Question 1

Suppose your cell phone company offers a plan under which you buy time per minute.A one-minute call costs you $0.10.If you talk 100 minutes it costs you $10.This is an example of a
A)variable cost
B)mixed cost.
C)fixed cost.
D)step cost.

Accepted Answer

Variable cost changes with the level of activity or usage, and in this case, the cost of the phone call increases with the number of minutes used, making it a variable cost.

Question 2

A discretionary fixed cost
A)remains the same per unit regardless of the level of activity.
B)increases as the level of activity increases.
C)can be changed in the short run.
D)can be changed over the long run.

Accepted Answer

Discretionary fixed costs can be adjusted or eliminated in the short run without significant impact on the immediate ability of the organization to operate. Examples include advertising, research, and public relations expenses.

Question 3

Some costs have both a fixed and a variable component.These costs are referred to as
A)discretionary costs.
B)committed costs.
C)mixed costs.
D)step costs.

Accepted Answer

Mixed costs have both a fixed and a variable component, and the total cost increases as the level of activity increases. Discretionary costs are costs that a business can choose to incur or not, such as advertising or research and development. Committed costs are costs that are ongoing and cannot be easily changed, such as rent or salaries. Step costs increase in steps or increments as the level of activity increases.

Question 4

Step costs are fixed over only a small range of activity.Once that level of activity has been exceeded, total cost
A)increases because the excess costs become variable.
B)increases and remains constant over another small range of activity.
C)remains the same regardless of activity.
D)decreases and remains constant over another small range of activity.

Accepted Answer

Step costs are fixed up to a certain level of activity, but once that level is exceeded, the cost increases and remains constant over another small range of activity. This is because additional resources (such as equipment or personnel) may need to be added to accommodate the higher level of activity, resulting in a higher fixed cost. Once that additional resource is in place, the cost remains constant until another threshold is reached.

Question 5

You are considering moving off campus.You have found a one-bedroom apartment very near campus that is clean and safe.However, you do not want to live alone.A one-bedroom apartment is roomy enough to have one or two roommates.The manager discourages having more than one individual in an apartment and so charges rent per person.The relationship between the number of roommates, the total cost, and the cost per person is:  This is an example of a
A)fixed cost.
B)variable cost.
C)mixed cost.
D)step cost.

Accepted Answer

The answer of You are considering moving off campus.You have...

Question 6

Mike Mounts has a membership at the Marigold Men's Fitness Club.The membership costs $30 per month regardless of how many times the facility is used.The membership cost is classified as a
A)variable cost.
B)fixed cost.
C)step variable cost.
D)mixed cost.

Accepted Answer

The membership cost of $30 per month is a fixed cost, as it remains constant regardless of the level of usage.

Question 7

An example of a committed fixed cost is
A)advertising.
B)lease on warehouse space.
C)sales commissions.
D)number of bolts used.

Accepted Answer

A lease on warehouse space is an example of a committed fixed cost because it is a long-term rental agreement for a specific amount of space. This cost does not vary based on the level of production or sales, making it a fixed cost.

Question 8

Which of the following is not an example of a variable cost for a manufacturer of bicycles?
A)Number of tires
B)Gallons of paint
C)Wages for factory workers
D)President of the company's salary

Accepted Answer

The president of the company's salary is a fixed cost, as it does not vary with the level of production. Variable costs are costs that change in proportion to the level of production, such as the number of tires or gallons of paint used, or the wages for factory workers.

Question 9

The formula, Electricity cost = $10 + ($0.08 × kwh used) is the formula for a
A)mixed cost.
B)fixed cost.
C)step cost.
D)variable cost.

Accepted Answer

This formula represents a mixed cost because it includes both a fixed component ($10) and a variable component ($0.08 × kwh used). The fixed cost does not change with the level of activity, while the variable cost changes in proportion to the level of activity (kwh used in this case).

Question 10

Suppose you are charged a $10 per month base charge for your electrical service.You are also charged an additional $0.08 for every kwh of electricity you use.The cost is an example of a
A)variable cost.
B)fixed cost.
C)mixed cost.
D)step cost.

Accepted Answer

The base charge of $10 per month is a fixed cost, as it remains the same regardless of the amount of electricity used. However, the additional charge of $0.08/kwh varies with the amount of electricity used, making it a variable cost. Therefore, the overall cost is a mixture of fixed and variable costs, making it a mixed cost.

Question 11

An example of a discretionary fixed cost for a clothing manufacturer is
A)an annual contract for television advertising cost.
B)a 10-year lease on an office building.
C)yards of fabrics used.
D)thread used.

Accepted Answer

An annual contract for television advertising cost is a discretionary fixed cost because it is a fixed cost that management can decide on at a certain level of discretion, unlike costs directly associated with production like materials (fabrics and thread) or long-term commitments like a lease.

Question 12

You are living on campus and are considering moving off campus.You have found a two-bedroom apartment for $1,200 per month, but you cannot afford that much rent.You are considering inviting up to three of your friends to become your roommates.The relationship between the number of roommates, the total cost, and the cost per person is:  This is an example of a
A)fixed cost.
B)variable cost.
C)mixed cost.
D)step cost.

Accepted Answer

The answer of You are living on campus and are...

Question 13

Since a mixed cost has both a fixed and a variable component,
A)neither total cost nor unit cost will vary with changes in the level of activity.
B)total cost will vary with changes in the level of activity, but unit cost will not.
C)unit cost will vary with changes in the level of activity, but total cost will not.
D)both the total cost and the unit cost will vary with changes in the level of activity.

Accepted Answer

Since a mixed cost has both a fixed and a variable component, both the total cost and the unit cost will vary with changes in the level of activity. As the level of activity increases, the variable component of the mixed cost will increase, resulting in a higher total cost and a higher unit cost. Conversely, as the level of activity decreases, the variable component of the mixed cost will decrease, resulting in a lower total cost and a lower unit cost. Therefore, neither total cost nor unit cost will remain constant, making choice A and B incorrect, and unit cost will not remain constant, making choice C incorrect.

Question 14

Suppose your cell phone company offers a plan under which you pay $15 for a 100-minute block.For each minute over 100 minutes you have to pay $0.10 per minute.This is an example of a
A)variable cost
B)mixed cost.
C)fixed cost.
D)step cost.

Accepted Answer

This is an example of a mixed cost because there is a fixed cost of $15 for the 100-minute block, but the cost increases with each additional minute over 100. The variable cost is the additional cost per minute over the 100-minute block.

Question 15

Which of the following is a true statement relating to step costs?
A)Step costs remain constant over only a small range of activity.
B)Step costs do not contain a fixed component.
C)Step costs are also referred to as fixed costs.
D)Step costs do not vary proportionately over a small range of activity.

Accepted Answer

Step costs remain constant over a specific range of activity, and then jump to a different level once that range is exceeded.

Question 16

An example of a committed fixed cost for a clothing manufacturer is
A)an annual contract for television advertising costs.
B)a 10-year lease on an office building.
C)yards of fabric used.
D)thread used.

Accepted Answer

A 10-year lease on an office building is a committed fixed cost because it is a long-term obligation that the clothing manufacturer cannot easily change or terminate. On the other hand, buying yards of fabric and thread are variable costs because they will vary based on the quantity of clothing being produced. An annual contract for television advertising costs may also be a fixed cost, but it is not necessarily committed because the clothing manufacturer may have the option to opt out or renegotiate the contract after the initial term.

Question 17

Mounce Corporation leases a color copier for a monthly fee of $75 plus a charge of $0.02 per copy.Mounce's copy cost is classified as a
A)variable cost.
B)fixed cost.
C)step variable cost.
D)mixed cost.

Accepted Answer

The lease fee of $75 is a fixed cost as it does not change with the number of copies made. The charge of $0.02 per copy is a variable cost as it changes with the number of copies made. Therefore, Mounce's copy cost is a mixed cost consisting of both fixed and variable components.

Question 18

Suppose you are charged a $10 per month base charge for your electrical service.You are also charged an additional $0.08 for every kwh of electricity you use.Which one of the following statements is not true?
A)The $10 base charge is a fixed cost.
B)The $0.08 charge per kwh is a variable cost.
C)The total cost is an example of a step cost.
D)The total cost is an example of a mixed cost.

Accepted Answer

A step cost is a type of cost that remains the same up to a certain level of activity, after which it jumps to a higher level. In the given scenario, there is no indication that the total cost of electricity service jumps to a higher level after a certain level of usage. Therefore, it is not an example of a step cost. The total cost is a combination of a fixed cost (the $10 base charge) and a variable cost (the $0.08 charge per kwh), making it an example of a mixed cost.

Question 19

Which of the following is not an example of a fixed cost for manufacturer of bicycles?
A)Rent on factory warehouse
B)Insurance on factory equipment
C)Number of tires
D)Advertising costs

Accepted Answer

The number of tires is not a fixed cost, as it is directly related to the number of bicycles produced. The other choices, such as rent on factory warehouse, insurance on factory equipment, and advertising costs, are fixed costs that are incurred regardless of the number of bicycles produced.

Question 20

Suppose your cell phone company offers a plan under which you can buy time in blocks of 100 minutes.Every 100-minute block costs $15.If you use 101 minutes you will pay $30.This is an example of a
A)variable cost
B)mixed cost.
C)fixed cost.
D)step cost.

Accepted Answer

This is an example of a step cost because the cost remains fixed for a certain level of usage (up to 100 minutes) and then jumps to a higher level once that usage is exceeded (101 minutes), indicating a step pattern in the cost behavior.

Quiz 2: Cost Behavior and Cost Estimation

Suppose your cell phone company offers a plan under which you buy time per minute.A one-minute call costs you $0.10.If you talk 100 minutes it costs you $10.This is an example of a

A discretionary fixed cost

Some costs have both a fixed and a variable component.These costs are referred to as

Step costs are fixed over only a small range of activity.Once that level of activity has been exceeded, total cost

Mike Mounts has a membership at the Marigold Men's Fitness Club.The membership costs $30 per month regardless of how many times the facility is used.The membership cost is classified as a

An example of a committed fixed cost is

Which of the following is not an example of a variable cost for a manufacturer of bicycles?

The formula, Electricity cost = $10 + ($0.08 × kwh used) is the formula for a

Suppose you are charged a $10 per month base charge for your electrical service.You are also charged an additional $0.08 for every kwh of electricity you use.The cost is an example of a

An example of a discretionary fixed cost for a clothing manufacturer is

Since a mixed cost has both a fixed and a variable component,

Suppose your cell phone company offers a plan under which you pay $15 for a 100-minute block.For each minute over 100 minutes you have to pay $0.10 per minute.This is an example of a

Which of the following is a true statement relating to step costs?

An example of a committed fixed cost for a clothing manufacturer is

Mounce Corporation leases a color copier for a monthly fee of $75 plus a charge of $0.02 per copy.Mounce's copy cost is classified as a

Suppose you are charged a $10 per month base charge for your electrical service.You are also charged an additional $0.08 for every kwh of electricity you use.Which one of the following statements is not true?

Which of the following is not an example of a fixed cost for manufacturer of bicycles?

Suppose your cell phone company offers a plan under which you can buy time in blocks of 100 minutes.Every 100-minute block costs $15.If you use 101 minutes you will pay $30.This is an example of a