CLASS TEST 2: Answer
1) The quarterly production and overhead costs for the year are shown below. Identify the
variable overhead cost per unit and total fix cost, using the high- low method:
Quarter Production (units) Overheads
1 4,900 £66,000
2 5,200 £69,000
3 5,400 £70,000
4 4,000 £60,000
a. £7.14
b. £31,440
2) Costs that remain the same among alternatives are
A) sunk costs.
B) irrelevant costs.
C) controllable costs.
D) uncontrollable costs.
Answer: B
Diff: 1
LO: 2-6
EOC: S2-14
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an
organization.
3) Subtracting the costs of one alternative from the costs of the other alternative would be called
the ________ cost.
A) sunk
B) imported
C) alternative
D) differential
Answer: D
Diff: 2
LO: 2-6
EOC: S2-15
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an
organization.
4) When deciding to buy a new computer, all of the following should be considered except for
the
A) cost of the new computer.
B) cost of the old computer.
C) games that come with the new computer.
D) warranty on the new computer.
Answer: B
Diff: 2
LO: 2-6
EOC: E2-28A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an
organization.
5) When making a decision to buy a new computer, all of the following should be considered
except
A) differential costs.
B) relevant costs.
C) qualitative characteristics.
D) sunk costs.
Answer: D
Diff: 2
LO: 2-6
EOC: E2-28A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an
organization.
6) A company is deciding whether to purchase production equipment that can produce units
more quickly than the current equipment. Which of the following costs would be relevant to its
decision?
A) The original purchase price of the current machinery
B) The additional labor required to run the new equipment
C) The accumulative repairs costs of the current machinery over the years
D) The cost of raw materials
Answer: B
Diff: 1
LO: 2-6
EOC: E2-28A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an
organization.
7) An example of a controllable cost is
A) property taxes.
B) advertising.
C) depreciation on headquarters building.
D) property insurance.
Answer: B
Diff: 1
LO: 2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an
organization.
8) An example of a sunk cost is
A) the purchase price of new equipment being considered for purchase.
B) maintenance costs of new equipment.
C) the cost of installation of the new equipment.
D) the purchase price of the old equipment.
Answer: D
Diff: 1
LO: 2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an
organization.
9) Label each item below as relevant or irrelevant in making a decision.
A. ________ cost of insurance on a new vehicle when evaluating purchase of new vehicle
B. ________ cost of roof repair made on rental property last year when evaluating sale of rental
property
C. ________ original cost of old equipment that is being evaluated for replacement
D. ________ cost of new equipment that is under evaluation to replace used equipment
E. ________ accumulated depreciation on old equipment being evaluated for replacement
F. ________ cost of previous year's insurance policy on old equipment being evaluated for
replacement
Answer:
A. relevant
B. irrelevant
C. irrelevant
D. relevant
E. irrelevant
F. irrelevant
Diff: 2
LO: 2-6
EOC: E2-28A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an
organization.
10) On the line in front of each statement, enter the letter corresponding to the term that best fits
that statement. You may use a letter more than once and some letters may not be used at all.
A. Direct costs F. Variable costs
B. Marginal cost G. Indirect cost
C. Average cost H. Sunk cost
D. Conversion costs I. Differential cost
E. Prime costs
________ The combination of direct materials and direct labor.
________ Costs that change in total in direct proportion to changes in volume.
________ A cost that relates to the cost object, but cannot be traced to it.
________ A cost that has already been incurred.
Answer: E, F, G, H
Diff: 2
LO: 2-6
EOC: S2-15
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an
organization.
11) Plowin' Supply plans to make 15,000 tractors at its plant. Fixed costs are $540,000 and
variable costs are $200 per tractor. What is the average cost per tractor?
A) $200
B) $2700
C) $236
D) $36
Answer: C
Explanation: C) Calculations: ($540,000 + ($200 × 15,000))/15,000 = $236
Diff: 1
LO: 2-7
EOC: E2-47B
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
12) A company has monthly fixed costs of $115,500. The variable costs are $5.00 per unit. If the
sales price of a unit is $15.00 and we sell 7700 units, the company's average fixed costs per unit
will be
A) $10.00 per unit.
B) $5.00 per unit.
C) $20.00 per unit.
D) $15.00 per unit.
Answer: D
Explanation: D) Calculations: 115,500 / 7700 = 15
Diff: 2
LO: 2-7
EOC: E2-41B
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
13) London Plastics has monthly fixed costs of $87,000, while its variable costs are $4.60 per
unit. If the sales price of a unit is $14.00 and London Plastics sell 15,000 units, the company's
average fixed costs per unit will be
A) $5.80 per unit.
B) $10.40 per unit.
C) $4.60 per unit.
D) $9.40 per unit.
Answer: A
Explanation: A) Calculations: 87,000 / 15,000 = $5.80
Diff: 2
LO: 2-7
EOC: E2-41B
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
14) On the line in front of each statement, enter the letter corresponding to the term that best fits
that statement. You may use a letter more than once and some letters may not be used at all.
A. Direct costs E. Variable costs
B. Marginal cost F. Indirect cost
C. Average cost G. Sunk cost
D. Conversion costs H. Differential cost
________ The total cost divided by the total volume.
________ The difference in cost between two alternative courses of action.
________ The combination of direct labor and manufacturing overhead costs.
________ The cost of producing one more unit.
________ Costs that can be traced to the cost object.
Answer: C, H, D, B, A
Diff: 2
LO: 2-7
EOC: E2-29A
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
