Question

1. Cost systems should be designed to address which of the following functions:

a. Inventory valuation for financial and tax statements

b. Operational control providing feedback on resources consumed

c. Individual product cost measurement

d. All of the above

2. Which of the following is an important assumption underlying break-even analysis:

a. total costs are constant

b. the average fixed expense per unit is constant

c. variable expenses are nonlinear

d. the average variable expense per unit is constant

3. In describing the cost equation, Y = a + bX, the “bX” is:

a. the independent variable level of activity

b. total mixed cost

c. total variable cost

d. the variable cost per unit of activity

4. Which of the following companies would most likely have the highest proportion of variable costs in its cost structure:

a. Airline

b. Consulting firm

c. Retailer

d. Accounting firm

Answer 1

1. Option D Cost systems are designed by companies to provide clear picture of costs incurred on its products by the company. It includes all the reports, forms, processes which enable the company to look at inventory value, specific product cost assessment etc.

2. Option D Breakeven analysis assumes that within relavent range, variable cost per unit is constant, fixed cost is constant and variable cost curve is linear.

3. Option C In Y = a + bX Y is the total cost, a is the fixed cost, b is the variable cost per unit and X is the units of activity

4. Option B A consulting firm doesn't need heavy machinery thereby eliminating huge fixed costs. It depends mainly on the labor costs which is variable in nature.