1. Mortgage payments typically consist of a set sum. Payments are applied to mortgagee’s accounts by first deducting interest that has accrued since the last payment and then applying the balance to the principle owed. As a result, payments applied during the first years of a mortgage are primarily interest and payments applied during the last years of a mortgage are primarily principle. A mortgagee (the person paying the mortgage) would most likely identify your mortgage payment as a:

A) mixed cost

B) committed fixed cost

C) purely variable cost

D) discretionary fixed cost

Explain:

2. An increase in total variable cost usually indicates:

A) the cost-driver activity level is increasing

B) the cost-driver activity level is decreasing

C) variable costs per unit is increasing

D) variable costs per unit is decreasing

Explain:

3. Which of the following represents full costs?

A. The cost of purchasing a pair of shoes for $50.

B. The raw materials used to manufacture a pair of shoes.

C. The raw materials, labor, and manufacturing overhead necessary to manufacture a pair of shoes.

D. The manufacturing overhead associated with manufacturing a pair of shoes.

Explain:

4. Which of the following represents a period cost?

A. The cost of expired prepaid insurance on raw materials inventory

B. The cost of telephones installed in the factory

C. The cost of rent paid for the factory (building in which products are made)

D. The cost of rent paid for the building housing office workers

Explain:

5. Which of the following is MOST LIKELY NOT a variable cost?

A. The cost of condiments served with a McDonald’s hamburger

B. The cost of a hamburger patty on a McDonald’s hamburger

C. The cost of the bun on a McDonald’s hamburger

D. The labor cost to cook a McDonald’s hamburger

Explain:

6. Which of the following is MOST LIKELY a fixed cost?

A. Rent on a retail store that is $1,000 per month plus 10% of sales.

B. Depreciation on a piece of equipment that is set at $0.57 per unit produced.

C. Advertising costing $10,000 billed on a one-year contract.

D.   The cost of applying $10 in paint to the side of each of four walls in pre-manufactured homes.

Explain:

7. Which of the following is MOST LIKELY a violation of the relevant range concept?

A. Lease payments of $1,000 are increased to $1,100 in the 6th month of a 12-month lease.

B. Monthly rental payments of $1,000 are increased to $1,100.

C. The cost of ink used in the manufacture of ball point pens increases from $0.05 to $0.055 per pen.

D. The cost of renting a retail store increases from $1,000 to $1,100 when the landlord expands the space for the tenant.

Explain:

8. Which of the following best describes a step cost?

A. Martha's Wine House employs several workers to bottle and pack each case of wine. Martha has new orders to fill and hires more workers.

B. A bank hires a teller when the number of customers that must be served during the rush hour increases from 100 to 125.

C. Jim's Fried Chicken has two french-fry-fryers in its Northside location. Jim finds that two fryers is not sufficient to fill orders and purchases one more fryer.

D. Smith's Cow Palace, a dairy farm, feeds its cows hay costing $50 per bundle each day during the summer months. During the winter months the cows eat two bundles per day at a cost of $60 per bundle.

Explain:

9. Which of the following is MOST LIKELY described as a mixed cost?

A. Joe's Fish Farm purchases fish food at a cost of $100 per barrel plus $10 shipping.

B. The cost of a phone line to your home which is billed at $30 per month plus 7% tax.

C. Millicent's Fine Hats pays its workers $10 per hour and $1 per hat produced.

D. During the summer, Steve's Squash Farm buys fertilizer costing $0.50 per plant for its 100 plants. During the winter, Steve pays $0.50 for the fertilizer for its 50 plants.

Explain:

10. Which of the following is MOST LIKELY a direct cost?

A. The wood to build a podium in a classroom.

B. The nails and glue to build a podium in a classroom.

C. The supervisors who supervises the three workers building classroom podiums.

D. The labor of one worker building classroom podiums and stools.

Explain: