Define cost behaviour in financial industry

1.  Which of the following statements about cost behavior is true?

 

A costs item that is classified as “variable” relative to one activity base may be classified as “fixed” relative to another activity base.

The concept of “relevant range” applies to fixed costs but not to variable costs.

As output increases, fixed cost per unit increases.

As output increases, mixed cost per unit increases.

 

2.  Which of the following costs changes in direct proportion to a change in the activity level?

 

Fixed cost.

Variable cost.

Step-variable cost.

Semi-variable cost.

 

3.  The Eola Hills Company has estimated the following cost formulas for overhead:

Cost Formula:  Lubricants $2,500 plus $0.50 per machine-hour Utilities $3,000 plus $0.60 per machine-hour Depreciation $1,000 Maintenance $1,200 plus $0.10 per machine-hour Machine setup $ 0.30 per machine-hour

Based on these cost formulas, the total overhead cost expected at an activity level of 500 machine hours is:

 

$7700.

$8450.

$7900.

$8350.

 

4.  A product sells for $15 per unit and has variable expenses of $9 per unit. Fixed expenses total $70,000 per month. How many units of the product must be sold each month to yield a monthly profit of $20,000?

 

10,000 units

3,750 units

6,000 units

15,000 units

 

5.  Which of the following statements about cost-volume-profit analysis is false?

 

A company selling multiple products should use the contribution margin ratio method to perform CVP analysis.

The break-even point is the sales level at which the total contribution margin is equal to total fixed costs.

An assumption of CVP analysis is that productivity improves over time.

An assumption of CVP analysis is that variable costs are linear.

 

6.  Which of the following would take place if a company were forced to increase its variable cost per unit?

 

Contribution Margin:              Break-even Point:

Increase                        Increase

Increase                                    Increase:

Decrease                                   Increase

Decrease                       Decrease

 

7.  Richard Hamilton has a fast-food franchise and must pay a franchise fee equal to $35,000 plus 3% of gross sales. In terms of cost behavior, the fee is a:

 

fixed cost.

variable cost.

mixed cost.

step-fixed cost.

 

8.  Which of the following statements about operating leverage is false?

 

A change in sales volume will affect a company’s operating leverage.

The degree of operating leverage is highest in companies that have relatively high fixed costs and relatively low variable costs in proportion to total coats.

If a company has an operating leverage of “4,” then a 10% increase in sales will result in a 40% increase in net income.

The net income of a company with a relatively low operating leverage will be more sensitive to changes in sales volume than for a company with a relatively high operating leverage.

 

9.  The following information is available for the Skyway Company for 20X5: Sales $200,000 Variable expenses 140,000 Fixed expenses 40,000 What was Skyway’s contribution-margin ratio for 20X5?

 

20%

80%

70%

30%

 

10.  Atlanta, Inc., which uses the high-low method to analyze cost behavior, has determined that machine hours best explain the company’s utilities cost. The company’s relevant range of activity varies from a low of 600 machine hours to a high of 1,100 machine hours, with the following data being available for the first six months of the year:

 

 

Month      Utilities      Machine Hours

January `$ 8,700         800

February `8,360            720

March `8,950             810

April `9,360              920

May `9,625              950

June` 9,150              900

 

The variable utilities cost per machine hour is:

 

$5.00.

$5.50.

$0.18.

$4.50.

 

11.  Atlanta, Inc., which uses the high-low method to analyze cost behavior, has determined that machine hours best explain the company’s utilities cost. The company’s relevant range of activity varies from a low of 600 machine hours to a high of 1,100 machine hours, with the following data being available for the first six months of the year:

 

Month         Utilities              Machine Hours

 

January      $ 8,700             800

February           8,360          720

March              8,950          810

April                 9,360         920

May                 9,625         950

June                 9,150      900

 

The fixed utilities cost per month is:

 

$5,100.

$3,764.

$4,400.

$4,760.

 

12.  The following information is available for Forrest Company: Sales price: $90 per unit Variable cost: $35 per unit Fixed cost: $37,500 If the variable cost per unit is increased by $7 and the total fixed cost is increased by $4,500, what will be the new break-even point in units?

 

1,000

875

1,429

467

 

13.  Fliptop’s indirect materials cost for two recent months was as follows:

 

Production in Units Indirect Materials Cost

March 1,200 $2,100

October 1,400 $2,300

 

The cost behavior of indirect materials costs at Fliptop is best classified as:

 

Mixed

Variable

Fixed

 

14.  The following data are available for Bendo Co.: Sales: $700,000 Variable cost: 390,000 Fixed cost: 250,000 Bendo’s break-even point in dollars is:

 

$696,429

$448,718

$700,000

$564,516

 

15.  Wilson sells a single product for $70 that has a variable cost of $45. Fixed costs at the break-even point amount to $15 per unit. If the company sells one unit in excess of its break-even volume, the bottom-line profit will be:

 

$15.

$45.

$55.

$25

 

16. An example of a committed fixed cost is:

 

property taxes on a factory building.

executive travel expenses.

a training program for salespersons.

research and development for new products.