Chapter 3
44. Which of the following would probably be a fixed cost in a fast-food restaurant?
a. cost of hamburger
b. cost of french fries
c. shift manager’s salary
d. utility cost
45. The salary of the college president is a _____ for a college.
a. fixed cost
b. variable cost
c. cost driver
d. sunk cost
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46. The relevant range
a. is the normal range of output.
b. is the range of output where cost relationships are valid.
c. may change from period to period.
d. All of these are correct.
47. Which of the following is true of unit fixed costs?
a. They decrease in value with an increase in output units.
b. They are used to calculate the contribution margin.
c. They lead to more effective business decisions when compared to total fixed costs.
d. They act as a causal factor for sales that measures the output of an activity.
Chapter 3
48. Which of the following would probably be a discretionary fixed cost for a law firm?
a. salary of receptionist
b. advertising
c. depreciation on furniture and equipment
d. cost of legal forms
49. The lease cost of office computers is a _____ for an accounting firm.
a. variable cost
b. discretionary fixed cost
c. committed fixed cost
d. semi-variable cost
Chapter 3
50. Per-unit variable costs
a. can be misleading and lead to poor decisions.
b. increase as output increases.
c. decrease as output decreases.
d. remain constant within the relevant range.
51. An increase in output leads to a(n):
a. increase in total fixed cost.
b. increase in total variable cost.
c. decrease in sunk cost.
d. decrease in step cost.
Chapter 3
52. Which of the following is true when output decreases?
a. Total fixed costs remain the same
b. Semi-mixed costs increase
c. Per-unit step costs decrease
d. All of these are correct.
53. Which of the following is true if output increases by 20% and is still within the relevant range?
a. Total fixed costs increase by 20%.
b. Contribution margin decreases by 60%.
c. Net income decreases by 40%.
d. Total variable costs increase by 20%.
Chapter 3
54.
Lassiter Toys, Inc.
Cost of Materials
No. of toys produced Total cost of materials
100,000 $20,000
200,000 40,000
300,000 60,000
The cost behavior of the materials cost is
a. fixed
b. variable
c. committed
d. discretionary
55.
Starfun Toys, Inc.
Cost of Materials
Number of toys produced Total cost of materials
60,000 $18,000
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120,000 36,000
150,000 45,000
What is the materials cost per unit of output?
a. $0.20
b. $0.30
c. $0.50
d. $0.70
56.
Lassiter Toys, Inc.
Cost of Materials
No. of toys produced Total cost of materials
100,000 $20,000
200,000 40,000
300,000 60,000
What should the total materials cost be at a production level of 220,000 toys?
a. $44,000
b. $88,000
c. $22,000
d. $132,000
Chapter 3
57. Taran Company incurred the following costs for the months of January and February.
Type of Cost January February
Insurance $ 5,000 $ 5,000
Utilities 4,000 5,000
Depreciation 3,500 3,500
Materials 10,000 20,000
From the information above we can assume that
a. insurance and depreciation are fixed costs.
b. output decreased from January to February.
c. output stayed the same from January to February.
d. insurance is a mixed cost.
58. Chrysntag Company incurred the following costs for the months of January and February.
Type of Cost January February
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Insurance $ 7,000 $ 7,000
Utilities 2,600 4,000
Depreciation 2,000 2,000
Materials 5,000 8,000
Assume that output was 1,000 units in January and 3,500 units in February, utility cost is a mixed cost, and the fixed cost
of utilities was $2,000. What was the variable rate per unit of output for utilities cost?
a. $0.60
b. $0.40
c. $0.20
d. $0.30
59. Taran Company incurred the following costs for the months of January and February.
Type of Cost January February
Insurance $ 5,000 $ 5,000
Utilities 4,000 5,000
Depreciation 3,500 3,500
Materials 10,000 20,000
If output was 5,000 units in January and 10,000 units in February we can assume that:
a. utilities and materials are variable costs.
b. utilities, insurance, and depreciation are fixed costs.
c. insurance and depreciation are mixed costs.
d. materials are the only variable cost.
Chapter 3
60. The _____ limits the cost relationship to the range of operations that the firm normally expects to occur.
a. alternate range
b. relevant range
c. variant range
d. dependent range
61. Cost behavior analysis focuses on
a. how costs react to increases in activity levels only.
b. how costs will change in the future.
c. how costs react to changes in activity level.
d. None of these are correct.
Chapter 3
62. Fixed cost per unit is $10 when 12,000 units are produced and $3 when 40,000 units are produced. What is the total
fixed cost when nothing is produced?
a. $175,000
b. $200,000
c. $120,000
d. $100,000
63. If production volume increases from 15,000 units to 21,000 units, _____.
a. average costs will increase by 30%
b. total fixed costs will increase by 25%
c. total variable costs will increase by 40%
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d. mixed and variable costs will increase by 55%
64. The fixed cost per unit _____ within the relevant range when the output decreases.
a. decreases
b. decreases at first and then increases
c. remains the same
d. increases
65. The cost formula for monthly depreciation cost in a factory is
Chapter 3
Total cost = $10,000
This cost is
a. strictly variable.
b. strictly fixed.
c. a mixed cost.
d. a step cost.
66. Which of the following is true of a mixed cost?
a. It does not change with a change in the level of output.
b. It cannot be separated into fixed and variable components.
c. It contains both a fixed and variable component.
d. All of these are correct.
Chapter 3
67. When a mixed cost is graphed the Y-intercept corresponds to the
a. step cost.
b. variable rate.
c. fixed cost.
d. price of the units sold.
68. The slope of the line in a mixed cost graph represents the _____ per unit of activity driver.
a. step cost
b. total cost
c. variable cost
d. total fixed cost
Chapter 3
69. Step costs
a. remain the same within the relevant range.
b. have an increased fixed component at specified intervals.
c. increase in direct proportion to increases in output.
d. None of these are correct.
70. Which of the following is the formula used to calculate a mixed cost?
a. Total Cost = Total Fixed Cost + (Fixed Cost Rate × Amount of Output)
b. Total Cost = Total Fixed Cost + Total Variable Cost
c. Total Cost = Variable Rate × Amount of Output
d. None of these are correct.
Chapter 3
71. Which of the following would probably be a mixed cost?
a. rent on building
b. raw materials
c. repairs and maintenance
d. depreciation
72. Which of the following is true of a mixed cost?
a. It remains constant irrespective of changes in output.
b. It consists of only one cost component.
c. It has the same cost behavior as a step cost.
d. It decreases when output decreases.
Chapter 3
73. If a cost’s step-cost behavior follows very narrow steps, the costs may be approximated using:
a. straight variable cost assumptions.
b. fixed costs assumptions.
c. step-fixed cost assumptions.
d. mixed cost assumptions.
74. Total cost = Fixed cost + (Variable Rate × Output)
In the cost formula above which element would be the dependent variable?
a. variable rate
b. fixed cost
c. total cost
d. output
Chapter 3
75. Mixed cost is computed using the formula Total Cost = Fixed Cost + (Variable Rate × Output). The _____ explains
changes in the dependent variable of the mixed cost formula.
a. sum of the fixed cost and the variable cost
b. difference of the total cost and the fixed cost
c. units of output
76. Total cost = Fixed cost + (Variable Rate × Output)
In the cost formula above which element would be the intercept?
a. fixed cost
b. total cost
c. output
d. variable rate
Chapter 3
77. Total Cost = Fixed Cost + (Variable Rate × Output). In the cost formula, the slope corresponds to the _____.
a. dependent rate
b. output rate
c. conversion rate
78. The high-low method:
a. is the most accurate methods.
b. is not affected by the presence of outliers.
c. has the advantage of objectivity.
d. has the advantage of subjectivity.
Chapter 3
79. The scatter graph method used to establish a cost relationship:
a. displays a constant level of cost for a range of output.
b. uses only two data points to build the graph.
c. is a good way to identify nonlinearity.
d. All of these are correct.
80. The method of least squares
a. is a way to find the “best fitting” line through a set of data points.
b. is a statistical way of separating a mixed cost.
c. always produces the same cost formula when used on the same data set.
d. all of these are correct
81. Which of the following formulas is used to calculate the variable rate in the high-low method?
a. Total Cost at High Point – (Fixed Rate × Output at High Point)