Deck 5: Cost Behavior

Question 1

A mixed cost has either fixed and variable components,but not both.Mixed costs have both a fixed and a variable component.

Answer 1

False

Question 2

Firms may choose to use absorption costing or variable costing for external financial reporting purposes.Variable costing does not meet the external reporting requirements of GAAP.

Answer 2

False

Question 3

R-square tells managers how much of the variability in activity is caused by variability in cost.R-square tells managers how much of the variability in cost is explained by activity.

Answer 3

False

Question 4

Contribution margin is equal to sales revenue less gross margin.Contribution margin is equal to sales revenue minus variable costs.

Question 5

The least-squares regression method uses all of the available data to find the best fitting line.Least-squares regression is a statistical data that uses all the available data to find the best fitting line.

Question 6

The unit contribution margin tells how much each additional unit sold will contribute to covering variable costs.Unit contribution margin tells us how much each additional unit sold will contribute to the bottom line.

Question 7

The equation for a mixed cost is total fixed costs + (variable cost per unit × units of activity).Total cost = fixed cost + (variable cost per unit × activity level).

Question 8

A scattergraph is useful in recognizing unusual patterns in the cost data.A scattergraph graphically illustrates the relationship between cost and activity,so unusual patterns can be seen visually.

Question 9

The relevant range is the range in which costs remain variable.The relevant range is the range of activity over which we expect our assumptions about cost behavior to hold true.

Question 10

A scattergraph cannot be created by hand because it is too complex.While a scattergraph can be created by computer,it can also be created by manually plotting the data.

Question 11

A variable cost increases in total as the volume increases.Variable costs are those that change,in total,in direct proportion to changes in activity levels.

Question 12

Contribution margin is defined as sales revenue less variable costs.This is the definition of contribution margin.

Question 13

Full absorption costing divides fixed overhead between Cost of Goods Sold and period expenses.Full absorption costing divides fixed overhead between Cost of Goods Sold and inventories.

Question 14

Contribution margin plus variable cost per unit equals total sales revenue.Contribution margin plus total variable costs equals total sales revenue.

Question 15

The contribution margin ratio is calculated as total contribution margin divided by total sales revenue.This is the formula for contribution margin ratio.

Question 16

Step costs are fixed over some range of activity and then increase like a variable cost.Step costs are fixed over a range of activity and then increase in a step-like fashion when a capacity limit is reached.

Question 17

The visual fit method is the most objective way to fit a line to cost data.The visual fit method is very subjective and not very exact.

Question 18

Variable costing uses a contribution margin income statement.This is one of the key aspects of variable costing.

Question 19

A fixed cost will stay constant on a per unit basis as the volume increases.Fixed costs stay constant in total.On a per unit basis,they decrease as volume increases.

Question 20

The high-low method needs three observations of costs to calculate the cost formula.The high-low method requires two observations of cost.

Question 21

A mixed cost

A)is fixed over a wider range of activity than a step cost.
B)is a fixed cost over the relevant range and a variable cost everywhere else.
C)contains both fixed and variable components.
D)always increases on a per unit basis.

Question 22

A cost that changes,in total,in direct proportion to changes in activity levels is a(n)

A)absorption cost.
B)contribution margin.
C)fixed cost.
D)variable cost.

Question 23

A cost that remains the same,in total,regardless of changes in activity level is a

A)variable cost.
B)fixed cost.
C)mixed cost.
D)step cost.

Question 24

The per-unit amount of three different production costs for Thunderbird,Inc. ,are as follows: What type of cost are each of these three costs?

A)Cost A is fixed,Cost B is mixed,Cost C is variable.
B)Cost A is fixed,Cost B is variable,Cost C is mixed.
C)Cost A is variable,Cost B is mixed,Cost C is fixed.
D)Cost A is variable,Cost B is fixed,Cost C is mixeD.A variable cost stays the same per unit but increases in total when production increases,a fixed cost decreases per unit but stays the same in total when production increases,and a mixed cost decreases per unit and increases in total when production increases.

Question 25

Relevant range

A)is the range of activity over which our assumptions about cost behavior are true.
B)only applies to fixed costs.
C)is defined as total sales minus break-even sales.
D)increases in total as the activity level increases.

Question 26

If sales revenue doubles,fixed costs will

A)decrease in total.
B)increase in total.
C)decrease on a per unit basis.
D)increase on a per unit basis.

Question 27

The linearity assumption is

A)the assumption that the relationship between fixed costs and variable costs can be approximated by a straight line.
B)necessary to the high-low method of analyzing mixed costs.
C)realistic in all costing situations.
D)the assumption that total cost depends on activity level.

Question 28

Which of the following is a fixed cost?

A)A cost that is $28.00 per unit when production is 70,000,and $28.00 per unit when production is 112,000.
B)A cost that is $28.00 per unit when production is 70,000,and $17.50 per unit when production is 112,000.
C)A cost that is $28.00 per unit when production is 70,000,and $56.00 per unit when production is 112,000.
D)A cost that is $56.00 per unit when production is 70,000,and $56.00 per unit when production is 112,000.

Question 29

Cost behavior is

A)the way in which costs change when the activity level changes.
B)the difference between sales revenue and fixed costs.
C)the same as absorption costing.
D)the amount of sales necessary to achieve a specific profit.

Question 30

Which of the following statements is true?

A)Fixed costs are constant on a per unit basis.
B)Variable costs per unit decrease as activity volume increases.
C)Variable costs are constant in total dollars.
D)Fixed costs are constant in total dollars.

Question 31

A step cost

A)is a fixed cost over the relevant range and a variable cost everywhere else.
B)contains both fixed and variable components.
C)increases in direct proportion to changes in activity.
D)is fixed over some range of activity.

Question 32

If sales revenue doubles,variable costs will

A)decrease in total.
B)increase in total.
C)decrease on a per unit basis.
D)increase on a per unit basis.

Question 33

Which of the following is a variable cost?

A)A cost that is $26,000 when production is 65,000,and $26,000 when production is 91,000.
B)A cost that is $26,000 when production is 65,000,and $36,400 when production is 91,000.
C)A cost that is $26,000 when production is 65,000,and $52,000 when production is 91,000.
D)A cost that is $52,000 when production is 65,000,and $52,000 when production is 91,000.

Question 34

A cost driver

A)is the same as a fixed cost.
B)is an activity that causes total costs to change.
C)is the same as margin of safety.
D)is a method of calculating mixed costs.

Question 35

When Carter,Inc.sells 48,000 units,its total variable cost is $115,200.What is its total variable cost when it sells 54,000 units?

A)$100,800
B)$115,200
C)$129,600
D)It cannot be determined from the information given.

Question 36

Stella,Inc.must perform maintenance on its production machinery after every 10,000 units produced.Production varies between 12,000 and 30,000 units a year.The cost of this maintenance would be classified as a

A)variable cost.
B)fixed cost.
C)step cost.
D)mixed cost.

Question 37

The per-unit amount of three different production costs for Onini,Inc. ,are as follows: What type of cost are each of these three costs?

A)Cost A is fixed,Cost B is mixed,Cost C is variable.
B)Cost A is fixed,Cost B is variable,Cost C is mixed.
C)Cost A is variable,Cost B is mixed,Cost C is fixed.
D)Cost A is variable,Cost B is fixed,Cost C is mixeD.A variable cost stays the same per unit but increases in total when production increases,a fixed cost decreases per unit but stays the same in total when production increases,and a mixed cost decreases per unit and increases in total when production increases.

Question 38

Mohave,Inc.places a quality assurance logo on each of its units.To use this logo,it must pay the quality assurance firm $5,000 per month plus $1 per unit.The cost to Mohave of using the quality assurance logo would be a

A)fixed cost.
B)mixed cost.
C)variable cost.
D)step cost.

Question 39

Which of the following is a mixed cost?

A)A cost that is $32.00 per unit when production is 80,000,and $32.00 per unit when production is 128,000.
B)A cost that is $32.00 per unit when production is 80,000,and $40.00 per unit when production is 128,000.
C)A cost that is $32.00 per unit when production is 80,000,and $26.00 per unit when production is 128,000.
D)A cost that is $64.00 per unit when production is 80,000,and $64.00 per unit when production is 128,000.

Question 40

When Greenway,Inc.sells 48,000 units,its total fixed cost is $115,200.What is its total fixed cost when it sells 54,000 units?

A)$100,800
B)$115,200
C)$129,600
D)It cannot be determined from the information given.

Question 41

Sparrow,Inc.used the high-low method to estimate that its fixed costs are $105,000.At its low level of activity,50,000 units,average cost was $2.60 per unit.What would Sparrow predict as its variable cost per unit?

A)$0.50
B)$1.55
C)$2.10
D)$2.60

Question 42

The cost estimating approach that uses the two most extreme activity observations is the

A)scattergraph method.
B)high-low method.
C)visual fit method.
D)regression analysis.

Question 43

Carson,which uses the high-low method of estimating costs,reported total costs of $24 per unit when production was at its lowest level,at 10,000 units.When production doubled to its highest level,the total cost per unit dropped to $15.Carson would estimate its total fixed cost as

A)$9.
B)$33.
C)$180,000.
D)$585,000.

Question 44

Lark,which uses the high-low method,had total costs of $25,000 at its lowest level of activity when 5,000 units were sold.When,at its highest level of activity,sales equaled 12,000 units,total costs were $39,000.Lark would estimate fixed costs as

A)$14,000.
B)$15,000.
C)$32,000.
D)$60,000.

Question 45

The cost estimating approach that involves "eye-balling" the closest fitting line to the data is the

A)scattergraph method.
B)high-low method.
C)visual fit method.
D)regression analysis.

Question 46

Cardinal uses the high-low method of estimating costs.Cardinal had total costs of $25,000 at its lowest level of activity,when 5,000 units were sold.When,at its highest level of activity,sales equaled 10,000 units,total costs were $39,000.Cardinal would estimate variable cost per unit as

A)$7.00.
B)$4.55.
C)$2.80.
D)$5.26.

Question 47

Elm uses the high-low method of estimating costs.Elm had total costs of $250,000 at its lowest level of activity,when 5,000 units were sold.When,at its highest level of activity,sales equaled 10,000 units,total costs were $390,000.Elm would estimate variable cost per unit as

A)$70.00.
B)$45.50.
C)$28.00.
D)$52.71.

Question 48

Cypress,which uses the high-low method,had an average cost per unit of $5 at its lowest level of activity when sales equaled 10,000 units and an average cost per unit of $3.25 at its highest level of activity when sales equaled 24,000 units.Cypress would estimate fixed costs as

A)$30,000.
B)$6.25.
C)$1.75.
D)$50,000.

Question 49

The high-low method is a cost estimating approach that uses _______________ to find the cost line.

A)only two data points
B)all available data points
C)only four data points
D)personal intuition

Question 50

The slope of the cost line on a scattergraph represents

A)fixed cost per unit.
B)total fixed cost.
C)variable cost per unit.
D)sales price per unit.

Question 51

A graph of the relationship between the total cost and the activity level is called a

A)relevant range.
B)scattergraph.
C)contribution margin graph.
D)dependent variable.

Question 52

Meadow,which uses the high-low method,had total costs of $500,000 at its lowest level of activity when 5,000 units were sold.When,at its highest level of activity,sales equaled 12,000 units,total costs were $780,000.Meadow would estimate fixed costs as

A)$280,000.
B)$300,000.
C)$640,000.
D)$1,200,000.

Question 53

Holly,which uses the high-low method,had an average cost per unit of $10 at its lowest level of activity when sales equaled 10,000 units and an average cost per unit of $6.50 at its highest level of activity when sales equaled 20,000 units.Holly would estimate fixed costs as

A)$70,000.
B)$16.50.
C)$8.25.
D)$100,000.

Question 54

Georgia uses the high-low method of estimating costs.Georgia had total costs of $50,000 at its lowest level of activity,when 5,000 units were sold.When,at its highest level of activity,sales equaled 10,000 units,total costs were $78,000.Georgia would estimate variable cost per unit as

A)$14.00.
B)$9.10.
C)$5.60.
D)$10.54.

Question 55

Carson,which uses the high-low method,reported total costs of $24 per unit at its lowest activity level,when production equaled 10,000 units.When production doubled,at its highest activity level,the total cost per unit dropped to $15.Carson would estimate variable cost per unit as

A)$9.
B)$6.
C)negative $9.
D)negative $0.0009.

Question 56

A scattergraph is a graph with

A)total cost plotted on the vertical axis and activity on the horizontal axis.
B)activity plotted on the vertical axis and contribution margin on the horizontal axis.
C)contribution margin plotted on the vertical axis and sales revenues on the horizontal axis.
D)the vertical axis measured in units and the horizontal axis measured in dollars.

Question 57

The intercept of the cost line on a scattergraph represents

A)fixed cost per unit.
B)total fixed cost.
C)variable cost per unit.
D)sales price per unit.

Question 58

If a scattergraph contains points that do not fall in a perfect line,

A)the relationship between the variables is not good enough to warrant fitting a line to the data.
B)this is an indication that there is no relationship whatsoever between the variables.
C)the visual fit method and high-low methods should not be used,but least-squares regression can be used.
D)a straight line can still be used to approximate the relationship if a general linear trend can be discerneD.The relationship need not be perfect to approximate a relationship.

Question 59

Ajax uses the high-low method of estimating costs.Ajax had total costs of $50,000 at its lowest level of activity,when 5,000 units were sold.When,at its highest level of activity,sales equaled 12,000 units,total costs were $78,000.Ajax would estimate fixed costs as

A)$28,000.
B)$30,000.
C)$64,000.
D)$128,000.

Question 60

Palm,which uses the high-low method,had an average cost per unit of $50 at its lowest level of activity when sales equaled 1,000 units and an average cost per unit of $32.50 at its highest level of activity when sales equaled 2,000 units.Palm would estimate fixed costs as

A)$30.00.
B)$82.50.
C)$17,500.
D)$35,000.

Question 61

Rose Corp.has contribution margin of $65,000,variable costs of $10 per unit,and fixed costs of $25,000.If Rose sells 13,000 units,what was the selling price per unit?

A)$5.00
B)$12.50
C)$15.00
D)$17.08

Question 62

McNeil uses the high-low method of estimating costs.McNeil had total costs of $50,000 at its lowest level of activity,when 5,000 units were sold.When,at its highest level of activity,sales equaled 12,000 units,total costs were $78,000.What would McNeil estimate its total cost to be if sales equaled 8,000 units?

A)$32,000
B)$52,000
C)$62,000
D)$80,000

Question 63

The unit contribution margin

A)equals total sales revenue minus total variable costs.
B)equals total contribution margin times total units.
C)tells us how much each additional unit sold will increase profit.
D)equals overall profit per unit.

Question 64

Regression analysis is a cost-estimating approach that uses _______________ to find the cost line.

A)only two data points
B)all available data points
C)only four data points
D)personal intuition

Question 65

Orchid Corp.has a selling price of $15,variable costs of $10 per unit,and fixed costs of $25,000.If Orchid sells 13,000 units,contribution margin will equal

A)$195,000.
B)$145,000.
C)$40,000.
D)$65,000.

Question 66

A statistical method for finding the best-fitting cost equation to a set of data is the

A)scattergraph method.
B)high-low method.
C)visual fit method.
D)least-squares regression methoD.Least-squares regression is the only statistical technique among those listed.

Question 67

Fremont,which uses the high-low method,reported total costs of $10 per unit at its lowest production level,5,000 units.When production tripled to its highest level,the total cost per unit dropped to $5.Fremont would estimate its variable cost per unit as

A)$2.50.
B)$5.00.
C)$15.00.
D)negative $0.0005.

Question 68

Jasmine Corp.has a selling price of $15,variable costs of $10 per unit,and fixed costs of $25,000.Contribution margin is $65,000.How many units did Jasmine sell?

A)7,000
B)10,000
C)13,000
D)17,000

Question 69

Star,Inc.used Excel to run a least-squares regression analysis,which resulted in the following output: What is Star's formula for estimating costs?

A)Total cost = $175,003 + ($11.57 × Production)
B)Total cost = $61,603 + ($0.92 × Production)
C)Total cost = $175,003 + ($61,603 × Production)
D)Total cost = $11.57 + ($0.9213 × Production)

Question 70

Winston,which uses the high-low method,had an average cost per unit of $10 at its lowest level of activity when sales equaled 10,000 units and an average cost per unit of $6.50 at its highest level of activity when sales equaled 20,000 units.What would Winston estimate its total cost to be if sales equaled 8,000 units?

A)$24,000
B)$52,000
C)$70,000
D)$94,000

Question 71

Gardenia Corp.has a selling price of $15,fixed costs of $25,000,and contribution margin of $65,000.If Gardenia sells 13,000 units,how much are variable costs per unit?

A)$2.00
B)$5.00
C)$7.00
D)$10.00

Question 72

Star,Inc.used Excel to run a least-squares regression analysis,which resulted in the following output: How much of the variation in cost is explained by production?

A)It is impossible to determine.
B)92.13%
C)95.17%
D)97.55%

Question 73

Star,Inc.used Excel to run a least-squares regression analysis,which resulted in the following output: How much of the variation in cost is not explained by production?

A)It is impossible to determine.
B)4.83%
C)95.17%
D)97.55%

Question 74

Total contribution margin is defined as

A)selling price times units sold.
B)cost to produce times units sold.
C)total sales revenues less total variable costs.
D)total variable costs less fixed costs.

Question 75

Star,Inc.used Excel to run a least-squares regression analysis,which resulted in the following output: What is Star's total fixed cost?

A)$61,603
B)$92,130
C)$175,003
D)$236,606

Question 76

Star,Inc.used Excel to run a least-squares regression analysis,which resulted in the following output: What is Star's variable cost per unit?

A)$0.92
B)$2.84
C)$11.57
D)$12.55

Question 77

Star,Inc.used Excel to run a least-squares regression analysis,which resulted in the following output: What total cost would Star predict for a month in which production is 2,000 units?

A)$23,140
B)$63,446
C)$175,003
D)$198,143

Question 78

Fremont,which uses the high-low method,reported total costs of $10 per unit at its lowest production level,5,000 units.When production tripled to its highest level,the total cost per unit dropped to $5.Fremont would estimate its total fixed cost as

A)$5.
B)$15.
C)$50,000.
D)$37,500.

Question 79

Citrus,Inc.used the high-low method to estimate that its fixed costs are $210,000.At its low level of activity,100,000 units,average cost was $2.60 per unit.What would Citrus predict its average cost per unit to be when production is 200,000 units?

A)$1.05
B)$1.55
C)$2.60
D)$5.20

Question 80

Total contribution margin is equal to

A)total sales less fixed costs.
B)fixed costs plus profits.
C)variable costs plus profits.
D)total sales less profits.