Question

Question 1

Fixed cost per unit continuously declines as production increases (within the relevant range). This is called economies of scale.

True

False

Question 2

The coefficient of determination or R squared, in regression analysis, should be less than 0.75 to indicate a strong cost equation.

True

False

Question 3

ABC Co. has fixed costs of $85,000. ABC wants to achieve an after-tax profit of $10,000. The selling price per unit is $100, and the variable cost per unit is $25. The company has a tax rate of 20%. How many units must ABC sell to acheive its after tax target profit goal?

Question 4

Advertising represents a variable cost.

True

False

Question 5

	The following is historical costs and usage for electricity costs:                       Electricity Cost             Kilowatt Hours January              $1500                        2600 February            $1200                        1800 Using the high/low method, what is the projected fixed cost? Omit dollar signs and commas!

Question 6

Mixed costs have fixed and variable components.

True

False

Question 7

The relevant range represents where all cost assumptions remain valid.

True

False

Question 8

XYZ Company has fixed costs of $100,000. The selling price per unit is $80 and the variable cost per unit is $40. What is the break even sales dollars?

Omit dollar signs and commas!

Question 9

A step fixed costs represents a fixed cost that varies in direct proportion to the activity level

True

False

Question 10

Total fixed costs change in direct proportion to the level of production.

True

False

Answer 1

Answers

• Question 1: Fixed cost per unit continuously declines as production increases (within the relevant range). This is called economies of scale.

Answer = TRUE; Fixed cost remains same is totality but changes per unit basis.

• Question 2: The coefficient of determination or R squared, in regression analysis, should be less than 0.75 to indicate a strong cost equation.

Answer = FALSE, its not essential

• Question 3: ABC Co. has fixed costs of $85,000. ABC wants to achieve an after-tax profit of $10,000. The selling price per unit is $100, and the variable cost per unit is $25. The company has a tax rate of 20%. How many units must ABC sell to acheive its after tax target profit goal?

A	After Tax profit	$            10,000.00
B = A/(100% - 20%) or A/80%	Before tax profot would be	$            12,500.00
C	Fixed Cost	$            85,000.00
D = B+C	Total Contribution margin required	$            97,500.00
E = 100 - 25	Contribution margin per unit	$                    75.00
F = D/E	No. of units required	1,300 = Answer

• Question 4: Advertising represents a variable cost.
  The answer is FALSE. Advertisement Cost represent FIXED COST
• Question 5: Answer = $ 525 = Fixed Cost

Question 5	Months	Units	Cost
High Level	Jan	2,600	$                     1,500.00
Low Level	Feb	1,800	$                     1,200.00
Difference		800	$                         300.00
Difference in Cost		$                                                                   300.00
Difference in units		800
Variable cost per unit		$                                                                       0.38
Working		High Level	Low Level
A	Total Cost	$                   1,500.00	$                     1,200.00
B	Total Units	2600	1800
C	Variable cost per unit	$                           0.38	$                             0.38
D = B x C	Total Variable cost	$                       975.00	$                         675.00
E = A - D	Total Fixed Cost	$                       525.00	$                         525.00

--Answer: FIXED COST = $ 525.00

• Question 6: Mixed costs have fixed and variable components.

TRUE, that’s why they are called MIXED cost.

• Question 7: The relevant range represents where all cost assumptions remain valid.

Answer =True. It assumes that Fixed cost will remain same and variable cost will change with a change in volume.

• Question 8: XYZ Company has fixed costs of $100,000. The selling price per unit is $80 and the variable cost per unit is $40. What is the break even sales dollars?

Answer: = $ 200,000

A	Fixed Cost	$          100,000.00
B = 80 - 40	Contribution margin per unit	$                    40.00
C = A/B	Break Even in units	2,500
D = C x $ 80	Break Even in Dollars	$          200,000.00

• Question 9: A step fixed costs represents a fixed cost that varies in direct proportion to the activity level.

FALSE. It varies, but not in direct proportion to the activity ;evel.

• Question 10: Total fixed costs change in direct proportion to the level of production.

FALSE. Variable cost does that, Fixed Cost stays the same.