Managerial Accounting Chapter 5 Questions & Answers

Chapter 5 Cost Behavior: Analysis and Use 16. As the level of activity increases, how will a mixed cost in total and per unit behave? In Total Per Unit A) Increase Decrease B) Increase Increase C) Increase No effect ...

Chapter 5 Cost Behavior: Analysis and Use 16. As the level of activity increases, how will a mixed cost in total and per unit behave? In Total Per Unit A) Increase Decrease B) Increase Increase C) Increase No effect D) Decrease Increase E) Decrease No effect Answer: A Level: Hard LO: 1 17. Since Anytime Pizza is open 24 hours a day, its pizza oven is constantly on and is, therefore, always using natural gas. However, when there is no pizza in the oven, the oven automatically lowers its flame and reduces its natural gas usage by 70%. The cost of natural gas would best be described as a: A) fixed cost. B) mixed cost. C) step-variable cost. D) true variable cost. Answer: B Level: Easy LO: 1 18. When the activity level is expected to decline within the relevant range, what effects would be anticipated with respect to each of the following? Fixed costs per unit Variable costs per unit A) Increase Increase B) Increase No change C) No change No change D) No change Increase Answer: B Level: Medium LO: 1 Source: CPA, adapted 19. Within the relevant range, variable costs can be expected to: A) vary in total in direct proportion to changes in the activity level. B) remain constant in total as the activity level changes. C) increase on a per unit basis as the activity level increases. D) increase on a per unit basis as the activity level decreases. E) none of these. Garrison, Managerial Accounting, 12th Edition 213 Chapter 5 Cost Behavior: Analysis and Use Answer: A Level: Easy LO: 1 Garrison, Managerial Accounting, 12th Edition 214 Chapter 5 Cost Behavior: Analysis and Use 20. Which of the following is not correct when referring to fixed costs? A) Whether a cost is committed or discretionary will depend in large part on management's strategy. B) Discretionary fixed costs arise from annual decisions by management. C) Fixed costs remain constant in total throughout the relevant range. D) Committed fixed costs can often be reduced to zero for short periods of time without seriously impairing the long-run goals of the company. E) The trend in companies today is toward greater fixed costs relative to variable costs. Answer: D Level: Easy LO: 1 21. Which of the following statements is true when referring to fixed costs? A) Committed fixed costs arise from the annual decisions by management. B) As volume increases, unit fixed cost and total fixed cost will change. C) Fixed costs increase in total throughout the relevant range. D) Discretionary fixed costs can often be reduced to zero for short periods of time without seriously impairing the long-run goals of the company. Answer: D Level: Easy LO: 1 22. For the past 8 months, Jinan Corporation has experienced a steady increase in its cost per unit even though total costs have remained stable This cost per unit increase may be due to _____________ costs because the level of activity at Jinan is _______________. A) fixed, decreasing B) fixed, increasing C) variable, decreasing D) variable, increasing Answer: A Level: Medium LO: 1 23. Discretionary fixed costs: A) cannot be changed since they are fixed. B) have a long-term planning horizon, generally encompassing many years. C) are made up of facilities, equipment, and basic organization. D) responses b and c are both correct. E) none of these. Answer: E Level: Easy LO: 1 Garrison, Managerial Accounting, 12th Edition 215 Chapter 5 Cost Behavior: Analysis and Use 24. An example of a committed fixed cost is: A) management training seminars. B) a long-term equipment lease. C) research and development. D) advertising. Answer: B Level: Easy LO: 1 25. Which of the following would usually be considered a committed fixed cost for a retail sales corporation? A) lease payments made on its store buildings B) the cost of the Caribbean trip given to the employee of the year C) the cost of running an annual leadership seminar for managers D) both a and c above Answer: A Level: Medium LO: 1 26. Which of the following would usually be considered a discretionary fixed cost for a financial planning company? A) the cost of the annual employee picnic B) property taxes on its corporate office building C) the cost of internships for selected college seniors D) both a and c above Answer: D Level: Medium LO: 1 27. Which of the following is unlikely to be classified as a fixed cost with respect to the number of units produced and sold? A) Property taxes on a headquarters building. B) Legal department salaries. C) Cost of leasing the company's mainframe computer. D) Production supplies. Answer: D Level: Easy LO: 1 Garrison, Managerial Accounting, 12th Edition 216 Chapter 5 Cost Behavior: Analysis and Use 28. The following data have been collected for four different cost items. Cost Item Cost at 100 units Cost at 140 units W $8,000 $10,560 X $5,000 $5,000 Y $6,500 $9,100 Z $6,700 $8,580 Which of the following classifications of these cost items by cost behavior is correct? Cost W Cost X Cost Y Cost Z A) variable fixed mixed variable B) mixed fixed variable mixed C) variable fixed variable variable D) mixed fixed mixed mixed Answer: B Level: Hard LO: 1 Source: CIMA, adapted 29. Which of the following methods of analyzing mixed costs can be used to estimate an equation for the mixed cost? LeastHighLow Square s A) Yes Yes B) Yes No C) No Yes D) No No Answer: A Level: Easy LO: 2,5 30. A multiple regression equation has: A) more than one dependent variable. B) more than one independent variable. C) more than one amount for total fixed cost. D) both A and B above. Answer: B Level: Medium LO: 2,5