Question

7.Which of the following statements is true when referring to fixed costs?

Multiple Choice

Fixed costs increase in total throughout the relevant range.

Committed fixed costs arise from the annual decisions by management.

As volume increases, unit fixed cost and total fixed cost will change.

Discretionary fixed costs can often be reduced to zero for short periods of time without seriously impairing the long-run goals of the company.  

8 .Which of the following is an example of a period cost in a company that makes clothing?

Multiple Choice

• Advertising cost for a new line of clothing.

• Factory supervisor’s salary.

• Fabric used to produce men’s pants.

• Monthly depreciation on production equipment.

Answer 1

7. Answer is Option D)

Discretionary fixed costs are discretionary in nature that is they can be eliminated in short periods of time without seriously impairing the long-run goals of the company

Other options are not right answer - Fixed cost remains constant throughout the relevant range and fixed cost per unit will decrease when volume increases. Committed cost arises due to commitment by management or legal obligation for example: purchase order

8. Answer is Option A)

Advertising cost is period cost for clothing business

All other 3 costs are part of manufacturing cost and hence it is product cost and not period cost for clothing business firm