Section 1 True or False Indicate TRUE or FALSE after the statement. (20 marks)

1. Modern technology is causing shifts away from variable costs toward more fixed costs in many industries.

2. In order for a cost to be variable, it must vary with either units produced or units sold.

3. A cost that is obtainable in large chunks and that increases or decreases only in response to fairly wide changes in the activity level is known as a step-variable cost.

4. The concept of the relevant range does not apply to fixed costs.

5. Indirect costs, such as manufacturing overhead, are always fixed costs.

6. A cost formula may not be valid outside the relevant range of activity.

7. Discretionary fixed costs arise from annual decisions by management to spend in certain fixed cost areas.

8. Significant reductions in committed fixed costs can usually be made on a temporary basis without seriously impairing the long- term goals of a firm.

9. The planning horizons for committed fixed costs and discretionary fixed costs are generally the same.

10. The high-low method is generally less accurate than the least-squares regression method for analyzing the behaviour of mixed costs.

11. The contribution approach to constructing an income statement emphasizes the functions of production, administration and sales.

12. The "goodness of fit" statistic (that is, R-squared) associated with the least-squares regression method indicates the proportion of a mixed cost that is variable.

13. Because the least-squares regression method is more accurate, a scattergram plot is unnecessary.

14. The contribution approach to the income statement classifies costs by behaviour rather than by function.

15. A mixed cost is partially variable and partially fixed.