Temple University

Acct 2102

Ch 2.

1)Relevant costs are:

1. 1. Costs that differ across the decision options.
   2. Costs that are large and, therefore, should be measured carefully.
   3. Costs that can be traced to products.
   4. Both A and B.
   5. A, B and C.

2. A sunk cost is:
   1. A cost that can be directly traced to a product.
   2. A past expenditure that cannot be changed (and is no longer relevant)
   3. A cost that does not vary with activity volume.
   4. A relevant cost.
   5. None of the above.

3. In evaluating decisions, which costs can we ignore:
   1. relevant costs
   2. sunk costs
   3. variable costs
   4. you should ignore all costs and only focus on the benefits

4. Which of the following is the main difference between the short term and the long term:
   1. Sunk costs are controllable (i.e., can be changed) in the long term but not in the short term
   2. Capacity resources (and capacity costs) are controllable in the long term but not in the short term.
   3. Capacity resources (and capacity costs) are controllable in the short term but not in the long term.
   4. Direct materials are controllable in the short term but not in the long term.

5. When activity volume increases in the short term,
   1. Fixed costs per unit remain unchanged
   2. Variable costs per unit remain unchanged
   3. Total fixed costs remain unchanged
   4. Total variable costs remain unchanged
   5. both B and C

6. At current production volume of 100 units, total FC = $100, unit FC = $100/100 = $1 per unit, total VC = $200, unit VC = $200/100 = $2 per unit. If we increase production to 120 units in the short term, which of the following will be true:
   1. total FC = $120, unit FC = $1 per unit, total VC = $240, unit VC = $2 per unit.
   2. total FC = $100, unit FC = $0.83 per unit, total VC = $200, unit VC = $1.67 per unit.
   3. total FC = $100, unit FC = $0.83 per unit, total VC = $240, unit VC = $2 per unit.
   4. total FC = $120, unit FC = $1 per unit, total VC = $200, unit VC = $1.67 per unit.

7. Variable costs per unit are as follows: Direct materials                                                $2.15

Direct labor                         $1.45 Fixed costs are $5,000 per month

If the company produces 4,000 units in the month of March, the total costs will be: A. $14,400

B. $19,400

C. $13,600

D. $18,000

8. In June, Ace Manufacturing Plant produced 100 units of propane canisters for sale. The total variable costs were $5,000 and the fixed costs for the plant amounted to $3,000. In July, Ace expects to produce 120 canisters. Estimate the unit variable cost for canisters in July.

A. $50.00

B. $66.67

C. $80.00

D. $41.67

9. Classify each of the following costs as fixed, mixed or variable:

• depreciation for production equipment
• depreciation for the office building
• rent
• fire insurance
• advertising on TV
• cost of materials and components used in production -
• cost of salaries for quality control supervisors –
• sales commissions (5% of sales) –
• R&D costs (research & development) –
• CEO salary –
• CEO bonus –