Final Exam Flashcards
(35 cards)
True or False: Modern technology is causing shifts away from variable costs toward more fixed costs in many industries.
True - Example - you no longer need cashiers - you have self-checkout machines which you DO NOT replace for each customer (they are fixed)
True or False: In order for a cost to be variable it must vary with either units produced or units sold.
FALSE - not just units sold, but also cost can vary from: Labour Hours, KMs Driven, Machine Hours
True or False: Discretionary fixed costs usually arise from annual decisions by management to spend in certain fixed cost areas
TRUE
True or False: Significant reductions in committed fixed costs can usually be made on a temporary basis without seriously impairing the long-term goals of a firm.
FALSE - to be true it would have to read: Significant reductions in DISCRETIONARY fixed costs can usually be made on a temporary basis without seriously impairing the long-term goals of a firm.
True or False: A mixed cost contains both variable and fixed cost elements.
TRUE
True or False: If the contribution margin is $70,000 and the total of variable expenses is $50,000, then total sales is $120,000.
TRUE - Contribution Margin = TS - TVC
70,000 = 120,000 - 50,000
1.Which costs will change with a decrease in activity within the relevant range?
A.Total fixed costs and total variable cost.
B.Unit fixed costs and total variable cost.
C.Unit variable cost and unit fixed cost.
D.Unit fixed cost and total fixed cost.
B.Unit fixed costs and total variable cost. EG. Car rental is cheaper with more passengers
2.Within the relevant range of activity, variable cost per unit will:
A.increase in proportion with the level of activity.
B.remain constant.
C.vary inversely with the level of activity.
D.change in some other way.
B.remain constant. (B/c Variable Cost Per Unit always remains the same).
The linear equation Y = a + bX is often used to express cost formulas. In this equation, what does each thing stand for?
Y = Total Cost A = Fixed Cost b = variable cost x = activity
4.An example of a discretionary fixed cost is:
A.insurance.
B.taxes on real estate.
C.management development programs.
D.depreciation of buildings and equipment.
C - Mgmt Development Programs are a DISCRETIONARY COST, whereas the others are all COMMITTED
5.An example of a committed fixed cost is:
A.a training program for salespersons.
B.executive travel expenses.
C.property taxes on the factory building.
D.new product research and development.
C - property taxes on a building are Committed Costs
6.Contribution margin is the excess of revenues over:
A.cost of goods sold.
B.manufacturing cost.
C.all direct costs.
D.all variable costs.
Contribution margin is the excess of revenues over all variable costs.
7.An example of a cost that is variable with respect to the number of units produced is:
A.insurance on the headquarters building.
B.power to run production equipment.
C.supervisory salaries.
D.depreciation of factory facilities.
B.power to run production equipment.
8.Given the cost formula Y = $15,000 + $5X, total cost at an activity level of 8,000 units would be? A.$15,000. B.$23,000. C.$40,000. D.$55,000.
5 x 8000 = 40,000
+ 15,000
= 55,000, D.
Define Variable Costs
Variable Costs Vary with production (e.g. More cookies you sell, the more flour you need to buy to make the cookies and the more bakers you need to pay to bake the cookies)
Define Fixed Costs
Fixed costs remain unchanged when activity level changes (e.g. Rent at a Tim Horton’s is the same now matter how busy or slow business is).
True or False: Sunk Costs can NEVER be used in Decision Making
TRUE - SUNK COSTS CAN NEVER BE USED IN DECISION MAKING
Give an example of a Sunk Cost - Sunk costs cannot be refunded or recovered.
once rent is paid, that dollar amount is no longer recoverable - it is ‘sunk.
- On test * Product Cost is WHAT plus WHAT plus WHAT
Product Cost is DIRECT MATERIAL + DIRECT LABOUR + MANUFACTURING OVERHEAD
- On test * Prime Cost is WHAT plus WHAT
PRIME COST is Direct Material + Direct Labour
- On test * Conversion Cost is WHAT plus WHAT
Conversion Cost is Direct Labour + Manufacturing Overhead
Direct Costs can be
EASILY TRACED - i.e. Table has 12 SCREWS.
Product Cost or Period Cost:
Depreciation of Salesperson’s Car
Period
Product Cost or Period Cost:
Rent on Equipment in Factory
Product
