QUESTION 1

All of the following statements are true except:
An activity base is a measure of whatever causes the incurrence of a variable cost.
Variable and fixed costs are affected by changes in activity within the relevant range.
Mixed costs contain both variable and fixed cost elements.
Because total fixed costs remain constant for large variations in the level of activity, the average fixed cost per unit becomes progressively smaller as the level of activity increases.

QUESTION 2
Which of the following statements is true with regard to the high-low method?
The high-low method calculates a cost formula for fixed costs which is the slope of the line using the highest and lowest data points.
The high-low method is a more accurate method compared to the least-squares regression method because all data points are used when calculating the cost formula.
The high-low method is a way to analyze fixed costs based on calculating the slope of a line using all data points.
The cost formula calculated using the high-low method (and, therefore, only two data points) may misrepresent the true cost behavior during normal periods.

QUESTION 3
The difference between a traditional format income statement and a contribution format income statement is:
that the traditional format organizes costs by cost behavior, while the contribution format organizes costs by function.
that the traditional format calculates gross margin which is equal to cost of goods sold minus fixed costs, while the contribution format calculates contribution margin which is cost of goods sold minus variable costs.
that the traditional format organizes costs for internal use only, while the contribution format organizes costs for stockholders and creditors.
that the traditional format organizes costs into cost of goods sold and selling and administrative expenses, while the contribution format organizes costs into variable and fixed costs.

QUESTION 4
Which of the following statements is false?
Direct materials, direct labor and manufacturing overhead are the three basic manufacturing cost categories and are also classified as product costs.
Direct materials, direct labor and manufacturing overhead are the three basic manufacturing cost categories, but only direct materials and direct labor can be traced directly to finished products.
Direct materials, direct labor and manufacturing overhead are the three basic manufacturing cost categories while selling and administrative costs are classified as period costs.
Direct materials, direct labor and manufacturing overhead are the three basic manufacturing cost categories that can be traced directly to finished products.

QUESTION 5
All of the following statements are true except?
Total variable costs decrease in proportion to changes in the activity level.
A variable cost remains constant per unit.
A variable cost varies per unit and in total.
Total variable costs increase in proportion to changes in the activity level.