Question

1. Which of the following is NOT the measure of what causes the incurrence of a variable cost?
   1. Units produced
   2. Labor hours
   3. Electricity bill of the office
   4. Machine hours
2. You have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month. What is your differential revenue?
   1. $300
   2. $500
   3. $1,500
   4. $1,800
3. At Sterio Co. Ltd., the selling price per unit for lawn mowers is $120, variable cost per unit is $55. Fixed costs are $130,000. Break-Even Point is?
   1. 1,000 units
   2. 1,083 units
   3. 2,000 units
   4. None of these
4. The ______________ costs have already been incurred and cannot be changed now or in the future. These costs should be ignored when making decisions.
   1. Opportunity
   2. Sunk
   3. Differential
   4. Indirect
5. ______________ displays a constant level of cost for a range of output and then jumps to a higher level of cost at some point.
   1. Step cost behavior
   2. Mixed cost
   3. High-low method
   4. Discretionary fixed cost

Answer 1

1.

Electricity bill of office is not the measure of what cause the incurrence of a variable cost.

Hence option c is correct.

2.

Differential revenue = $2,000 - $1,500 = $500

Hence option b is correct.

3.

Break-even point = Fixed costs / (Selling price per unit - Variable cost per unit)

Break-even point = $130,000 / $65 ($120-55) = 2,000 units

Hence option c is correct.

4.

The sunk costs have already been incurred and cannot be changed now or in the future. These costs should be ignored when making decisions.

5.

Step cost behavior displays a constant level of cost for a range of output and then jumps to a higher level of cost at some point.

Hence option a is correct