Chap 6

Question 1

If the cost per unit remains constant over a wide range of activity levels, the cost is most likely a:

Answer 1

Variable Cost.

Question 2

The cost per unit decreases as volume increases for which of the following cost behaviors?

Answer 2

Fixed costs and mixed costs

Question 3

In the cost equation y= vx + f, what term represents the total variable cost component?

Answer 3

vx

Question 4

Which of the following would most likely be a committed fixed cost for a retailer?

Answer 4

Lease payments on the store building

Question 5

Which method helps managers visualize the relationship between the cost and the total volume of the activity?

Answer 5

Scatterplot

Question 6

What method of cost behavior estimation are managers using when use their judgment to classify costs as variable, fixed, or mixed?

Answer 6

Account analysis

Question 7

When choosing the high point for the high-low method, how is the high point selected?

Answer 7

The point with the highest volume of activity is chosen

Question 8

What is the advantage of using regression analysis to determine the cost equation?

Answer 8

All of the listed statements are true about regression analysis

Question 9

The contribution margin income statement

Answer 9

is useful to managers for decision making and planning

Question 10

The only difference between variable costing and absorption costing is in the treatment of

Answer 10

fixed manufacturing overhead costs

Question 11

When inventories decline, operating income under costing will be

Answer 11

higher than operating income under absorption costing

Question 12

The plastic Lumber Corporation wants to predict its manufacturing overhead costs by using machine hours in simple linear regression. All of the following statements are true except:

Answer 12

Manufacturing overhead costs could be refereed to as the explanatory variable.

Question 13

Suppose Lakeview Suites incurs $130,000 of fixed costs each month. Compute the fixed cost per guest if the hotel has 20,000 guests next month. First, Identify the formula to compute the fixed cost per guest, then compute the fixed cost per guest at (1) 20,000 guests and at (2) 1,900 guests. (Round the fixed cost per guest to the nearest cent.)

Answer 13

130,000/20,000= $6.50
130,000/1,900= $68.42
If only 1,900 guests stays during the month, the fixed cost per guest is much higher than when 20,000 stay during the month.

Question 14

What is required for Absorption costing

Answer 14

GAAP

Question 15

Inventory levels remain constant

Answer 15

Both absorption costing and variable costing result in the same operating income

Question 16

Inventory levels increase

Answer 16

Operating income will be greater under absorption costing than it is under variable costing

Question 17

Inventory levels decrease

Answer 17

Operating income will be greater than under variable costing than it is under absorption costing.