Cost Management Paper 5

1

Management has prepared a graph showing the total costs of operating branch warehouses throughout the country. The cost line crosses the vertical axis at $200,000. The total cost of operating one branch is $350,000. The total cost of operating ten branches is $1,700,000. For purposes of preparing a flexible budget based on the number of branch warehouses in operation, what formula should be used to determine budgeted costs at various levels of activity?






2

Management has prepared a graph showing the total costs of operating branch warehouses throughout the country. The cost line crosses the vertical axis at $200,000. The total cost of operating one branch is $350,000. The total cost of operating ten branches is $1,700,000. For purposes of preparing a flexible budget based on the number of branch warehouses in operation, what formula should be used to determine budgeted costs at various levels of activity?






3

Parker Company pays each member of its sales staff a salary as well as a commission on each unit sold. For the coming year, Parker plans to increase all salaries by 5% and to keep unchanged the commission paid on each unit sold. Because of increased demand, Parker expects the volume of sales to increase by 10%. How will the total cost of sales salaries and commissions change for the coming year?






4

Production levels are expected to increase within the relevant range. What are the anticipated effects on the following?
Fixed Costs per Unit
Variable Costs per Unit






5

A fixed cost that would be considered a direct cost is






6

Which one of the following is correct regarding a relevant range?






7

Which one of the following refers to a cost that remains the same as the volume of activity decreases within the relevant range?






8

The relevant range refers to the activity levels over which






9

Cell Company has discovered that the cost of processing customer invoices is strictly variable within the relevant range. Which one of the following statements concerning the cost of processing customer invoices is incorrect?






10

When identifying fixed and variable costs, which one of the following is a typical assumption concerning cost behavior?






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