Question

51. If the activity level increases, what happens to the total fixed cost? a. It decreases. b. It increases. c. It remains the same. d. It depends on how much the activity level increases. 52. If the activity level increases, what happens to the unit fixed cost? a. It decreases. b. It increases. c. It remains the same. d. It depends on how much the activity level increases. 53. If activity level increases, what happens to the unit variable cost? a. It remains the same. b. It decreases. C. It increases. d. It depends on how much the activity level increases. 54. Which of the following is an example of a variable cost for a bicycle manufacturer? a. Rent b. Insurance c. Tires d. Depreciation 55. When managers talk about cost behavior, they are referring to a. where a cost is reported on the income statement. b. the way in which total costs change in response to changes in the level of activity. c. the method used to determine whether a cost is accrued or expensed. d. the way cost is reported with ance sheet. 2,922 words

Answer 1

Q. 51

Answer is C: it remains the same. the total fixed cost does not decrease or increase whatever the level of activity is. only variable cost is increased or decreased in proportion to level of activity.

Q. 52

Answer is A : it decreases, if the level of activity increases the per unit fixed cost will decrease, as we may understand from following exmaple:

Total Fixed Cost = $ 100000

Level of activity = 50000 units (case 1)

Per unit fixed cost = $100000/ 50000 units = $ 2 per unit

Level of activity = 100000 units (Case 2)   

Per unit fixed cost = $100000/ 100000 units = $ 1 per unit

Q. 53

Answer is A: it remains same, per unit variable cost such as per unit direct material, per unit labour cost etc. will remain same and does not increase or decrease irrespective of activity level.

Q. 54

Answer is C: Tires, variable cost are those cost which increases or decreases in total with respect to production activity. the rest expenses such as rent, depreciation and insurance remains same irrespective of level of activity but cost of tires will increase or decrease if the number of bicycle manufactured increases or decreased.

Q. 55

Answer is B: the way in which total cost changes in response to change in level of activity, generally there are three types of cost behavior such as Fixed cost, Variable Cost and semi variable cost.