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2-1 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Chapter 02 Cost Behavior, Operating Leverage, and Profitability Analysis
Multiple Choice Questions
- Java Joe operates a chain of coffee shops. The company pays rent of $20,000 per year for each
shop. Supplies (napkins, bags and condiments) are purchased as needed. The manager of each shop is paid a salary of $3,000 per month, and all other employees are paid on an hourly basis.Relative to the number of customers for a shop, the cost of supplies is which kind of cost?
- Fixed cost
- Variable cost
- Mixed cost
- Relevant cost
- Select the correct statement regarding fixed costs.
- Because they do not change, fixed costs should be ignored in decision making.
- The fixed cost per unit decreases when volume increases.
- The fixed cost per unit increases when volume increases.
- The fixed cost per unit does not change when volume decreases.
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2-2 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
- Larry's Lawn Care incurs significant gasoline costs. This cost would be classified as a variable cost if
the total gasoline cost:
- varies inversely with the number of hours the lawn equipment is operated.
- is not affected by the number of hours the lawn equipment is operated.
- increases in direct proportion to the number of hours the lawn equipment is operated.
- None of these
- Select the correct statement regarding fixed costs.
- There is a contradiction between the term "fixed cost per unit" and the behavior pattern implied
by the term.
- Fixed cost per unit is not fixed.
- Total fixed cost remains constant when volume changes.
- All of these are correct statements.
- Rock Creek Bottling Company pays its production manager a salary of $6,000 per month.
Salespersons are paid strictly on commission, at $1.50 for each case of product sold.
For Rock Creek Bottling Company, the production manager's salary is an example of:
- a variable cost.
- a mixed cost.
- a fixed cost.
- None of these
2-3 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
- Rock Creek Bottling Company pays its production manager a salary of $6,000 per month.
Salespersons are paid strictly on commission, at $1.50 for each case of product sold.
For Rock Creek Bottling Company, the salespersons' commissions are an example of:
- a fixed cost.
- a variable cost.
- a mixed cost.
- None of these
- Based on the following cost data, what conclusions can you make about Product A and Product B?
- Product A is a fixed cost and Product B is a variable cost.
- Product A is a variable cost and Product B is a fixed cost.
- Product A and Product B are both variable costs.
- Product A and Product B are both mixed costs.
2-4 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
- Based on the following cost data, items labeled (a) and (b) in the table below are which of the
following amounts, respectively?
- (a) = $3.00; (b) = $3.00
- (a) = $5.00; (b) = $4.00
- (a) = $2.50; (b) = $2.00
- (a) = $5.00; (b) = $2.00
- Two different costs incurred by Ruiz Company exhibit the following behavior pattern per unit:
Cost #1 and Cost #2 exhibit which of the following cost behavior patterns, respectively?
- Fixed/Variable
- Variable/Variable
- Fixed/Fixed
- Variable/Fixed
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