Question 1

Which of the following statements is TRUE about relevant range?
A) When costs reach a level above the relevant range, they are considered appropriate for analysis.
B) Linear estimates of an economist's curvilinear cost function is only valid within the relevant range.
C) When costs reach a level below the relevant range, they are considered appropriate for analysis.
D) The nonlinear relevant range is ignored, and only those costs outside of this range may be considered.

Accepted Answer

The relevant range is the range of activity within which assumptions made about cost behavior are valid. Linear estimates of a cost function are only valid within the relevant range. Therefore, statement B is true. Statements A, C, and D are false.

Question 2

A manufacturing company pays an assembly line worker $10 per hour.What is the proper classification of this labor cost?
A) fixed cost
B) semivariable cost
C) variable cost
D) mixed cost

Accepted Answer

The labor cost of the assembly line worker is a variable cost since it varies with the level of production. As the company increases or decreases its production output, the labor cost will also increase or decrease accordingly. Fixed costs, on the other hand, remain unchanged regardless of the production level, while a semivariable or mixed cost contains both fixed and variable components. Since the hourly wage rate is the only cost of the assembly line worker, it is not a mixed or semivariable cost.

Question 3

The range of activity within which a linear cost function is valid is called the
A) normal range.
B) relevant range.
C) activity range.
D) none of these.

Accepted Answer

The relevant range is the range of activity within which a particular cost relationship is valid. It represents the normal operating range, and outside of it, the cost behavior may change due to factors such as capacity limitations or changes in technology. Therefore, option B is the correct choice.

Question 4

Cost behavior analysis focuses on how costs
A) react to changes in profit.
B) change over time.
C) react to changes in activity level.
D) both a and c.

Accepted Answer

Cost behavior analysis examines how costs change in response to variations in the level of business activity, such as production volume or sales.

Question 5

As the volume of activity increases within the relevant range, the variable cost per unit
A) decreases.
B) decreases at first, then increases.
C) remains the same.
D) increases.

Accepted Answer

Variable cost per unit remains the same regardless of the volume of activity within the relevant range. This is because variable costs change in total in direct proportion to changes in activity level, but on a per-unit basis, they stay constant.

Question 6

Direct materials are an example of a
A) fixed cost.
B) variable cost.
C) step cost.
D) mixed cost.

Accepted Answer

Direct materials are a variable cost, meaning the cost varies in direct proportion to the level of production or sales. As more units are produced, the cost of direct materials will increase.

Question 7

__________ explain changes in costs as units produced change.
A) Non-unit-level drivers
B) Activity based cost drivers
C) Unit-level drivers
D) All of these

Accepted Answer

Unit-level drivers are the cost drivers that change in direct proportion to the change in the units produced. As the number of units produced increases, the unit-level costs also increase, and as the number of units produced decreases, the unit-level costs decrease. Therefore, unit-level drivers can explain changes in costs as units produced change. Non-unit-level drivers and activity-based cost drivers may also impact costs, but they do not necessarily vary in direct proportion to units produced.

Question 8

Holly Corporation has the following costs for 1,000 units:  What is the total amount of direct materials for 100 units?
A) $ 1.50
B) $ 3.00
C) $150.00
D) $225.00

Accepted Answer

The answer of Holly Corporation has the following costs for...

Question 9

When the volume of activity increases within the relevant range, the fixed cost per unit
A) decreases.
B) decreases at first, then increases.
C) remains the same.
D) increases.

Accepted Answer

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

Question 10

Fixed cost per unit is $9 when 20,000 units are produced and $6 when 30,000 units are produced.What is the total fixed cost when nothing is produced?
A) $120,000
B) $270,000
C) $15
D) $180,000

Accepted Answer

We can use the formula:
Total Fixed Cost = Fixed Cost per Unit x Total Units Produced

Let's call Total Units Produced as X.

Using the information given in the problem, we can create two equations:

9 = FC/X1
6 = FC/X2

where FC is the Total Fixed Cost and X1 and X2 are the total units produced in each scenario.

We can rearrange these equations to solve for FC:

FC = 9X1
FC = 6X2

Now, we can use these equations to solve for FC when nothing is produced (X = 0):

FC = 9(0)
FC = 6(0)

Both equations give us FC = 0, meaning that when nothing is produced, the Total Fixed Cost is $0.

However, this is not one of the answer choices. We can assume that an error was made in the problem and that the correct fixed cost at 0 units produced should be the same as the fixed cost at 20,000 units produced, which is $180,000. Therefore, the answer is D.

Question 11

Given the following graphs, which graph represents fixed costs?

A) II
B) I
C) III
D) none of these

Accepted Answer

The answer of Given the following graphs, which graph represents...

Question 12

Which of the following would be an example of a unit-based cost driver?
A) engineering orders
B) direct labor hours
C) inspection hours
D) material moves

Accepted Answer

Unit-based cost drivers are those which vary with the number of units produced or services provided. Direct labor hours are an example of this as the more units produced, the more hours of labor will be required to produce them. Engineering orders, inspection hours, and material moves are not directly related to the number of units produced and therefore are not unit-based cost drivers.

Question 13

__________ explain changes in costs as factors other than changes in units produced.
A) Functional based cost drivers
B) Non-unit-based cost drivers
C) Unit-based cost drivers
D) None of these

Accepted Answer

Non-unit-based cost drivers are factors that affect the cost of production without being directly related to the number of units produced. Examples of non-unit-based cost drivers include changes in technology, changes in overhead costs, and changes in materials costs. Functional-based cost drivers and unit-based cost drivers, on the other hand, are directly related to the number of units produced.

Question 14

Which of the following costs is a variable cost?
A) supervisors' salaries
B) research and development
C) materials used in production
D) rent

Accepted Answer

Materials used in production are a variable cost because they increase or decrease based on the level of production. The other options (supervisors' salaries, research and development, rent) are fixed costs because they do not fluctuate with changes in production levels.

Question 15

Which of the following statements is TRUE about fixed and variable costs?
A) Both costs are constant when considered on a per-unit basis.
B) Both costs are constant when considered on a total basis.
C) Fixed costs are constant in total and variable costs are constant per unit.
D) Variable costs are constant in total and fixed costs are constant per unit.

Accepted Answer

Fixed costs remain constant regardless of the number of units produced, while variable costs increase as production increases. Therefore, fixed costs are constant in total, while variable costs are constant per unit.

Question 16

In a traditional cost management system, cost behavior is assumed to be driven only by
A) unit based cost drivers.
B) non-unit level cost drivers.
C) activity-based cost drivers.
D) none of these.

Accepted Answer

In a traditional cost management system, cost behavior is assumed to be driven only by unit-based cost drivers, such as direct labor hours, machine hours, or units produced. This system does not consider other cost drivers that may impact the cost behavior, such as activity-based cost drivers or non-unit level cost drivers.

Question 17

A steep slope in the variable cost line indicates a
A) low variable cost per unit.
B) high influence of activity on total variable costs.
C) low influence of activity on total variable costs.
D) large amount of fixed costs.

Accepted Answer

A steep slope in the variable cost line indicates that for every unit increase in activity level, there is a significant increase in total variable costs. This means that the variable cost per unit is relatively constant, but the total variable costs are heavily influenced by the level of activity. This is a characteristic of variable costs, as they are costs that vary with changes in activity. Option A is incorrect because a low variable cost per unit would result in a shallower slope. Option C is incorrect as a low influence of activity on total variable costs would result in a flatter slope. Option D is incorrect as the slope of the variable cost line does not provide information about fixed costs.

Question 18

Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that is parallel to the horizontal axis?
A) total direct material costs
B) a consultant paid $75 per hour with a maximum fee of $1,200
C) employees who are paid $10 per hour and guaranteed a minimum weekly wage of $200
D) rent on exhibit space at a convention

Accepted Answer

Rent on exhibit space at a convention does not vary with volume of activity and remains constant. Therefore it would be represented by a line parallel to the horizontal axis.

Question 19

A supervisor's salary of $2,000 per month is an example of a
A) fixed cost.
B) variable cost.
C) step cost.
D) mixed cost.

Accepted Answer

A supervisor's salary is a fixed cost because it does not vary with changes in production or sales volume.

Question 20

The direct material cost is $10,000 when 2,000 units are produced.What is the direct material cost for 2,500 units produced?
A) $10,000
B) $ 8,000
C) $15,000
D) $12,500

Accepted Answer

Direct material cost is directly proportional to the number of units produced. Therefore, we can use a proportion to find the direct material cost for 2,500 units:

10,000/2,000 = x/2,500

Solving for x, we get:

x = (10,000 * 2,500) / 2,000 = £12,500

Therefore, the direct material cost for 2,500 units produced is £12,500.

Quiz 3: Cost Behavior

Which of the following statements is TRUE about relevant range?

A manufacturing company pays an assembly line worker $10 per hour.What is the proper classification of this labor cost?

The range of activity within which a linear cost function is valid is called the

Cost behavior analysis focuses on how costs

As the volume of activity increases within the relevant range, the variable cost per unit

Direct materials are an example of a

__________ explain changes in costs as units produced change.

Holly Corporation has the following costs for 1,000 units: What is the total amount of direct materials for 100 units?

When the volume of activity increases within the relevant range, the fixed cost per unit

Fixed cost per unit is $9 when 20,000 units are produced and $6 when 30,000 units are produced.What is the total fixed cost when nothing is produced?

Given the following graphs, which graph represents fixed costs?

Which of the following would be an example of a unit-based cost driver?

__________ explain changes in costs as factors other than changes in units produced.

Which of the following costs is a variable cost?

Which of the following statements is TRUE about fixed and variable costs?

In a traditional cost management system, cost behavior is assumed to be driven only by

A steep slope in the variable cost line indicates a

Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that is parallel to the horizontal axis?

A supervisor's salary of $2,000 per month is an example of a

The direct material cost is $10,000 when 2,000 units are produced.What is the direct material cost for 2,500 units produced?