ACCT 1B Lecture Notes - Lecture 6: Cost Driver, Variable Cost, Fixed Cost

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rosebuffalo981

16 Jul 2020

School

Irvine Valley College

Department

Accounting

Course

ACCT 1B

Professor

seilo

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Document Summary

Cost behavior the way costs change as the related activity changes. Managers must properly understand cost behavior in order to make wise decisions. Knowing how costs change as output changes is essential for managers in planning, controlling, and decision making. Cost behavior is the general term to describe whether a cost changes when the level of activity changes. A change that does not change in total as activity changes is a fixed cost. A variable cost increases in total with an increase in activity and decreases in total with a decrease in activity. A cost driver is a casual measurement that causes costs to change. The relevant range is the range of output over which an assumed cost relationship is valid for the normal operations of a firm. Fixed costs are cost that in total are constant within the relevant range as the level of output increases or decreases.

Related Questions

Why is it important to identify the most appropriate costdrivers for a particular product?

A) so managers can identify the activities necessary tomanufacture a product

B) so managers can control product costs better

C) so managers can predict product costs better and make betterdecisions

D) B and C

Answer:

Cost drivers are ________.

A) the different functions in the value chain

B) different types of functional areas in the firm

C) measures of activities that require the use of resources andthereby cause costs

D) different types of cost calculations

Answer:

Within the relevant range, the total amount of ________ costchanges in direct proportion to changes in the cost driver. Withinthe relevant range, the total amount of ________ cost does notchange in direct proportion to changes in the cost driver.

A) fixed; variable

B) variable; fixed

C) step; mixed

D) mixed; step

Answer:

What happens when the cost-driver level increases within therelevant range?

A) Total fixed costs remain unchanged.

B) Fixed costs per unit of cost driver increase.

C) Total variable costs decrease.

D) Variable costs per unit of cost driver increase.

Answer:

Which of the following costs is a fixed cost?

A) cost of dairy ingredients used to produce ice cream

B) depreciation expense on factory building

C) fuel used by delivery trucks

D) labor wages of workers who mix dairy ingredients to make icecream

goldalligator726

Fixed costs are costs that remain the same in total dollaramount as the activity base changes. TRUE ORFalse

A relevant range is the range of activity over which the changesin the cost are of no interest. True orFalse

The break-even point is the level of operations at which thecompany has neither a loss nor a profit. True orFalse

As fixed costs increases, the break-even point increases.True or False

FIFO method refers to the fact that the first items in are thelast items out. True or False

Mixed costs are costs that have characteristics of both avariable and fixed costs. True orFalse

An example of an activity base is units produced.True or False

As the unit selling price increases, the break-even pointincreases. True or False

The difference between contribution margin and operatingleverage is fixed charges. True orFalse

whitebee930

1. Which one of the following refers to a cost that remains the same as the volume of activity decreases within the relevant range?

A. Average cost per unit.

B. Variable cost per unit.

C. Unit fixed cost.

D. Total variable cost.

2. The relevant range refers to the activity levels over which

A. Cost relationships hold constant.

B. Costs fluctuate.

C. Production varies.

D. Relevant costs are incurred.

3. When identifying fixed and variable costs, which one of the following is a typical assumption concerning cost behavior?

A. General and administrative costs are assumed to be variable costs.

B. Cost behavior is assumed to be realistic for all levels of activity from zero to maximum capacity.

C. Total costs are assumed to be linear when plotted on a graph.

D. The relevant time period is assumed to be 5 years.

4. A management accountant is about to prepare graphs of total variable cost and per-unit variable cost for use in a short-term planning model. Dollars will be depicted on the vertical axis; activity will be shown on the horizontal axis. How will these graphs appear under completion?

Total Variable Cost; Per-Unit Variable Cost

A. Straight line, sloping upward to the right; Straight line, parallel to the horizontal axis

B. Curvilinear, sloping upward to the right; A line that basically parallels the horizontal axis, first decreasing and then increasing

C. Straight line, sloping upward to the right; Straight line, sloping upward to the right

D. Straight line, parallel to the horizontal axis; Straight line, sloping upward to the right

5. A company has found that its total electricity cost has both a fixed component and a variable component within the relevant range. The variable component seems to vary directly with the number of units produced. Which one of the following statements concerning electricity cost is incorrect?

A. The total electricity cost will increase as production volume increases.

B. The total electricity cost per unit of production will increase as production volume increases.

C. The variable electricity cost per unit of production will remain constant as production volume increases.

D. The fixed electricity cost per unit of production will decline as production volume increases.

silversnake284

ACCT 1B Lecture Notes - Lecture 6: Cost Driver, Variable Cost, Fixed Cost

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