241) Label each item below as relevant or irrelevant in
making a decision.
A. ____ cost of insurance on a
new vehicle when evaluating purchase of new vehicle
B. ____ cost of roof repair
made on rental property last year when evaluating sale of rental property
C. ____ original cost of old
equipment that is being evaluated for replacement
D. ____ cost of new equipment
that is under evaluation to replace used equipment
E. ____ accumulated
depreciation on old equipment being evaluated for replacement
F. ____ cost of previous
year's insurance policy on old equipment being evaluated for replacement
Answer:
A. relevant
B. irrelevant
C. irrelevant
D. relevant
E. irrelevant
F. irrelevant
Diff: 2
LO: 2-6
EOC: E2-28A
AACSB: Analytical
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
242) Differentiate between relevant and irrelevant costs
and give an example using both.
Answer: When making
a decision, those costs that differ between alternatives are relevant costs.
Costs that do not differ between alternatives are irrelevant. For example, when
deciding to buy a new car, the cost of the cars under consideration is relevant
as is the insurance cost for each car. If they both have the same fuel economy
ratings, then the cost of gasoline is irrelevant to the decision.
Diff: 2
LO: 2-6
EOC: E2-28A
AACSB: Analytical
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a
company's profits
243) On the line in front of each statement, enter the
letter corresponding to the term that best fits that statement. You may use a
letter more than once and some letters may not be used at all.
|
a.
|
Direct costs
|
f.
|
Variable costs
|
|
b.
|
Marginal cost
|
g.
|
Indirect cost
|
|
c.
|
Average cost
|
h.
|
Sunk cost
|
|
d.
|
Conversion costs
|
i.
|
Differential cost
|
|
e.
|
Prime costs
|
|
|
___ The combination of direct materials and direct labor.
___ Costs that change in total in direct proportion to changes in
volume.
___ A cost that relates to the cost object, but cannot be traced to it.
___ A cost that has already been incurred.
Answer: E, F, G, H
Diff: 2
LO: 2-1
EOC: E2-29A
AACSB: Analytical
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
244) Variable costs per unit decrease as production volume
increases.
Answer: FALSE
Diff: 1
LO: 2-7
EOC: S2-14
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
245) Fixed costs vary in total over a wide range of
activity levels.
Answer: FALSE
Diff: 1
LO: 2-7
EOC: S2-14
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
246) All costs contain both a fixed and a variable portion.
Answer: FALSE
Diff: 2
LO: 2-7
EOC: S2-14
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a
company's profits
247) The total cost of a product equals the total fixed
costs plus the total variable costs.
Answer: TRUE
Diff: 2
LO: 2-7
EOC: S2-14
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
248) A marginal cost is the cost of making one more unit of
a product.
Answer: TRUE
Diff: 2
LO: 2-7
EOC: S2-14
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
249) To forecast total costs at a given level of
production, management would use which of the following calculations?
A) Average cost × total units predicted
B) Total fixed cost × total units predicted
C) Total fixed cost + (variable cost per unit × total units
predicted)
D) Total fixed cost + variable cost per unit
Answer: C
Diff: 1
LO: 2-7
EOC: P2-46
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
250) Average variable costs
A) remain the same as production decreases.
B) remain the same as production increases.
C) remain the same no matter if production increases or
decreases.
D) go down as production decreases.
Answer: C
Diff: 1
LO: 2-7
EOC: E2-47B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a
company's profits
251) What is the cost of making one more unit called?
A) Unit cost
B) Marginal cost
C) Variable cost
D) None of the above
Answer: B
Diff: 1
LO: 2-7
EOC: E2-46B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
252) Plowin' Supply plans to make 15,000 tractors at its
plant. Fixed costs are $600,000 and variable costs are $200 per tractor. What
is the average cost per tractor?
A) $200
B) $75
C) $240
D) $40
Answer: C
Diff: 1
LO: 2-7
EOC: E2-47B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
253) A(n) ________ cost is one whose total amount changes
in direct proportion to a change in volume.
A) fixed
B) irrelevant
C) variable
D) mixed
Answer: C
Diff: 1
LO: 2-7
EOC: E2-47B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a
company's profits
254) An example of a fixed cost for a manufacturer would be
which of the following?
A) Sales commissions
B) Salary of plant manager
C) Direct materials
D) Delivery costs
Answer: B
Diff: 1
LO: 2-7
EOC: E2-47B
AACSB: Analytical
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
255) Which of the following is an example of a fixed cost
for a manufacturer?
A) Income Taxes
B) Machine Repair Expense
C) Fire Insurance on buildings
D) Delivery Fuel Expense
Answer: C
Diff: 1
LO: 2-7
EOC: E2-47B
AACSB: Analytical
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
256) How do variable costs per unit behave?
A) They decrease as production increases.
B) They increase as production decreases.
C) They decrease as production decreases.
D) They remain the same throughout production levels within
the relevant range.
Answer: D
Diff: 3
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome: Define
and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
257) How do total variable costs behave?
A) They decrease as production decreases.
B) They remain the same throughout production levels within
the relevant range.
C) They decrease as production increases.
D) They increase as production decreases.
Answer: A
Diff: 3
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a
company's profits
258) Which of the following describes the way in which
total fixed costs behave?
A) They will decrease as production increases.
B) They will decrease as production decreases.
C) They will remain the same throughout production levels
within the relevant range.
D) They will increase as production decreases.
Answer: C
Diff: 2
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
259) How do fixed costs per unit behave?
A) They remain the same throughout production levels within
the relevant range.
B) They decrease as production decreases.
C) They increase as production decreases.
D) They increase as production increases.
Answer: C
Diff: 3
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
260) Variable costs
A) are fixed per unit and vary in total as production
levels change.
B) are fixed in total as production levels change.
C) decrease per unit as production volume increases.
D) vary per unit of output as production levels change.
Answer: A
Diff: 3
LO: 2-7
EOC: E2-48B
AACSB: Analytical
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a
company's profits
261) A company has monthly fixed costs of $112,500. The
variable costs are $6.00 per unit. If the sales price of a unit is $19.00 and
we sell 7,500 units, the company's average fixed costs per unit will be
A) $13.00 per unit.
B) $6.00 per unit.
C) $21.00 per unit.
D) $15.00 per unit.
Answer: D
Explanation: D)
Calculations: 112,500 / 7,500 = 15
Diff: 2
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
262) A company has monthly fixed costs of $112,500. The
variable costs are $6.00 per unit. If the sales price of a unit is $19.00 and
we sell 7,500 units, the company's total variable costs will be
A) $112,500.
B) $45,000.
C) $142,500.
D) $97,500.
Answer: B
Explanation: B)
Calculations: 7,500 × $6.00 = $ 45,000
Diff: 2
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
263) A company has monthly fixed costs of $112,500. The
variable costs are $6.00 per unit. If the sales price of a unit is $19.00 and
we sell 7,500 units, the total sales revenue will be
A) $97,500.
B) $112,500.
C) $142,500.
D) $(15,000).
Answer: C
Explanation: C)
Calculations: $ 19.00 × 7,500 = $142,500
Diff: 2
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a
company's profits
264) The sales price of a particular unit is $19.00. The
company plans to sell 7,500 units. The variable costs are $6.00 per unit and
monthly fixed costs are $112,500. Given this information what is the average
fixed cost per unit?
A) $6.00 per unit
B) $21.00 per unit
C) $13.00 per unit
D) $15.00 per unit
Answer: D
Explanation: D)
Calculations: 112,500 / 7,500 = 15
Diff: 2
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
265) The sales price of a particular unit is $19.00. The
company plans to sell 7,500 units. The variable costs are $6.00 per unit and
monthly fixed costs are $112,500. Given this information what is the company's
total variable cost?
A) $45,000
B) $112,500
C) $142,500
D) $97,500
Answer: A
Explanation: A)
Calculations: 7,500 × $6.00 = $ 45,000
Diff: 2
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
266) The sales price of a particular unit is $19.00. The
company plans to sell 7,500 units. The variable costs are $6.00 per unit and
monthly fixed costs are $112,500. Given this information what is the company's
total sales revenue?
A) $(15,000)
B) $142,500
C) $112,500
D) $97,500
Answer: B
Explanation: B)
Calculations: $ 19.00 × 7,500 = $142,500
Diff: 2
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a
company's profits
267) London Plastics has monthly fixed costs of $84,000,
while its variable costs are $4.00 per unit. If the sales price of a unit is
$15.00 and London Plastics sell 14,000 units, the company's average fixed costs
per unit will be
A) $6.00 per unit.
B) $10.00 per unit.
C) $4.00 per unit.
D) $11.00 per unit.
Answer: A
Explanation: A)
Calculations: 84,000 / 14,000 = $ 6.00
Diff: 2
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
268) London Plastics has monthly fixed costs of $84,000,
while its variable costs are $4.00 per unit. If the sales price of a unit is
$15.00 and London Plastics sell 14,000 units, the company's total variable
costs will be
A) $154,000.
B) $56,000.
C) $210,000.
D) $84,000.
Answer: B
Explanation: B)
Calculations: $4.00 × 14,000 = $ 56,000
Diff: 2
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
269) London Plastics has monthly fixed costs of $84,000,
while its variable costs are $4.00 per unit. If the sales price of a unit is
$15.00 and London Plastics sell 14,000 units, the company's total sales revenue
will be
A) $154,000.
B) $210,000.
C) $84,000.
D) $70,000.
Answer: B
Explanation: B)
Calculations: 14,000 × $15.00 = $210,000
Diff: 2
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a
company's profits
270) London Plastics sells a product for $15.00 per unit.
The product requires $4.00 per unit in variable costs to produce it. The
company plans on selling 12,000 units of this product. If the monthly fixed
costs are $84,000, the company's average fixed costs per unit will be
A) $4.00 per unit.
B) $7.00 per unit.
C) $10.00 per unit.
D) $11.00 per unit.
Answer: B
Explanation: B)
Calculations: 84,000 / 12,000 = $ 7.00
Diff: 2
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
271) London Plastics sells a product for $15.00 per unit.
The product requires $4.00 per unit in variable costs to produce it. The
company plans on selling 12,000 units of this product. If the monthly fixed
costs are $84,000, the company's total variable costs will be
A) $184,000.
B) $154,000.
C) $210,000.
D) $48,000.
Answer: D
Explanation: D)
Calculations: $4.00 × 12,000 = $ 48,000
Diff: 2
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a company's profits
272) London Plastics sells a product for $15.00 per unit.
The product requires $4.00 per unit in variable costs to produce it. The
company plans on selling 12,000 units of this product. If the monthly fixed
costs are $84,000, the total sales revenue will be
A) $70,000.
B) $84,000.
C) $154,000.
D) $180,000.
Answer: D
Explanation: D) Calculations:
12,000 × $15.00 = $180,000
Diff: 2
LO: 2-7
EOC: E2-48B
AACSB: Reflective
Thinking
Learning Outcome:
Define and use cost-volume-profit analysis to analyze the effects of
changes
in costs and volume on a
company's profits
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