coursehero_chapter5

coursehero_chapter5 - CHAPTER 5 1: Which costs will change...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 5 1: Which costs will change with an increase in activity within the relevant range? a. Total fixed costs and total variable cost. b. Per unit fixed costs and total variable cost. c. Per unit variable cost and per unit fixed cost. d. Per unit fixed cost and total fixed cost. Your Answer: Per unit variable cost and per unit fixed cost. A fixed cost is a cost that remains constant, in total, regardless of changes in the level of activity. When expressed on a per unit basis, a fixed cost per unit increases and decreases inversely with changes in activity. A variable cost is a cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant if expressed on a per unit basis. If the activity level increases, fixed costs will be unchanged in total but will decrease when expressed on a per unit basis. On the other hand, if the activity level increases, total variable costs will increase in total but will be unchanged when expressed on a per unit basis. (These statements match answer (B) above.) CORRECT 2: Expense #1 is a fixed cost; expense #2 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 #1 will be unchanged. b. expense #2 will decrease. c. expense #1 will decrease. d. expense #2 will increase. Your Answer: expense #1 will decrease. The relevant range is the range of activity within which the assumptions about variable and fixed costs are valid. Within the relevant range, the following assumptions are made about variable and fixed costs. A fixed cost is a cost that remains constant, in total, regardless of changes in the level of activity. When expressed on a per unit basis, a fixed cost per unit increases and decreases inversely with changes in activity. A variable cost is a cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant if expressed on a per unit basis. If the activity level increases, in terms of cost per unit of activity, expense #1, a fixed cost, will decrease (which matches answer (C)). On the other hand, if the activity level increases, in terms of cost per unit of activity, expense #2, a variable cost, will be unchanged (which does not match any of the answers given). CORRECT 3: An analysis of past janitorial costs indicates that janitorial cost is an average of $0.40 per machine-hour at an activity level of 20,000 machine- hours and $0.50 per machine-hour at an activity level of 16,000 machine-hours. Assuming that this activity is within the relevant range, what is the total expected janitorial cost if the activity level is 18,500 machine-hours? a. $1,600
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/07/2011 for the course ACCT 202 at Clemson.

Page1 / 15

coursehero_chapter5 - CHAPTER 5 1: Which costs will change...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online