Question

97. Three different divisions of a footwear manufacturing company are estimating oosts for their human resources departments. Each division has a cost structure that is different from the other divisions' and those structures are represented by the following cost behaviour patterns (A, B and C). Number of $120 118 123 124 119 $118 180 245 296 360 25 50 100 125 200 75 100 Which cost is best desoribed as fixed? a) Cost A b) Cost B c)Cost C d)Cost B and Cost C Answer: tb Difficulty: Easy Learning Objective: Describe the different types of cost behaviour CPA: Management Accounting/Problem-Solving and Decision-Making difflerent divislons of a footwear manufacturing company are estimating costs for their human resources departments. Each division has a cost structure that is different from the other divisions' and those structures are represented by the following oost behaviour patterns (A, B and C). Number of 50 75 100 Which oost is best described as variable? 50 100 125 200 $120 118 123 124 119 $118 180 245 360 a) Cost A b) Cost B c)Cost C d)Cost A and Cost C Answer: a Difficulity: Easy CPA: Management Cenrning objectlve: Describe the iferent types of cost behaviour.

Answer 1

Ans:

97. The correct answer is Option B.

Fixed costs are those costs, which do not change with the level of activity within the relevant range. These costs are incurred even when no units are produced.

From the case, The cost structure of B best describes the fixed cost, because the cost($120) is incurred even when the number of employees are Zero and there is no increase in the cost with relevant increase in the number of employees. Hence, this best describes a fixed cost structure.

98. The correct answer is Option A.

Variable costs are those costs, which changes in direct proportion to the level of activity. In other words, If more units are produced then the variable cost increase and lf less number of units are produced, then the variable cost decreases. Variable cost per unit is constant.

From the given case,

Number of employees	A	Cost per unit
0	$0	$0
25	$50	$2
50	$100	$2
75	$150*	$2
100	$200	$2

*Note: In the question it is given as $125, but I don't think it is $125, Because variable cost per unit is always constant, so it should be $150.

So, from the above table it is clear that, the cost is directly in proportion to the number of employees and the cost per unit of cost structure A is constant, hence this cost structure best describes the variable cost.

Additional information: The cost structure of C is an example of Mixed cost as it involved both Fixed and variable costs.

Thank you,

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