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Chapter 4 Managerial Accounting

Cost behavior refers to the manner in which:
a cost changes as the related activity changes
The three most common cost behavior classifications are:
fixed costs, variable costs, and mixed costs
Costs that remain constant in total dollar amount as the level of activity changes are called:
fixed costs
Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?
Salary of a factory supervisor
Which of the following describes the behavior of the fixed cost per unit?
Decreases with increasing production
Which of the following activity bases would be the most appropriate for food costs of a hospital?
Number of patients who stay in the hospital
Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service, such as United Postal Service?
Number of miles driven
Most operating decisions of management focus on a narrow range of activity called the:
relevant range of production
Costs that vary in total in direct proportion to changes in an activity level are called:
variable costs
Which of the following is an example of a cost that varies in total as the number of units produced changes?
Direct materials cost
Which of the following is NOT an example of a cost that varies in total as the number of units produced changes?
Straight-line depreciation on factory equipment
Which of the following is NOT an example of a cost that varies in total as the number of units produced changes?
Insurance premiums on factory building
Which of the following describes the behavior of the variable cost per unit?
Remains constant with changes in the activity level
The graph of a variable cost when plotted against its related activity base appears as a:
straight line
A cost that has characteristics of both a variable cost and a fixed cost is called a:
mixed cost
Which of the following costs is a mixed cost?
Rental costs of $10,000 per month plus $.30 per machine hour of use
For purposes of analysis, mixed costs are generally:
separated into their variable and fixed cost components
Marcye Co. manufactures office furniture. During the most productive month of the year, 3,500 desks were manufactured at a total cost of $84,400. In its slowest month, the company made 1,100 desks at a cost of $46,000. Using the high-low method of cost estimation, total fixed costs are:
b. $28,400
Which of the following statements is true regarding fixed and variable costs?
c. Fixed costs are constant in total, and variable costs are constant per unit.
As production increases, what would you expect to happen to fixed cost per unit?
Decrease
Knowing how costs behave is useful to management for all the following reasons except for
predicting customer demand.
As production increases, what should happen to the variable costs per unit?
Stay the same.
The systematic examination of the relationships among selling prices, volume of sales and production, costs, and profits is termed:
cost-volume-profit analysis
In cost-volume-profit analysis, all costs are classified into the following two categories
variable costs and fixed costs
Contribution margin is:
the excess of sales revenue over variable cost
The contribution margin ratio is:
the same as the profit-volume ratio
If sales are $820,000, variable costs are 45% of sales, and operating income is $260,000, what is the contribution margin ratio?
55%
What ratio indicates the percentage of each sales dollar that is available to cover fixed costs and to provide a profit?
Contribution margin ratio
If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would:
increase
f variable costs per unit decreased because of a decrease in utility rates, the break-even point would:
decrease
If fixed costs increased and variable costs per unit decreased, the break-even point would:
cannot be determined
Which of the following conditions would cause the break-even point to decrease?
Unit variable cost decreases
The contribution margin ratio is:
Which of the following describes the behavior of the variable cost per unit?
Remains constant with changes in the activity level
The graph of a variable cost when plotted against its related activity base appears as a:
straight line
A cost that has characteristics of both a variable cost and a fixed cost is called a:
Which of the following describes the behavior of the variable cost per unit?

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