ACC 406 Chapter Notes - Chapter 3: Fixed Cost, European Cooperation In Science And Technology

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crimsonraccoon314

18 Jun 2013

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Cost driver is a casual measurement that causes costs to change. Relevant range is the range of output over which the assumed cost relationship is valid for the normal operations of a firm. Limits the cost relationship to a range of operations that is expected to occur. Fixed costs costs that in total are constant within the relevant range as the level of output increases or decreases. When dealing with units fixed costs varies inversely with changes in activity throughout the relevant range. Discretionary fixed costs are fixed costs that can be changed or avoided relatively easily at management discretion, such as advertisement. Committed fixed costs are costs that cannot be easily changed as they usually involve long-term contracts or the purchase of property, plant and equipment. Defined as total costs that vary in direct portion to changes in output within the relevant range. When dealing with unit costs variable costs are fixed throughout the relevant range.

Related Questions

Fixed costs are costs that remain the same in total dollaramount as the activity base changes. TRUE ORFalse

A relevant range is the range of activity over which the changesin the cost are of no interest. True orFalse

The break-even point is the level of operations at which thecompany has neither a loss nor a profit. True orFalse

As fixed costs increases, the break-even point increases.True or False

FIFO method refers to the fact that the first items in are thelast items out. True or False

Mixed costs are costs that have characteristics of both avariable and fixed costs. True orFalse

An example of an activity base is units produced.True or False

As the unit selling price increases, the break-even pointincreases. True or False

The difference between contribution margin and operatingleverage is fixed charges. True orFalse

whitebee930

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

Question : Cost behaviour; committed and discretionary costs; highâlow method: mining company

Outback Mining Ltd (OML), which mines ore in Australia's north-west, uses a calendar year for financial reporting purposes. The following selected costs were incurred in December, the low point of activity, when 1400 tonnes of ore were extracted.

Straight-line depreciation $30 000

Charitable contributions* 12 000

Mining labour (including oncosts) 315 000

Royalties 140 000

Trucking and hauling 280 000

Peak activity of 2700 tonnes occurred in June, resulting in mining labour costs (including oncosts) of $607 500, royalties of $224 500, and trucking and haulage costs of $360 000. The trucking and hauling costs exhibit the following behaviour:

Less than 1 500 tonnes $240 000

From 1 500â1 899 tonnes 280 000

From 1 900â2 299 tonnes 320 000

From 2 300â2 699 tonnes 360 000

OML uses the highâlow method for analysing cost behaviour.

Required:

1 Assuming that royalties are a semi variable cost, classify each of the other four costs listed above in terms of their behavior as variable, step-variable, committed fixed, discretionary fixed, step-fixed, or semi-variable. Show calculations to support your answers for mining labour costs.

2 Calculate the total cost for next February when 1650 tonnes of ore are expected to be extracted.

3 Comment on the cost effectiveness of hauling 1500 tonnes with respect to OML's trucking/hauling cost. Can the company's cost effectiveness be improved? How?

4 Distinguish between committed and discretionary fixed costs. If OML were to experience severe

limeskunk177

ACC 406 Chapter Notes - Chapter 3: Fixed Cost, European Cooperation In Science And Technology

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