Question 1

What is the relationship between per-unit fixed costs and output?
A) Per-unit fixed costs stay the same as output changes.
B) Per-unit fixed costs decrease as output increases.
C) Per-unit fixed costs decrease as output decreases.
D) Per-unit fixed costs increase as output increases.

Accepted Answer

Per-unit fixed costs decrease as output increases because the total fixed costs are spread over a larger number of units, reducing the cost per unit.

Question 2

What is an example of a discretionary cost?
A) executive travel costs
B) the cost of leasing machinery
C) licence fees for fleet of vehicles
D) depreciation on a factory building

Accepted Answer

Discretionary costs are those that a company can choose to incur or not incur. Executive travel costs are discretionary because the company can choose whether or not to send executives on business trips. The other options listed are all examples of fixed or variable costs that a company must incur to operate.

Question 3

Which of the following is characteristic of discretionary fixed costs?
A) They cannot be easily changed.
B) They often involve a long-term contract.
C) They can be easily changed by management.
D) They increase as output increases.

Accepted Answer

Discretionary fixed costs are those that can be easily changed or eliminated by management, such as advertising or research and development expenses. The other options are not characteristic of discretionary fixed costs.

Question 4

What is a variable cost for a medical lab?
A) advertising on local radio station
B) leasing lab equipment
C) needles used to draw blood
D) salary of receptionist

Accepted Answer

Needles used to draw blood are a variable cost for a medical lab as the quantity of needles used will vary depending on the volume of patients seen. Advertising on a local radio station, leasing lab equipment, and the salary of the receptionist are all fixed costs for the medical lab.

Question 5

What is an example of a discretionary fixed cost?
A) insurance
B) advertising
C) factory rent
D) direct materials

Accepted Answer

Discretionary fixed costs are those that are necessary but can be modified based on managerial discretion. Advertising is an example of a discretionary fixed cost as the amount spent on advertising can be adjusted based on the company's budget and goals. Insurance and factory rent are examples of committed fixed costs, which are necessary expenses that a company must pay regardless of their level of production. Direct materials are variable costs as they fluctuate based on the level of production.

Question 6

Which of the following is an example of a fixed cost?
A) direct materials
B) commissions
C) electricity
D) insurance

Accepted Answer

Insurance is a fixed cost because its cost remains the same regardless of the level of production or sales. Direct materials (A) and commissions (B) are variable costs because they increase or decrease with the level of production or sales. Electricity (C) can be either a fixed or variable cost depending on the pricing structure of the utility company.

Question 7

What is characteristic of a fixed cost within the relevant range?
A) It increases in total as output increases.
B) It does not change in total as output changes.
C) It decreases in total as output decreases.
D) It has both a variable and a fixed component.

Accepted Answer

Fixed costs do not change in total as output changes within the relevant range.

Question 8

What is relevant range?
A) the normal range of inputs
B) the range of output where cost relationships are valid
C) the range that does not change from period to period
D) the costs that do not change

Accepted Answer

Relevant range refers to the range of output or level of activity where cost relationships are valid. Outside of the relevant range, costs may behave differently and the cost-volume-profit analysis may no longer apply. The relevant range can vary depending on the company and the specific cost being analyzed.

Question 9

What is characteristic of a committed fixed cost?
A) It can be easily changed.
B) It often involves a long-term contract.
C) It changes when output changes.
D) It includes direct materials.

Accepted Answer

Committed fixed costs often involve a long-term contract, meaning they cannot be easily changed in the short term.

Question 10

What is a discretionary fixed cost for a doctor's office?
A) the salary of receptionist
B) the cost of newspaper advertising
C) the depreciation on furniture and equipment
D) the cost of forms

Accepted Answer

Discretionary fixed costs are those that are decided at a management level and can be cut or delayed without immediate impact on the firm's ability to operate. Newspaper advertising is a discretionary expense because it is not essential for the basic functioning of a doctor's office and can be adjusted based on the office's budget and strategic decisions.

Question 11

When the level of activity increases within the relevant range,what is the effect on the fixed cost per unit?
A) It decreases.
B) It increases at first then decreases.
C) It remains the same.
D) It increases.

Accepted Answer

Fixed cost per unit decreases as the level of activity increases within the relevant range because the total fixed costs are spread over more units, reducing the cost per unit.

Question 12

Which factor causes or leads to a change in a cost or activity?
A) cost formula
B) regression line
C) driver
D) y-intercept

Accepted Answer

A driver is a factor that causes or leads to a change in a cost or activity. It may include things like units produced, machine hours used, or miles driven. The cost formula and regression line are tools used to help understand the relationship between drivers and costs, but they do not cause or lead to a change on their own. The y-intercept is a point on a graph where the line intersects the y-axis, and it does not relate to drivers or changes in costs.

Question 13

If output increases by 60% and is still within the relevant range,what will be the most likely result?
A) Total fixed costs will increase by 60%.
B) Per-unit fixed cost will remain the same.
C) Total variable costs will increase by 60%.
D) Net income will increase by 60%.

Accepted Answer

Total variable costs increase in direct proportion to output increases, so if output increases by 60%, total variable costs will also increase by 60%, assuming the cost per unit remains constant.

Question 14

What is characteristic of variable costs within the relevant range?
A) stay constant on a per unit basis as output changes
B) decrease in total as output increases
C) decrease in per unit as output increases
D) stay constant in total as output increases

Accepted Answer

Variable costs stay constant on a per unit basis as output changes, meaning the cost per unit does not change even though the total variable cost will change in direct proportion to changes in the volume of production/output.

Question 15

What is a variable cost in a factory?
A) factory supervisor's salary
B) lubricant for machinery
C) factory building rent
D) product advertising costs

Accepted Answer

Variable costs are costs that vary with changes in the level of output or production. Lubricant for machinery is a variable cost because the more the machinery is used, the more lubricant will be needed. The other options listed are fixed costs, which are expenses that do not change with production levels.

Question 16

What does cost behaviour analysis focus on?
A) the reaction of costs to changes in profit
B) the reaction of costs to change over time
C) the reaction of costs to changes in activity level.
D) the reaction of costs to changes in benefit

Accepted Answer

Cost behaviour analysis focuses on how costs react to changes in activity level, such as changes in production output or sales volume, rather than changes in profit or benefit. The goal is to understand how costs will change in response to changes in production or sales, and to use this information to make more informed business decisions.

Question 17

Which of the following is likely a fixed cost in a fast-food restaurant?
A) cost of flour for pizza crust
B) cost of pepperoni for pizza topping
C) shift manager's salary
D) monthly electric bill

Accepted Answer

A fixed cost is a cost that does not change with the quantity of output produced. The cost of flour and pepperoni are considered variable costs since they will vary based on how much pizza is being made. The monthly electric bill could also fluctuate depending on the amount of energy used. However, the shift manager's salary is a fixed cost since it is a set amount regardless of how much food is being sold.

Question 18

What is a committed fixed cost for a coffee shop?
A) property taxes
B) coffee cups
C) coffee beans
D) barista wages

Accepted Answer

Property taxes are a committed fixed cost because they do not vary based on the level of business activity or sales. Regardless of how many cups of coffee the shop sells or how many baristas they hire, they will have to pay the same amount in property taxes.

Question 19

Which of the following processes requires one to know how costs change as output changes?
A) Analyzing,reporting,and decision making
B) examining and interpreting
C) planning,controlling,and decision making
D) recalling and summarizing

Accepted Answer

Planning, controlling, and decision making require knowledge of how costs change as output changes. This allows for informed decisions to be made regarding resource allocation and management. Analyzing, reporting, and decision making may also require this knowledge, but it is not explicitly stated as a requirement. Examining, interpreting, recalling, and summarizing do not necessarily require knowledge of cost behavior.

Question 20

What is the range of activity within which a cost function is valid?
A) the relevant range
B) the normal range
C) the activity range
D) the discretionary range

Accepted Answer

The relevant range is the range of activity within which a cost function is valid. This means that the cost behavior may change outside of this range due to factors such as capacity constraints or changes in technology. Therefore, the relevant range is the best choice for the answer. The normal range refers to a range of activity that is considered typical or expected, but it may not necessarily be the range of activity within which the cost function is valid. The activity range and discretionary range are not relevant concepts in this context.

Quiz 3: Cost Behaviour

What is the relationship between per-unit fixed costs and output?

What is an example of a discretionary cost?

Which of the following is characteristic of discretionary fixed costs?

What is a variable cost for a medical lab?

What is an example of a discretionary fixed cost?

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

What is characteristic of a fixed cost within the relevant range?

What is relevant range?

What is characteristic of a committed fixed cost?

What is a discretionary fixed cost for a doctor's office?

When the level of activity increases within the relevant range,what is the effect on the fixed cost per unit?

Which factor causes or leads to a change in a cost or activity?

If output increases by 60% and is still within the relevant range,what will be the most likely result?

What is characteristic of variable costs within the relevant range?

What is a variable cost in a factory?

What does cost behaviour analysis focus on?

Which of the following is likely a fixed cost in a fast-food restaurant?

What is a committed fixed cost for a coffee shop?

Which of the following processes requires one to know how costs change as output changes?

What is the range of activity within which a cost function is valid?