Question 1

A step-wise variable cost can be separated into a fixed component and a variable component.

Accepted Answer

A step-wise variable cost does not have a fixed component as it changes abruptly based on different levels of production or activity.

Question 2

As the level of output activity increases, fixed cost per unit remains constant.

Accepted Answer

As the level of output activity increases, fixed cost per unit decreases because the total fixed costs are spread over more units.

Question 3

The margin of safety can be expressed in units of product, in dollars, or as a percent of sales.

Accepted Answer

The margin of safety can be expressed in various ways, including units of product, dollars, or as a percentage of sales.

Question 4

The dollar amount of sales needed to achieve a target after-tax income is computed by dividing the sum of fixed costs plus the desired after-tax income plus income taxes by the contribution margin ratio.

Accepted Answer

This statement is true. The formula for computing the dollar amount of sales needed to achieve a target after-tax income is: (Fixed Costs + Desired After-Tax Income + Income Taxes) / Contribution Margin Ratio.

Question 5

The high-low method of deriving an estimated cost line uses all the data points available.

Accepted Answer

The high-low method uses only the highest and lowest data points to estimate the fixed and variable components of a cost.

Question 6

Curvilinear costs are also known as nonlinear costs.

Accepted Answer

Curvilinear costs refer to costs that do not increase or decrease at a constant rate as the level of production or activity changes, and are also known as nonlinear costs.

Question 7

Cost-volume-profit analysis is a precise tool for perfectly predicting the profit consequences of cost changes, price changes, and volume changes.

Accepted Answer

Cost-volume-profit analysis is a useful tool for understanding the general effect of cost, price, and volume changes on profits, but it is not precise due to its reliance on assumptions and simplifications, such as constant costs and prices, which may not hold true in real-world scenarios.

Question 8

Dividing a mixed cost into its separate fixed and variable cost components makes it more difficult to do cost-volume-profit analysis.

Accepted Answer

Dividing a mixed cost into its separate fixed and variable cost components actually makes it easier to do cost-volume-profit analysis, as it allows for a better understanding of how changes in volume will affect total costs and profits.

Question 9

The relevant range of operations excludes extremely high and low levels of production that are not likely to occur.

Accepted Answer

The purpose of determining the relevant range is to identify the range of production levels in which the company expects to operate, and where its costs and revenue relationships are reasonably accurate. Extremely high or low levels of production are less likely to occur in the normal course of business and would not be representative of the typical operations of the company. Therefore, these levels are excluded from the relevant range of operations.

Question 10

As the level of output activity increases, the variable cost per unit remains constant.

Accepted Answer

Variable costs per unit remain constant regardless of the level of output, as they are directly proportional to the production volume.

Question 11

Variable costs per unit increase proportionately with increases in output activity.

Accepted Answer

Variable costs per unit remain constant with changes in output activity; it's the total variable costs that increase proportionately with increases in output.

Question 12

Total variable costs change proportionately with changes in output activity.

Accepted Answer

Total variable costs are directly related and change in proportion to changes in output activity. The greater the output activity, the greater the total variable costs, and vice versa.

Question 13

Cost-volume-profit analysis provides approximate, but not precise, answers to questions about the relations among costs, volume, and profits.

Accepted Answer

Cost-volume-profit analysis uses simplified assumptions and estimations and therefore provides approximate, not exact, answers.

Question 14

The most complex of the cost estimation methods is the high-low method.

Accepted Answer

The most complex cost estimation method is regression analysis, while the high-low method is a relatively simple approach.

Question 15

Cost-volume-profit analysis can be used to predict the effects of reduced selling prices, increased fixed costs, and reduced variable costs on break-even points.

Accepted Answer

Cost-volume-profit analysis is a tool used to analyze the relationships between sales volume, costs, and profits. It can be used to predict the effects of various changes, such as reduced selling prices, increased fixed costs, and reduced variable costs, on break-even points.

Question 16

Unit contribution margin is the amount a product's unit selling price exceeds its total variable cost.

Accepted Answer

Unit contribution margin is calculated by subtracting total variable cost per unit from the selling price per unit. Therefore, the statement is true.

Question 17

The margin of safety is the amount that sales can drop before the company incurs a loss.

Accepted Answer

The margin of safety represents the difference between the actual or expected level of sales and the break-even point. It indicates how much sales can decline before the company starts to lose money. Therefore, option A is correct.

Question 18

Cost-volume-profit analysis is frequently based on the assumption that the production level is the same as the sales level.

Accepted Answer

Cost-volume-profit analysis assumes that the production level is the same as the sales level because it simplifies the analysis and makes it easier to calculate key financial metrics such as breakeven point and contribution margin. However, in reality, production and sales levels may differ due to factors such as inventory management, demand fluctuations, and production capacity constraints.

Question 19

The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.

Accepted Answer

The relevant range of operations includes production levels that are likely to occur, as it is the range of activity levels where a company's fixed and variable costs remain constant.

Question 20

Least-squares regression is a statistical method for deriving an estimated line of cost behavior.

Accepted Answer

Least-squares regression is a statistical method used to estimate the equation of a straight line that best fits the given data set. It is commonly used in cost accounting to derive an estimated line of cost behavior.

Quiz 18: Cost Behavior and Cost-Volume-Profit Analysis