Multiple Choice Questions

Chapter 02 - Cost Behavior, Operating Leverage, and Profitability Analysis 2-1 Chapter 02 Cost Behavior, Operating Leverage, and Profitability Analysis Answer Key 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?A.Fixed cost B.Variable cost C.Mixed cost D.Relevant cost

Answer: B

Learning Objective: 02-01 Identify and describe fixed, variable, and mixed cost behavior.

Topic: Variable Cost Behavior

Blooms: Understand

AACSB: Knowledge Application

AICPA: BB Industry

AICPA: FN Decision Making

Difficulty: 2 Medium

Feedback: When the volume increases, the total cost of supplies increases; when volume decreases, the total decreases; as such, the cost of supplies is a variable cost.

• Select the correct statement regarding fixed costs.

A.Because they do not change, fixed costs should be ignored in decision making.B.The fixed cost per unit decreases when volume increases.C.The fixed cost per unit increases when volume increases.D.The fixed cost per unit does not change when volume decreases.Fundamental Managerial Accounting Concepts 8th Edition Edmonds Test Bank Visit TestBankDeal.com to get complete for all chapters

Chapter 02 - Cost Behavior, Operating Leverage, and Profitability Analysis 2-2

Answer: B

Learning Objective: 02-01 Identify and describe fixed, variable, and mixed cost behavior.

Topic: Fixed Cost Behavior

Blooms: Remember

AACSB: Knowledge Application

AICPA: BB Industry

AICPA: FN Decision Making

Difficulty: 1 Easy

Feedback: The total amount of a fixed cost does not change when volume changes. In contrast, fixed cost per unit is not fixed. It changes as the volume changes. The fixed cost per unit decreases when volume increases and the fixed cost per unit increases when volume decreases.

• Larry's Lawn Care incurs significant gasoline costs. This cost would be classified as a variable cost if

the total gasoline cost:

A.varies inversely with the number of hours the lawn equipment is operated.B.is not affected by the number of hours the lawn equipment is operated.C.increases in direct proportion to the number of hours the lawn equipment is operated.D.none of the above.

Answer: C

Learning Objective: 02-01 Identify and describe fixed, variable, and mixed cost behavior.

Topic: Variable Cost Behavior

Blooms: Understand

AACSB: Knowledge Application

AICPA: BB Industry

AICPA: FN Decision Making

Difficulty: 2 Medium

Feedback: The gasoline cost would be classified as variable if the total gasoline cost increases when the volume increases and the total gasoline cost decreases when the volume decreases.

• Select the correct statement regarding fixed costs.

A.There is a contradiction between the term "fixed cost per unit" and the behavior pattern implied by the term.B.Fixed cost per unit is not fixed.C.Total fixed cost remains constant when volume changes.

Chapter 02 - Cost Behavior, Operating Leverage, and Profitability Analysis 2-3 D.All of these are correct statements.

Answer: D

Learning Objective: 02-01 Identify and describe fixed, variable, and mixed cost behavior.

Topic: Fixed Cost Behavior

Blooms: Remember

AACSB: Knowledge Application

AICPA: BB Industry

AICPA: FN Decision Making

Difficulty: 1 Easy

Feedback: The total amount of a fixed cost does not change when volume changes. In contrast, fixed cost per unit is not fixed. It changes as the volume changes. The fixed cost per unit decreases when volume increases and the fixed cost per unit increases when volume decreases.

Use the following information to answer questions 5 and 6:

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.a variable cost.B.a mixed cost.C.a fixed cost.D.none of these

Answer:

Learning Objective: 02-01 Identify and describe fixed, variable, and mixed cost behavior.

Topic: Fixed Cost Behavior

Blooms: Understand

AACSB: Knowledge Application

AICPA: BB Industry

AICPA: FN Decision Making

Difficulty: 2 Medium

Feedback: The total amount of a fixed cost does not change when volume changes.

• For Rock Creek Bottling Company, the cost of the salespersons' commissions is an example of:

Chapter 02 - Cost Behavior, Operating Leverage, and Profitability Analysis 2-4 A.a fixed cost.B.a variable cost.C.a mixed cost.D.none of these

Answer: B

Learning Objective: 02-01 Identify and describe fixed, variable, and mixed cost behavior.

Topic: Variable Cost Behavior

Blooms: Understand

AACSB: Knowledge Application

AICPA: BB Industry

AICPA: FN Decision Making

Difficulty: 2 Medium

Feedback: Since the salespersons are paid strictly on commission, at $1.50 for each case of product sold, the total cost of the salespersons' commissions would increase as the sales volume increases. As such, this cost would be classified as a variable cost.

• Based on the following cost data, what conclusions can you make about the costs of Product A and

Product B?A.The cost of Product A is a fixed cost and the cost of Product B is a variable cost.B.The cost of Product A is a variable cost and the cost of Product B is a fixed cost.C.The costs of Product A and Product B are both variable costs.D.The costs of Product A and Product B are both mixed costs.

Answer: B

Learning Objective: 02-01 Identify and describe fixed, variable, and mixed cost behavior.

Topic: Fixed Cost Behavior