ACCTG 211 Chapter Notes - Chapter 6: Variable Cost, Fixed Cost, Earnings Before Interest And Taxes

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12 Nov 2016

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Cost behavior: how costs change as volume changes. Three of the most common cost behaviors: variable costs, fixed costs, mixed costs. Variable costs: costs that are incurred for every unit of volume. Fixed costs: costs that do not change in total despite wide changes in volume. Most of these costs are committed fixed costs, meaning that the hotel is locked in to these costs because of previous management decisions. However, the hotel also incurs discretionary fixed costs, such as advertising expenses, that are a result of annual management decisions: companies have more control over discretionary fixed costs in the short run. The fixed cost per guest is inversely proportional to the number of guests: when volume increases, the fixed cost per guest decreases, when volume decreases, the fixed cost per guest increases. Mixed costs: contain both variable and fixed cost components (cid:1867)(cid:1872)(cid:1853)(cid:1864) (cid:1865)(cid:1876)(cid:1857)(cid:1856) (cid:1855)(cid:1867)(cid:1871)(cid:1872)(cid:1871)=(cid:1853)(cid:1870)(cid:1853)(cid:1854)(cid:1864)(cid:1857) (cid:1855)(cid:1867)(cid:1871)(cid:1872) (cid:1855)(cid:1867)(cid:1865)(cid:1868)(cid:1867)(cid:1866)(cid:1857)(cid:1866)(cid:1872)+(cid:1876)(cid:1857)(cid:1856) (cid:1855)(cid:1867)(cid:1871)(cid:1872) (cid:1855)(cid:1867)(cid:1865)(cid:1868)(cid:1867)(cid:1866)(cid:1857)(cid:1866)(cid:1872) (cid:1877)=(cid:1874)(cid:1876)+(cid:1858)

Related Questions

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

If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would:

a. increase.

b. remain the same.

c. decrease.

d. increase or decrease, depending upon the percentage increase in wage rates.

Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit, and fixed costs are $75,000. The contribution margin ratio and the unit contribution margin are:

a. 53% and $7 per unit.

b. 47% and $11 per unit.

c. 52% and $11 per unit.

d. 47% and $8 per unit.

If sales are $500,000, variable costs are 75% of sales, and operating income is $40,000, what is the operating leverage?

a. 0

b. 1.3

c. 3.1

d. 1.25

Which of the following describes the behavior of the fixed cost per unit?

a. Increases with increasing production

b. Remains constant with changes in production

c. Decreases with increasing production

d. Decreases with decreasing production

If variable costs per unit decreased because of a decrease in utility rates, the break-even point would:

a. increase.

b. increase or decrease, depending upon the percentage increase in utility rates.

c. decrease.

d. remain the same.

Costs that vary in total in direct proportion to changes in an activity level are called:

a. differential costs.

b. fixed costs.

c. variable costs.

d. sunk costs

Which of the following conditions would cause the break-even point to increase?

a. Total fixed costs decrease

b. Unit variable cost decreases

c. Unit variable cost increases

d. Unit selling price increases

In cost-volume-profit analysis, all costs are classified into the following two categories:

a. discretionary costs and sunk costs

b. variable costs and fixed costs

c. mixed costs and variable costs

d. sunk costs and fixed costs

ochrespider8

1. Which of the following statements is NOT true about costs perunitwithin the relevant range?

A. Fixed costs decrease in proportion to increases involume.

B. Mixed costs decrease but not in direct proportion toincreases in volume.

C. Variable costs stay constant with changes in volume.

D. Curvilinear costs stay constant with changes in volume.

2. How would the equation for total costs be written using thefollowing? y = total costs v = variable cost per unit of activity x= volume of activity f = total fixed costs

A. y = xv

B. y = xv + f

C. y = xf

D. y = f

3. A utility bill consisting of a monthly base, plus an addedamount based on usage, is classified as a:

A. fixed cost.

B. mixed cost.

C. curvilinear cost.

D. variable cost.

4. A company is analyzing its mixed costs. During July, itsbusiest month, a company had total labor hours of 14,000 and totalcosts of $40,000. During February, its slowest month, the companyhad labor hours of 8,000 and total costs of $25,000. The company isplanning for 12,000 direct labor hours next April. How many dollarsshould the company budget for fixed costsduring April?

A. $5,000

B. $6,000

C. $35,000

D. $36,000

5. A company is analyzing its mixed costs. During July, itsbusiest month, a company had total labor hours of 14,000 and totalcosts of $40,000. During February, its slowest month, the companyhad labor hours of 8,000 and total costs of $25,000. The company isplanning for 12,000 direct labor hours next April. How many dollarsshould the company budget for total costsduring April?

A. $5,000

B. $6,000

C. $30,000

D. $35,000

6. Which of the following statements is true regardingregression analysis?

A. Regression analysis considers all of the data points fordetermining the line that best fits the data so is usually moreaccurate than the high-low method.

B. Regression analysis helps generate a statistic, called theR-square, which tells how well the line fits the data points.

C. Regression analysis helps managers implement activity-basedcosting systems.

D. All of the above are true.

7. The difference between absorption costing and variablecosting is:

A. the treatment of fixed MOH.

B. the timing with which fixed MOH is expensed.

C. both of the above are differences.

D. none of the above are differences.

8. Which of the following is NOT true regarding an incomestatement organized according to the contribution marginapproach?

A. The contribution margin income statement is organized by costbehavior.

B. Operating income will always be the same as operating incomein a traditional income statement regardless of changes ininventory levels.

C. All fixed costs, including fixed MOH, are expensed below thecontribution margin line.

D. The contribution margin is equal to sales revenue minusvariable expenses.

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ACCTG 211 Chapter Notes - Chapter 6: Variable Cost, Fixed Cost, Earnings Before Interest And Taxes

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