Q: In the high-low method for estimating costs, which formula is used to calculate the variable cost per unit?

$$\frac{\text{Highest cost} - \text{Lowest cost}}{\text{Highest activity} - \text{Lowest activity}}$$

Question 1

Which of the following best describes the primary difference between financial accounting and management accounting?

Accepted Answer

Financial accounting provides information for external users such as investors and regulators, while management accounting provides information for internal users to aid planning, controlling, and decision making.

Question 2

A company is considering whether to use a material it already owns for a new contract. The material is no longer used by the business and has a historic cost of £10/unit, a re-sale value of £12/unit, and a replacement cost of £14/unit. What is the relevant cost per unit for the contract bid?

Accepted Answer

$$12$$

Question 3

Which of the following is an example of an opportunity cost?

Accepted Answer

The value of income forgone by choosing one alternative over another.

Question 4

A garage buys a lorry for £10,000. It requires a new engine costing £2,500 and 20 hours of technician time at £15/hour. The lorry could be sold immediately for £9,000. Technicians are short of work. What is the minimum price the garage should charge for the lorry after the engine is fitted?

Accepted Answer

$$9,000 + 2,500 = 11,500$$

Question 5

Which of the following costs is classified as an indirect cost in the production of a wooden table?

Accepted Answer

Lubricating oils for machinery.

Question 6

A semi-variable cost must be split into which two components for decision-making purposes?

Accepted Answer

Fixed and variable costs.

Question 7

Which formula represents the total variable cost if the variable cost per unit is $$v$$ and the activity level is $$x$$?

Accepted Answer

$$v 	imes x$$

Question 8

In the high-low method for estimating costs, which formula is used to calculate the variable cost per unit?

Accepted Answer

$$\frac{	ext{Highest cost} - 	ext{Lowest cost}}{	ext{Highest activity} - 	ext{Lowest activity}}$$

Question 9

Which of the following is NOT a direct cost in manufacturing a hairdryer?

Accepted Answer

Factory rent.

Question 10

A company incurs £5,000 in rent each month regardless of the number of units produced, as long as production is within the relevant range. What type of cost is this?

Accepted Answer

Fixed cost.

Question 11

Which of the following statements about relevant costs is correct?

Accepted Answer

Relevant costs are future costs that vary with the decision under consideration.

Question 12

If a material is in regular use and its replacement cost is £14/unit, what is the relevant cost per unit for a contract bid requiring 800 units?

Accepted Answer

$$800 	imes 14 = 11,200$$

Question 13

Which of the following is an example of a cost classified by its nature?

Accepted Answer

Direct material cost.

Question 14

Which activity is NOT part of the management process as defined in management accounting?

Accepted Answer

Auditing.

Question 15

Which cost classification is most useful for determining the cost of producing a single unit of product?

Accepted Answer

Direct and indirect costs.

Question 16

Which of the following is a characteristic of variable costs?

Accepted Answer

They increase in direct proportion to the level of activity.

Question 17

A company is considering two alternatives: A and B. If choosing A means forgoing a profit of £5,000 from B, what is the opportunity cost of choosing A?

Accepted Answer

£5,000

Question 18

Which of the following is NOT a step in the decision flow diagram for identifying relevant costs?

Accepted Answer

Does the cost relate to past transactions?

Question 19

Which of the following is an example of a semi-variable cost?

Accepted Answer

Electricity bill with a fixed monthly charge plus a charge per unit used.

Question 20

Which of the following best describes the role of feedback in the management process?

Accepted Answer

Feedback is information used to evaluate or correct the steps being taken to implement a plan.

Introduction to Management Accounting: Cost Concepts, Classification, and Behaviour

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