chap005(3) - Chapter 005 Cost Behavior Analysis and Use...

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Chapter 005, Cost Behavior: Analysis and Use True / False Questions 1. Within the relevant range, a change in activity results in a change in total variable cost and the per unit fixed cost. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 1 Level: Medium 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 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 1 Level: Hard 3. A variable cost fluctuates in total as activity changes but remains constant on a per unit basis over the relevant range. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 1 Level: Easy 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 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 1 Level: Hard 5-1
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Chapter 005, Cost Behavior: Analysis and Use 5. Fixed costs remain constant in total, but vary inversely with changes in activity when expressed on a per unit basis. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 1 Level: Easy 6. Committed fixed costs have a short-term planning horizon–usually one year. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 1 Level: Easy 7. The following costs are all examples of committed fixed costs: depreciation on buildings, advertising, insurance, and management development and training. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 1 Level: Medium 8. The time frame in which discretionary fixed costs are controllable is usually much shorter than the time frame for committed fixed costs. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 1 Level: Easy 5-2
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Chapter 005, Cost Behavior: Analysis and Use 9. A major problem with the high-low method of cost estimation is that some data are omitted from the analysis. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 3 Level: Easy 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 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 3 Level: Easy 11. Contribution margin and gross margin mean the same thing. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Learning Objective: 4 Level: Medium 12. Contribution margin equals revenue minus all variable costs.
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