1. Which of these firms would have the highest proportion of variable costs in its cost structure?

a)Fast food outlet

b)Architectural firm

c)Public utility

d)Airline

2. Which of the following is a disadvantage of the high-low method of cost analysis?

a)It is too simplistic and therefore irrelevant.

b)It may yield to inconsistent cost structure over time.

c)It uses two extreme data points, which may not be representative of normal conditions.

d)It relies totally on the judgment of the person performing the cost analysis.

3. Which of the following is true with respect to discretionary fixed costs?

a)They have a planning horizon that covers many years.

b)They may be reduced for short periods of time with minimal damage to the long-term goals of the organization.

c)They cannot be reduced for even short periods of time without resulting in significant damage to the long-term goals of the organization.

d)They are best controlled through the effective utilization of plant and organization.

4. Inflated Company and Deflated Company sell identical products at identical prices. Inflated has a smaller unit variable cost and a higher fixed cost than does Deflated. Currently, both companies have identical sales revenues and the same positive operating income. Which of the following statements isincorrect?

a)The break-even sales point for Inflated will be lower than that for Deflated.

b)If sales increase at both companies, Deflated will experience a lower level of net operating income than Inflated.

c)The margin of safety at the current sales for Inflated over Deflated will be lower than that of Deflated.

d)At very high margins of safety the advantage of Inflated over Deflated, in terms of the change in net operating income before taxes, will not be as great as it would be at a lower margin of safety.

5. Assume that cost is represented on the y-axis and volume is represented on the x-axis on a cost-volume-profit graph. If a company decreases the variable cost per unit while increasing the total fixed costs, what will happen to the total cost line relative to its previous position?

a)It will shift downward and have a steeper slope.

b)It will shift downward and have a flatter slope.

c)It will shift upward and have a steeper slope.

d)It will shift upward and have a flatter slope.

6. Which of the following is a major advantage of using the contribution margin approach with variable costing instead of with absorption costing?

a)Cost-volume-profit information is available on the income statement.

b)Cost-volume-profit information is available on the balance sheet.

c)Profits can be generated solely by increasing the inventory level.

d)There is no need to assume users are sophisticated.

7. How does the accounting treatment of selling and administration costs differ between absorption and variable costing if more units are produced than are sold?

a)The variable portion is added to the cost of production as product costs, regardless of whether the costs are variable or fixed.

b)The fixed portion is added to the costs of ending inventory based on a prorated portion of units produced to those sold.

c)There is no difference in the treatment.

d)Both fixed and variable portions are added to the cost of ending inventory based on a prorated portion of units produced to those sold.

8. Net income under absorption costing may differ from net income determined under variable costing. How is this difference calculated?

a)The difference is the change in the quantity of units in inventory times the fixed manufacturing overhead rate per unit.

b)The difference is the number of units produced during the period times the fixed manufacturing overhead rate per unit.

c)The difference is the change in the quantity of units in inventory times the variable manufacturing cost per unit

d)The difference is the number of units produced during the period times the variable manufacturing cost per unit

9. Buff Co. is considering replacing an old machine with a new machine. Which of thefollowing combinations of items is relevant to Buff's decision? (Ignore income taxconsiderations.)

Carrying amount of old machine Yes No No Yes Disposal value of new machine No Yes No Yes