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4 MCQs on costs

1. Since Anytime Pizza is open 24 hours a day, its pizza oven is constantly on and is, therefore, always using natural gas. However, when ther is no pizza in the oven, the oven automatically lowers its flame and reduces its natural gas usage by 70%. The cost of natural gas would best be described as a:
Fixed cost,
Mixed cost,
Step-variable cost,
or True variable cost?

2. Within the relevant range, variable costs can be expected to:
Vary in total in direct proportion to changes in the activity level,
Remain constant in total as the activity level changes,
Increase on a per unit basis as the activity level increases,
Increase on a per unit basis as the activity level decreases,
or None of these?

3. Discretionary fixed costs:
Cannot be changed since they are fixed,
Have a long-term planning horizon - generally encompassing many years,
are made up of facilities, equipment, & basic organization,
Are a combination of the the 2nd and 3rd,
None of these?

4. An example of a committed fixed cost is:
Management training seminars,
A long-term equipment lease,
Research / development,
or Advertising?

5. Contribution margin is:
Sales less cost of goods sold,
Sales less variable production, variable selling, and variable administrative expense,
Sales less variable production expenses,
Sales less all variable and fixed expenses,
or none of these?

Solution Summary

This posting contains answers to 4 MCQs on different types of costs.