Module 15
Multiple Choice
MC151
Fixed Costs
LO1
Solution
a. Typically, depreciation cost on assets (buildings and equipment) in a staff department
such as Human Resources remains constant irrespective of the volume of output.
MC152
Step Costs
LO1
Solution
a. Step costs behave as fixed costs within a relatively narrow range, but increase to a
higher level when that range is exceeded.
Typical example of step costs is an inspection
cost where each inspector can handle a fixed volume of product.
MC153
Fixed Costs
LO1
Solution
c.
Over the short term, fixed costs are indifferent to activity level changes.
For example the
cost of property taxes on a building would not change based on activity volume differences.
MC154
Relevant Range
LO1
Solution
d. When developing a cost model for a firm or segment of a firm, that model is only relevant
within the range of capacity of the fixed costs.
For example if the current level of fixed cost
of $10 million represents a capacity of 2 million units of output, that cost model cannot be
used to estimate the cost of producing more than 2 million units.
MC155
Discretionary Fixed Costs
LO1
Solution
c. Management decides during each budget period how much it will spend on discretionary
items
such as charitable contributions and training.
These costs are not related to the
capacity of operations.
MC156
Discretionary Fixed Costs
LO1
Solution
b. Donations are not related to the capacity of operations, but are determined by the
discretion of management.
MC157
Cost Estimation
LO2
Solution
b. A mathematical equation that models the relationship between cost (the dependent
variable) and activity level (the independent variable) is used in estimating costs for
different levels of activity.
©Cambridge Business Publishers, 2008
st
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Scatter Diagram Method
LO2
Solution
d. The scatter diagram method depends of visual observation of the data points on a graph
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 Spring '08
 Richards
 Managerial Accounting, Least Squares, Depreciation

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