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Chapter3Solutions

# Chapter3Solutions - Ch 3 Cost Behavior and Relevant Costs...

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Ch 3 – Cost Behavior and Relevant Costs SOLUTION 1. Use the following key to indicate whether the following cost is most likely a variable or fixed cost: V = Variable Cost F = Fixed Cost __ V _ Direct labor __ F __ Factory rent __ V _ Direct materials __ V __ Shipping Charges __ F __ Secretary salary __ F __ Factory insurance __ F __ Advertising __ V __ Utilities cost to run factory machinery 2. Fill in the blank with either the word increase, decrease, or stays the same : A. As production increases, total variable costs __ increase ____________. B. As production increases, variable cost per unit _ stays the same ____. C. As production increases, total fixed costs _ stays the same ______. D. As production increases, fixed cost per unit __ decreases ________. E. As production decreases, fixed cost per unit ___ increases _________. 3. The ABC company has a marginal tax rate of 34%. A. If the company has pretax cash receipts of \$200,000, what is the after-tax benefit? \$200,000 X (1-.34) = \$132,000 B. If the company has pretax cash expenditures of \$50,000, what is the after-tax cost?

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