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Questions and Answers
What type of cost changes in direct proportion to changes in the cost driver level?
What type of cost changes in direct proportion to changes in the cost driver level?
- Variable cost (correct)
- Total cost
- Fixed cost
- Overhead cost
Fixed costs are affected by changes in the cost drivers.
Fixed costs are affected by changes in the cost drivers.
False (B)
How do variable costs behave when the cost driver level changes?
How do variable costs behave when the cost driver level changes?
They change in direct proportion to changes in the cost driver level.
A cost that remains unchanged regardless of the level of cost drivers is known as a ______ cost.
A cost that remains unchanged regardless of the level of cost drivers is known as a ______ cost.
Match the following types of costs with their characteristics:
Match the following types of costs with their characteristics:
Which of the following statements is true regarding fixed costs?
Which of the following statements is true regarding fixed costs?
What happens to the per-unit amount of a fixed cost when production increases?
What happens to the per-unit amount of a fixed cost when production increases?
Which of the following is considered a variable cost?
Which of the following is considered a variable cost?
Per-unit variable costs remain unchanged regardless of changes in the cost driver.
Per-unit variable costs remain unchanged regardless of changes in the cost driver.
The product life cycle includes the stages of conception, market introduction, and withdrawal.
The product life cycle includes the stages of conception, market introduction, and withdrawal.
What do managers need to consider at each stage of the product life cycle?
What do managers need to consider at each stage of the product life cycle?
The process through which a product passes from creation to _____ is called the product life cycle.
The process through which a product passes from creation to _____ is called the product life cycle.
Which of the following activities is necessary for a company to create goods or services?
Which of the following activities is necessary for a company to create goods or services?
The costs incurred during product conception are the same as those in the market maturation stage.
The costs incurred during product conception are the same as those in the market maturation stage.
Name one cost driver that can affect the installation cost of seats.
Name one cost driver that can affect the installation cost of seats.
Match the following stages of the product life cycle with their descriptions:
Match the following stages of the product life cycle with their descriptions:
What is the expected total revenue for the Ramos company?
What is the expected total revenue for the Ramos company?
The variable cost per unit for wallets is $3.
The variable cost per unit for wallets is $3.
How many total units does the Ramos company expect to sell?
How many total units does the Ramos company expect to sell?
The total variable cost for the Ramos company amounts to ______.
The total variable cost for the Ramos company amounts to ______.
Which product has a higher expected unit price?
Which product has a higher expected unit price?
The contribution margin is expected to be positive.
The contribution margin is expected to be positive.
What are the total expected variable costs for key cases?
What are the total expected variable costs for key cases?
Match the products with their respective expected revenue:
Match the products with their respective expected revenue:
What is relevant information primarily concerned with?
What is relevant information primarily concerned with?
Past information is considered relevant in the decision-making process.
Past information is considered relevant in the decision-making process.
What are the two criteria that make information relevant?
What are the two criteria that make information relevant?
The decision-making activity can be seen as a process that requires ________ steps.
The decision-making activity can be seen as a process that requires ________ steps.
Which of the following should not be considered when selecting information for decision-making?
Which of the following should not be considered when selecting information for decision-making?
Managers should analyze all accounting information in their decision-making process.
Managers should analyze all accounting information in their decision-making process.
What is the first step in the decision-making process?
What is the first step in the decision-making process?
Match the following terms with their descriptions:
Match the following terms with their descriptions:
What is the total amount of selling expenses?
What is the total amount of selling expenses?
The total administrative expenses amount to $1,800,000.
The total administrative expenses amount to $1,800,000.
What is the gross margin reported in the Absorption Income Statement?
What is the gross margin reported in the Absorption Income Statement?
The total fixed costs for selling expenses amount to ______.
The total fixed costs for selling expenses amount to ______.
Match the following costs to their categories:
Match the following costs to their categories:
Which of the following represents the total manufacturing costs?
Which of the following represents the total manufacturing costs?
What is the net income reported in the Absorption Income Statement?
What is the net income reported in the Absorption Income Statement?
A positive net income indicates that total fixed costs are higher than the total contribution margin.
A positive net income indicates that total fixed costs are higher than the total contribution margin.
Study Notes
Cost Drivers and Product Life Cycle
- Total cost is influenced by cost drivers, e.g., the installation of seats costing $12,000 is a variable cost linked to operational requirements.
- Product life cycle encompasses stages: conception, market introduction, market maturation, and market withdrawal, with varying costs and returns at each stage.
- Understanding the value chain is crucial, involving business functions that enhance product or service value.
Classification of Costs
- Costs are categorized as variable or fixed based on how they respond to changes in cost drivers.
- Variable costs fluctuate directly with changes in cost driver levels, while fixed costs remain constant regardless of driver changes.
- Cost analysis involves distinguishing between fixed costs on a total basis and variable costs on a per-unit basis.
Contribution Margin and Income Statement
- The Ramos company plans to sell 300,000 wallets at $8 each and 75,000 key cases at $5, totaling expected revenue of $2,775,000.
- Variable costs are estimated at $7 per wallet and $3 per key case, summing total variable costs to $2,325,000.
- Positive contribution margin anticipated as variable costs are lower than expected revenues.
Decision-Making and Relevant Information
- Relevant information in decision-making includes future costs and revenues that vary among alternatives, while past information serves primarily for prediction.
- Criteria for relevant information: must be expected (future) and exhibit differences among alternatives.
- The decision-making process involves gathering information, analyzing alternatives, and selecting information that minimizes costs or maximizes profits.
Income Statements
-
Absorption Income Statement includes total revenues and all manufacturing costs, highlighting gross margin.
- Sales/Revenues: $40,000
- Total Manufacturing Costs: $30,000 (Direct materials, labor, and indirect costs)
- Gross Profit: $10,000
- Non-Manufacturing Costs total $8,000 leading to Net Income of $2,000.
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Contribution Approach Income Statement separates variable and fixed costs, indicating a positive net income when total fixed costs remain below total contribution margin.
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Description
This quiz explores the relationship between variable costs and cost drivers in the context of product life cycles. Understand how changes in requirements, such as the number of seats or hours necessary for installation, can affect overall expenses. Dive into the fundamentals of cost management and the implications for project planning.
