Chapter 4 Managerial Accounting – Flashcards
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Cost behavior refers to the manner in which:
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a cost changes as the related activity changes
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The three most common cost behavior classifications are:
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fixed costs, variable costs, and mixed costs
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Costs that remain constant in total dollar amount as the level of activity changes are called:
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fixed costs
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Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?
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Salary of a factory supervisor
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Which of the following describes the behavior of the fixed cost per unit?
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Decreases with increasing production
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Which of the following activity bases would be the most appropriate for food costs of a hospital?
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Number of patients who stay in the hospital
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Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service, such as United Postal Service?
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Number of miles driven
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Most operating decisions of management focus on a narrow range of activity called the:
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relevant range of production
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Costs that vary in total in direct proportion to changes in an activity level are called:
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variable costs
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Which of the following is an example of a cost that varies in total as the number of units produced changes?
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Direct materials cost
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Which of the following is NOT an example of a cost that varies in total as the number of units produced changes?
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Straight-line depreciation on factory equipment
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Which of the following is NOT an example of a cost that varies in total as the number of units produced changes?
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Insurance premiums on factory building
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Which of the following describes the behavior of the variable cost per unit?
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Remains constant with changes in the activity level
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The graph of a variable cost when plotted against its related activity base appears as a:
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straight line
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A cost that has characteristics of both a variable cost and a fixed cost is called a:
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mixed cost
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Which of the following costs is a mixed cost?
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Rental costs of $10,000 per month plus $.30 per machine hour of use
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For purposes of analysis, mixed costs are generally:
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separated into their variable and fixed cost components
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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:
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b. $28,400
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Which of the following statements is true regarding fixed and variable costs?
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c. Fixed costs are constant in total, and variable costs are constant per unit.
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As production increases, what would you expect to happen to fixed cost per unit?
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Decrease
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Knowing how costs behave is useful to management for all the following reasons except for
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predicting customer demand.
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As production increases, what should happen to the variable costs per unit?
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Stay the same.
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The systematic examination of the relationships among selling prices, volume of sales and production, costs, and profits is termed:
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cost-volume-profit analysis
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In cost-volume-profit analysis, all costs are classified into the following two categories
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variable costs and fixed costs
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Contribution margin is:
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the excess of sales revenue over variable cost
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The contribution margin ratio is:
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the same as the profit-volume ratio
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If sales are $820,000, variable costs are 45% of sales, and operating income is $260,000, what is the contribution margin ratio?
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55%
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What ratio indicates the percentage of each sales dollar that is available to cover fixed costs and to provide a profit?
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Contribution margin ratio
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If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would:
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increase
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f variable costs per unit decreased because of a decrease in utility rates, the break-even point would:
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decrease
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If fixed costs increased and variable costs per unit decreased, the break-even point would:
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cannot be determined
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Which of the following conditions would cause the break-even point to decrease?
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Unit variable cost decreases
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Which of the following describes the behavior of the variable cost per unit?
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Remains constant with changes in the activity level
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The graph of a variable cost when plotted against its related activity base appears as a:
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straight line
