Question

Question 8 As regarding cost behavior, the concept of the relevant range: is the range of activity over which our assumptions about cost behavior are true O only applies to fixed costs increases in total as the activity level decreases O only applies to variable costs Question 9 Which of the following is not a period cost? O property taxes on the building where products are produced commission paid to sales persons O depreciation of the delivery trucks O advertising costs Question 10 Phaup Corporation's relevant range of activity is 3,000 units to 7,000 units. When it pro

Answer 1

8) Option-(a): is the range of activity over which our assumptions about cost behavior are true Reason: Fixed costs are those costs which would remain the same in total irrespective of level of production or sales. It is a committed cost to be incurred by the firm whether it carries out operations or not. Variable costs are those costs which would remain the same per unit irrespective of level of production or sales. It is an unit cost to be incurred by the firm only when the firm carries out its business operation. Semi variable costs are also called as mixed costs which would remain the same in total upto a volume of production or sale and then start varying along with volume of production or sale. In other words, these costs are partially fixed and partially variable in nature. Though not accepted by GAAP for reporting purpose, analyzing cost behavior by segregating total costs into variable, fixed and mixed is important for better cost control in manufacturing as well as sales process. Still, fixed costs will execute its normal behavior upto a particular volume of activity only. After that, it may change its behavior due to various reasons. Therefore, to formulate a particular total cost formula, volume upto which the costs execute their normal behavior shall be considered carefully. It is technically called as relevant range as it is the range within which a particular cost formula is valid: Total cost = Fixed costs + (Actvity volume x Variable cost per base)

9) Option-(a): property taxes on the building where products are produced. Reason: Property taxes on the building where products are produced is a manufacturing overhead cost that is incurred commonly in the manufacturing plant and so it is not a period cost. Product costs are those costs which are incurred at the factory level during production process which may be direct or indirect costs. Of which, variable product costs will change when production volume increases or decreases whereas fixed product costs do not change, unless there are some conditions that have the capability to decrease or cause to increase the same. Product cost is nothing but the manufacturing cost which include direct materials, direct labor, variable & fixed mfg. overheads. Period costs are those costs which are incurred outside the factory but for carrying out firm's selling and administrative related operating activities and financing activities. Of which, variable period costs will change when sales volume increases or decreases whereas fixed period costs do not change, unless there is any particular condition that has the capability to decrease and cause to increase the same. Example: General, selling, and administrative costs like telephone expense, sales commission, etc.