Cost Behavior and Relevant Range quiz Cost Accounting Quiz On May 9, 2024 Share /10 12345678910 Cost Behavior and Relevant Range 10 questions in 10 minutes Answers at the end of the exam Pass Score 70% enter full-screen mode by pressing the icon located in the top- right comer of the exam 1 / 10 The relevant range refers to the activity levels over which : Relevant costs are incurred Production varies Cost relationships hold constant Costs fluctuate The relevant range defines the limits within which per-unit variable costs remain constant and fixed costs are not changeable. It is synonymous with the short run. The relevant range is established by the efficiency of a company‟s current manufacturing plant, its agreements with labor unions and suppliers, etc 2 / 10 Which of the following is the best example of a variable cost ? Interest charges The corporate president’s salary Property taxes Cost of raw material Variable costs vary directly with the level of production. As production increases or decreases, material cost increases or decreases, usually in a direct relationship 3 / 10 Which one of the following refers to a cost that remains the same as the volume of activity decreases within the relevant range ? Unit fixed cost Average cost per unit Variable cost per unit Total variable cost Variable cost per unit remains constant in the short run regardless of the level of production. This is in contrast with variable costs in total, which vary directly and proportionally with changes in volume 4 / 10 Which one of the following is correct regarding a relevant range ? Actual fixed costs usually fall outside the relevant range Total fixed costs will not change The relevant range cannot be changed after being established Total variable costs will not change The relevant range is the range of activity over which unit variable costs and total fixed costs are constant. The incremental cost of one additional unit of production will be equal to the variable cost 5 / 10 The sum of the costs necessary to effect a one-unit increase in the activity level is a(n) : Incremental cost Marginal cost Opportunity cost Differential cost A marginal cost is the sum of the costs necessary to effect a one-unit increase in the activity level. Differential (or incremental) cost is the difference in total cost between two decisions. Opportunity cost is the maximum benefit forgone by using a scarce resource for a given purpose. It is the benefit, for example, the contribution to income, provided by the best alternative use of that resource. 6 / 10 When identifying fixed and variable costs, which one of the following is a typical assumption concerning cost behavior ? The relevant time period is assumed to be 5 years Cost behavior is assumed to be realistic for all levels of activity from zero to maximum capacity General and administrative costs are assumed to be variable costs Total costs are assumed to be linear when plotted on a graph Total costs, being a mixture of fixed and variable costs, are assumed to be linear 7 / 10 Cell Company has discovered that the cost of processing customer invoices is strictly variable within the relevant range. Which one of the following statements concerning the cost of processing customer invoices is incorrect ? The cost of processing the 100th customer invoice will be the same as the cost of processing the first customer invoice The cost per unit for processing customer invoices will decline as the volume of customer invoices increases The total cost of processing customer invoices will increase as the volume of customer invoices increases The average cost per unit for processing a customer invoice will equal the incremental cost of processing one more customer invoice Variable cost per unit remains constant in the short run regardless of the level of production (The total cost of processing customer invoices will increase as the volume of customer invoices increases) incorrect : Since the cost in question is strictly variable within the relevant range, the total cost will increase as the volume increases. (The cost of processing the 100th customer invoice will be the same as the cost of processing the first customer invoice) incorrect : Since the cost in question is strictly variable within the relevant range, the unit cost remains the same. (The average cost per unit for processing a customer invoice will equal the incremental cost of processing one more customer invoice) incorrect : Since the cost in question is strictly variable within the relevant range, the average cost per unit is the same as the incremental cost. 8 / 10 An assembly plant accumulates its variable and fixed manufacturing overhead costs in a single cost pool, which is then applied to work in process using a single application base. The assembly plant management wants to estimate the magnitude of the total manufacturing overhead costs for different volume levels of the application activity base using a flexible budget formula. If there is an increase in the application activity base that is within the relevant range of activity for the assembly plant, which one of the following relationships regarding variable and fixed costs is true? The variable cost per unit and the total fixed costs remain constant The variable cost per unit is constant, and the total fixed costs decrease The variable cost per unit increases, and the total fixed costs remain constant The variable cost per unit is constant, and the total fixed costs increase Total variable cost changes when changes in the activity level occur within the relevant range. The cost per unit for a variable cost is constant for all activity levels within the relevant range. Thus, if the activity volume increases within the relevant range, total variable costs will increase. A fixed cost does not change when volume changes occur in the activity level within the relevant range. If the activity volume increases within the relevant range, total fixed costs will remain unchanged 9 / 10 A fixed cost that would be considered a direct cost is : The rental cost of a warehouse to store inventory when the cost objective is the Purchasing Department A cost accountant’s salary when the cost objective is a unit of product A production supervisor’s salary when the cost objective is the Production Department Board of directors’ fees when the cost objective is the Marketing Department A direct cost is one that can be specifically associated with a single cost objective in an economically feasible way. Thus, a production supervisor‟s salary can be directly associated with the department (s)he supervises. 10 / 10 Lar Company has found that its total electricity cost has both a fixed component and a variable component within the relevant range. The variable component seems to vary directly with the number of units produced. Which one of the following statements concerning Lar‟s electricity cost is incorrect ? The variable electricity cost per unit of production will remain constant as production volume increases The total electricity cost per unit of production will increase as production volume increases The total electricity cost will increase as production volume increases The fixed electricity cost per unit of production will decline as production volume increases Because of the fixed portion, the per-unit cost of a mixed, or semivariable, cost will decrease as production volume increases Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback a cost remains unchanged when the volume of activity changes within the relevant range.a statistical method for identifying cost behavior is calleda statistical method for identifying cost behavior is the