MS 1: Cost Behavior and CVP Analysis

Which of the following statements is false?

• At zero production level, fixed costs is also zero.

• At zero production level, fixed costs are positive.

• At zero production level, variable costs are usually zero.

• At zero production level, total costs equal total fixed costs.

Variable costs are all costs

• Of manufacturing incurred to produce units of output.

• That are associated with marketing, shipping, warehousing, and billing activities.

• That fluctuate in total in response to small changes in the rate of utilization of capacity.

• That do not change in total for a given period and relevant range but become progressively smaller on a per unit basis as volume increases.

NTQ, Inc.'s net sales in 1996 were 15% below the 1995 level. NTQ's semi-variable costs would

• Increase in total and increase as a percentage of net sales.

• Increase in total, but decrease as a percentage of net sales.

• Decrease in total, but increase as a percentage of net sales.

• Decrease in total and decrease as a percentage of net sales.

RST's average cost per unit is the same at all levels of volume. Which of the following is true?

• RST must have only fixed costs.

• RST must have only variable costs.

• RST must have some fixed costs and some variable costs.

• RST's cost structure cannot be determined from this information.

Which of the following decision-making tools would NOT be useful in determining the slope and intercept of a mixed cost?

• high-low method

• least-squares method

• linear programming

• scatter diagrams

A cost that bears an observable and known relationship to a quantifiable activity base is a(n)

• Engineered cost.

• Fixed cost.

• Indirect cost.

• Target cost.

Costs that increase as the volume of activity decreases within the relevant range are

• Average costs per unit.

• Total fixed costs.

• Average variable costs per unit.

• Total variable costs.

When production levels are expected to increase within a relevant range and a flexible budget is used. What effect would be anticipated with respect to each of the following costs?

• Increase

• Increase

• Decrease

• Decrease

Weaknesses of the high-low method include all of the following except

• the mathematical calculations are relatively complex.

• the high and low activity levels may not be representative.

• only two observations are used to develop the cost function.

• the method does not detect if the cost behavior is nonlinear.

The scatter diagram method of cost estimation

• requires the use of judgment

• uses the least-squares method

• is influenced by extreme observations

• is superior to other methods in its ability to distinguish between discretionary and committed fixed costs