Question 1

Within the relevant range, the total fixed costs and the variable cost per unit remain the same.

Accepted Answer

This statement is true for a linear cost behavior. Total fixed costs remain constant and variable cost per unit remains constant within the relevant range. However, in non-linear cost behavior, such as step costs or semi-variable costs, the fixed costs or variable cost per unit may change within the relevant range.

Question 2

If the volume of activity doubles in the relevant range, total variable costs will also double.

Accepted Answer

This statement is true according to the behavior of variable costs based on the activity level. As the level of activity increases, variable costs also increase proportionally. Therefore, if the volume of activity doubles, variable costs will also double.

Question 3

The high-low method requires the identification of lowest and highest levels of total costs, not activity, over a period of time.

Accepted Answer

The high-low method requires the identification of the lowest and highest levels of activity, not total costs, over a period of time to estimate variable and fixed costs.

Question 4

The fixed costs per unit will:

Accepted Answer

Fixed costs per unit increase as production decreases because the total fixed costs are spread over a smaller number of units, making the cost per unit higher.

Question 5

Which of the following is a variable cost?

Accepted Answer

Direct materials cost is a variable cost because it varies with the level of production or sales. As production increases, the direct materials cost increases, and vice versa. Property taxes, salary of plant manager, and straight-line depreciation expense are all fixed costs, as they do not vary with changes in production or sales.

Question 6

Variable cost per unit, within the relevant range, will:

Accepted Answer

Variable cost per unit remains constant regardless of the level of production within the relevant range. This means that the cost per unit does not change as production levels increase or decrease.

Question 7

Fixed costs per unit decrease as production levels decrease.

Accepted Answer

Fixed costs remain constant regardless of the level of production, so they do not decrease as production levels decrease.

Question 8

Fixed cost per unit is assumed to be constant within a particular relevant range of activity.

Accepted Answer

Fixed cost per unit decreases as the level of activity or production increases within the relevant range, because the total fixed cost is spread over more units.

Question 9

Nancy was reviewing the water bill for her dog day care and spa and determined that her highest bill, $3,800, occurred in May when she washed 400 dogs and her lowest bill, $2,400, occurred in November when she washed 200 dogs. What was the variable cost per dog associated with Nancy's water bill?

Accepted Answer

The answer of Nancy was reviewing the water bill for...

Question 10

Nancy was reviewing the water bill for her dog day care and spa and determined that her highest bill, $3,800, occurred in May when she washed 400 dogs and her lowest bill, $2,400, occurred in November when she washed 200 dogs. What was the fixed cost associated with Nancy's water bill?

Accepted Answer

To find the fixed cost associated with the water bill, we need to use the high and low points given in the problem and apply them to the high-low method.

First, we need to calculate the variable cost per dog. To do this, we subtract the low point (November) from the high point (May) for both the number of dogs and the water bill:

$3,800 - $2,400 = $1,400 (May - high point)
400 dogs - 200 dogs = 200 dogs

Then, we divide the change in the water bill by the change in the number of dogs:

$1,400 ÷ 200 dogs = $7 per dog

Now, we can use either the high or low point along with the variable cost per dog to find the fixed cost. Let's use the high point (May):

$3,800 = ($7 × 400 dogs) + fixed cost

Simplifying the equation, we get:

$3,800 = $2,800 + fixed cost

Subtracting $2,800 from both sides, we get:

$1,000 = fixed cost

Therefore, the fixed cost associated with Nancy's water bill is $1,000. Choice C is the correct answer.

Question 11

Variable cost per unit is constant throughout various relevant ranges.

Accepted Answer

The answer of Variable cost per unit is constant throughout...

Question 12

Fixed costs per unit is inversely proportional to the volume of units produced.

Accepted Answer

According to the concept of economies of scale, as the volume of production increases, the fixed costs get spread over a larger number of units, reducing the fixed costs per unit. Therefore, fixed costs per unit are inversely proportional to the volume of units produced.

Question 13

A 15% increase in production volume will result in a:

Accepted Answer

A 15% increase in production volume will result in a proportional increase in total variable costs. Therefore, the correct answer is D, which states that there will be a 15% increase in total variable costs. The other choices (A, B, C) are not accurate as they do not reflect the impact on variable costs specifically.

Question 14

Which of the following statements is true of the behavior of total variable costs, within the relevant range?

Accepted Answer

Total variable costs decrease as production decreases within the relevant range because variable costs vary directly with the level of production.

Question 15

Total fixed costs can change from one relevant range to another.

Accepted Answer

Total fixed costs are fixed only within a specific range of activity levels. When the activity level increases beyond this range, additional fixed costs may be incurred, thus changing the total fixed costs. This is known as the relevant range of activity.

Question 16

Which of the following statements is true of the behavior of total fixed costs, within the relevant range?

Accepted Answer

Total fixed costs will stay the same regardless of changes in production levels as long as it is within the relevant range. This is because fixed costs are not affected by changes in production volume but rather by other factors such as rent, salaries, and property taxes.

Question 17

Total variable costs change in direct proportion to changes in the volume of production.

Accepted Answer

Total variable costs are costs that vary with changes in the volume of production, such as the cost of materials or labor. Therefore, total variable costs will change in direct proportion to changes in the volume of production.

Question 18

During the current year, Simpson Inc. incurred $5,000 of fixed and $12,000 variable costs. If the number of units produced is halved next year, the company will incur $2,500 as fixed and $6,000 as variable costs.

Accepted Answer

The cost behavior does not follow a simple linear relationship. Halving the number of units produced does not lead to an exact halving of both fixed and variable costs. Therefore, the statement is false.

Question 19

Assume that John's cellphone service provider charges $5.00 per month and $0.10 per minute per call. If John's current bill is $50.00, how many calling minutes did John use?
A) 500 minutes
B) 550 minutes
C) 450 minutes
D) 400 minutes

Accepted Answer

To solve the problem, we need to subtract the fixed $5.00 fee from John's total bill of $50.00. This leaves us with $45.00 that was charged based on the number of calling minutes.

To find the number of minutes, we can divide the remaining charge by the cost per minute:

$45.00 ÷ $0.10 per minute = 450 minutes

Therefore, John used 450 minutes of calling time. Answer choice C is correct.

Question 20

Total variable costs change in direct proportion to a change in volume.

Accepted Answer

Total variable costs, such as materials or labor, increase or decrease as the volume of production or sales increases or decreases. This means that they change proportionally with the level of activity.

Quiz 21: Cost-Volume-Profit Analysis