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Quiz – Chapter 3  Solutions
1. If the level of activity increases within the relevant range:
A) variable cost per unit and total fixed costs also increase.
B) fixed cost per unit and total variable cost also increase.
C) total cost will increase and fixed cost per unit will decrease.
D) variable cost per unit and total cost also increase.
A is wrong. Neither variable cost per unit nor total fixed costs change.
B is wrong. Fixed cost per unit decreases as you increase the number of units produced.
C is correct. Total cost will increase because variable costs increase as production increases.
Fixed costs per unit decrease as production increases.
D is wrong. Variable cost per unit does not change.
2. In describing the cost equation, Y = a + bX, "a" is:
A) the dependent variable, cost.
B) the independent variable, the level of activity.
C) the total fixed costs.
D) the variable cost per unit of activity.
The answer is C. A is the yintercept and it represents total fixed costs.
3. Quartz Manufacturing Company has developed the following overhead cost formulas:
Overhead Cost
Cost Formulas
Insurance .
.............................
$400
Depreciation.
........................
$900
Maintenance materials .
........
$0.15 per machine hour
Utilities.
................................
$600 plus $0.20 per machine hour
Based on these cost formulas, the total overhead cost expected for Quartz Manufacturing
Company if 1,500 hours are worked is:
A) $1,825.
B) $525.
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This note was uploaded on 07/13/2008 for the course MGMT 122 taught by Professor Saouma during the Spring '08 term at UCLA.
 Spring '08
 Saouma

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