# 50 Bachelor of Science in Accountancy University of Mindanao

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University of Mindanao

50 Bachelor of Science in Accountancy University of Mindanao

CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

MANAGEMENT ADVISORY SERVICES

ACTIVITY COST AND CVP ANALYSIS

THEORY

1 Which of the following statements is false?

A. At zero production level, variable costs are usually zero.

B. At zero production level, total costs equal total fixed costs.

C. At zero production level, fixed costs are positive.

D. At zero production level, fixed costs is also zero.

2. Variable costs are all costs

A. That are associated with marketing, shipping, warehousing, and billing activities.

B. That do not change in total for a given period and relevant range but become

progressively smaller on a per unit basis as volume increases.

C. Of manufacturing incurred to produce units of output.

D. That fluctuate in total in response to small changes in the rate of utilization of capacity.

3. NTQ, Inc.’s net sales in 1996 were 15% below the 1995 level. NTQ’s semi-variable costs

would

A. Increase in total and increase as a percentage of net sales.

B. Decrease in total and decrease as a percentage of net sales.

C. Increase in total, but decrease as a percentage of net sales.

D. Decrease in total, but increase as a percentage of net sales.

4. RST’s average cost per unit is the same at all levels of volume. Which of the following is

true?

A. RST must have only variable costs.

B. RST must have only fixed costs.

C. RST must have some fixed costs and some variable costs.

D. RST’s cost structure cannot be determined from this information.

5. Which of the following decision-making tools would NOT be useful in determining the slope

and intercept of a mixed cost?

A. linear programming C. high-low method

B. least-squares method D. scatter diagrams

6. A cost that bears an observable and known relationship to a quantifiable activity base is a(n)

A. Engineered cost. B. Indirect cost. C. Target cost. D. Fixed cost.

7. Costs that increase as the volume of activity decreases within the relevant range are

A. Average costs per unit. C. Total fixed costs.

B. Average variable costs per unit. D. Total variable costs.

8. When production levels are expected to increase within a relevant range and a flexible budget

is used. What effect would be anticipated with respect to each of the following costs?

A. B. C. D.

Fixed Costs per Unit Increase Increase Decrease Decrease

Variable Costs per Unit Increase No change Decrease No change

9. Weaknesses of the high-low method include all of the following except

A. only two observations are used to develop the cost function.

B. the high and low activity levels may not be representative.

C. the method does not detect if the cost behavior is nonlinear.

D. the mathematical calculations are relatively complex.

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10. The scatter diagram method of cost estimation

A. is influenced by extreme observations

B. requires the use of judgment

C. uses the least-squares method

D. is superior to other methods in its ability to distinguish between discretionary and

committed fixed costs

11. The number of variables used in simple regression analysis is:

A. two B. three C. one D. more than three

12. Regression analysis is superior to other cost behavior techniques because it

A. Examines only one variable. C. Proves a cause and effect relationship.

B. Produces measures of probable error. D. Is not a sampling technique.

13. The first to be undertaken in a simple regression analysis approach is

A. To calculate the coefficient correlation.

B. To make the least squares computation.

C. To plot two variables in a scatter diagram.

D. To find the standard error of estimate.

14. If the coefficient of correlation between two variables is zero, how might a scatter diagram of

these variables appear?

A. Random points.

B. A least squares line that slopes up to the right.

C. A least squares line that slopes down to the right.

D. Under this condition a scatter diagram could not be plotted on a graph.

15. The relevant range is

A. a relatively wide range of sales where total variable costs remain the same

B. a relatively wide range of sales where all costs remain the same

C. a relatively narrow range of production where total variable costs remain the same

D. a relatively wide span of production where total fixed costs are expected to remain the

same

16. Cost-volume-profit analysis is most important for the determination of the

A. Volume of operation necessary to break-even

B. Relationship between revenues and costs at various levels of operations

C. Variable revenues necessary to equal fixed costs

D. Sales revenue necessary to equal variable costs.

17. The sum of the costs necessary to effect a one-unit increase in the activity level is a(n)

A. Margin of safety. C. Marginal cost.

B. Opportunity cost. D. Incremental cost.

18. Which of the following assumptions does NOT pertain to cost-volume-profit analysis?

A. The units produced will equal the units sold

B. Inventories are constant

C. All costs are classified as fixed or variable

D. Sales mix may vary during the related period

E. The total revenues function is linear.

19. In a cost-volume-profit graph

A. the total revenue line crosses the horizontal axis at the breakeven point.

B. beyond the breakeven sales volume, profits are maximized at the sales volume where

total revenues equal total costs.

C. an increase in unit variable costs would decrease the slope of the total cost line.

D. an increase in the unit selling price would shift the breakeven point in units to the left.

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E. an increase in the unit selling price would shift the breakeven point in units to the right.

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