chap5key - 1 ECONOMISTS CORRECTLY POINT OUT THAT MANY COSTS...

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1. ECONOMISTS CORRECTLY POINT OUT THAT MANY COSTS THAT THE ACCOUNTANT CLASSIFIES AS VARIABLE ARE ACTUALLY CURVILINEAR. TRUE FALSE 2. A COST THAT IS OBTAINED IN LARGE CHUNKS AND THAT INCREASES OR DECREASES ONLY IN RESPONSE TO FAIRLY WIDE CHANGES IN THE ACTIVITY LEVEL IS KNOWN AS A STEP-VARIABLE COST. TRUE FALSE 3. FIXED COST PER UNIT INCREASES AS ACTIVITY DECREASES AND DECREASES AS ACTIVITY INCREASES. TRUE FALSE 4. A COST FORMULA MAY NOT BE VALID OUTSIDE THE RELEVANT RANGE OF ACTIVITY. TRUE FALSE 5. THE RELEVANT RANGE CONCEPT IS NOT APPLICABLE TO MIXED COSTS. TRUE FALSE 6. THE PLANNING HORIZONS FOR COMMITTED FIXED COSTS AND DISCRETIONARY FIXED COSTS ARE GENERALLY THE SAME. TRUE FALSE 7. WITH AUTOMATION, FIXED COSTS INCREASE RELATIVE TO VARIABLE COSTS. TRUE FALSE 8. THE HIGH-LOW METHOD IS GENERALLY LESS ACCURATE THAN THE LEAST-SQUARES REGRESSION METHOD FOR ANALYZING THE BEHAVIOR OF MIXED COSTS. TRUE FALSE 9. THE FACT THAT THE HIGH-LOW METHOD USES ONLY TWO DATA POINTS IS A MAJOR DEFECT OF THE METHOD. TRUE FALSE 10. THE CONTRIBUTION APPROACH TO THE INCOME STATEMENT CLASSIFIES COSTS BY BEHAVIOR RATHER THAN BY FUNCTION. TRUE FALSE 11. ON AN INCOME STATEMENT PREPARED BY THE TRADITIONAL APPROACH, COSTS ARE ORGANIZED AND PRESENTED ACCORDING TO FUNCTION. TRUE FALSE 12. EXPENSE A IS A FIXED COST; EXPENSE B IS A VARIABLE COST. DURING THE CURRENT YEAR THE ACTIVITY LEVEL HAS INCREASED, BUT IS STILL WITHIN THE RELEVANT RANGE. IN TERMS OF COST PER UNIT OF ACTIVITY, WE WOULD EXPECT THAT: A. EXPENSE A HAS REMAINED UNCHANGED. B. EXPENSE B HAS DECREASED. C. EXPENSE A HAS DECREASED. D. EXPENSE B HAS INCREASED 13. WHEN THE LEVEL OF ACTIVITY INCREASES WITHIN THE RELEVANT RANGE, HOW DOES EACH OF THE FOLLOWING CHANGE? A. CHOICE A B. CHOICE B C. CHOICE C D. CHOICE D 14. 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.
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15. WITHIN THE RELEVANT RANGE, THE VARIABLE COST PER UNIT: A. REMAINS CONSTANT AS ACTIVITY CHANGES. B. INCREASES AS ACTIVITY INCREASES. C. DECREASES AS ACTIVITY INCREASES. D. CAN INCREASE OR DECREASE AS THE ACTIVITY CHANGES. 16. AN INCREASE IN THE ACTIVITY LEVEL WITHIN THE RELEVANT RANGE RESULTS IN: A. AN INCREASE IN FIXED COST PER UNIT. B. A PROPORTIONATE INCREASE IN TOTAL FIXED COSTS. C. AN UNCHANGED FIXED COST PER UNIT. D. A DECREASE IN FIXED COST PER UNIT. 17. THE LINEAR EQUATION Y = A + BX IS OFTEN USED TO EXPRESS COST FORMULAS. IN THIS EQUATION: A. THE B TERM REPRESENTS VARIABLE COST PER UNIT OF ACTIVITY. B. THE A TERM REPRESENTS VARIABLE COST IN TOTAL. C. THE X TERM REPRESENTS TOTAL COST. D. THE Y TERM REPRESENTS TOTAL FIXED COST. 18. AN EXAMPLE OF A DISCRETIONARY FIXED COST IS: A. INSURANCE. B.
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