Multiple Choice Questions

1. You are given the following cost and volume information for a cost incurred in the production of furniture. What type of cost is being described?

Volume (in units) Cost per Unit (in $)

1 ..............35

10 ............. 200

100 ............1,210

a. Fixed cost

b. Variable cost

c. Mixed cost

d. The type of cost cannot be determined.

2. The relevant range is

a. The proportion of variance in the dependent variable that is explained by the independent variable.

b. The proportion of variance in the independent variable that is explained by the dependent variable.

c. The normal range of production that can be expected for a particular product and company.

d. Identified through regression.

3. Brite Company plans to double its advertising budget next year, which will increase its fixed costs by 20 percent while variable costs remain the same. Current year costs include variable costs per unit of $5 and fixed costs of $4,000. If next year’s production is 5,000 units, estimated total costs equal:

a. $29,000

b. $29,005

c. $29,800

d. $30,000

4. Comodo Ltd. plans to triple its marketing budget next year, which will increase overall fixed costs by a total of 10 percent. This change will have no effect on variable costs, which will remain $5 for each unit. Fixed costs in the current year are $5,000. If next year’s production is 25,000 units, estimated total costs equal:

a. $125,000

b. $125,005

c. $130,000

d. $130,500

5. Which of the following best describes variable costs?

a. Costs that vary in total and on a per unit basis

b. Costs that remain fixed in total, but vary on a per unit basis

c. Costs that vary in total, but are constant on a per unit basis

d. Costs that remain constant in total and on a per unit basis

6. Complete the following statement: “______ costs vary in ______ to changes in production.”

a. Fixed, a constant manner

b. Fixed, proportion

c. Variable, an inverse manner

d. Variable, direct proportion

7. You run a regression analysis and receive the following results (partial results are presented):

Variable Coefficients

X variable 1 .........7.94000

Intercept ......... 204.07000

If the preceding analysis is for production costs and 200 units of X are produced, then total production costs should be:

a. $1,700.94

b. $2,004.07

c. $1,588.00

d. $1,792.07

8. Mixed costs are most appropriately described by which of the following statements?

a. Mixed costs rarely occur and pose few challenges to management.

b. Mixed costs include mostly fixed costs with some variable costs and are generally understood to behave as fixed costs.

c. Mixed costs include fixed and variable costs and must be carefully analyzed to understand their behavior.

d. Mixed costs must be analyzed using regression analysis.