Question

This question has five parents:

1. Variable costs in total increase or decrease in proportion with changes in the level of business activity:

a. true b. false

2. Variable cost per unit remains constant when the number of units produced changes:

a. true b. false

3. Fixed cost per unit remains the same even though there is a change in the number of units produced:

a. true b. false

4. Managerial accounting stresses accounting concepts and procedures that are relevant to preparing reports for:

a. investors and banks

b. internal users of accounting information

c. shareholders and creditors

d. the Security and Exchange Commission (SEC)

5. Kilwin’s Candies produced and sold 600 boxes of chocolate covered popcorn last month and had total variable costs of $2,100 that reflected the cost of chocolate and popcorn (ingredients). Each box of popcorn for $12.00. If production and sales are expected to increase by 10% next month, which of the following statements are true?

a. Total variable costs are expected to be $1,785.

b. Variable cost per unit is expected to be $3.50.

c. Unit variable costs are expected to be $2.10.

d. Total fixed costs will be $150,000.

Answer 1

Part 1

Answer – True

Explanation

Variable cost is a cost that is proportional to units produced. When Number of units increase variable cost increase too. Variable cost is a direct cost such as Variable direct material, Variable Direct labor, direct variable overheads.

Part 2

Answer ---- True

Variable cost does not remain same in totality but it remains same at per unit level. Variable cost is a direct cost and changes in proportion to change in units produced in totality. There will be high overall variable cost when units produced are high in quantity and vice versa. This is because variable cost per unit is constant.

Part 3

Answer--- False

Fixed cost does not change according to change in production. When units production increase fixed cost decrease on a per unit level. This happens because fixed cost is constant at every level and when level increase or decrease the same amount is allocated to units produced. See the given below example for better understanding

(A)	Fixed cost	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00
(B)	Units Produced	10000	12000	8000	7000	15000
(A/B)	Fixed cost per Unit.	$            10.00	$               8.33	$            12.50	$            14.29	$               6.67

Part 4

Answer ---internal users of accounting information

Managerial accounting date is not for outsiders such as investors, Shareholders or banks. Managerial accounting records are used by management in internal decision making such as make or buy decisions, Special order acceptance decision, Outsourcing decision, Limiting factor decisions, shut down of segments decisions etc. SEC does not require managerial accounting, so Managerial accounting stresses accounting concepts and procedures that are relevant to preparing reports for Internal users of Accounting information.

Part 5

Answer ---Variable cost per unit is expected to be $3.50

Variable cost per unit is calculated as follows

(A)	Total Variable cost	$2100
(B)	Units Produced and Sold	600
(A/B)	Variable cost per Unit	$3.5

As also discussed in part 1 and 2 above Variable cost per unit does not change and remains the same.

Total variable cost will increase in proportion to change in output, Total variable cost is calculated below at 660 Units of production.

(A)	Variable cost per Unit	$ 3.50
(B)	Units Produced and Sold (600+60)	660
(AxB)	Total Variable cost	$ 2,310.00

So the only correct statement is that Variable cost per unit is expected to be $3.50.