Cost Behavior and Relevant Range quiz Cost Accounting Quiz On Aug 7, 2024 Share /10 12345678910 Cost Behavior and Relevant Range 10 questions in 10 minutes Pass Score 70% 1 / 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 2 / 10 The least exact method for separating fixed and variable costs is : Matrix algebra The least squares method Computer simulation The high-low method The fixed and variable portions of mixed costs may be estimated by identifying the highest and the lowest costs within the relevant range. The difference in cost divided by the difference in activity is the variable rate. Once the variable rate is found, the fixed portion is determinable. The high-low method is a simple approximation of the mixed cost formula. The costs of using more sophisticated methods sometimes outweigh the incremental accuracy achieved. In these cases, the high-low method is sufficient 3 / 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 per unit for processing customer invoices will decline 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 The total cost of processing customer invoices will increase as the volume of customer invoices increases The cost of processing the 100th customer invoice will be the same as the cost of processing the first 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. 4 / 10 The difference between variable costs and fixed costs is : Variable costs per unit change in varying increments, while fixed costs per unit change in equal increments Variable costs per unit fluctuate and fixed costs per unit remain constant Variable costs per unit are fixed over the relevant range and fixed costs per unit are variable Total variable costs are variable over the relevant range and fixed in the long term, while fixed costs never change Fixed costs remain unchanged within the relevant range for a given period despite fluctuations in activity, but per unit fixed costs do change as the level of activity changes. Thus, fixed costs are fixed in total but vary per unit as activity changes. Total variable costs vary directly with activity. They are fixed per unit, but vary in total 5 / 10 Which one of the following categories of cost is most likely not considered a component of fixed factory overhead ? Property taxes Power Rent Depreciation A fixed cost is one that remains unchanged within the relevant range for a given period despite fluctuations in activity. Such items as rent, property taxes, depreciation, and supervisory salaries are normally fixed costs because they do not vary with changes in production. Power costs, however, are at least partially variable because they increase as usage increases 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 General and administrative costs are assumed to be variable costs Total costs are assumed to be linear when plotted on a graph Cost behavior is assumed to be realistic for all levels of activity from zero to maximum capacity Total costs, being a mixture of fixed and variable costs, are assumed to be linear 7 / 10 Which of the following is the best example of a variable cost ? Interest charges Property taxes The corporate president’s salary 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 8 / 10 The sum of the costs necessary to effect a one-unit increase in the activity level is a(n) : Differential cost Incremental cost Opportunity cost Marginal 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. 9 / 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 is constant, and the total fixed costs increase The variable cost per unit is constant, and the total fixed costs decrease The variable cost per unit and the total fixed costs remain constant The variable cost per unit increases, and the total fixed costs remain constant 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 10 / 10 Which one of the following is correct regarding a relevant range ? The relevant range cannot be changed after being established Total variable costs will not change Actual fixed costs usually fall outside the relevant range Total fixed 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 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
