Question 1

Select the incorrect statement regarding fixed and variable costs.

Accepted Answer

A) Fixed cost per unit remains constant as the number of units increases. 
B) Total variable cost is represented by a straight line sloping upward from the origin when total variable cost is graphed versus number of units. 
C) The concept of relevant range applies to both fixed costs and variable costs. 
D) The terms "fixed" and "variable" refer to the behavior of total cost. 
A) Fixed cost per unit remains constant as the number of units increases. 
B) Total variable cost is represented by a straight line sloping upward from the origin when total variable cost is graphed versus number of units. 
C) The concept of relevant range applies to both fixed costs and variable costs. 
D) The terms "fixed" and "variable" refer to the behavior of total cost.

Question 2

A cost that is part selling cost and part manufacturing cost is referred to as a mixed cost.

Accepted Answer

A) True 
 B)False

Question 3

How is operating leverage related to cost structure?

Accepted Answer

Answers will vary
Cost structure refers

Question 4

Select the correct statement regarding fixed costs.

Accepted Answer

A) Because they do not change, fixed costs should be ignored in decision making. 
B) The fixed cost per unit decreases when volume increases. 
C) The fixed cost per unit increases when volume increases. 
D) The fixed cost per unit does not change when volume decreases. 
A) Because they do not change, fixed costs should be ignored in decision making. 
B) The fixed cost per unit decreases when volume increases. 
C) The fixed cost per unit increases when volume increases. 
D) The fixed cost per unit does not change when volume decreases.

Question 5

A low magnitude of operating leverage is best for most companies.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following costs typically include both fixed and variable components?

Accepted Answer

A) Direct materials 
B) Direct labor 
C) Factory overhead 
D) None of these 
A) Direct materials 
B) Direct labor 
C) Factory overhead 
D) None of these

Question 7

Why would a company need to estimate the fixed and variable components of a mixed cost?

Accepted Answer

Answers will vary
Mixed costs (semivaria

Question 8

Select the incorrect statement regarding the relevant range of volume.

Accepted Answer

A) Total fixed costs are expected to remain constant. 
B) Total variable costs are expected to vary in direct proportion with changes in volume. 
C) Variable cost per unit is expected to remain constant. 
D) Total cost per unit is expected to remain constant. 
A) Total fixed costs are expected to remain constant. 
B) Total variable costs are expected to vary in direct proportion with changes in volume. 
C) Variable cost per unit is expected to remain constant. 
D) Total cost per unit is expected to remain constant.

Question 9

Based on the following cost data, what conclusions can you make about the costs of Product A and Product B? $\begin{array}{|l|r|c|}
\hline &{\text { Total Cost }} \
\hline \text { Production: } & \text { Product A } & \text { Product B } \
\hline 10 \text { units } & \$ 100 & ? \
\hline 100 \text { units } & \$ 1,000 & ? \
\hline 1,000 \text { units } & \$ 10,000 & ? \
\hline&\text { Unit Cost }\
\hline \text { Production: } & \text { Product A } & \text { Product B } \
\hline 10 \text { units } & ? & \$ 10,000 \
\hline 100 \text { units } & ? & \$ 1,000 \
\hline 1,000 \text { units } & ? & \$ 100 \
\hline
\end{array}$

Accepted Answer

A) The cost of Product A is a fixed cost and the cost of Product B is a variable cost. 
B) The cost of Product A is a variable cost and the cost of Product B is a fixed cost. 
C) The costs of Product A and Product B are both variable costs. 
D) The costs of Product A and Product B are both mixed costs. 
A) The cost of Product A is a fixed cost and the cost of Product B is a variable cost. 
B) The cost of Product A is a variable cost and the cost of Product B is a fixed cost. 
C) The costs of Product A and Product B are both variable costs. 
D) The costs of Product A and Product B are both mixed costs.

Question 10

Which characteristic is true of the high-low method, the scattergraph method, and regression analysis?

Accepted Answer

A) All methods will produce the same estimate of variable and fixed costs. 
B) All methods use historic data to estimate variable and fixed costs. 
C) All methods use only two data points in analyzing a mixed cost. 
D) None of the above is true. 
A) All methods will produce the same estimate of variable and fixed costs. 
B) All methods use historic data to estimate variable and fixed costs. 
C) All methods use only two data points in analyzing a mixed cost. 
D) None of the above is true.

Question 11

Based on the income statements of the three following retail businesses, which company has the highest operating leverage? $$\begin{array} { | l | r | r | r | } 
\hline & { \text { Alpha Company } } &  { \text { Beta Company } } & \text { Gamma Company } \
\hline \text { Revenue } & \$ 200,000 & \$ 200,000 & \$ 200,000 \
\hline \text { Variable costs } & ( 95,000 ) & ( 155,000 ) & ( 125,000 ) \
\hline \text { Contribution margin } & \$ 105,000 & \$ 45,000 & \$ 75,000 \
\hline \text { Fixed costs } & ( 80,000 ) & ( 20,000 ) & ( 50,000 ) \
\hline \text { Net income } & \$ 25,000 & \$ 25,000 & \$ 25,000 \
\hline
\end{array}$$

Accepted Answer

A) Alpha Company 
B) Beta Company 
C) Gamma Company 
D) They all have same operating leverage 
A) Alpha Company 
B) Beta Company 
C) Gamma Company 
D) They all have same operating leverage

Question 12

What total amount of net income will Harlowe, Inc. earn if it experiences a 10 percent increase in revenue?

Accepted Answer

A) $180, 000 
B) $80,000 
C) $260,000 
D) $20,000 
A) $180, 000 
B) $80,000 
C) $260,000 
D) $20,000

Question 13

What are mixed or semivariable costs? Give an example of a mixed cost.

Accepted Answer

Answers will vary
A mixed or semivariabl

Question 14

Assuming that cost behavior did not change over the two-year period, what is the company's annual fixed general, selling, and administrative cost?

Accepted Answer

A) $6,500 
B) $6,000 
C) $3,000 
D) $2,500 
A) $6,500 
B) $6,000 
C) $3,000 
D) $2,500

Question 15

Variable costs will become fixed outside the relevant range.

Accepted Answer

A) True 
 B)False

Question 16

Descriptions of cost behavior as fixed or variable pertain to a particular range of activity.

Accepted Answer

A) True 
 B)False

Question 17

Cannon Company operates a clothing store that reported the following operating results for the current year:
Required: Prepare an income statement for Cannon Company using the contribution margin format. $\begin{array}{|l|c|}\hline\text { Income Statement }\
\hline \text { Sales revenue } & \$ 2,000,000 \
\hline \text { Cost of goods sold } & (1,200,000) \
\hline \text { Gross margin } & \$ 800,000 \
\hline \text { Employee commissions and bonuses ( } \% \% \text { of sales) } & (100,000) \
\hline \text { Depreciation expense } & (150,000) \
\hline \text { Salaries expense } & (260,000) \
\hline \text { Shipping and delivery expense (2\% of sales) } & (40,000) \
\hline \text { Advertising expense } & (80,000) \
\hline \text { Net income } & \$ 170,000 \
\hline
\end{array}$

Accepted Answer

The answer of Cannon Company operates a clothing store that...

Question 18

If a company had a mixed cost structure, every dollar of revenue after covering the fixed costs would be pure profit.

Accepted Answer

A) True 
 B)False

Question 19

What are the expected average quarterly costs of running a consulting practice if fixed costs are expected to be $4,000 a month and variable costs are expected to be $100 per client for each quarter? Expected number of clients for the year are: $$\begin{array} { | c | c | c | c | } 
\hline \text { Jan-March } & \text { April-June } & \text { July-Sep } & \text { Oct-Dec } \
\hline 110 & 140 & 150 & 100 \
\hline
\end{array}$$

Accepted Answer

A) $12,500 
B) $24,500 
C) $16,500 
D) $19,500 
A) $12,500 
B) $24,500 
C) $16,500 
D) $19,500

Question 20

The manager of Kenton Company stated that 45% of its total costs were fixed. The manager was describing the company's:

Accepted Answer

A) operating leverage. 
B) contribution margin. 
C) cost structure. 
D) cost averaging. 
A) operating leverage. 
B) contribution margin. 
C) cost structure. 
D) cost averaging.

Select the incorrect statement regarding fixed and variable costs.

A cost that is part selling cost and part manufacturing cost is referred to as a mixed cost.

How is operating leverage related to cost structure?

Select the correct statement regarding fixed costs.

A low magnitude of operating leverage is best for most companies.

Which of the following costs typically include both fixed and variable components?

Why would a company need to estimate the fixed and variable components of a mixed cost?

Select the incorrect statement regarding the relevant range of volume.

Which characteristic is true of the high-low method, the scattergraph method, and regression analysis?

What total amount of net income will Harlowe, Inc. earn if it experiences a 10 percent increase in revenue?

What are mixed or semivariable costs? Give an example of a mixed cost.

Assuming that cost behavior did not change over the two-year period, what is the company's annual fixed general, selling, and administrative cost?

Variable costs will become fixed outside the relevant range.

Descriptions of cost behavior as fixed or variable pertain to a particular range of activity.

If a company had a mixed cost structure, every dollar of revenue after covering the fixed costs would be pure profit.

What are the expected average quarterly costs of running a consulting practice if fixed costs are expected to be $4,000 a month and variable costs are expected to be $100 per client for each quarter? Expected number of clients for the year are: Jan-March April-June July-Sep Oct-Dec 110 140 150 100

The manager of Kenton Company stated that 45% of its total costs were fixed. The manager was describing the company's:

Management Accounting and Corporate Governance

Analysis of Cost, Volume, and Pricing to Increase Profitability

Cost Accumulation, Tracing, and Allocation

Cost Management in an Automated Business Environment: Abc, Abm, and Tqm

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters

Exam 2: Cost Behavior, Operating Leverage, and Profitability Analysis

Select the incorrect statement regarding fixed and variable costs.

A cost that is part selling cost and part manufacturing cost is referred to as a mixed cost.

How is operating leverage related to cost structure?

Select the correct statement regarding fixed costs.

A low magnitude of operating leverage is best for most companies.

Which of the following costs typically include both fixed and variable components?

Why would a company need to estimate the fixed and variable components of a mixed cost?

Select the incorrect statement regarding the relevant range of volume.

Which characteristic is true of the high-low method, the scattergraph method, and regression analysis?

What total amount of net income will Harlowe, Inc. earn if it experiences a 10 percent increase in revenue?

What are mixed or semivariable costs? Give an example of a mixed cost.

Assuming that cost behavior did not change over the two-year period, what is the company's annual fixed general, selling, and administrative cost?

Variable costs will become fixed outside the relevant range.

Descriptions of cost behavior as fixed or variable pertain to a particular range of activity.

If a company had a mixed cost structure, every dollar of revenue after covering the fixed costs would be pure profit.

What are the expected average quarterly costs of running a consulting practice if fixed costs are expected to be $4,000 a month and variable costs are expected to be $100 per client for each quarter? Expected number of clients for the year are: Jan-March April-June July-Sep Oct-Dec 110 140 150 100

The manager of Kenton Company stated that 45% of its total costs were fixed. The manager was describing the company's:

Management Accounting and Corporate Governance

Analysis of Cost, Volume, and Pricing to Increase Profitability

Cost Accumulation, Tracing, and Allocation

Cost Management in an Automated Business Environment: Abc, Abm, and Tqm

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters