Question

When the level of activity increases within the relevant range, how does each of the following change?

	A.	Variable Cost per Unit - Increases, Fixed Cost per Unit - Increases
	B.	Variable Cost per Unit - Decreases, Fixed Cost per Unit - Remains the same
	C.	Variable Cost per Unit - Remains the same, Fixed Cost per Unit -  Decreases
	D.	Variable Cost per Unit - Remains the same, Fixed Cost per Unit - Increases

The new cost analyst in your accounting department has just run a scatter graph on Excel with a trend-line for utility cost estimation. The graph shows an r-square factor of .9942. Based upon this, which of the following is true?

	A.	There is a low correlation between machine hours and utilities cost
	B.	99.42% of utility cost is fixed
	C.	There is a high correlation between machine hours and utilities cost
	D.	Variable costs are $.9942 per machine hour

Answer 1

Answers :

1) C) Variable cost Per Unit - Remains the same, fixed cost per Unit -Decreases

2) C) Thee is a High correlation between MAchinehours and Utilities Cost

Within the relevant range of output ;

• Variable Cost Per Unit Remains the Same,
• The fixed cost Per Unit is decreasing when the Units are Increasing.
• Total Fixed cost Constant
• Total Variable cost Will increase with volume

R-Square is the Determination of the Square of the Correlation Co-efficient . it seems that there is a high degree of Correlation between the Machine hours and the Utility Cost.