Question

1. An example of a cost that is likely to have a variable cost behavior pattern is:

salespersons' salaries

depreciation of plant equiptment

property taxes

materials used in production

2. ABC Company's sales are $100,000, fixed costs are $50,000, and variable costs are $30,000. ABC Company's contribution margin and operating income are __________ and __________ respectively.

50,000; 20,000

20,000; 70,000

70,000; 50,000

70,000; 20,000

3. When using a cost formula to determine total expected costs for cost items having a mixed (semi-variable) cost behavior pattern, total costs are expected to decrease and per unit variable costs are expected to:

increase as the level of activity increases.

decrease as the level of activity decreases.

decrease as the level of activity increases.

remain constant as the level of activity decreases.

Answer 1

SOLUTION:

1) An example of a cost that is likely to have a variable cost behavior pattern is Material used in production.

Because it is only effected by the number of units produced.

salespersons' salaries, property taxes ,  depreciation of plant equiptment are fixed costs.

Therefore option D is correct.

2) contribution margin = sales - variable cost

= $100000 - $30000

= $70000.

Operating income = contribution margin - fixed costs

= $70000 - $50000

= $20000.

Therefore option D is correct.

3) Total costs are expected to decrease and per unit variable costs are expected to remain constant as the level of activity decreases.

Therefore option D is correct.