Question 1

In account analysis, an account is classified as either variable or fixed based on an analyst's prior knowledge of how the cost in the account behaves.

Accepted Answer

This statement is true. Accounts are classified as either variable or fixed based on an analyst's prior knowledge of how the cost in the account behaves. Variable accounts fluctuate in relation to changes in volume or activity level, while fixed accounts remain the same regardless of changes in volume or activity level.

Question 2

If managers are reluctant to lay off direct labor employees when activity declines leads to a decrease in the ratio of variable to fixed costs.

Accepted Answer

When managers are reluctant to lay off direct labor employees, fixed costs remain the same while variable costs decrease due to decreased activity. This leads to a decrease in the ratio of variable to fixed costs.

Question 3

A fixed cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases.

Accepted Answer

A fixed cost remains constant in total dollar amount regardless of the number of units produced or sold, but on a per unit basis, it decreases as the number of units increases and increases as the number of units decreases.

Question 4

Indirect costs, such as manufacturing overhead, are variable costs.

Accepted Answer

Indirect costs, such as manufacturing overhead, are typically fixed costs because they do not vary with changes in production levels.

Question 5

Committed fixed costs remain largely unchanged in the short run.

Accepted Answer

Committed fixed costs, such as rent and salaries, are typically difficult or expensive to adjust in a short period of time. They are therefore relatively fixed in the short run, meaning they remain largely unchanged.

Question 6

A step-variable cost is a cost that is obtained in large chunks and that increases or decreases only in response to fairly wide changes in activity.

Accepted Answer

The statement accurately describes a step-variable cost.

Question 7

The variable cost per unit depends on how many units are produced.

Accepted Answer

Variable cost per unit remains constant regardless of the number of units produced; it's the total variable cost that changes in direct proportion to the production volume.

Question 8

If the activity level increases, then one would expect the fixed cost per unit to increase as well.

Accepted Answer

The fixed cost per unit remains the same regardless of the activity level. It is the variable cost per unit that increases with an increase in activity level.

Question 9

The relevant range is the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid.

Accepted Answer

The relevant range is the range of activity over which the assumption of linear cost behavior is reasonably valid.

Question 10

A fixed cost fluctuates in total as activity changes but remains constant on a per unit basis over the relevant range.

Accepted Answer

A fixed cost remains constant in total, regardless of changes in activity level. Its per unit cost will vary depending on how many units are produced or sold.

Question 11

A decrease in production will ordinarily result in a decrease in fixed production costs per unit.

Accepted Answer

Fixed production costs are those costs that do not vary with the level of production, such as rent and salaries. Therefore, a decrease in production will not affect these costs per unit, since they remain fixed regardless of how much is produced.

Question 12

Variable costs per unit are not affected by changes in activity.

Accepted Answer

Variable costs per unit are directly proportional to the level of activity.

Question 13

When operations are interrupted or cut back, committed fixed costs are cut in the short term because the costs of restoring them later are likely to be far less than the short-run savings that are realized.

Accepted Answer

Committed fixed costs cannot be easily or quickly eliminated in the short term when operations are interrupted or cut back, as they are long-term obligations that do not change with the level of business activity.

Question 14

Within the relevant range, a change in activity results in a change in variable cost per unit and total fixed cost.

Accepted Answer

Within the relevant range, a change in activity results in a change in total variable cost but does not change the variable cost per unit or total fixed cost. Variable cost per unit remains constant with changes in activity level, and total fixed cost remains unchanged within the relevant range of activity.

Question 15

Fixed costs expressed on a per unit basis do not change with changes in activity.

Accepted Answer

Fixed costs do not change in total with changes in activity, but they do change on a per unit basis. As activity levels increase, fixed costs are spread over a larger number of units, resulting in a lower fixed cost per unit.

Question 16

As activity decreases within the relevant range, fixed costs remain constant on a per unit basis.

Accepted Answer

Fixed costs remain constant in total, but on a per unit basis, they increase as activity decreases within the relevant range.

Question 17

The cost of napkins put on each person's tray at a fast food restaurant is a variable cost with respect to how many persons are served.

Accepted Answer

Variable costs are costs that change in proportion to the level of production or output. In this case, the cost of napkins would be dependent on how many persons are served, making it a variable cost.

Question 18

Cost behavior is considered curvilinear whenever a straight line is a reasonable approximation for the relation between cost and activity.

Accepted Answer

If cost behavior is curvilinear, a straight line is not a reasonable approximation for the relation between cost and activity. Instead, the relationship between cost and activity is nonlinear, which means the cost changes at a non-constant rate as the activity changes.

Question 19

A fixed cost is a cost whose cost per unit varies as the activity level rises and falls.

Accepted Answer

The answer of A fixed cost is a cost whose...

Question 20

The concept of the relevant range does not apply to variable costs.

Accepted Answer

The relevant range applies to both fixed and variable costs. It refers to the range of activity levels in which a company expects to operate and where its assumptions about cost behavior (whether costs are variable or fixed) are valid. Beyond the relevant range, costs may behave differently due to capacity constraints or other factors.

Quiz 1: Managerial Accounting and Cost Concepts