REVISION 4 : TOPIC 3, 4, 5 & 7

For an activity base to be useful in cost behavior analysis,

• the activity should always be stated in a currency unit.

• there should be a correlation between changes in the level of activity and changes in costs.

• the activity should always be stated in terms of units.

• the activity level should be constant over a period of time

A variable cost is a cost that

• varies per unit at every level of activity.

• occurs at various times during the year.

• varies in total in proportion to changes in the level of activity.

• may or may not be incurred, depending on management's discretion

A cost which remains constant per unit at various levels of activity is a

• variable cost.

• fixed cost.

• mixed cost.

• manufacturing cost

An increase in the level of activity will have the following effects on unit costs for variable and fixed costs:

• Unit of Variable cost will Increases and Unit of Fixed Cost will

  Decreases

• Unit of Variable Cost Remain constants and Unit of Fixed cost also Remains constant

• Unit of Variable Cost will Decreases and Unit of Fixed Cost Remains constant

• Unit of Variable Cost Remain constants and Unit of Fixed Cost

  will Decreases

A fixed cost is a cost which

• varies in total with changes in the level of activity.

• constant per unit with changes in the level of activity.

• varies inversely in total with changes in the level of activity.

• remains constant in total with changes in the level of activity

Cost behavior analysis is a study of how a firm's costs

• relate to competitors' costs.

• relate to general price level changes.

• respond to changes in the level of business activity.

• respond to changes in the gross national product

Which of the following is not a cost classification?

• Mixed

• Multiple

• Variable

• Fixed

In using the high-low method, the fixed cost

• is determined by subtracting the total cost at the high level of activity from the total cost at the low activity level.

• is determined by adding the total variable cost to the total cost at the low activity level.

• is determined before the total variable cost.

• may be determined by subtracting the total variable cost from either the total cost at the low or high activity level

Which one of the following is not an assumption of CVP analysis?

• All units produced are sold.

• All costs are variable costs.

• Sales mix remains constant.

• The behavior of costs and revenues are linear within the relevant range

The equation which reflects a CVP income statement is

• Sales = Cost of goods sold + Operating expenses + Net income.

• Sales + Fixed costs = Variable costs + Net income.

• Sales – Variable costs + Fixed costs = Net income.

• Sales – Variable costs – Fixed costs = Net income.