Cost Behavior

1 Which of the following statements is false? 

A. At zero production level, fixed costs is also zero.
B. At zero production level, fixed costs are positive.
C. At zero production level, variable costs are usually zero.
D. At zero production level, total costs equal total fixed costs.

2. Variable costs are all costs 

A. Of manufacturing incurred to produce units of output. 
B. That are associated with marketing, shipping, warehousing, and billing activities. 
C. That fluctuate in total in response to small changes in the rate of utilization of capacity. 
D. That do not change in total for a given period and relevant range but become progressively smaller on a per unit
basis as volume increases. 

3. NTQ, Inc.’s net sales in 1996 were 15% below the 1995 level.  NTQ’s semi-variable costs would 
A. Increase in total and increase as a percentage of net sales.
B. Increase in total, but decrease as a percentage of net sales.
C. Decrease in total, but increase as a percentage of net sales.
D. Decrease in total and decrease as a percentage of net sales.

4. RST’s average cost per unit is the same at all levels of volume.  Which of the following is true?
A. RST must have only fixed costs. 
B. RST must have only variable costs.
C. RST must have some fixed costs and some variable costs.
D. RST’s cost structure cannot be determined from this information.

5. Which of the following decision-making tools would NOT be useful in determining the slope and intercept of a mixed
cost?
A. high-low method C. linear programming
B. least-squares method D. scatter diagrams 

6. Costs that increase as the volume of activity decreases within the relevant range are 
A. Average costs per unit. C. Total fixed costs.
B. Average variable costs per unit. D. Total variable costs.
 Cost equation
7. Smart Company is relocating its facilities. The company estimates that it will take three trucks to move office
contents. If the per truck rental charge is $1,000 plus 25 cents per mile, what is the expected cost to move 800
miles? 
A. $1,000 C. $2,400
B. $1,200 D. $3,600

8. The following cost functions were developed for manufacturing overhead costs:
Manufacturing Overhead Cost Function
Cost
Electricity $100 + $20 per direct labor hour
Maintenance $200 + $30 per direct labor hour
Supervisors’ salaries $10,000 per month
Indirect materials $16 per direct labor hour
If July production is expected to be 1,000 units requiring 1,500 direct labor hours, estimated manufacturing
overhead costs would be 
A. $10,366 C. $99,000 
B. $76,300 D. $109,300

9. Bradley Co. budgets its total production costs at $220,000 for 75,000 units of output and $275,000 for 100,000 units
of output. Since additional facilities are needed to produce 100,000 units, fixed costs are budgeted at 20% more than
for 75,000 units. What is Bradley's budgeted fixed cost at 100,000 units? 
A. 16,500 C. 156,000
B. 66,000 D. 165,000

10. Matias Corporation wishes to market a new product for P12.00 a unit.  Fixed costs to manufacture this product are
P800,000 for less than 500,000 units and P1,200,000 for 500,000 or more units.  Contribution margin is 20%.  How
many units must be sold to realize a net income from this product of P500,000? 
A. 433,333 C. 666,667
B. 500,000 D. 708,333