Question 1

Montgomery Company has a variable selling cost. If sales volume increases, how will the total variable cost and the variable cost per unit behave? $\begin{array} { | l | l | l | } 
\hline & \text { Total Variable Cost } & \underline { \text { Variable Cost Per Unit } } \
\hline 1 & \text { Increase } & \text { Increase } \
\hline 2 & \text { Increase } & \text { Remain constant } \
\hline 3 & \text { Increase } & \text { Decrease } \
\hline 4 & \text { Remain constant } & \text { Decrease } \
\hline 5 & \text { Decrease } & \text { Increase } \
\hline
\end{array}$
A)1
B)2
C)3
D)4
E)5

Accepted Answer

Variable costs are directly proportional to sales volume. As sales volume increases, total variable cost will also increase. However, the variable cost per unit will remain constant because the variable cost per unit is calculated by dividing the total variable cost by the number of units sold.

Question 2

What type of cost exhibits the behaviour that follows? $\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Manufacturing } \
\text { Volume } \
\text { (Units) }
\end{array} & \begin{array} { l } 
\text { Total } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Cost } \
\text { Per Unit }
\end{array} \
\hline 50.000 &\$150,000 & \$ 3.00\
\hline 80.000 & 150,000 & 1.88 \
\hline
\end{array}$
A)Variable cost.
B)Fixed cost.
C)Curvilinear cost.
D)Step-variable cost.
E)Mixed cost.

Accepted Answer

The total cost remains constant at $150,000 regardless of the increase in manufacturing volume, indicating it is a fixed cost.

Question 3

Within the relevant range, a curvilinear cost function can sometimes be graphed as a:
A)straight line.
B)jagged line.
C)vertical line.
D)curved line.
E)horizontal line.

Accepted Answer

Within the relevant range, a curvilinear cost function can sometimes be approximated as a straight line for simplicity in cost analysis and budgeting.

Question 4

Costs that remain the same over a wide range of activity, but jump to a different amount for activity levels outside that range, are termed as:
A)step-fixed costs.
B)step-variable costs.
C)semi-variable costs.
D)curvilinear costs.
E)mixed costs.

Accepted Answer

Step-fixed costs remain constant over a wide range of activity levels but change when activity exceeds certain thresholds.

Question 5

Which of the following costs changes in total in direct proportion to a change in the activity level?
A)Variable cost.
B)Fixed cost.
C)Semi-variable cost.
D)Step-variable cost.
E)Step-fixed cost.

Accepted Answer

Variable costs are costs that change in total in direct proportion to a change in the activity level. As activity or production increases, variable costs increase, and as activity or production decreases, variable costs decrease. This is because variable costs are based on units produced or materials used, which change with the level of activity. Therefore, the higher the activity level, the higher the variable cost and vice versa.

Question 6

A review of Parry Corporation's accounting records found that at a volume of 90,000 units, the variable and fixed cost per unit amounted to $8 and $4, respectively. On the basis of this information, what amount of total cost would Parry anticipate at a volume of 85,000 units?
A)$680,000.
B)$1,020,000.
C)$1,040,000.
D)$1,060,000.
E)$1,080,000.

Accepted Answer

Using the given information, we can find the total cost as:
Total Cost = (Variable Cost per unit * Number of units) + Fixed Cost
Total Cost = (8 * 85,000) + 4
Total Cost = 680,000 + 4
Total Cost = $1,040,000
Therefore, the best answer is C).

Question 7

Norman Company pays a sales commission of 5% on each unit sold. If a graph is prepared, with the vertical axis representing the per-unit cost and the horizontal axis representing the number of units sold, how would a line that depicts sales commissions per unit be drawn?
A)As a straight diagonal line, sloping upward to the right.
B)As a straight diagonal line, sloping downward to the right.
C)As a horizontal line.
D)As a vertical line.
E)As a curvilinear line.

Accepted Answer

The sales commission per unit is a fixed percentage (5%) of the sales price, so it remains constant regardless of the number of units sold. Therefore, it is represented as a horizontal line on the graph.

Question 8

Each of Acorn Manufacturing's production managers can oversee 80,000 machine hours of manufacturing activity. The annual salary of a production manager is $55,000. If Acorn has 60,000 hours of manufacturing activity, one manager is needed; for 100,000 hours, two managers are needed; for 150,000 hours, three managers are needed; and so forth. Acorn's salary cost can best be described as a:
A)variable cost.
B)curvilinear cost.
C)step-variable cost.
D)fixed cost.
E)step-fixed cost.

Accepted Answer

The salary cost is a step-fixed cost because it remains constant over a range of activity (up to 80,000 hours) and then increases in steps as activity exceeds each threshold.

Question 9

Within the relevant range of activity, costs:
A)can be estimated with reasonable accuracy.
B)can be expected to change radically.
C)exhibit decreasing marginal cost patterns.
D)exhibit increasing marginal cost patterns.
E)cannot be estimated satisfactorily.

Accepted Answer

Within the relevant range of activity, costs can be estimated with reasonable accuracy because they are assumed to behave in a predictable and consistent manner. The relevant range is the range of activity over which the assumptions about cost behavior are valid. Therefore, as long as the activity remains within the relevant range, costs can be estimated with reasonable accuracy.

Question 10

Miles Corporation has a fixed utilities cost. If sales volume increases, how will the total fixed cost and the fixed cost per unit behave? $\begin{array} { | r | l | l | } 
\hline & \text { Total Fixed Cost } & \text { Fixed Cost Per Unit } \
\hline \mathbf { 1 }  & \text { Increase } & \text { Increase } \
\hline \mathbf { 2 } & \text { Increase } & \text { Remain Constant } \
\hline \mathbf { 3 } & \text { Increase } & \text { Decrease } \
\hline \mathbf { 4 } & \text { Remain Constant } & \text { Decrease } \
\hline \mathbf { 5 } & \text { Decrease } & \text { Increase } \
\hline
\end{array}$
A)1.
B)2.
C)3.
D)4.
E)5.

Accepted Answer

The answer of Miles Corporation has a fixed utilities cost....

Question 11

Which of the following choices denotes the typical cost behaviour of advertising and sales commissions? $\begin{array} { | l | l | l | l | } 
\hline & \text { Advertising } & &\text { Sales } \
&&&\text { Commissions }\

\hline 1 & \text { Variable } & & \text { Variable } \
\hline 2 & \text { Variable } & & \text { liixed } \
\hline 3 & \text { lixed } & & \text { Variable } \
\hline 4 & \text { Fixed } & & \text { Fixed } \
\hline 5 & \text { Semi-variable } & & \text { Variable } \
\hline
\end{array}$
A)1
B)2
C)3
D)4
E)5

Accepted Answer

The answer of Which of the following choices denotes the...

Question 12

The relevant range is that range of activity:
A)where a company achieves its maximum efficiency.
B)where units produced equal units sold.
C)where management expects the company to operate.
D)where the company will earn a profit.
E)where expected results are abnormally high.

Accepted Answer

The relevant range is the level of activity within which a company expects to operate during a specific period, and within which the assumptions about fixed and variable cost behavior are valid.

Question 13

What type of cost exhibits the behaviour that follows? $\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Manufacturing } \
\text { Volume } \
\text { (Units) }
\end{array} & \text { Cost Per Unit } \
\hline 50.000 & \$ 1.95 \
\hline 70.000 & 1.95 \
\hline
\end{array}$
A)Variable cost.
B)Fixed cost.
C)Curvilinear cost.
D)Discretionary fixed cost.
E)Step-fixed cost.

Accepted Answer

Variable costs remain constant per unit regardless of the level of production, as shown in the table where the cost per unit is $1.95 for both 50,000 and 70,000 units.

Question 14

Straight-line depreciation is a typical example of a:
A)variable cost.
B)step-variable cost.
C)fixed cost.
D)mixed cost.
E)curvilinear cost.

Accepted Answer

Straight-line depreciation is a fixed cost as it is spread evenly over the life of an asset and does not vary with the level of production or sales.

Question 15

Rideau Manufacturing Company has only variable costs and fixed costs. A review of the company's records disclosed that when 200,000 units were produced, fixed manufacturing costs amounted to $800,000 and the cost per unit manufactured was $11. On the basis of this information, how much total cost would Rideau anticipate at an activity level of 202,000 units?
A)$800,000.
B)$1,608,000.
C)$2,200,000.
D)$2,214,000.
E)$2,222,000.

Accepted Answer

The answer of Rideau Manufacturing Company has only variable costs...

Question 16

Lincoln Incorporated observed that when 30,000 units were sold, a particular cost amounted to $90,000, or $3.00 per unit. When the sales volume increased by 20%, the cost also increased to $108,000(i.e., $3.00 per unit). The cost that Lincoln is studying can best be described as a:
A)variable cost.
B)fixed cost.
C)mixed cost.
D)discretionary fixed cost.
E)step-fixed cost.

Accepted Answer

The cost is a variable cost because it changes in direct proportion to the change in sales volume, remaining constant on a per-unit basis.

Question 17

The relationship between cost and activity is termed as:
A)cost estimation.
B)cost prediction.
C)cost behaviour.
D)cost analysis.
E)cost approximation.

Accepted Answer

Cost behavior refers to how costs change as the level of activity changes. This relationship can be described as variable, fixed or mixed, which helps in estimating and predicting costs. Therefore, option C is the most appropriate choice. Option A, B, D and E are related to the process of analyzing or estimating costs, but do not refer specifically to the relationship of costs with activity.

Question 18

A company observed a decrease in the cost per unit. All other things being equal, which of the following is probably true?
A)The company is studying a variable cost, and total volume has increased.
B)The company is studying a variable cost, and total volume has decreased.
C)The company is studying a fixed cost, and total volume has increased.
D)The company is studying a fixed cost, and total volume has decreased.
E)The company is studying a fixed cost, and total volume has remained constant.

Accepted Answer

When studying a fixed cost, as total volume increases, the cost per unit decreases because the fixed cost is spread over more units.

Question 19

Van Dijk Incorporated recently produced and sold 200,000 units. Fixed costs at this level of activity amounted to $60,000; variable costs were $100,000. How much total cost would the company anticipate if during the next period it produced and sold 202,000 units?
A)$60,000.
B)$160,000.
C)$160,600.
D)$464,000.
E)$465,000.

Accepted Answer

The answer of Van Dijk Incorporated recently produced and sold...

Question 20

Which of the following costs exhibits both decreasing and increasing marginal costs over a specific range of activity?
A)Semi-variable cost.
B)Curvilinear cost.
C)Step-fixed cost.
D)Step-variable cost.
E)Fixed cost.

Accepted Answer

Curvilinear cost exhibits both decreasing and increasing marginal costs over a specific range of activity. This means that initially, as the level of activity increases, the marginal cost decreases, but after a certain point, it starts increasing again. This occurs due to the presence of both fixed and variable elements in the cost.

Quiz 6: Activity Analysis, Cost Behaviour, and Cost Estimation

Within the relevant range, a curvilinear cost function can sometimes be graphed as a:

Costs that remain the same over a wide range of activity, but jump to a different amount for activity levels outside that range, are termed as:

Which of the following costs changes in total in direct proportion to a change in the activity level?

A review of Parry Corporation's accounting records found that at a volume of 90,000 units, the variable and fixed cost per unit amounted to $8 and $4, respectively. On the basis of this information, what amount of total cost would Parry anticipate at a volume of 85,000 units?

Norman Company pays a sales commission of 5% on each unit sold. If a graph is prepared, with the vertical axis representing the per-unit cost and the horizontal axis representing the number of units sold, how would a line that depicts sales commissions per unit be drawn?

Within the relevant range of activity, costs:

The relevant range is that range of activity:

What type of cost exhibits the behaviour that follows? $\begin{array} { | c | c | } \hline \begin{array} { c } \text { Manufacturing } \\\text { Volume } \\\text { (Units) }\end{array} & \text { Cost Per Unit } \\\hline 50.000 & \$ 1.95 \\\hline 70.000 & 1.95 \\\hline\end{array}$

Straight-line depreciation is a typical example of a:

Lincoln Incorporated observed that when 30,000 units were sold, a particular cost amounted to $90,000, or $3.00 per unit. When the sales volume increased by 20%, the cost also increased to $108,000(i.e., $3.00 per unit) . The cost that Lincoln is studying can best be described as a:

The relationship between cost and activity is termed as:

A company observed a decrease in the cost per unit. All other things being equal, which of the following is probably true?

Van Dijk Incorporated recently produced and sold 200,000 units. Fixed costs at this level of activity amounted to $60,000; variable costs were $100,000. How much total cost would the company anticipate if during the next period it produced and sold 202,000 units?

Which of the following costs exhibits both decreasing and increasing marginal costs over a specific range of activity?