Question

Explanation not necessary Which of the following represents the components of the income statement for a service business? A Service Revenue - Operating Expenses = operating income B. Sales Revenue - Cost of Goods Manufactured = gross profit C. Sales Revenue - Cost of Goods Sold = gross profit D. Service Revenue - Cost of Goods Purchased = gross profit Fixed costs are expenses that A vary in response to changes in activity level B. remain constant as activity changes C. remain constant on a per-unit basis D. increase on a per-unit basis as activity increases Variable costs are expenses that A remain constant on a per-unit basis and remain constant in total regardless of activity level B. decrease on a per-unit basis as activity level increases C remain constant on a per-unit basis but change in total based on activity level D. remain constant in total regardless of activity level within a relevant range Conversion costs include all of the following except: A. depreciation on factory equipment B. factory utilities C. wages of production workers D. direct materials purchased In the cost equation Y = a + bx, Y represents which of the following? A. units of production B. variable costs C. total costs D. fixed costs

Answer 1

Ans. 1	Option D
	Gross profit is the difference between service revenue and cost of goods purchased
	for a service business.
Ans. 2	Option B
	Fixed cost always remains constant on each activity level. If the activity increases
	the per unit fixed cost decreases because fixed cost (nominator) remain same and
	the activity (denominator) increases.
Ans. 3	Option C
	Per unit variable cost always remains constant but total variable cost change in the
	proportion of activity.
Ans. 4	Option D
	Conversion cost is the sum of direct labor and overhead cost. Direct materials
	purchased is not the part of conversion cost.
Ans. 5	Option C
	Y =   a + bx
	where:
	Y   =   Total cost
	a   = Fixed cost
	b = Variable cost per unit
	x   =   Activity level