Easy to Medium Practice Test
Cost Behavior - Fixed and Variable

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1. As volume decreases, total fixed costs
     a. are constant and cost per unit decreasesIncorrect
     b. are constant and cost per unit increasesFixed costs do not change as volume changes. (c. & d.). The cost per unit changes the opposite as volume changes. As volume decreases, cost per unit increases. This is because cost per unit is calculated: Total fixed costs divided by volume = fixed cost per unit.
     c. increaseIncorrect
     d. decreaseIncorrect

2. Fixed costs that management can decide not to incur at any time are
     a. always variable costsIncorrect
     b. unavoidable costsIncorrect
     c. value-added costsIncorrect
     d. discretionary costsDiscretionary costs by definition are costs that management does not have to incur. They are therefore not unavoidable and can be either fixed or variable. Value-added costs normally enhance the product and this would not be something that management would normally not incur.

3. Which of the following is the least likely to be a fixed cost?
     a. UtilitiesThe cost of utilities is usually determine by the amount used and is normally mixed or variable. All salaries are fixed annually. Advertising is generally spent based on a predetermined amount which does not change because volume changes, making it a fixed cost. Copier maintenance is normally paid for in equal amounts monthly based on an agreement, which is fixed.
     b. Executive management salariesIncorrect
     c. AdvertisingIncorrect
     d. Copier maintenanceIncorrect

4. When a cost changes in total in direct proportion to changes in volume it is
     a. a semi-variable costIncorrect
     b. a mixed costIncorrect
     c. a variable costA variable cost must be incurred every time you make or sell a product. Therefore, as you make one more you have to incur costs for one more, which is in direct proportion. Fixed costs do not change with changes in volume, so a fixed cost and any cost that has fixed cost in it (a. b.) are not correct.
     d. a fixed costIncorrect

5. Cost behavior analysis is related to
     a. how costs change as new products are introducedIncorrect
     b. how costs change as output changesCosts are classified based on how the cost changes as volume changes, volume means the same as output. The term has nothing to do with a. or c., therefore d. can not be correct.
     c. how costs change over time, trending up or downIncorrect
     d. all of the aboveIncorrect

6. A mixed cost consists of
     a. both fixed and variable A mixed cost by definition consists of both fixed and variable characteristics. It must be both, if it is either it is just called a fixed cost or a variable cost. Product and period is not correct as these are two very different types of costs related to if the cost is inventory or expensed in the period incurred. Direct and indirect is not correct as these are two very different types of costs which are related to whether or not a cost has to be allocated to a product.
     b. either fixed or variable Incorrect
     c. product and period Incorrect
     d. direct and indirectIncorrect

7. A committed fixed cost
     a. must always be paid and can never be eliminatedIncorrect
     b. can be eliminated in the short term but not in the long termIncorrect
     c. can be eliminated in the long term but not in the short term A committed fixed costs can be eliminated with a change in management strategy or goals, which happens over the long term.
     d. can be easily eliminatedIncorrect

8. Which of the following states how a variable cost behaves as volume changes?
     a. remains constant in total and remains constant per unitIncorrect
     b. remains constant in total and changes per unitIncorrect
     c. changes in total and remains constant per unitBy definition, a variable cost remains constant per unit and changes in total as volume changes. The formula for determining total variable cost is cost per unit x volume = total variable cost As volume changes, total variable cost changes and the cost per unit does not change. (b.) is how a fixed cost behaves.
     d. changes in total and changes per unitIncorrect

9. Within the relevant range
     a. total variable costs decrease as production increasesIncorrect
     b. fixed costs per unit decreases as production decreasesIncorrect
     c. total fixed costs remain the same when production increases or decreasesTotal fixed costs remain the same within a relevant range of production. Production can increase or decrease within this range and the fixed costs will not change. Total variable costs increase as production increases and always move the same together in the same direction (a.) Fixed costs per unit will always move the opposite direction as production changes (b.), not the same direction. Total variable costs change in the same direction as production changes and does not remain the same; "the more you make the more it costs".
     d. total variable costs remain the same when production increases or decreasesIncorrect

10. As volume changes, which of these costs could be considered a mixed cost?
     a. sales commission expenseIncorrect
     b. assembly line laborIncorrect
     c. salaries of the accountant Incorrect
     d. utilities at the manufacturing plantUtilities are paid for based on usage. If there is a base part paid first and then you pay for what you use, it is a mixed cost. A mixed cost has a fixed and variable part to it. Assembly line labor is a variable cost only, as it is incurred as based on how many products are made and changes with volume changes. Salaries of anyone is a fixed cost, which does not change as production/sales volumes change. Sales commission expense is a variable cost, since more is paid to the salesperson for selling more.


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11. The following are costs that were incurred by Nike, Inc. Determine which
costs are fixed (F) and which are variable (V).

1. rubber for the sole of the shoe, $6 per shoe
2. rent on the manufacturing facility building, $188,000 annually
3. sales manager salary, $127,000 annually
4. worker who operates the machine that puts the shoe together, $2 per shoe
5. shoe laces, $1.80 per shoe
6. worker who puts the shoes in the shoe box, $0.20 per shoe
7. insurance on the manufacturing facility, $23,000 annually
8. water and utilities, $22,000 per month consistently
9. depreciation on manufacturing equipment, $18,000 each month
10. already contracted advertising on television, $1,800,000 annually
11. sales commission paid to salespeople based on 5% of sales
12. office supplies, usually approximately $3,000 per month
13. paper for the copier in the executive offices, usually about $1,200 per month
14. glue used in the shoe, approximately $0.18 per shoe
15. company jet lease, $14,000 per month


 


12. Using the same information that is given in problem 11, calculate the cost of
producing one shoe when production is 100,000 shoes and 200,000 shoes.
(Assume this list is all the costs incurred to produce and sell the shoes,
even though it is not all the costs a company like Nike would incur.)

1. rubber for the sole of the shoe, $6 per shoe
2. rent on the manufacturing facility building, $188,000 annually
3. sales manager salary, $127,000 annually
4. worker who operate the machine that puts the shoe together, $2 per shoe
5. shoe laces, $1.80 per shoe
6. worker who puts the shoes in the shoe box, $0.20 per shoe
7. insurance on the manufacturing facility, $23,000 annually
8. water and utilities, $22,000 per month consistently
9. depreciation on manufacturing equipment, $18,000 each month
10. already contracted advertising on television, $1,800,000 annually
11. sales commission paid to salespeople, 5% of sales, currently $2.50 per pair
12. office supplies, usually run approximately $3,000 per month
13. paper for the copier in the executive offices, usually about $1,200 per month
14. glue used in the shoe, approximately $0.18 per shoe
15. company jet lease, $14,000 per month


 


13. Green Thumb, Inc. incurred the following cost in the business of maintaining
lawns. In May, 2,000 lawns were cut. In June, 3,000 lawns were cut.
All lawns cut are similar in size.

 
2,000
3,000
     
Gasoline for the lawnmowers
$8,200
$12,300
Salary to the owner
$5,000
$5,000
Wages paid to lawn cutters
$24,000
$36,000
Costs paid for fertilizer
$3,000
$4,500
Depreciation on lawn equipment
$800
$800
General business insurance
$70
$70
Advertising in the daily paper
$160
$160
Gasoline for 7 trucks used
$30,800
$41,300
Maintenance on lawn equipment
$780
$900
Cell phone bill
$99
$99
Twine for the weed-eaters
$120
$180

Using the cost information above, determine if each type of cost is a fixed cost,
a variable cost, or a mixed cost.


 


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