Managerial Accounting Tools For Business And Decision Making 7th Edition by Jerry J. Weygandt -Kimmel Test Bank

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Managerial Accounting Tools For Business And Decision Making 7th Edition by Jerry J. Weygandt -Kimmel Test Bank

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WITH ANSWERS
Managerial Accounting Tools For Business And Decision Making 7th Edition by Jerry J. Weygandt -Kimmel Test Bank

CHAPTER 5

 

COST-VOLUME-PROFIT

 

Summary of Questions by LEARNING Objectives and Blooms Taxonomy

Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT

True-False Statements

1. 1 K 9. 1 C 17. 3 K 25. 4 K 33. 2 K
2. 1 K 10. 2 K 18. 3 K 26. 4 AP 34. 3 C
3. 1 K 11. 2 K 19. 3 K 27. 5 K 35. 4 K
4. 1 C 12. 2 C 20. 3 K 28. 5 K 36. 5 AP
5. 1 C 13. 2 K 21. 3 K 29. 5 K 37. 5 K
6. 1 C 14. 2 C 22. 3 K 30. 5 K      
7. 1 K 15. 2 K 23. 4 K 31. 1 K      
8. 1 K 16. 3 K 24. 4 K 32. 1 K      

Multiple Choice Questions

38. 1 C 62. 1 C 86. 3 AP 110. 4 C 134. 5 AP
39. 1 K 63. 1 C 87. 3 K 111. 4 K 135. 5 AP
40. 1 K 64. 2 AP 88. 3 AP 112. 4 AP 136. 5 AP
41. 1 C 65. 2 K 89. 3 C 113. 4 AP 137. 5 AP
42. 1 C 66. 2 AP 90. 3 AP 114. 4 AP 138. 5 AP
43. 1 K 67. 2 AP 91. 3 AP 115. 4 AP 139. 5 AP
44. 1 C 68. 2 C 92. 3 AP 116. 4 AP 140. 5 AP
45. 1 C 69. 2 C 93. 3 AP 117. 4 AP 141. 5 AP
46. 1 K 70. 2 K 94. 3 AP 118. 4 AP 142. 5 AP
47. 1 C 71. 2 C 95. 3 AP 119. 4 AP 143. 5 K
48. 1 C 72. 2 AP 96. 3 AP 120. 4 AP 144. 5 C
49. 1 K 73. 2 AP 97. 3 AP 121. 4 AP 145. 1 K
50. 1 C 74. 2 AP 98. 3 AP 122. 4 AP st146. 2 K
51. 1 K 75. 2 K 99. 3 C 123. 4 C 147. 2 AP
52. 1 C 76. 2 K 100. 3 K 124. 5 AP st148. 3 K
53. 1 C 77. 2 C 101. 3 K 125. 5 AP 149. 3 C
54. 1 C 78. 2 AP 102. 3 AP 126. 5 AP st150. 3 K
55. 1 C 79. 2 AP 103. 4 AP 127. 5 AP 151. 3 AP
56. 1 C 80. 3 K 104. 4 AP 128. 5 AP st152. 4 AP
57. 1 K 81. 3 K 105. 4 K 129. 5 AP 153. 4 K
58. 1 C 82. 3 C 106. 4 C 130. 5 AP st154. 5 AP
59. 1 C 83. 3 K 107. 4 C 131. 5 AP 155. 5 K
60. 1 C 84. 3 C 108. 4 AP 132. 5 AP 156. 5 AP
61. 1 K 85. 3 C 109. 4 AP 133. 5 AP      

Brief Exercises

157. 2 AP 159. 3 AP 161. 4 AP 163. 4 AP 165. 5 AP
158. 3 AP 160. 3 AP 162. 4 AP 164. 5 AP 166. 5 AP

st   This question also appears in a self-test at the student companion website.

a   This question covers a topic in an appendix to the chapter.


Summary of Questions by LEARNING Objectives and Blooms Taxonomy

Exercises

167. 1,2 AP 173. 3 AP 179. 3,4,5 AN 185. 3,5 AP 191. 4,5 AP
168. 1,2,4,5, AP 174. 3 E 180. 3,4 AP 186. 4 AP 192. 5 AP
169. 1,3,4,5 AN 175. 3,4,5 AN 181. 3,4,5 AP 187. 4,5 AP 193. 5 AP
170. 2 AP 176. 3,4 AP 182. 3,4 AP 188. 4,5 AP      
171. 2 AP 177. 4 AP 183. 3,4,5 AP 189. 4,5 C      
172. 2 AP 178. 3,4,5 AN 184. 3,4,5 AP 190. 4,5 AP      

Completion Statements

194. 1 K 197. 1 K 199. 1 K 201. 3 K 203. 4 K
195. 1 K 198. 1 K 200. 1 K 202. 4 K 204. 5 K
196. 1 K                        
Matching Statements
205. 13, 5 K                        
Short-Answer Essay
206. 4 S 208. 1 S 210. 2 S            
207. 3 S 209. 2 S 211. 1 S            

 

 

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE

Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Learning Objective 1
1. TF 9. TF 43. MC 51. MC 59. MC 169. Ex 205. MA
2. TF 31. TF 44. MC 52. MC 60. MC 194. C 208. SA
3. TF 32. TF 45. MC 53. MC 61. MC 195. C 210. SA
4. TF 38. MC 46. MC 54. MC 62. MC 196. C 211. SA
5. TF 39. MC 47. MC 55. MC 63. MC 197. C    
6. TF 40. MC 48. MC 56. MC 145. MC 198. C    
7. TF 41. MC 49. MC 57. MC 167. Ex 199. C    
8. TF 42. MC 50. MC 58. MC 168. Ex 200. C    
Learning Objective 2
10. TF 15. TF 67. MC 72. MC 77. MC 157. BE 172. Ex
11. TF 33. TF 68. MC 73. MC 78. MC 167. Ex 205. MA
12. TF 64. MC 69. MC 74. MC 79. MC 168. Ex 209. SA
13. TF 65. MC 70. MC 75. MC 146. MC 170. Ex 210. SA
14. TF 66. MC 71. MC 76. MC 147. MC 171. Ex    
Learning Objective 3
16. TF 80. MC 88. MC 96. MC 149. MC 173. Ex 182. Ex
17. TF 81. MC 89. MC 97. MC 150. MC 174. Ex 183. Ex
18. TF 82. MC 90. MC 98. MC 151. MC 175. Ex 184. Ex
19. TF 83. MC 91. MC 99. MC 158. BE 176. Ex 185. Ex
20. TF 84. MC 92. MC 100. MC 159. BE 178. Ex 201. C
21. TF 85. MC 93. MC 101. MC 160. BE 179. Ex 205. MA
22. TF 86. MC 94. MC 102. MC 166. BE 180. Ex 207. SA
34. TF 87. MC 95. MC 148. MC 169. Ex 181. Ex    

 

 

Learning Objective 4
23. TF 106. MC 114. MC 122. MC 169. Ex 182. Ex 191. Ex
24. TF 107. MC 115. MC 123. MC 175. Ex 183. Ex 202. C
25. TF 108. MC 116. MC 152. MC 176. Ex 184. Ex 203. C
26. TF 109. MC 117. MC 153. MC 177. Ex 186. Ex 206. SA
35. TF 110. MC 118. MC 161. BE 178. Ex 187. Ex    
103. MC 111. MC 119. MC 162. BE 179. Ex 188. Ex    
104. MC 112. MC 120. MC 163. BE 180. Ex 189. Ex    
105. MC 113. MC 121. MC 168. Ex 181. Ex 190. Ex    
Learning Objective 5
27. TF 126. MC 134. MC 142. MC 166. BE 184. Ex 193. Ex
28. TF 127. MC 135. MC 143. MC 168. Ex 185. Ex 204. C
29. TF 128. MC 136. MC 144. MC 169. Ex 187. Ex 205. MA
30. TF 129. MC 137. MC 154. MC 175. Ex 188. Ex    
36. TF 130. MC 138. MC 155. MC 178. Ex 189. Ex    
37. TF 131. MC 139. MC 156. MC 179. Ex 190. Ex    
124. MC 132. MC 140. MC 164. BE 181. Ex 191. Ex    
125. MC 133. MC 141. MC 165. BE 183. Ex 192. Ex    

Note:   TF  =  True-False                           BE  =  Brief Exercise                C  =  Completion

MC  =  Multiple Choice                    Ex  =  Exercise                      MA  =  Matching

SA  =  Short-Answer Essay

 

 

CHAPTER LEARNING OBJECTIVES

  1. Explain variable, fixed and mixed costs and the relevant range. Variable costs are costs that vary in total directly and proportionately with changes in the activity index. Fixed costs are costs that remain the same in total regardless of changes in the activity index. The relevant range is the range of activity in which a company expects to operate during a year. It is important in CVP analysis because the behavior of costs is assumed to be linear throughout the relevant range. Mixed costs increase in total but not proportionately with changes in the activity level. For purposes of CVP analysis, mixed costs must be classified into their fixed and variable elements.

 

  1. Apply the high-low method to determine the components of mixed costs. Determine the variable cost per unit by dividing the change in total costs at the highest and lowest levels of activity by the difference in activity at those levels. Then, determine fixed costs by subtracting total variable costs from the amount of total costs at either the highest or lowest level of activity.

 

  1. Prepare a CVP income statement to determine contribution margin. The five components of CVP analysis are (a) volume or level of activity, (b) unit selling prices, (c) variable cost per unit, (d) total fixed costs, and (e) sales mix. Contribution margin is the amount of revenue remaining after deducting variable costs. It is identified in a CVP income statement, which classifies costs as variable or fixed. It can be expressed as a total amount, as a per unit amount, or as a ratio.

 

  1. Compute the break-even point using three approaches. The break-even point can be (a) computed from a mathematical equation, (b) computed by using a contribution margin technique, and (c) derived from a CVP graph.

 

 

  1. Determine the sales required to earn target net income and determine margin of safety. The general formula for required sales is: Required sales = Variable costs + Fixed costs + Target net income. Two other formulas are: Required sales in units = (Fixed costs + Target net income) Unit contribution margin, and Required sales in dollars = (Fixed costs + Target net income) Contribution margin ratio. Margin of safety is the difference between actual or expected sales and sales at the break-even point. The formulas for margin of safety are: Actual (expected) sales Break-even sales = Margin of safety in dollars; Margin of safety in dollars Actual (expected) sales = Margin of safety ratio.

 

 

TRUE-FALSE STATEMENTS

  1. An activity index identifies the activity that has a causal relationship with a particular cost.

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. A variable cost remains constant per unit at various levels of activity.

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. A fixed cost remains constant in total and on a per unit basis at various levels of activity.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. If volume increases, all costs will increase.

 

Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. If the activity index decreases, total variable costs will decrease proportionately.

 

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Changes in the level of activity will cause unit variable and unit fixed costs to change in opposite directions.

 

Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. For CVP analysis, both variable and fixed costs are assumed to have a linear relationship within the relevant range of activity.

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The relevant range of activity is the activity level where the firm will earn income.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Costs will not change in total within the relevant range of activity.

 

Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The high-low method is used in classifying a mixed cost into its variable and fixed elements.

 

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. A mixed cost has both selling and administrative cost elements.

 

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The fixed cost element of a mixed cost is the cost of having a service available.

 

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. For planning purposes, mixed costs are generally grouped with fixed costs.

 

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost.

 

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. When applying the high-low method, the variable cost element of a mixed cost is calculated before the fixed cost element.

 

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. An assumption of CVP analysis is that all costs can be classified as either variable or fixed.

 

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. In CVP analysis, the term cost includes manufacturing costs, and selling and administrative expenses.

 

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Contribution margin is the amount of revenues remaining after deducting cost of goods sold.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income.

 

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. The contribution margin ratio is calculated by multiplying the unit contribution margin by the unit sales price.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. Both variable and fixed costs are included in calculating the contribution margin.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. A CVP income statement shows contribution margin instead of gross profit.

 

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. The break-even point is where total sales equal total variable costs.

 

Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. The break-even point is where total sales equal total fixed costs.

 

Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The break-even point is equal to the fixed costs plus net income.

 

Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. If the unit contribution margin is $1 and unit sales are 10,000 units above the break-even volume, then net income will be $10,000.

 

Ans: T, LO: 4, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. A target net income is calculated by taking actual sales minus the margin of safety.

 

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. Target net income is the income objective for an individual product line.

 

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. The margin of safety is the difference between sales at breakeven and sales at a determined activity level.

 

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. The margin of safety is the difference between contribution margin and fixed costs.

 

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The activity level is represented by an activity index such as direct labor hours, units of output, or sales dollars.

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The trend in most companies is to have more variable costs and fewer fixed costs.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. For purposes of CVP analysis, mixed costs must be classified into their fixed and variable elements.

 

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The contribution margin ratio of 40% means that 60 cents of each sales dollar is available to cover fixed costs and to produce a profit.

 

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

 

  1. A cost-volume-profit graph shows the amount of net income or loss at each level of sales.

 

Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

 

  1. If variable costs per unit are 70% of sales, fixed costs are $290,000 and target net income is $70,000, required sales are $1,200,000.

 

Ans: T, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. The margin of safety ratio is equal to the margin of safety in dollars divided by the actual or (expected) sales.

 

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

 

Answers to True-False Statements

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
1. T 7. T 13. F 19. T 25. F 31. T 37. T
2. T 8. F 14. F 20. F 26. T 32. F    
3. F 9. F 15. T 21. F 27. F 33. T    
4. F 10. T 16. T 22. T 28. T 34. F    
5. T 11. F 17. T 23. F 29. T 35. T    
6. F 12. T 18. F 24. F 30. F 36. T    

 

 

MULTIPLE CHOICE QUESTIONS

  1. For an activity base to be useful in cost behavior analysis,
  2. the activity should always be stated in dollars.
  3. there should be a correlation between changes in the level of activity and changes in costs.
  4. the activity should always be stated in terms of units.
  5. the activity level should be constant over a period of time.

 

Ans: B, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. A variable cost is a cost that
  2. varies per unit at every level of activity.
  3. occurs at various times during the year.
  4. varies in total in proportion to changes in the level of activity.
  5. may or may not be incurred, depending on managements discretion.

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. A cost which remains constant per unit at various levels of activity is a
  2. variable cost.
  3. fixed cost.
  4. mixed cost.
  5. manufacturing cost.

 

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Two costs at Bradshaw Company appear below for specific months of operation.

   Month           Amount          Units Produced

Delivery costs       September      $  40,000                40,000

October               55,000                60,000

Utilities                   September      $  84,000                40,000

October             126,000                60,000

Which type of costs are these?

  1. Delivery costs and utilities are both variable.
  2. Delivery costs and utilities are both mixed.
  3. Utilities are mixed and delivery costs are variable.
  4. Delivery costs are mixed and utilities are variable.

 

Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Quantitative Methods

 

 

  1. An increase in the level of activity will have the following effects on unit costs for variable and fixed costs:

Unit Variable Cost             Unit Fixed Cost

  1. Increases Decreases
  2. Remains constant Remains constant
  3. Decreases Remains constant
  4. Remains constant Decreases

 

Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. A fixed cost is a cost which
  2. varies in total with changes in the level of activity.
  3. remains constant per unit with changes in the level of activity.
  4. varies inversely in total with changes in the level of activity.
  5. remains constant in total with changes in the level of activity.

 

Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Fixed costs normally will not include
  2. property taxes.
  3. direct labor.
  4. supervisory salaries.
  5. depreciation on buildings and equipment.

 

Ans: B, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The increased use of automation and less use of the work force in companies has caused a trend towards an increase in
  2. both variable and fixed costs.
  3. fixed costs and a decrease in variable costs.
  4. variable costs and a decrease in fixed costs.
  5. variable costs and no change in fixed costs.

 

Ans: B, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Technology, AICPA BB: Industry/Sector Perspective, AICPA FN: Leverage Technology, AICPA PC: None, IMA: Business Economics

 

  1. Cost behavior analysis is a study of how a firms costs
  2. relate to competitors costs.
  3. relate to general price level changes.
  4. respond to changes in the level of business activity.
  5. respond to changes in the gross national product.

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Cost behavior analysis applies to
  2. retailers.
  3. wholesalers.
  4. manufacturers.
  5. all entities.

 

Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

 

  1. If a firm increases its activity level,
  2. costs should remain the same.
  3. most costs will rise.
  4. no costs will remain the same.
  5. some costs will change, others will remain the same.

 

Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The activity that causes changes in the behavior of costs is referred to as the activity
  2. index.
  3. multiplier.
  4. element.
  5. correlation.

 

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Cost activity indexes might help classify costs as
  2. temporary.
  3. permanent.
  4. variable.
  5. transient.

 

Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Which of the following is not a cost classification?
  2. Mixed
  3. Multiple
  4. Variable
  5. Fixed

 

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. If the activity level increases 10%, total variable costs will
  2. remain the same.
  3. increase by more than 10%.
  4. decrease by less than 10%.
  5. increase 10%.

 

Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Which of the following costs are variable?

Cost          10,000 Units          30,000 Units

  1. $100,000               $300,000
  2. 40,000                 240,000
  3. 90,000                   90,000
  4. 50,000                 150,000
  5. 1 and 2
  6. 1 and 4
  7. only 1
  8. only 2

 

Ans: B, LO: 1, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Quantitative Methods

 

 

  1. Changes in activity have a(n) _________ effect on fixed costs per unit.
  2. positive
  3. negative
  4. inverse
  5. neutral

 

Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Which of the following is not a fixed cost?
  2. Direct materials
  3. Depreciation
  4. Lease charge
  5. Property taxes

 

Ans: A, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Why is identification of a relevant range important?
  2. It is required under GAAP.
  3. Cost behavior outside of the relevant range is not linear, which distorts CVP analysis.
  4. It directly impacts the number of units of product a customer buys.
  5. It is a cost that is incurred by a company that must be accounted for.

 

Ans: B, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The relevant range of activity refers to the
  2. geographical areas where the company plans to operate.
  3. activity level where all costs are curvilinear.
  4. levels of activity over which the company expects to operate.
  5. level of activity where all costs are constant.

 

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Which of the following is not a plausible explanation of why variable costs often behave in a curvilinear fashion?
  2. Labor specialization

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