BASE2012 Accounting

Question 1

If the level of activity increases within the relevant range…

A. Variable cost per unity and total fixed costs also increase.
B. Fixed cost per unit and total VC also increase.
C. Total cost will increase and fixed cost per unit will decrease.
D. Variable cost per unit and total cost also increase.

Answer 1

C. FC don’t increase in relevant range. Total costs will increase, but fixed will be spread out among more items.

Question 2

Mixed costs (and two examples)

Answer 2

Costs with a fixed and variable component.

Ex. Utility costs, salary + commission compensation costs.

Question 3

How are mixed costs represented graphically?

Answer 3

Y = aX + b

Y: Total cost (dependent)
a: Variable cost per unit of cost driver.
X: Units of cost driver (independent variable).
b: Fixed cost.

Ex. A very steep line has a long of variable costs.