Q: If a company’s average cost per unit is $$\8$$\$$ at a production level of 2,500 units, what is the total cost at that level? Use y$$ = \text{average cost} \times x$.

$$\20$$,000\$$ (\8$$ \times 2,500)$

Question 1

Which of the following statements best describes the behavior of total variable costs within the relevant range?

Accepted Answer

Total variable costs increase directly with volume.

Question 2

A company incurs $$100,000 in total fixed costs. If it produces 50,000 units, what is the fixed cost per unit? Use the formula $$\$$f/x\.$$

Accepted Answer

$$\2$$\$

Question 3

Which formula correctly represents the total cost equation for mixed costs?

Accepted Answer

$$y = vx + f$$

Question 4

If the variable cost per unit is $$4 and the company produces 300 units, what is the total variable cost? Use the formula vx$.

Accepted Answer

$$\1$$,200\$

Question 5

A company’s total fixed costs are $60,000. If production increases from 10,000 units to 20,000 units, what happens to the fixed cost per unit?

Accepted Answer

It decreases from $$\6$$\$$ to $$\$$3\$$ per unit.

Question 6

Which of the following best describes the relevant range?

Accepted Answer

The range of production volume where variable cost per unit and total fixed costs remain constant.

Question 7

Using the high-low method, if the highest volume is 1,000 units with a cost of $$5,000 and the lowest volume is 400 units with a cost of 2$$,800, what is the variable cost per unit? Use $$v = \frac{y(High) - y(Low)}{x(High) - x(Low)}.$$

Accepted Answer

$$\3.00$$\$

Question 8

In regression analysis, which coefficient represents the total fixed costs in the cost equation?

Accepted Answer

Intercept Coefficient

Question 9

A regression analysis yields an R-Square value of 0.85. What does this indicate about the cost equation?

Accepted Answer

The data is strongly correlated; managers can rely on the cost equation for good estimates.

Question 10

Which of the following is a key difference between the Traditional Income Statement and the Contribution Margin Income Statement?

Accepted Answer

Traditional Income Statement organizes costs by product vs. period, while Contribution Margin Income Statement organizes by variable vs. fixed.

Question 11

A company’s cost equation is $$y = 5x + 2,000. If $$the company produces 400 units, what is the total cost?

Accepted Answer

$$\4$$,000\$$ + $$\$$2,000\$$ = $$\6$$,000\$

Question 12

If a company’s average cost per unit is $$\8$$\$$ at a production level of 2,500 units, what is the total cost at that level? Use y$$ = 	ext{average cost} 	imes x$.

Accepted Answer

$$\20$$,000\$$ (\8$$ 	imes 2,500)$

Question 13

Which cost behavior is best described by a graph that looks like stairsteps?

Accepted Answer

Step Costs

Question 14

A company uses the high-low method. The high point is (2,000 units, $$10,000), and the low point is (1,000 units, 6$$,000). What is the total fixed cost? Use $$y = vx + f$$ and solve for $$f.$$

Accepted Answer

$$\4$$,000\$

Question 15

Which of the following statements about curvilinear costs is correct?

Accepted Answer

Curvilinear costs are not perfectly linear but can be estimated with straight-line approximations.

Question 16

In the Contribution Margin Income Statement, which costs are subtracted from Sales Revenue to calculate Contribution Margin?

Accepted Answer

All variable expenses (including both product and period costs)

Question 17

A company’s regression analysis output shows an X Variable 1 Coefficient of $$\7$$\$$ and an Intercept Coefficient of $$\$$1,500\. $$What is the cost equation?

Accepted Answer

$$y = 7x + 1,500$$

Question 18

If a company’s total costs are $$\12$$,000\$$ at 1,000 units and $$\$$18,000\ at 2$$,000 units, what is the variable cost per unit using the high-low method?

Accepted Answer

$$\6$$\$

Question 19

Which of the following is true regarding the use of average cost?

Accepted Answer

Average cost is only valid at the specific volume it was calculated for.

Cost Behavior and Income Statement Formats

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