4) Which of the following is true if the production volume decreases? A) fixed cost per unit increases B) average cost per unit decreases C) variable cost per unit increases D) variable cost per unit decreases Answer: A
Diff: 1
Objective: 3
AACSB: Application of knowledge
5) At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually ________.
A) are considered a variable cost B) are considered a fixed cost
C) depend on the scheduling of floor workers D) depend on the scheduling of production runs Answer: B
Diff: 1
Objective: 3
AACSB: Analytical thinking
6) Variable costs ________. A) are always indirect costs
B) increase in total when the actual level of activity increases C) include most personnel costs and depreciation on machinery D) are never considered a part of prime cost Answer: B
Diff: 1
Objective: 3
AACSB: Analytical thinking
7) Maize Plastics manufactures and sells 50 bottles per day. Fixed costs are $30,000 and the variable costs for manufacturing 50 bottles are $10,000. Each bottle is sold for $1,000. How would the daily profit be affected if the daily volume of sales drop by 10%? A) profits are reduced by $4,000 B) profits are reduced by $1,000 C) profits are reduced by $5,000 D) profits are reduced by $6,000 Answer: A
Explanation: A) Variable cost per unit = $10,000 / 50 = $200 Profit for 50 bottles = ($1,000 × 50) - ($30,000 + $10,000) = $10,000 Sales after 10% drop = 50 × (1 - 0.10) = 45
Profit for 45 bottles = ($1,000 × 45) - ($30,000 + (45 × 200))= $6,000
Change in profit = $10,000 - $6,000 = $4,000. Hence, the profit has decreased by $4,000.
Diff: 3
Objective: 3
AACSB: Application of knowledge
11
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8) Fixed costs depend on the ________. A) amount of resources used B) amount of resources acquired C) volume of production D) total number of units sold Answer: B
Diff: 1
Objective: 3
AACSB: Analytical thinking
9) Which one of the following is a variable cost for an insurance company? A) rent of the building B) CEO's salary
C) electricity expenses D) property taxes Answer: C
Diff: 1
Objective: 3
AACSB: Application of knowledge
10) Which of the following is a fixed cost for an automobile manufacturing plant? A) administrative salaries
B) electricity used by assembly-line machines C) sales commissions D) tires
Answer: A
Diff: 1
Objective: 3
AACSB: Application of knowledge
11) If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are produced for the month, the total cost for belts is ________.
A) considered to be a direct fixed cost B) considered to be a direct variable cost C) considered to be an indirect fixed cost D) considered to be an indirect variable cost Answer: B
Diff: 1
Objective: 3
AACSB: Application of knowledge
12) The most likely cost driver of distribution costs is the ________. A) number of parts within the product B) number of miles driven
C) number of products manufactured D) number of production hours Answer: B
Diff: 1
Objective: 3
AACSB: Application of knowledge
12
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13) The most likely cost driver of direct labor costs is the ________. A) number of machine setups for the product B) number of miles driven
C) number of production hours D) number of machine hours Answer: C
Diff: 1
Objective: 3
AACSB: Application of knowledge
14) Which of the following statements is true?
A) There is a cause-and-effect relationship between the cost driver and the amount of cost. B) Fixed costs have cost drivers over the short run. C) Over the short run all costs have cost drivers.
D) Volume of production is a cost driver of distribution costs. Answer: A
Diff: 1
Objective: 3
AACSB: Analytical thinking
15) A band of normal activity or volume in which specific cost-volume relationships are maintained is referred to as the ________. A) average range
B) cost-allocation range C) cost driver range D) relevant range Answer: D
Diff: 1
Objective: 3
AACSB: Analytical thinking
16) Within the relevant range, if there is a change in the level of the cost driver, then ________. A) total fixed costs and total variable costs will change
B) total fixed costs and total variable costs will remain the same
C) total fixed costs will remain the same and total variable costs will change D) total fixed costs will change and total variable costs will remain the same Answer: C
Diff: 2
Objective: 3
AACSB: Analytical thinking
13
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17) Outside the relevant range, variable costs, such as direct material costs ________. A) will decrease proportionately with changes in sales volumes B) will remain the same with changes in production volumes
C) will not change proportionately with changes in production volumes D) will increase proportionately with changes in sales volumes Answer: C
Diff: 2
Objective: 3
AACSB: Analytical thinking
18) Which of the following is a cost driver for a company's human resource costs? A) the number of employees in the company B) the number of job applications processed C) the number of units sold
D) the square footage of the office space used by the human resource department Answer: B
Diff: 1
Objective: 3
AACSB: Analytical thinking
Answer the following questions using the information below:
Zephyr Apparels is a clothing retailer. Unit costs associated with one of its products, Product DCT121, are as follows: Direct materials $ 70 Direct manufacturing labor 20 Variable manufacturing overhead 15 Fixed manufacturing overhead 32 Sales commissions (2% of sales) 5 Administrative salaries 16 Total $158
19) What are the direct variable manufacturing costs per unit associated with Product DCT121? A) $142 B) $90 C) $105 D) $110
Answer: C
Explanation: C) Direct variable manufacturing costs = $70 + $20 + $15 = $105
Diff: 1
Objective: 3
AACSB: Application of knowledge
14
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20) What are the indirect nonmanufacturing variable costs per unit associated with Product DCT121? A) $5 B) $21 C) $90 D) $142
Answer: A
Explanation: A) Indirect variable costs = Sales commissions = $5
Diff: 1
Objective: 3
AACSB: Application of knowledge
Answer the following questions using the information below:
The East Company manufactures several different products. Unit costs associated with Product ORD210 are as follows: Direct materials $54 Direct manufacturing labor 8 Variable manufacturing overhead 11 Fixed manufacturing overhead 25 Sales commissions (2% of sales) 5 Administrative salaries 12 Total $115
21) What is the percentage of the total variable costs per unit associated with Product ORD105 with respect to total cost? A) 72% B) 68% C) 75% D) 70%
Answer: A
Explanation: A) $60 + $10 + $15 + $5 = $90/125 = 72%
Diff: 3
Objective: 3
AACSB: Application of knowledge
22) What is the percentage of the total fixed costs per unit associated with Product ORD105 with respect to total cost? A) 32% B) 28% C) 26% D) 20%
Answer: B
Explanation: B) $25 + 10 = $35/125 = 28%
Diff: 3
Objective: 3
AACSB: Application of knowledge
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