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CHAPTER 7
COST MANAGEMENT
TRUE OR FALSE QUESTIONS
(Correct answer indicated by T for True and F for False)
making business decisions.
relevant costs.
losing money. If by closing, the remaining fixed costs would be greater than the
previous losses, then normally the decision will be to close.
Business B, then Business B will make more net income than Business A from each
additional sales revenue dollar above the current level.
operating leverage.
have a higher break-even sales revenue level.
amount or rent based on a percent of sales revenue is: Fixed rent costs divided by the
variable rate percent.
most accurate method.
the vertical axis.
vertical axis gives the amount of total variable costs.
semivariable costs.
symbol X.
MULTIPLE CHOICE QUESTIONS
(Correct answer indicated by asterisk)
1. A sunk cost is one that is:
2. Which of the following costs is primarily fixed?
3. Variable costs:
4. Standard costs:
5. Indirect costs should be allocated to operating departments:
6. One can sell below cost when the sales revenue:
7. An operation should close during the off season when:
8. A restaurant with high operating leverage has:
9. A company with low operating leverage:
10. In times of rising sales revenue, it would be better to:
11. The equation for calculating the indifference point when deciding to pay a fixed rent amount
versus rent based on a percent of sales revenue is:
12. Using the high-low method, what are the fixed and variable costs if the high sales revenue is
$160,000 with total costs of $90,000, and the low sales revenue is $96,000 with total costs of
$58,000. What is the fixed cost and the variable percentage per dollar of sales revenue?
13. The intersect point of the vertical and sloped lines on a multi-point graph:
14. In making a decision about which piece of equipment to buy, two types of costs are
considered. They are relevant and:
15. Which is the best concept for allocating indirect costs?
