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Total Variable Costs Essay

1. To predict costs and manage them on a day-to-day basis, managers must identify: A. cost of resources used B. key activities and resources used to perform activities C. cost drivers D. all of the above

2. Cost drivers are ________. A. measures of activities that require the use of resources and thereby cause costs B. different types of functional areas in the firm C. different types of cost calculations D. the different functions in the value chain

3. Which of the following statements about costs is FALSE? A. Managers can control costs without understanding how activities of an organization affects its costs. B. It is important to identify the appropriate cost drivers. C. An organization may have cost drivers across various activities of its value chain. D. One of the main goals of management accounting is helping managers control costs.

4. To control costs, managers should focus their efforts on managing ________. A. activities required to make, sell and deliver products or services B. revenues from products or services C. products or services D. production costs of products or services

5. Consider the following activity: The installation of seats by an airplane manufacturer in a commercial airplane. What is an appropriate cost driver for the labor resources used for this activity? A. number of service center hours B. number of labor hours used for installation C. number of engineering hours D. number of mechanic hours

6. Consider the following activity: The installation of seats by an airplane manufacturer in a commercial airplane. What is an appropriate cost driver for the cost of the seats? A. number of mechanic hours B. number of labor hours used for installation C. number of seats installed D. number of engineering hours

7. Consider the following activity: The installation of seats by an airplane manufacturer in a commercial airplane. What is an appropriate cost driver for the salary of the supervisor in charge of this activity? A. weight of the seats installed B. number of workers supervised C. number of mechanic hours

D. number of engineering hours

8. Which of the following cost drivers would NOT be appropriate for the customer services activity of the value chain? A. number of engineering hours by research and development staff B. number of service call workers C. hours spent servicing products D. number of service calls

9. Consider the following activity: Several product and process engineers are working to make improvements to several existing products. These improvements revolve around safety and durability issues. What is an appropriate cost driver for this activity? A. number of engineering hours B. number of parts per product C. number of products D. all of the above

10. Several machines are used in the factory to manufacture a simple product. What is an appropriate cost driver for the depreciation expense on the machines? A. number of service calls B. number of advertisements C. number of machine hours D. number of hours spent servicing defective products

11. Which value chain function would use the following cost driver: number of advertisements? A. marketing B. customer service C. distribution D. production

12. When analyzing costs, accountants should think of variable costs on a ________ basis and fixed costs on a ________ basis. A. per-unit; total B. per-unit; per-unit C. total; total D. total; per-unit

13. As sales volume decreases in the relevant range, fixed costs per unit ________, but total fixed costs ________. A. do not change; increase B. decrease: do not change C. do not change; decrease D. increase; do not change

14. As sales volume increases in the relevant range, a fixed cost does not change ________, but the fixed cost ________ becomes progressively smaller.

A. B. C. D.

per-unit; total in total; per year per-unit; per-unit in total; per-unit

15. As the sales volume increases in the relevant range, variable costs per unit ________ but total variable costs ________. A. do not change; increase B. do not change; decrease C. decrease; do not change D. increase; do not change

16. Which of the following costs is a variable cost? A. depreciation expense of airplane for airline B. rental expense for factory building for manufacturer of electronics C. fuel for airplane for airline D. lease cost for factory machine for manufacturer of electronics

17. What happens when the cost-driver level increases within the relevant range? A. total variable costs decrease B. total fixed costs remain unchanged C. fixed costs per unit increases D. variable costs per unit increases

18. What happens when the cost-driver activity level increases within the relevant range? A. total fixed costs increase B. total variable costs decrease C. fixed costs per unit decrease D. variable costs per unit decrease

19. What happens when the cost-driver activity level decreases within the relevant range? A. total variable costs decrease B. total fixed costs increase C. variable costs per unit decrease D. fixed costs per unit decrease

20. What happens when the cost-driver activity level decreases within the relevant range? A. variable costs per unit are unchanged B. total variable costs increase C. total fixed costs increase D. fixed costs per unit decrease

21. Fixed costs ________. A. vary on a per-unit basis, but are fixed in total B. vary on a per-unit basis, and vary in total

C. are fixed on a per-unit basis, and fixed in total D. are fixed on a per-unit basis, but vary in total

22. Variable costs ________. A. are fixed per unit and vary in total B. are fixed in total C. decrease in total as the cost-driver activity level increases D. vary per unit

23. Which of the following costs is a fixed cost? A. labor wages of workers who mix dairy ingredients to make ice cream B. cost of dairy ingredients used to produce ice cream C. fuel used by delivery trucks D. factory supervisory salaries

24. An increase in total variable costs usually indicates ________. A. the cost-driver activity level is decreasing B. the cost-driver activity level is increasing C. fixed costs per unit is increasing D. variable costs per unit is decreasing

25. Costs that change abruptly at different levels of activity because the resources and their costs come in indivisible chunks are called ________. A. variable costs B. mixed costs C. fixed costs D. step costs

26. Palmer Inc. currently produces 110,000 units at a cost of $440,000. The cost is variable. Next year Palmer Inc. expects to produce 115,000 units. Palmer’s relevant range for production is 100,000 to 120,000 units. If 115,000 units are produced next year, what is the expected variable cost? A. $420,000 B. $440,000 C. $430,000 D. $460,000

27. In a small construction firm, a crew supervisor is added for every ten workers employed. The salaries of the crew supervisors are a ________. A. variable cost B. step cost C. mixed cost D. fixed cost

28. The Milwaukee Recreation Center is planning its annual fundraiser. The event committee has developed the following budget for the event. Ballroom rental $2,900 Entertainment $4,500 Printing $600 plus $10 per guest Food $29 per guest Decorations $700 plus $5 per guest The committee expects 3,000 people will attend the event. Required: A) Compute the fixed and variable costs for the event. B) If Milwaukee Recreation charges $100 per person, how much money will be raised by this event? Answer: A) Fixed Cost: $2,900 + $4,500 + $600 + $700 = $8,700 Variable Cost: $10 + $29 + $5 = $44 B) ($100 x 3,000) — [$8,700 + ($44 x 3,000)] = $159,300

29. Sunrise Motel’s cost function is given as: Y = $50,000 + $7.50X Where: Y = annual custodial cost X = number of guest-days of occupancy In the current year, Sunrise Motel has 8,000 guest days. In the next year, Sunrise Motel expects an occupancy level of 10,000 guest days. (All costs next year will remain in the same relevant range as the current year.) What is the expected total custodial cost for next year? A. $137,500 B. $125,000 C. $50,000 D. $62,500

30. Consider the following linear mixed-cost function: Y = $72,000 + $7.70X Where: Y = total annual custodial cost X = number of patient-days What does the $7.70 represent? A. variable cost per patient-day B. fixed cost per patient-day C. total variable cost D. total fixed cost


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