Question 1

Why is it important to separate mixed costs into fixed and variable portions

Accepted Answer

A) Mixed costs perform like variable costs. 
B) The accuracy of budgets may be reduced if mixed costs are fully allocated to either the fixed or variable cost pools. 
C) Mixed costs need to be removed from consideration in budgeting. 
D) Mixed costs perform like fixed costs.

Question 2

Which of the following best describes the behaviour of variable cost per unit

Accepted Answer

A) Variable cost per unit varies in decreasing proportion with the changes in the activity level. 
B) Variable cost per unit remains constant with changes in the activity level. 
C) Variable cost per unit varies in direct proportion with the activity level. 
D) Variable cost per unit varies in increasing proportion with changes in the activity level.

Question 3

Reference: 06-09
Prater Company has provided the following data: $$\begin{array} { | l | l | l | } 
\hline & \text { This Year } & \text { Last Year } \
\hline \text { Units sold } & 300,000 & 250,000 \
\hline \text { Sales revenue } & \$ 1,300,000 & \$ 1,050,000 \
\hline \text { Less cost of goods sold } & 910,000 & 735,000 \
\hline \text { Gross margin } & 390,000 & 315,000 \
\hline \text { Less operating expenses } & 272,000 & 260,000 \
\hline \text { Net income } & \$ 118,000 & \$ 55,000 \
\hline
\end{array}$$
-The best estimate of the company's total fixed operating expense per year is

Accepted Answer

A) $188,000. 
B) $72,000. 
C) $200,000. 
D) $212,000.

Question 4

Average maintenance costs are $1.50 per machine-hour at an activity level of 8,000 machine-hours and $1.20 per machine-hour at an activity level of 13,000 machine-hours. Assuming that this activity is within the relevant range, total expected maintenance cost for a budgeted activity level of 10,000 machine-hours would be closest to?

Accepted Answer

A) $15,000. 
B) $16,128. 
C) $13,440. 
D) $11,433.

Question 5

A cost formula may not be valid outside the relevant range of activity.

Accepted Answer

A) True 
 B)False

Question 6

Reference: 06-10
The following data have been provided by a retail company that sells a single product. $$\begin{array} { | l | l | l | } 
\hline & \text { This Year } & \text { Last Year } \
\hline \text { Units sold } & 200,000 & 150,000 \
\hline \text { Sales revenue } & \$ 1,000,000 & \$ 750,000 \
\hline \text { Less cost of goods sold } & 700,000 & 525,000 \
\hline \text { Gross margin } & 300,000 & 225,000 \
\hline \text { Less operating expenses } & 222,000 & 210,000 \
\hline \text { Net income } & \$ 78,000 & \$ 15,000 \
\hline
\end{array}$$
-What is the best estimate of the company's variable operating expenses per unit

Accepted Answer

A) $4.17 per unit. 
B) $0.24 per unit. 
C) $0.90 per unit. 
D) $0.71 per unit.

Question 7

Reference: 06-12
An income statement for Crandall's Bookstore for the first quarter of the current year is presented below:
Crandall's Bookstore
Income Statement
For the First Quarter of the Current Year $$\begin{array} { | l | l | l | } 
\hline \text { Sales } & & \$ 800,000 \
\hline \text { Less cost of goods sold } & &  { 560,000 }  \
\hline \text { Gross margin } & &{ 240,000 } \
\hline \text { Less operating expenses: } & & \
\hline \text { Selling } & \$ 98,000 & \
\hline \text { Administrative } & 98,000 & \underline { 196,000 } \
\hline \text { Net income } & & \$ 44,000 \
\hline
\end{array}$$ On average, a book sells for $50. Variable selling expenses are $5.50 per book, with the remaining selling expenses being fixed. The variable administrative expenses are 3% of sales, with the remainder being fixed.
-The net income using the contribution approach for the first quarter is?

Accepted Answer

A) $128,000. 
B) $152,000. 
C) $240,000. 
D) $44,000.

Question 8

Reference: 06-06
Johnson Company has provided the following data for the first five months of the year: $$\begin{array} { | l | l | l | } 
\hline & \text { Machine Hours } & \text { Lubrication Cost } \
\hline \text { January } & 120 & \$ 750 \
\hline \text { February } & 160 & \$ 810 \
\hline \text { March } & 200 & \$ 870 \
\hline \text { April } & 150 & \$ 795 \
\hline \text { May } & 170 & \$ 825 \
\hline
\end{array}$$
-Using the high-low method of analysis, the estimated variable lubrication cost pe? machine hour is closest to?

Accepted Answer

A) $1.25. 
B) $1.50. 
C) $1.40. 
D) $0.67.

Question 9

Reference: 06-03
Gasson Company is a merchandising firm. Next month the company expects to sell 800 units. The following data describe the company's revenue and cost structure: $$\begin{array} { | l | l | } 
\hline \text { Selling price per unit } & \$ 40 \
\hline \text { Sales commission } & 5 \% \
\hline \text { Purchase price (cost) per unit } & \$ 18 \
\hline \text { Advertising expense } & \$ 4,000 \text { per month } \
\hline \text { Administrative expense } & \$ 4,500 \text { per month plus } 15 \% \text { of sales } \
\hline
\end{array}$$ Assume that all activity mentioned in this problem is within the relevant range.
-The expected contribution margin next month is?

Accepted Answer

A) $14,400. 
B) $11,200. 
C) $16,000. 
D) $17,600.

Question 10

Shipping expense is $9,000 for 8,000 pounds shipped and $11,250 for 11,000 pounds shipped. Assuming that this activity is within the relevant range, if the company ships
9,000 pounds, its expected shipping expense is closest to?

Accepted Answer

A) $8,583. 
B) $10,125. 
C) $9,750. 
D) $9,972.

Question 11

Which of the following is not a variable cost of producing sweatshirts

Accepted Answer

A) Electricity cost of $0.25 per kilowatt/hour to run sewing machines in factory. 
B) Cost of thread. 
C) Janitorial cost of $2,000 per month. 
D) Wages of production workers.

Question 12

An example of a discretionary fixed cost is:

Accepted Answer

A) insurance. 
B) management development programs. 
C) taxes on real estate. 
D) depreciation of buildings and equipment.

Question 13

The concept of the relevant range does not apply to fixed costs.

Accepted Answer

A) True 
 B)False

Question 14

Cost B is best described as?

Accepted Answer

A) fixed 
B) mixed 
C) step-variable 
D) variable

Question 15

Discretionary fixed costs:

Accepted Answer

A) vary directly and proportionately with the level of activity. 
B) usually arise from annual decisions by management. 
C) have a long-term planning horizon, generally encompassing many years. 
D) are made up of plant, equipment, and basic organizational costs.

Question 16

An example of a committed fixed cost is:

Accepted Answer

A) a training program for salespersons. 
B) new product research and development. 
C) property taxes on the factory building. 
D) executive travel expenses.

Question 17

The difference between sales revenues and the total of variable costs is:

Accepted Answer

A) net profit. 
B) the contribution margin. 
C) gross operating profit. 
D) the breakeven point.

Question 18

Modern technology is causing shifts away from variable costs toward more fixed costs in
many industries.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is most correct about step-variable costs

Accepted Answer

A) The step-variable costs vary in direct proportion to changes in the level of activity. 
B) The step-variable costs remain constant through the same relevant range of activity as related fixed costs. 
C) The step-variable costs are excluded from consideration in budgeting. 
D) Between certain levels of activity, the step-variable costs have the same behaviour as fixed costs.

Question 20

Contribution margin is the difference between total variable expenses and total fixed expenses.

Accepted Answer

A) True 
 B)False

Exam 6: Cost Behaviour: Analysis and Use

Why is it important to separate mixed costs into fixed and variable portions

Which of the following best describes the behaviour of variable cost per unit

A cost formula may not be valid outside the relevant range of activity.

Shipping expense is $9,000 for 8,000 pounds shipped and $11,250 for 11,000 pounds shipped. Assuming that this activity is within the relevant range, if the company ships 9,000 pounds, its expected shipping expense is closest to?

Which of the following is not a variable cost of producing sweatshirts

An example of a discretionary fixed cost is:

The concept of the relevant range does not apply to fixed costs.

Cost B is best described as?

Discretionary fixed costs:

An example of a committed fixed cost is:

The difference between sales revenues and the total of variable costs is:

Modern technology is causing shifts away from variable costs toward more fixed costs in many industries.

Which of the following statements is most correct about step-variable costs

Contribution margin is the difference between total variable expenses and total fixed expenses.