1. Within the relevant range, a change in activity results in a change in total variable cost and
the per unit fixed cost. TRUE
2. The reluctance of managers to lay off employees when activity declines in the short-run
leads to an increase in the ratio of variable to fixed costs. FALSE
3. A variable cost fluctuates in total as activity changes but remains constant on a per unit
basis over the relevant range. TRUE
4. A cost that is classified as variable with respect to one measure of activity could be
classified as fixed with respect to a different measure of activity. TRUE
5. Fixed costs remain constant in total, but vary inversely with changes in activity when
expressed on a per unit basis. TRUE
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6. Committed fixed costs have a short-term planning horizon–usually one year. FALSE
7. The following costs are all examples of committed fixed costs: depreciation on buildings,
advertising, insurance, and management development and training. FALSE
8. The time frame in which discretionary fixed costs are controllable is usually much shorter
than the time frame for committed fixed costs. TRUE
9. A major problem with the high-low method of cost estimation is that some data are
omitted from the analysis. TRUE
10. The high and low points used in the high-low method tend to be unusual and therefore
the cost formula may not accurately represent all of the data. TRUE
11. Contribution margin and gross margin mean the same thing. FALSE
12. Contribution margin equals revenue minus all variable costs. TRUE
13. The traditional income statement organizes costs on the basis of cost behavior. FALSE
14. It is necessary to break mixed costs into their variable and fixed cost components in order
to construct an income statement using the contribution approach. TRUE
Th
15. Under variable costing, only variable production costs are treated as product costs. TRUE
16. Under variable costing, variable selling and administrative costs are included in product
costs. FALSE
17. Absorption costing treats all manufacturing costs as product costs. TRU
18. In the preparation of financial statements using variable costing, fixed manufacturing
overhead is treated as a period cost. TRUE
19. Absorption costing treats fixed manufacturing overhead as a period cost. FALSE
20. When the number of units in work in process and finished goods inventories increase,
absorption costing net operating income will typically be greater than variable costing.TRUE
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21. Net operating income computed using absorption costing will always be greater than net
operating income computed using variable costing. FALSE
22. When reconciling variable costing and absorption costing net operating income, fixed
manufacturing overhead costs released from inventory under FALSE
23. When production exceeds sales for the period, absorption costing net operating income
will exceed variable costing net operating income. TRUE
21Net operating income computed using absorption costing will always be greater than net
operating income computed using variable costing. FALSE
22When reconciling variable costing and absorption costing net operating income, fixed
manufacturing overhead costs released from inventory under absorption FALSE
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23. When production exceeds sales for the period, absorption costing net operating income
will exceed variable costing net operating income. TRUE
24. A is a fixed cost; B is a variable cost. During the current year the level of activity has
decreased but is still within the relevant range. We would expect that: D. The cost per unit of
B has
25. Which costs will change with an increase in activity within the relevant range? C. Unit
fixed cost and total variable cost
26. Salaries of accounts receivable clerks when one clerical worker is needed for every 750
accounts receivable is an example of a: B. step-variable cost
27. Limousine Conversion Company purchases ordinary Cadillacs, cuts them in half, and then
adds a middle section to the vehicles to create stretch limousines. D. variable cost
28. For an automobile manufacturer, the cost of a driver's side air bag purchased from a
supplier and installed in every automobile would best be described as a: D. variable cost.
29. With respect to a fixed cost, an increase in the activity level within the relevant range
results in: D. a decrease in fixed cost per unit.
Th
30. In the standard cost formula Y = a + bX, what does the "Y" represent? A. total cost
31. In the standard cost formula Y = a + bX, what does the "a" represent? B. total fixed cost
32. In the standard cost formula Y = a + bX, what does the "b" representD. variable cost per
unit
33. In the standard cost formula Y = a + bX, what does the "X" represent? C. units of activity
34. Which of the following would usually be considered a discretionary fixed cost for a soft
drink bottling company? A. the cost of advertising its products
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35. Which of the following is a weakness of the quick-and-dirty scattergraph method of
analyzing mixed cost? C. Different people will have different answers even though they are
analyzing
36. Which of the following statements is true when referring to the high-low method of cost
analysis? C. In essence, the high-low method draws a straight line through two data points.
37. Contribution margin is computed as sales revenue minus: B. variable expenses
38. Which of the following approaches to preparing an income statement calculates gross
margin? B.
39. How would the following costs be classified (product or period) under variable costing at
a retail clothing store? B
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40. The principal difference between variable costing and absorption costing centers on: B.
whether fixed manufacturing costs should be included as product costs.
41Which of the following costs at a manufacturing company would be treated as a product
cost under the variable costing method? A. direct material cost
42Assuming that direct labor is a variable cost, the primary difference between the
absorption and variable costing is that: D.
43The costing method that treats all fixed costs as period costs is: C. variable costing.
44. When sales are constant, but the production level fluctuates, net operating income
determined by the variable costing method will: .B. remain constant.
45. Under the variable costing method, which of the following is always expensed in its
entirety in the period in which it is incurred? D. All of these
46. Which of the following will usually be found on an income statement prepared using the
absorption costing method? C
47. Net operating income under variable and absorption costing will generally: .C. be equal
only when production and sales are equal.
Th
48. When production exceeds sales, net operating income reported under variable costing
generally will be: .B. less than net operating income reported under absorption costing
49. Net operating income under absorption costing may differ from net operating income
determined under variable costing. How is this difference calculated? A. change in.
50When sales are constant, but the production level fluctuates, net operating income
determined by the absorption costing method will: A. tend to fluctuate in the same direction
as fluctuations
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