Question

Please answer these tricky question(multiple choices)

- Which of the following is an element of an operating plan?

a) Developing an organizational mission

b) Preparing financial statements .

c) Defining core values

d) Budgeting employee costs

- Mixed costs:  

a) Vary with production in direct proportion to volume

b) Vary with production but not in direct proportion to volume

c) Do not vary with production

d) Include only different types of fixed costs

- Which of the following is not an assumption when estimating a cost function over the relevant range of activity?

a) Mixed costs will change in total

b) Mixed costs will change per unit

c) Variable costs will be constant in total

d) Fixed costs will be constant in total.

- Paula’s Kennels is located in a small city in Nova Scotia. The company employs three pet attendants, four pet groomers, and two front office staff who book appointments and keep records. The Kennel provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. If the cost object is cost per day of boarding, which of the following is a direct cost?

a) Pet food

b) Front office staff salaries

c) Grooming supplies

d) Depreciation on shelving and equipment used in the grooming and retail area

- Fixed costs per unit:

a) Vary inversely with changes in volume

b) Change regardless of changes in volume

c) Will not change over the relevant range

d) Increase with an increase in volume

- What is the relationship between the margin of safety percentage and the degree of operating leverage?

a) They are unrelated

b) They are always the same

c) They are reciprocals

d) They are both subject to management bias

- At the breakeven point:

a) Sales will be equal to variable costs plus target profit

b) Sales will be equal to variable costs plus fixed costs

c) Sales will be equal to fixed costs plus target profit

d) Fixed costs will be equal to variable costs

Answer 1

Element of an operating plan?

Answer:

d) Budgeting employee costs

Employee cost is a part of operating cost

- Mixed costs:  

Answer:

b) Vary with production but not in direct proportion to volume

Mixed cost is partly fixed and partly variable. Hence it increases or decreases with increase or decrease of production level; but it is not directly proportional to volume

Assumption when estimating a cost function over the relevant range of activity:

The cost equation is Cost=F+Q*V

Where F is the fixed cost and V is the variable cost per unit .Q is the quantity of production.

Hence assumption is that Fixed costs will be constant in total.

Answer:

d) Fixed costs will be constant in total.

. If the cost object is cost per day of boarding, the following is a direct cost:

..a) Pet food

c) Grooming supplies

Fixed costs per unit:

Answer:

.a) Vary inversely with changes in volume

Suppose number of units produced =1000

Variable cost per unit=$10

Total Fixed costs=$10,000

Fixed cost per unit=10000/1000=$10

If the production volume increases to 1100,

The total variable cost will go up to $10*1100, but variable cost per unit will remain constant at $10.

Total fixed cost will remain constant at $10,000.

Fixed cost per unit will be 10000/1100=$9.09

Fixed cost per unit=F/Q

F= Total fixed cost=Constant

Q= Quantity of production

Hence, Fixed cost per unit is inversely proportional to the volume of production

Relationship between the margin of safety percentage and the degree of operating leverage:

.a) They are unrelated

Degree of operating leverage=(Sales- Variable cost)/(Sales-Variable Cost-Fixed cost)

It indicates percentage change in EBIT/percentage change in sales

Margin of safety percentage =(Sale-Breakeven sale)/Sales

At the breakeven point:

b) Sales will be equal to variable costs plus fixed costs

Breakeven point is rhe point at which Profit=0

Profit=Sales-Variable cost-Fixed cost

Sales-Variable cost-Fixed Cost=Profit =0 (at breakeven point)

Sales-Variable Cost=Fixed cost