managers in planning and decision making.
C) It shows a contribution margin rather than an operating income figure at the bottom of the statement.
D) It can be used only by manufacturing companies.

Accepted Answer

The contribution approach to the income statement is useful to managers in planning and decision making because it separates fixed and variable costs, allowing for better analysis of how costs behave with changes in production levels.

Question 17

The following data pertain to activity and costs for two months:

Assuming that these activity levels are within the relevant range,what were the mixed costs for November?
A) $20,000.
B) $25,000.
C) $35,000.
D) $40,000.

Accepted Answer

To calculate the mixed costs, we need to find the difference between the total cost at the highest level of activity and the variable costs at the same level. In this case, the highest level of activity is 8,000 machine hours in November, and the total cost at this level is $45,000. The variable cost at this level can be found by subtracting the fixed cost ($20,000) from the total cost, which is $25,000. Therefore, the mixed costs for November are $25,000.

Question 18

Anaconda Mining Company shipped 9,000 tons of copper concentrate for $450,000 in March and 11,000 tons for $549,000 in April.Use the high-low method to estimate the shipping costs for 12,000 tons to be shipped in May.
A) $548,780.
B) $549,020.
C) $594,000.
D) $598,500.

Accepted Answer

First, we need to find the variable cost per ton of shipping. We can do this by using the high-low method:

Variable cost per ton = (Total cost of high activity – Total cost of low activity) / (High activity – Low activity)
Variable cost per ton = (($549,000) – ($450,000)) / (11,000 – 9,000)
Variable cost per ton = ($99,000) / (2,000)
Variable cost per ton = $49.50

Next, we can use this variable cost per ton to estimate the shipping costs for May:

Total cost = Variable cost per ton * Tons shipped + Fixed cost
Total cost = ($49.50) * (12,000) + Fixed cost

We don't know the exact fixed cost, but we know that it stays the same regardless of the number of tons shipped. To remove it from the equation, we can use one of the previous months as a reference:

$549,000 = ($49.50) * (11,000) + Fixed cost
Fixed cost = $540,450

Now we can plug in the fixed cost and solve for the total cost in May:

Total cost = ($49.50) * (12,000) + $540,450
Total cost = $594,450

Therefore, the estimated shipping costs for 12,000 tons to be shipped in May using the high-low method is $598,500.

Question 19

What are discretionary fixed costs?
A) They vary directly and proportionately with the level of activity.
B) They have a long-term planning horizon,generally encompassing many years.
C) They are made up of plant,equipment,and basic organizational costs.
D) None of these options.

Accepted Answer

Discretionary fixed costs are non-essential costs that can be reduced or eliminated by management's discretion. They are not directly related to the level of activity and do not have a long-term planning horizon. Examples of discretionary fixed costs include advertising and research and development expenses.

Question 20

What does the term "relevant range" mean?
A) The range within which costs may fluctuate.
B) The range within which a particular cost formula is valid.
C) The range within which production may vary.
D) The range within which the relevant costs are incurred.

Accepted Answer

The relevant range refers to the range of activity levels within which a specific cost formula or relationship is valid. It is the range of activity where the total fixed costs, variable costs per unit, and the relevant cost behavior remain the same, which means that the output level within this range will not affect the cost formula.

Quiz 6: Cost Behaviour: Analysis and Use

Within the relevant range of activity,how will variable cost per unit behave?

What is a cost driver?

The linear equation Y = a + bX is often used to express cost formulas.Which of the following representations in this equation is correct?

In describing the cost formula equation Y = a + bX,which of the following statements is correct?

Contribution margin is the excess of revenues over which of the following?

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

At an activity level of 10,000 units,total variable costs were $35,000 while total fixed costs were $20,800.If 16,000 units are produced and this activity is within the relevant range,which of the following statements is correct?

What will result from an increase in the activity level within the relevant range?

Which of the following is an example of a cost that is variable with respect to the number of units produced and sold?

Which costs will change with a decrease in activity within the relevant range?

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

The following data pertain to activity and costs for two months: Assuming that these activity levels are within the relevant range,what were the mixed costs for July?

Expense A is a fixed cost; expense B is a variable cost.During the current year,the activity level has increased but is still within the relevant range.In terms of cost per unit of activity,you would expect which of the following statements to be true?

Shipping expense is $9,000 for 8,000 kilograms shipped and $11,250 for 11,000 kilograms shipped.Assuming that this activity is within the relevant range,if the company ships 9,000 kilograms,its expected shipping expense would be closest to which of the following?

Which of the following best describes the contribution approach to the income statement?

The following data pertain to activity and costs for two months: Assuming that these activity levels are within the relevant range,what were the mixed costs for November?

Anaconda Mining Company shipped 9,000 tons of copper concentrate for $450,000 in March and 11,000 tons for $549,000 in April.Use the high-low method to estimate the shipping costs for 12,000 tons to be shipped in May.

What are discretionary fixed costs?

What does the term "relevant range" mean?