Chapter 15 - Multiple Choice Questions Show 1.A variable cost is a cost thata.varies per unit at every level of activity b.occurs at various times during the year c.varies in total in proportion to changes in the level of activityd.may not be incurred, depending on management's discretionC is correct.Section “Cost behaviour analysis” – A variable cost varies in total in proportion tochanges in the level of activity.2.A cost which remains constant per unit at various levels of activity is aa.variable cost b.fixed costc.mixed costd.manufacturing costA is correct.Section “Cost behaviour analysis” – A variable cost remains constant per unit at variouslevels of activity.3.A fixed cost is a cost whicha.varies in total with changes in the level of activity b.remains constant per unit with changes in the level of activityc.varies inversely in total with changes in the level of activityd.remains constant in total with changes in the level of activityD is correct.Section “Cost behaviour analysis” – A fixed cost remains constant in total with changesin the level of activity.5.Cost behaviour analysis is a study of how a firm's costsa.relate to competitors' costs b.relate to general price level changesc.respond to changes in activity levels within the companyd.respond to changes in the gross national productC is correct.Section “Cost behaviour analysis” – Cost behaviour analysis is a study of how a firm’scosts respond to changes in activity levels within the company.
6.Cost behaviour analysis applies toa.retailers b.wholesalersc.manufacturersd.all entitiesD is correct.Section “Cost behaviour analysis” – Cost behaviour analysis applies to all entities.9.If the activity level increases 10%, total variable costs willa.remain the same b.increase by more than 10%c.decrease by less than 10%d.increase by10%D is correct.Section “Cost behaviour analysis” – If the level of activity increases 10%, total variablecosts will also increase by 10%.10.Which of the following costs are variable?Cost5,000 Units15,000 Units1$100,000$300,0002$ 40,000240,0003$ 90,00090,0004$ 50,000150,000a.1 and 2 b.1 and 4c.only 1d.only 2B is correct.Section “Cost behaviour analysis” – Costs 1 & 4 increase in direct proportion to the twoactivity levels.A is correct.Section “Cost behaviour analysis” – Direct materials is a variable cost.
13.The relevant range of activity refers to thea.geographical areas where the company plans to operate b.activity level where all costs are curvilinear c.levels of activity over which the company expects to operated.level of activity where all costs are constantC is correct.Section “Cost behaviour analysis” – The relevant range of activity refers to the levels of activity over which the company expects to operate.14.Which of the following is not a plausible explanation of why variable costs often behave in a curvilinear fashion?a.Labour specialisation b.Overtime wagesc.Total variable costs are constant within the relevant ranged.Availability of quantity discountsC is correct.Section “Cost behaviour analysis” – Total variable costs are constant within the relevantrange is not a plausible explanation of why variable costs often behave in a curvilinear fashion.15.Firms operating constantly at 100% capacitya.are common b.are the exception rather than the rulec.have no fixed costsd.have no variable costsB is correct.Section “Cost behaviour analysis” – Firms operating constantly at 100% are theexception rather than the rule.16.Which one of the following is a name for the range over which a companyexpects to operate?a.Mixed range b.Fixed rangec.Variable ranged.Relevant rangeD is correct.Section “Cost behaviour analysis” – The range over which a company expects to operateis called the relevant range. Which type of entities use cost behavior analysis?Cost behavior analysis is applicable to all entities. The research of how specific costs react to alteration in business activity level Understanding cost behavior assists management in planning operations and deciding between alternative courses of action.
What is cost behavior analysis?Cost behavior analysis refers to management's attempt to understand how operating costs change in relation to a change in an organization's level of activity. These costs may include direct materials, direct labor, and overhead costs that are incurred from developing a product.
Why is cost behavior analysis important to management of a company?Cost behavior analysis can simply give a production manager the information to determine the continuation of either producing a product or to slow/stop production of the product or product option. It enables them to control cost effectively, to forecast profits or loss as production and sales volume changes, etc.
How do you measure cost behavior?Measure cost behavior using the engineering analysis, high-low, visual-fit, and least-squares regression methods . Accountants and managers often assume that cost behavior is linear over some relevant range of activity or cost-driver levels.
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Cost behavior analysis applies to retailers. wholesalers. manufacturers. all entities.
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