23) A fixed cost is fixed only in relation to a given wide range of total activity or volume and only for a given
time span, usually a particular budget period. Answer: TRUE
Diff: 2
Objective: 3
AACSB: Application of knowledge
24) A cost driver is a variable, such as the level of activity or volume that causally affects costs over a given time span. Answer: TRUE
Diff: 1
Objective: 3
AACSB: Analytical thinking
25) Fixed cost per unit reduces with an increase in production volume. Answer: TRUE
Diff: 2
Objective: 3
AACSB: Analytical thinking
26) Variable costs per unit vary with the level of production or sales volume. Answer: FALSE
Explanation: Variable costs per unit are constant with the level of production or sales volume.
Diff: 2
Objective: 3
AACSB: Analytical thinking
27) Wood used to manufacture chairs is considered a direct variable cost. Answer: TRUE
Diff: 1
Objective: 3
AACSB: Analytical thinking
28) Variable costs depend on the resources used. Answer: FALSE
Diff: 1
Objective: 3
AACSB: Analytical thinking
29) A fixed cost remains unchanged in total for a given time period, despite wide changes in the related level
of total activity or volume of output produced. Answer: TRUE
Diff: 1
Objective: 3
AACSB: Analytical thinking
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30) An appropriate cost driver for shipping costs might be the number of units shipped. Answer: TRUE
Diff: 1
Objective: 3
AACSB: Analytical thinking
31) Butler Hospital wants to estimate the cost for each patient stay. It is a general health care facility offering only basic services and not specialized services such as organ transplants.
Required:
a. Classify each of the following costs as either direct or indirect with respect to each patient.
b. Classify each of the following costs as either fixed or variable with respect to hospital costs per day. Direct Indirect Fixed Variable
Electronic monitoring ________ ________ ________ ________ Meals for patients ________ ________ ________ ________ Nurses' salaries ________ ________ ________ ________ Parking maintenance ________ ________ ________ ________ Security ________ ________ ________ ________ Answer: Direct Indirect Fixed Variable
Electronic monitoring X X Meals for patients X X Nurses' salaries X X Parking maintenance X X Security X X
Diff: 3
Objective: 2, 3
AACSB: Application of knowledge
17
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32) The list of representative cost drivers in the right column below are randomized with respect to the list of functions in the left column. That is, they do not match. Function Representative Cost Driver 1. Purchasing A. Number of employees 2. Billing B. Number of shipments 3. Shipping C. Number of customers 4. Computer Support D. Number of invoices 5. Personnel E. Number of desktop computers 6. Customer Service F. Number of purchase orders Required:
Match each business function with its representative cost driver. Function Insert letter of appropriate driver (A through F) 1. Purchasing 2. Billing 3. Shipping 4. Computer Support 5. Personnel 6. Customer Service Answer: Function Insert letter of appropriate driver (A through F) 1. Purchasing F 2. Billing D 3. Shipping B 4. Computer Support E 5. Personnel A 6. Customer Service C Diff: 3 Objective: 3
AACSB: Application of knowledge
33) Describe a variable cost. Describe a fixed cost. Explain why the distinction between variable and fixed costs is important in cost accounting.
Answer: Total variable costs increase with increased production or sales volumes. Fixed costs are not influenced by fluctuations in production or sales volumes. However, variable cost per unit remains the same at all levels of production and fixed cost per unit reduces with increase in production. Without the knowledge of cost behaviors, budgets and other forecasting tools will be inaccurate and unreliable.
Understanding whether a cost behaves as a variable or a fixed cost is essential to estimating and planning for business success.
Diff: 3
Objective: 3
AACSB: Analytical thinking
18
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Objective 2.4
1) A unit cost is computed by ________.
A) multiplying total cost by the number of units produced B) dividing total cost by the number of units produced C) dividing variable cost by the number of units produced D) dividing fixed cost by the number of units produced Answer: B
Diff: 1
Objective: 4
AACSB: Analytical thinking
2) In making product mix and pricing decisions, managers should focus on ________. A) total costs B) unit costs C) variable costs
D) manufacturing costs Answer: A
Diff: 2
Objective: 4
AACSB: Analytical thinking
3) When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when 16,000 units are produced, fixed costs will ________. A) increase to $20 per unit B) remain at $16 per unit C) decrease to $10 per unit D) total $160,000 Answer: A
Explanation: A) Fixed costs are $320,000 ($16 × 20,000 units). Dividing $320,000 by 16,000 units = $20.
Diff: 3
Objective: 4
AACSB: Application of knowledge
4) When 20,000 units are produced, variable costs are $8 per unit. Therefore, when 10,000 units are produced ________.
A) variable costs will remain at $8 per unit B) variable costs will total $60,000
C) variable unit costs will increase to $12 per unit D) variable unit costs will decrease to $3 per unit Answer: A
Diff: 2
Objective: 4
AACSB: Application of knowledge
19
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5) Eigen Manufacturing Corp. provided the following information for last month: Sales $40,000 Variable costs 14,000 Fixed costs 10,000 Operating income $16,000
If sales reduce to half of the amount in the next month, what is the projected operating income? A) $15,000 B) $6,000 C) $16,000 D) $3,000 Answer: D
Explanation: D) Projected operating income = ($40,000 / 2) ? ($14,000 / 2) ? $10,000 = $3,000
Diff: 3
Objective: 4
AACSB: Application of knowledge
6) Genosis Metals provided the following information for last month: Sales $20,000 Variable costs 8,000 Fixed costs 4,000 Operating income $8,000
If sales reduce to half the amount in the next month, what is the projected operating income? A) $0
B) $4,000 C) $2,000 D) $6,000 Answer: C
Explanation: C) Projected operating income = ($20,000 × 0.5) ? ($8,000 × 0.5) ? $4,000 = $2,000
Diff: 3
Objective: 4
AACSB: Application of knowledge
20
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