ACCTG 101 Lecture Notes - Lecture 20: Fixed Cost, Variable Cost, Liquid Oxygen

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rosebutterfly172

20 Aug 2020

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Fixed costs are costs that remain the same irrespective of production volume. Consequently, fixed cost per unit always decreased when production volume increases. Rent is often used as an example for fixed costs. On the other hand, variable costs vary in direct proportion to changes in production volume. As a result, they are constant when expressed as per unit amounts. As production increases, variable costs increase in direct proportion to change in volume; as production decreases, variable costs decrease in direct proportion to the change in volume. A trend in manufacturing is to automate, to replace direct factory labour with robotics and other automated machinery and equipment. This trend has the effect of increasing fixed costs and decreasing variable costs. Although there are many advantages to automation, the impact of automation on the employee workforce and on day to day decisions made by managers must not be ignored.

Related Questions

If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would:

a. increase.

b. remain the same.

c. decrease.

d. increase or decrease, depending upon the percentage increase in wage rates.

Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit, and fixed costs are $75,000. The contribution margin ratio and the unit contribution margin are:

a. 53% and $7 per unit.

b. 47% and $11 per unit.

c. 52% and $11 per unit.

d. 47% and $8 per unit.

If sales are $500,000, variable costs are 75% of sales, and operating income is $40,000, what is the operating leverage?

a. 0

b. 1.3

c. 3.1

d. 1.25

Which of the following describes the behavior of the fixed cost per unit?

a. Increases with increasing production

b. Remains constant with changes in production

c. Decreases with increasing production

d. Decreases with decreasing production

If variable costs per unit decreased because of a decrease in utility rates, the break-even point would:

a. increase.

b. increase or decrease, depending upon the percentage increase in utility rates.

c. decrease.

d. remain the same.

Costs that vary in total in direct proportion to changes in an activity level are called:

a. differential costs.

b. fixed costs.

c. variable costs.

d. sunk costs

Which of the following conditions would cause the break-even point to increase?

a. Total fixed costs decrease

b. Unit variable cost decreases

c. Unit variable cost increases

d. Unit selling price increases

In cost-volume-profit analysis, all costs are classified into the following two categories:

a. discretionary costs and sunk costs

b. variable costs and fixed costs

c. mixed costs and variable costs

d. sunk costs and fixed costs

ochrespider8

1. Which one of the following refers to a cost that remains the same as the volume of activity decreases within the relevant range?

A. Average cost per unit.

B. Variable cost per unit.

C. Unit fixed cost.

D. Total variable cost.

2. The relevant range refers to the activity levels over which

A. Cost relationships hold constant.

B. Costs fluctuate.

C. Production varies.

D. Relevant costs are incurred.

3. When identifying fixed and variable costs, which one of the following is a typical assumption concerning cost behavior?

A. General and administrative costs are assumed to be variable costs.

B. Cost behavior is assumed to be realistic for all levels of activity from zero to maximum capacity.

C. Total costs are assumed to be linear when plotted on a graph.

D. The relevant time period is assumed to be 5 years.

4. A management accountant is about to prepare graphs of total variable cost and per-unit variable cost for use in a short-term planning model. Dollars will be depicted on the vertical axis; activity will be shown on the horizontal axis. How will these graphs appear under completion?

Total Variable Cost; Per-Unit Variable Cost

A. Straight line, sloping upward to the right; Straight line, parallel to the horizontal axis

B. Curvilinear, sloping upward to the right; A line that basically parallels the horizontal axis, first decreasing and then increasing

C. Straight line, sloping upward to the right; Straight line, sloping upward to the right

D. Straight line, parallel to the horizontal axis; Straight line, sloping upward to the right

5. A company has found that its total electricity cost has both a fixed component and a variable component within the relevant range. The variable component seems to vary directly with the number of units produced. Which one of the following statements concerning electricity cost is incorrect?

A. The total electricity cost will increase as production volume increases.

B. The total electricity cost per unit of production will increase as production volume increases.

C. The variable electricity cost per unit of production will remain constant as production volume increases.

D. The fixed electricity cost per unit of production will decline as production volume increases.

silversnake284

Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for Â£30. Variable costs per unit are: Direct materials Â£9.00; Direct labour 4.50; Distribution 1.50 and Variable Factory overhead 3.00. Fixed costs per month are: Factory overhead Â£120,000 and Selling and admin. 60,000. The variable distribution costs are for transportation to the retail stores. The current production and sales volume is 20,000 per year. Capacity is 25,000 units per year. An Atlanta wholesaler has proposed to place a special one-time order for 7,000 units at a special price of Â£25.20 per unit. The wholesaler would pay all distribution costs, but there would be additional fixed selling and administrative costs of Â£6,000. In addition, assume that overtime production is not possible and that allother information remains the same as the original data. The effect on profits if the special order is accepted is

Select one:

a. cannot be determined

b. Â£30,900 decrease

c. Â£50,100 increase

d. Â£30,900 increase

e. Â£50,100 decrease

greybear367

ACCTG 101 Lecture Notes - Lecture 20: Fixed Cost, Variable Cost, Liquid Oxygen

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