ACC112 – Topic 2b (Set A) Q

Q1
Cost behavior analysis is a study of how a firm's costs
a) relate to competitors' costs
b) relate to general price level changes
c) respond to changes in activity levels within the company
d) respond to changes in the gross national product

Q2
Assumptions about cost behavior include:
a) Departmental costs are assumed to rise in a straight line as the volume of activity
increases. In other words, these costs are said to be linear.
b) Departmental costs within an organization are assumed to be mixed costs, with a
fixed and a variable element.
c) Within the normal or relevant range of output, costs are often assumed to be
either fixed, variable or semi-variable (mixed)
d) All of the above

Q3
Cost behavior analysis applies to
a) manufacturers
b) retailers
c) wholesalers
d) all entities

Q4
The table below shows the costs of a company’s outputs at various levels:
Output units 4,500 5,500 6,500
Total cost £ 16,500 16,000 16,000
Unit cost £ 3.56 2.91 2.46
What type of cost is depicted in this table?
a) Fixed cost
b) Variable cost

Q5
Complete the following table
Per unit Total
Fixed cost Increase Constant
Variable cost
Total cost Increase Decrease
a) Constant, Decrease
b) Decrease, Decrease
c) Increase, Decrease
d) Increase, Increase

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ACC112 – Topic 2b (Set A) Q

Q6
Expenses that do not vary with the volume of production are known as _______
a) Fixed expenses
b) Semi‐variable expenses
c) Variable expenses
d) None

Q7
Firms operating constantly at 100% capacity
a) are common
b) are the exception rather than the rule
c) have no fixed costs
d) have no variable costs

Q8
A mixed cost contains
a) a variable cost element and a fixed cost element
b) both operating and non-operating costs
c) both selling and administrative costs
d) both retailing and manufacturing costs

Q9
Fixed cost per unit decreases when:
a) Production volume decreases.
b) Production volume increases.
c) Variable cost per unit decreases.
d) Variable cost per unit increases.

Q10
A cost which remains constant per unit at various levels of activity is a
a) fixed cost
b) manufacturing cost
c) variable cost
d) mixed cost

Q11
The table below shows the costs of a company’s outputs at various levels:
Output units 2,500 3,500 4,500
Total cost £ 27,500 38,500 49,500
Unit cost £ 11.00 11.00 11.00
What type of cost is depicted in this table?
a) Fixed cost
b) Variable cost

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ACC112 – Topic 2b (Set A) Q

Q12
Which of the following types of cost are assumed to stay the same per unit,
irrespective of the volume of output?
a) fixed
b) overheads
c) relevant
d) variable

Q13
A semi-variable/semi-fixed/mixed cost is a cost which contains both fixed and variable
components and so is partly affected by changes in the level of activity.
a) The above statement is correct
b) The above statement is incorrect

Q14
A mixed cost
a) always increases on a per unit basis.
b) contains both fixed and variable components.
c) is a fixed cost over the relevant range and a variable cost everywhere else.
d) is fixed over a wider range of activity than a variable cost.

Q15
When the output volume increases by large amounts, fixed costs often increase in:
a) importance
b) instability
c) proportion
d) steps

Q16
An example of a semi-variable cost would be:
a) the costs of raw material to be used for production
b) the depreciation of intangible fixed assets
c) the salaries of departmental supervisors
d) the wages paid to operatives on basic pay topped-up by a production bonus
scheme

Q17
Which of the following is not a plausible explanation of why variable costs often
behave in a curvilinear fashion?
a) Availability of quantity discounts
b) Labour specialisation
c) Overtime wages
d) Total variable costs are constant within the relevant range

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ACC112 – Topic 2b (Set A) Q

Q18
The limitations of the high/low method include:
a) Bulk discounts may be available for purchasing resources in large quantities
b) It assumes that activity levels are the only factor affecting costs and uses only
two values (highest and lowest) to predict future costs and these results may be
distorted because of random variations which may have occurred.
c) It relies on historical cost data and assumes this data can reliably predict future
costs
d) All of the above

Q19
Logan's Cafe produced and sold 2,000 pies last month and had fixed costs of
$8,000. If production and sales are expected to increase by 10% next month, which
of the following statements is true?
a) Fixed cost per unit will decrease.
b) Fixed cost per unit will increase.
c) Total fixed costs will decrease.
d) Total fixed costs will increase.

Q20
A semi variable cost would:
a) be a fixed amount when output was zero and would not increase in direct
proportion to output
b) be more than zero if no products were made and would then increase in direct
proportion to output
c) be zero when output is zero and would decrease in direct proportion to output
d) be zero when output is zero and would increase in direct proportion to output

Q21
In increasing production volume situation, the behavior of Fixed cost & Variable cost
will be:
a) Constant, increases
b) Decreases, increases
c) Increases, constant
d) Increases, decreases

Q22
XYZ uses the high-low method of estimating costs. Bud had total costs of $50,000 at
its lowest level of activity, when 5,000 units were sold. When, at its highest level of
activity, sales equaled 12,000 units, total costs were $78,000. Bud would estimate
variable cost per unit as
a) $4.00
b) $6.50
c) $7.53
d) $10.00
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ACC112 – Topic 2b (Set A) Q

Q23
A stepped fixed cost is a cost which:
a) goes up or down in steps when the volume of activity rises above or falls below
certain levels.
b) has a fixed cost behavior pattern within a limited range of activity
c) Both A&B
d) None

Q24
The high-low method refers to the:
a) Highest and lowest volume
b) Highest and lowest cost
c) Both A&B
d) None

Q25
If American Airlines cuts its domestic fares by 30%,
a) a profit can be earned either by increasing the number of passengers or by
decreasing variable costs.
b) a profit can only be earned by decreasing the number of flights.
c) its fixed costs will decrease.
d) profit will increase by 30%.

Q26
The relevant range of activity refers to the
a) activity level where all costs are curvilinear
b) geographical areas where the company plans to operate
c) level of activity where all costs are constant
d) levels of activity over which the company expects to operate

Q27
Within the relevant range:
a) both total variable costs and total fixed costs will remain constant.
b) both total variable costs and total fixed costs fluctuate.
c) fixed costs per unit will remain constant and variable costs per unit will fluctuate.
d) variable costs per unit will remain constant and fixed costs per unit will fluctuate.

Q28
What happens when activity levels rise?
a) The fixed cost per unit falls.
b) The total cost per unit falls
c) The variable cost per unit remains constant.
d) All of the above

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ACC112 – Topic 2b (Set A) Q

Q29
If the activity level increases 10%, total variable costs will
a) decrease by less than 10%
b) increase by10%
c) increase by more than 10%
d) remain the same

Q30
Determine fixed costs using the high-low method from the following data:
Total Costs Level of Activity
$52,000 8,000
$65,000 11,250
$86,000 16,500
a) 9,500
b) 16,500
c) 20,000
d) 45,000

Q31
An analysis of a particular cost incurred in a factory revealed that the cost averages
$0.40 per machine-hour at an activity level of 20,000 machine hours and increases
to an average of $0.50 per machine-hour at an activity level of 16,000 machine
hours. Assuming this activity is within the relevant range, what is the total expected
cost if the activity level is 17,300 machine hours?
a) $1,600
b) $6,960
c) $8,000
d) $9,000

Q32
Sales Rs. 100000, variable cost Rs. 50,000 and net profit ratio is 10% on sales, find
out fixed cost.
a) 20,000
b) 50,000
c) 40,000
d) The data inadequate

Q33
RST company sells shoes for $450. The variable cost is $200 per unit. The fixed
costs are $750,000. The company wants to have a profit of $250,000. How many
units do they have to sell to achieve this goal?
a) 3,000
b) 4,000
c) 5,000
d) 6,000

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ACC112 – Topic 2b (Set A) Q

Q34
UVW uses the high-low method of estimating costs. Bud had total costs of $50,000
at its lowest level of activity, when 5,000 units were sold. When, at their highest level
of activity, sales equaled 12,000 units, total costs were $78,000. Bud would estimate
the fixed cost to be
a) $20,000
b) $30,000
c) $40,000
d) $50,000

Q35
The quarterly production and overhead costs for the year are shown below. Identify
the variable overhead cost per unit, using the high- low method:
Quarter Production (units) Overheads ($)
1 5,200 69,000
2 4,000 60,000
3 5,400 70,000
4 4,900 66,000

a) $6.00
b) $7.14
c) $13.76
d) $15.00

Q36
Which of the following costs are variable?
Cost 5,000 Units 15,000 Units
1 $100,000 $300,000
2 $40,000 240,000
3 $90,000 90,000
4 $50,000 150,000
a) only 1
b) only 2
c) only 3
d) 1 and 4

Q37
Determine the margin of safety ratio from the following data:
Sales $30 per unit
Variable Cost $10 per unit
Fixed Costs $10,000
Units Sold 750 units
a) 20%
b) 33%
c) 45%
d) 75%
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ACC112 – Topic 2b (Set A) Q

Q38
The per-unit amount of three different production costs for ABC Inc. are as follows:
Production Cost A Cost B Cost C
20,000 $12.00 $15.00 $20.00
80,000 $12.00 $11.25 $5.00
What type of cost is each of these three costs?
a) Cost A is fixed, Cost B is mixed, Cost C is variable.
b) Cost A is fixed, Cost B is variable, Cost C is mixed.
c) Cost A is mixed, Cost B is variable, Cost C is mixed
d) Cost A is variable, Cost B is mixed, Cost C is fixed.

Q39
BCD incurred $40,000 to ship 19,000 pounds and $34,000 to ship 16,000 pounds. If
the company ships 18,000 pounds, what is its expected shipping expense?
a) $37,000
b) $37,895
c) $38,000
d) $38,250

Q40
RST Limited manufactures nail brushes for household use. It sells 80,000 pieces in a
year. Raw materials cost $0.15 per brush and other variable costs of $48,000 per
year. Fixed costs are $60,000. What is the total cost per unit?
a) $0.75
b) $1.00
c) $1.35
d) $1.50

Q41
The Washington Company incurred $50,000 to ship 22,000 liters and $42,000 to ship
18,000 liters. If the company ships 20,000 liters, its expected shipping expense
would be closest to:
a) $40,000
b) $44,000
c) $46,000
d) $48,000

Q42
ABC company sells shoes for $450. The variable cost is $200 per unit. The fixed
costs are $750,000. What is the breakeven in sales dollars?
a) $750,000
b) $937,500
c) $1,350,000
d) $1,687,500

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ACC112 – Topic 2b (Set A) Q

Q43
The quarterly production and overhead costs for the year are shown below. Identify
the variable overhead cost per unit, using the high- low method:
Quarter Production (units) Overheads
1 4,900 £66,000
2 5,200 £69,000
3 5,400 £70,000
4 4,000 £60,000
a) £6.00
b) £7.14
c) £13.76
d) £15.00