Unit 1 Chapter 3

Question 1

Effect of change in activity on total variable cost

Answer 1

the activity level doubles, the total amount of the variable costs also doubles

Question 2

Effect of change in activity on variable cost per unit

Answer 2

variable cost remains constant if expressed on a per unit basis.

Question 3

Effect of change in activity on total fixed cost

Answer 3

remain constant in total pound amount within the relevant range of activity.

Question 4

Effect of change in activity on fixed cost per unit

Answer 4

Fixed costs decrease on a per unit basis as the activity level increases

Question 5

Mixed cost

Answer 5

contains both variable and fixed cost elements.
Semi-variable costs

Question 6

cost formula to predict costs at a new level of activity

Answer 6

Y = a + bX

Y = total mixed cost
a = total fixed cost (intercept)
b = variable cost per unit (slope)
X = level of activity

Question 7

High-low method

Answer 7

1. Identify the highest and lowest level of activity
2. Calculate the unit variable cost (Change in cost/Change on units)
3. Calculate fixed cost using either highest or lowest activity (Fixed cost = total cost - variable cost)
4. Express the cost in equation form

Question 8

Contribution margin

Answer 8

the amount remaining from sales revenues after variable expenses have been deducted

Question 9

Contribution approach

Answer 9

an internal planning and decision-making tool

Question 10

The behaviour of costs in service organisations

Answer 10

The issue relates to the definition of service volume in order to estimate cost behaviour