1. As the level of activity increases, how will a mixed cost in total
and per unit behave?
In Total Per Unit A) Increase Decrease B) Increase Increase C)
Increase No effect D) Decrease Increase E) Decrease No effect
Answer: A Level: Hard LO: 1
2. Since Anytime Pizza is open 24 hours a day, its pizza oven is
constantly on and is, therefore, always using natural gas. However,
when there is no pizza in the oven, the oven automatically lowers its
flame and reduces its natural gas usage by 70%. The cost of natural
gas would best be described as a:
A) fixed cost.
B) mixed cost.
C) step–variable cost.
D) true variable cost.
Answer: B Level: Easy LO: 1
3. When the activity level is expected to decline within the
relevant range, what effects would be anticipated with respect to each
of the following?
Fixed costs per unit Variable costs per unit A) Increase Increase
B) Increase No change C) No change No change D) No change Increase
Answer: B Level: Medium LO: 1 Source: CPA, adapted
4. Within the relevant range, variable costs can be expected to:
A) vary in total in direct proportion to changes in the
activity level.
B) remain constant in total as the activity level changes.
C) increase on a per unit basis as the activity level
increases.
D) increase on a per unit basis as the activity level
decreases.
E) none of these.
Answer: A Level: Easy LO: 1
5. For the past 8 months, Jinan Corporation has experienced a steady
increase in its cost per unit even though total costs have remained
stable This cost per unit increase may be due to _____________ costs
because the level of activity at Jinan is _______________.
A) fixed, decreasing
B) fixed, increasing
C) variable, decreasing
D) Variable, increasing
Answer: A Level: Medium LO: 1
6. Which of the following is unlikely to be classified as a fixed
cost with respect to the number of units produced and sold?
A) Property taxes on a headquarters building.
B) Legal department salaries.
C) Cost of leasing the company’s mainframe computer.
D) Production supplies.
Answer: D Level: Easy LO: 1
7. Which of the following methods of analyzing mixed costs can be
used to estimate an equation for the mixed cost?
Least– High–Low Squares A) Yes Yes B) Yes No C) No Yes D) No
No
Answer: A Level: Easy LO: 2,5
8. In describing the cost formula equation, Y = a + bX, which of the
following is correct:
A) “Y” is the independent variable.
B) “a” is the variable cost per unit.
C) “a” and “b” are valid for all levels of activity.
D) in the high–low method, “b” equals the change in cost
divided by the change in activity.
Answer: D Level: Medium LO: 3
9. The high–low method is used with which of the following types of
costs?
A) Variable.
B) Mixed.
C) Fixed.
D) Step–variable.
Answer: B Level: Medium LO: 3
10. Shipping costs at Columbia Mining Company are a mixture of
variable and fixed components The Company shipped 8,000 tons of coal
for $400,000 in shipping costs in February and 10,000 tons for
$499,000 in March assuming that this activity is within the relevant
range, expected shipping costs for 11,000 tons would be:
A) $544,500
B) $548,500
C) $422,222
D) $554,000
Answer: B Level: Easy LO: 1,3
11. Eddy Corporation has provided the following production and total
cost data for two levels of monthly production volume. The company
produces a single product.
Production volume 6,000 units 7,000 units Direct materials
$582,600 $679,700 Direct labor $136,200 $158,900 Manufacturing
overhead $691,800 $714,700
The best estimate of the total variable manufacturing cost
per unit is:
(Note: Including material, labor and overhead)
A) $22.90
B) $119.80
C) $142.70
D) $97.10
Answer: C Level: Medium LO: 1,3
12. Given the cost formula Y = $12,500 + $5.00X, total cost for an
activity level of 4,000 units would be:
A) $20,000
B) $12,500
C) $16,000
D) $32,500
Answer: D Level: Easy LO: 1
13. The following data pertains to activity and maintenance costs for
two recent years:
Year 2 Year 1 Activity level in units 11,125 6,000 Maintenance
cost $6,250 $4,200
If the high–low method is used to separate fixed and
variable components of the cost, which of the following statements is
correct?
A) The variable cost is $0.70 per unit of activity
B) The fixed cost is $2,050
C) The variable cost is $2.50 per unit of activity
D) The fixed cost is $1,800
Answer: D Level: Easy LO: 3
14. The following data relate to two levels of activity at an out–
patient clinic in a hospital:
Number of patient–visits 4,500 5,750 General overhead $269,750
$289,125
The best estimate of the variable general overhead cost per
patient–visit is closest to:
A) $15.50
B) $44.44
C) $59.94
D) $50.28
Answer: A Level: Easy LO: 3 Source: CIMA, adapted
Use the following to answer questions 15 & 16:
Golden Dragon Restaurant would like to estimate the variable and fixed
components of its utilities costs and has compiled the following data
for the last five months of operations.
Month Meals served Utilities costs December 550 $401.00 January
300 $360.00 February 250 $347.50 March 400 $385.50 April 600
$414.00
15. Using the high–low method of analysis, the estimated variable
utilities cost per meal served is:
A) $0.22
B) $0.73
C) $0.69
D) $0.19
Answer: D Level: Medium LO: 3
16. Using the high–low method of analysis, the estimated monthly
fixed component of utility cost is:
A) $ 66.50
B) $300.00
C) $303.00
D) $331.00
