Chapter 3
True / False
1. A cost that changes in total as output changes is a variable cost.
a. True
b. False
2. The cost of raw materials used is usually a fixed cost.
a. True
b. False
3. Fixed costs are costs that in total remain constant within the relevant range as the level of output increases or decreases.
Chapter 3
a. True
b. False
4. As output decreases fixed costs per unit will increase.
a. True
b. False
5. As output increases variable cost per unit will also increase.
a. True
b. False
6. The cost of advertising is usually a discretionary fixed cost.
a. True
b. False
7. A discretionary fixed cost can be changed relatively easily at management discretion.
a. True
b. False
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8. The relevant range is the range of output within which the assumed cost relationship is valid for the normal operations
of the firm.
a. True
b. False
9. Determining cost behavior is not essential to planning, controlling, and decision making.
a. True
b. False
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10. A variable cost increases in total when output increases but the per-unit costs remains the same.
a. True
b. False
11. Cost relationships may change at output levels outside of the relevant range.
a. True
b. False
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12. Computing unit fixed costs may result in misleading information.
a. True
b. False
13. Discretionary fixed costs often involve a long-term contract.
a. True
b. False
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14. Total variable costs = Variable rate × amount of output.
a. True
b. False
15. A driver is a factor that causes or leads to a change in a cost.
a. True
b. False
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16. Mixed costs have both a fixed and a variable component.
a. True
b. False
17. Managerial judgment is critically important in determining cost behavior.
a. True
b. False
18. The high-low method is an objective method to separate the cost behavior of a mixed cost.
a. True
b. False
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19. “Outliers” are points that seem to fit the general pattern of behavior.
a. True
b. False
20. The slope of a mixed cost line is equal to the fixed element of the cost.
a. True
b. False
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21. Using the high-low method, the calculation of the cost line uses the highest and lowest activity period.
a. True
b. False
22. Calculation of the cost line using the high-low method tests the lowest cost period to see if it is an outlier.
a. True
b. False
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23. Using a linear regression program, the term ‘Intercept’ refers to the variable cost.
a. True
b. False
24. Using a regression program, the term ‘X Variable 1′ refers to the dependent variable.
a. True
b. False
25. Using regression, the value of ‘X Variable 1′ equals the slope of the line.
a. True
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b. False
26. Variable costing and absorption costing income statements may differ because of their treatment of fixed factory
overhead.
a. True
b. False
27. Inventory costs under variable costing include only direct materials, direct labor, and variable factory overhead.
a. True
b. False
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28. Inventory under absorption costing includes only direct materials and direct labor.
a. True
b. False
29. If the number of units produced in a period is larger than the number of units sold in a period, absorption costing
income will be higher than variable costing income.
a. True
b. False
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30. Product cost includes all costs of the company.
a. True
b. False
31. If the number of units produced in a period is smaller than the number of units sold in period, absorption costing
income will be higher than variable costing income.
a. True
b. False
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Multiple Choice
32. Knowing how costs change as output changes is essential to
a. planning and controlling.
b. controlling and decision making.
c. planning, controlling and decision making.
d. None of these are correct.
33. Fixed costs are costs that:
a. decrease as the per unit variable cost increases.
b. are constant within the relevant range as the level of output changes.
c. increase as the miscellaneous expenses decrease with the level of output.
d. All of these are correct.
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34. Depreciation on equipment is an example of a _____.
a. variable cost
b. mixed cost
c. fixed cost
d. step cost
35. Which of the following would not be an example of a fixed cost?
a. The electricity bill paid for production
b. The rent paid for a warehouse
c. The depreciation on a factory building
d. The property taxes paid on real estate.
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36. Which of the following is true of discretionary fixed costs?
a. They are used to calculate contribution margin.
b. They depend on the number of units produced.
c. They can be changed easily by management’s decision.
d. They increase as output increases.
37. Cost of advertising is an example of a _____.
a. discretionary fixed cost
b. variable cost
c. semi-variable cost
d. committed fixed cost
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38. Discretionary fixed cost does not include _____.
a. assembly wages
b. public relations costs
c. advertising costs
d. leasing costs
39. Which of the following is true of a committed fixed cost?
a. A committed fixed cost is used to calculate the contribution margin.
b. It is difficult to change a committed fixed cost quickly.
c. A committed fixed cost changes in direct proportion to changes in output.
d. All of these are correct.
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40. Variable costs within the relevant range
a. stay constant on a per unit basis as output changes.
b. increase in total as output increases.
c. decrease in total as output decreases.
d. All of these are correct.
41. The _____ is a variable cost for Sam’s restaurant business.
a. depreciation on equipment
b. rental cost of the building
c. cost of raw materials
d. salary of the manager
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42. Total variable costs
a. increases as output increases.
b. decreases as output decreases.
c. equal a variable rate × amount of output.
d. all of these are correct.
43. A _____ is a causal factor that measures the output of the activity that causes costs to change.
a. cost commitment
b. cost driver
c. mixed cost
d. fixed cost