Question

1. Select the correct statement regarding fixed costs. Because they do not change, fixed costs should...

1. Select the correct statement regarding fixed costs.

Because they do not change, fixed costs should be ignored in decision making.

The fixed cost per unit decreases when volume increases.

The fixed cost per unit increases when volume increases.

2.

Rock Creek Bottling Company pays its production manager a salary of $6,000 per month. Salespersons are paid strictly on commission, at $1.50 for each case of product sold.

For Rock Creek Bottling Company, the production manager's salary is an example of:

a variable cost.

a mixed cost.

a fixed cost.

none of these

3.

Rock Creek Bottling Company pays its production manager a salary of $6,000 per month. Salespersons are paid strictly on commission, at $1.50 for each case of product sold.

For Rock Creek Bottling Company, the salespersons' commissions are an example of:

a fixed cost.

a variable cost.

a mixed cost.

none of these

4 Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold.

If the company's volume increases to 5,000 units, the company's total costs will be:

$100,000

$90,000

$102,500

$80,000

The fixed cost per unit does not change when volume decreases.

Business   Accounting   
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Homework Answers

Answer #1

1.

Fixed cost is fixed at different level of volume, it is not change with the change in the level of volume. If fixed cost remains the same and volume changes, then fixed cost per unit also changes. Fixed cost per unit increases when volume decreases and fixed cost per unit decreases when volume increases.

The fixed cost per unit decreases when volume increases. is the correct answer.

2.

The production manager's salary is an example of fixed cost because it is fixed for every month.

3.

The salespersons' commissions are an example of variable cost because it depends on the sales. If sales increases then commissions increases and if sales decreases then commissions decreases.

4.

Total cost = Fixed cost + Variable cost

Fixed cost = $40,000

Variable cost = ($50,000 / 4,000 units) * 5,000 units

= $62,500

Total cost = $40,000 + $62,500

= $102,500

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