a. the method is relatively complex and difficult to apply.
b. the method does not detect if the cost behavior is nonlinear.
c. the high and low activity levels may not be representative.
d. only two observations are used to develop the cost function.
Answer
a. the method is relatively complex and difficult to apply.
Assume the following information:
Volume Total Cost
90 units $1,200
98 units $1,300
106 units $1,400
What is the variable cost per unit?
a. $13.75
b. $12.50
c. $15.00
d. $14.78
Answer
b. $12.50
The following is an example of a mixed cost:
a. direct materials
b. materials used in production
c. salary plus commission on sales
d. supervisors' salaries
Answer
. salary plus commission on
Direct materials are an example of a
a. mixed cost.
b. step cost.
c. variable cost.
d. fixed cost.
Answer
c. variable cost.
The direct material cost is $20,000 when 2,000 units are produced. What is the direct material cost for 2,500 units produced?
a. $ 5,000
b. $20,000
c. $25,000
d. $15,000
Answer
$20,000/2,000 × 2,500 = $25,000
As the volume of activity increases within the relevant range, the variable cost per unit
a. increases.
b. decreases at first, then increases.
c. remains the same.
d. decreases.
Answer
c. remains the same.
The range of activity within which a linear cost function is valid is called the
a. None of these choices are correct.
b. activity range.
c. relevant range.
d. normal range.
Answer
c. relevant range.
Fixed cost per unit is $7 when 25,000 units are produced and $5 when 35,000 units are produced. What is the total fixed cost when nothing is produced?
a. $12
b. $130,000
c. $200,000
d. $175,000
Answer
$7 × 25,000 = $175,000
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