Question

Why is it important to identify the most appropriate cost drivers for a particular product?

A) so managers can identify the activities necessary to manufacture a product

B) so managers can control product costs better

C) so managers can predict product costs better and make better decisions

D) B and C

Answer:

Cost drivers are ________.

A) the different functions in the value chain

B) different types of functional areas in the firm

C) measures of activities that require the use of resources and thereby cause costs

D) different types of cost calculations

Answer:

Within the relevant range, the total amount of ________ cost changes in direct proportion to changes in the cost driver. Within the relevant range, the total amount of ________ cost does not change in direct proportion to changes in the cost driver.

A) fixed; variable

B) variable; fixed

C) step; mixed

D) mixed; step

Answer:

What happens when the cost-driver level increases within the relevant range?

A) Total fixed costs remain unchanged.

B) Fixed costs per unit of cost driver increase.

C) Total variable costs decrease.

D) Variable costs per unit of cost driver increase.

Answer:

Which of the following costs is a fixed cost?

A) cost of dairy ingredients used to produce ice cream

B) depreciation expense on factory building

C) fuel used by delivery trucks

D) labor wages of workers who mix dairy ingredients to make ice cream

Answer 1

Question -1;

Answer is option (D). B and C

Explanation;

As we know that it important to identify the most appropriate cost drivers for a particular product because;

·        Managers can control product costs better.

·        Managers can predict product costs better and make better decisions

Question -2;

Answer is option (C) measures of activities that require the use of resources and thereby cause costs

Explanation;

As we know that A cost driver measures activities that require the use of resources and thereby cause costs. Thus option (C) is correct answer.

Question – 3;

Answer is option (B). Variable; fixed

Explanation;

As we know that within relevant range total amount of variable cost changes in direct proportion to changes in the cost driver but within relevant range total amount of fixed cost does not change in direct proportion to changes in the cost driver.

Thus option (B) is correct answer.

Question – 4;

Answer is option (A) Total fixed costs remain unchanged.

Explanation;

If the cost-driver level increases within the relevant range then total fixed costs will not changed but per unit fixed cost will decrease. Thus only option (A). is correct answer.

Question – 5;

Answer is option (B) depreciation expense on factory building

Explanation;

Depreciation on factory building remain unchanged at various level of output that is why it is known as fixed cost. Whereas cost of dairy ingredients used to produce ice cream, fuel used by delivery trucks, labor wages of workers who mix dairy ingredients to make ice cream; are known as variable costs.

Thus only option (B) is correct answer.