Question 1

Which of the following companies would have the highest proportion of variable costs in its cost structure?

Accepted Answer

Fast food outlets typically have a high proportion of variable costs due to costs like food ingredients and hourly wages, which vary directly with sales volume.

Question 2

All of the following would be classified as product costs except:

Accepted Answer

Product costs are the costs that are directly incurred in the production process and are attached to the product. Salaries of the marketing staff are not direct costs of production and therefore are not considered product costs.

Question 3

If the level of activity increases within the relevant range:

Accepted Answer

As activity increases, total costs increase due to variable costs, while fixed cost per unit decreases because the same fixed costs are spread over more units.

Question 4

The cost of direct materials cost is classified as a:

Accepted Answer

The answer of The cost of direct materials cost is...

Question 5

For planning, control, and decision-making purposes:

Accepted Answer

Separating mixed costs into their variable and fixed components is essential for accurately analyzing and predicting costs. This information is necessary for decision-making, planning, and control purposes. Converting fixed costs to a per unit basis and eliminating discretionary fixed costs may be useful in some situations, but they do not provide as much valuable information as separating mixed costs. Ignoring variable costs would also result in incomplete and inaccurate cost analysis.

Question 6

Which of the following costs, if expressed on a per unit basis, would be expected to decrease as the level of production and sales increases?

Accepted Answer

Fixed manufacturing overhead costs are spread over more units as production increases, leading to a decrease in the per unit cost.

Question 7

In describing the cost equation, Y = a + bX, "a" is:

Accepted Answer

In the cost equation, Y = a + bX, "a" represents the total fixed cost, which does not change in response to changes in the level of activity. Therefore, option C is the correct answer.

Question 8

Fresh Wreath Corporation manufactures wreaths according to customer specifications and ships them to customers using United Parcel Service (UPS). Which two terms below describe the cost of shipping these wreaths?

Accepted Answer

The cost of shipping wreaths is a variable cost because it varies with the number of wreaths shipped and a period cost because it is incurred during a specific period of time (e.g. a month or a year). Option A is incorrect because product cost refers to the cost of producing the wreaths, not shipping them. Option C is incorrect because fixed cost refers to costs that do not vary with the level of production or sales, such as rent or equipment lease payments. Option D is incorrect because period cost refers to costs that are not directly related to the production process, such as advertising or administrative expenses.

Question 9

Data for Cost A and Cost B appear below:  Which of the above best describes the behavior of Costs A and B?

Accepted Answer

The answer of Data for Cost A and Cost B...

Question 10

When the activity level declines within the relevant range, what should happen with respect to the following?

Accepted Answer

Option C suggests that costs will remain constant in the relevant range regardless of the activity level. This is the most appropriate choice as it corresponds to the behavior of fixed costs, which do not vary with changes in activity level within the relevant range. Option A and B suggest that costs will increase or decrease with changes in activity level, which is more characteristic of variable costs. Option D suggests that costs will remain fixed at all activity levels, which is not consistent with cost behavior in the relevant range.

Question 11

Property taxes on a manufacturing facility are classified as:

Accepted Answer

The answer of Property taxes on a manufacturing facility are...

Question 12

Within the relevant range:

Accepted Answer

Within the relevant range, fixed costs remain constant in total, so as production decreases, the fixed cost per unit increases because the same total cost is spread over fewer units.

Question 13

Indirect labor is a(n):

Accepted Answer

Indirect labor is a part of conversion cost, which includes all the expenses related to converting raw materials into finished goods, such as direct labor, factory overheads, and other related costs. Therefore, it is not a prime cost (direct materials and direct labor) or period cost (general and administrative expenses). Indirect labor cost is also not an opportunity cost, which refers to the cost associated with the forgone benefits of an alternative course of action.

Question 14

Inventoriable costs are also known as:

Accepted Answer

Inventoriable costs are costs that are associated with producing a product and can be capitalized as part of inventory until the product is sold. These costs are also known as product costs as they are directly related to the production of the product. Variable costs, conversion costs, and fixed costs are all types of costs but do not specifically refer to inventoriable costs.

Question 15

Discretionary fixed costs:

Accepted Answer

Discretionary fixed costs are those costs that can be adjusted or reduced for short periods of time without damaging the long-term goals of the organization. This type of cost is dependent on management's discretion rather than being directly tied to production or sales volume. As such, they can be reduced without affecting the organization's long-term viability. However, discretionary fixed costs cannot be eliminated entirely. Examples of discretionary fixed costs include advertising, research and development, and employee training programs.

Question 16

Which of the following costs is classified as a prime cost?

Accepted Answer

The answer of Which of the following costs is classified...

Question 17

The salary paid to the maintenance supervisor in a manufacturing plant is an example of:

Accepted Answer

The salary paid to a maintenance supervisor is a fixed cost, which is a type of indirect cost that does not vary based on the level of production. Option A and B are incorrect because they refer to variable costs, which change with the level of production. Option D is incorrect because it refers to a direct cost, which is specifically tied to the production of a particular product.

Question 18

An example of a discretionary fixed cost would be:

Accepted Answer

Research and development is a discretionary fixed cost because it is a planned expense that management can choose to incur or not based on the availability of funds and their priorities. In contrast, taxes on the factory, depreciation on manufacturing equipment, and insurance are all fixed costs but are not discretionary because they are typically required expenses that cannot be easily adjusted or avoided.

Question 19

Stott Company requires one full-time dock hand for every 500 packages loaded daily. The wages for these dock hands would be:

Accepted Answer

Step-variable costs change in steps or blocks rather than continuously. In this case, the number of dock hands required depends on the number of packages loaded daily, and the cost of hiring each dock hand would be constant within each block. Therefore, Stott Company's wages for dock hands are step-variable costs.

Question 20

When the level of activity decreases, variable costs will:

Accepted Answer

Variable costs decrease in total when the level of activity decreases because they are directly proportional to the level of activity.

Quiz 1: Managerial Accounting and Cost Concepts