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Marginal Costing- Classification of Expenses - Warm up Excercise Part 2
This article is a continuation of the warm up excercise on Classification of expenses in Marginal costing. You will find more interesting questions about behaviour of cost in shipping departments, retailers, poperty taxes. administrative offices, business, proprietors, salaries, depreciation in equipments etc.
Table of Contents [hide]
Cost behaviour
Q: The expense of operating the shipping department is likely to follow which cost behavior?
Fixed
Mixed
Variable
Which one is right?
Answer:
The answer is Mixed.
Reason:
The shipping department will likely have some expenses that are fixed.
(depreciation of equipment)
Q: The property tax on the administrative office building is likely to follow which cost behavior?
Fixed
Mixed
Variable
Which one is right?
Answer:
The answer is Fixed.
Reason:
The property tax on the office building will not change because of reasonable change in Sales volume or other activity.
Q: A retailer's cost of goods sold is likely to behave as which type of cost?
Fixed
Mixed
Variable
Which one is right?
Answer:
The answer is Variable.
Reason:
A retailer’s cost of goods will increase in total as sales increases and decreases in total as sales decreases.
Fixed Cost
Q: An example of a fixed expense would be a 5% sales commission.
Whether this statement is True or False?
Answer:
This statement is false.
Reason:
5% sales commission is an example of variable expense.
Q: Property taxes and rent are often fixed expenses.
Whether this statement is True or False?
Answer:
This statement is true.
Reason:
Property tax do not vary with Sales. Rather they are fixed because they are based upon as assessed value of the property.
Rent is generally based on the value of the property and competitive rates per sq. ft. Hence, rent usually will not with Sales.
(An exception would be retail mall where it may be agreed that rent will be based on sales)
Variable Cost
Q: An example of a variable expense is an office manager's monthly salary.
Whether this statement is True or False?
Answer:
This statement is false.
Reason:
Usually an officer’s salary is fixed in total. The salary is unlikely to change in the months when the sales volume changes.
Q: A retailer's cost of goods sold is an example of a variable expense.
Whether this statement is True or False
Answer:
This statement is true.
Reason:
In a retailer shop, if more units of goods are sold, then sales revenue increases and the cost of goods sold also increases. When fewer units of goods are sold, then sales revenue decreases and the cost of goods sold also decreases.
Fill in the blanks
Q: Fill in the Blanks
Past, historical costs are also known as ______________ costs.
Expenses that are part fixed and part variable are known as __________ costs.
The statistical tool used to determine the fixed and variable portions of a mixed expense is _____________ analysis.
Answer:
Past, historical costs are also known as sunk costs.
Expenses that are part fixed and part variable are known as mixed costs.
The statistical tool used to determine the fixed and variable portions of a mixed expense is regression or least-squares method analysis.
Classify Costs
Q: “A sole proprietor's compensation will be included in Salaries Expense.”
Whether this statement is True or False
Answer:
This statement is false.
Reason:
A sole proprietor does not receive salary. Rather any amount withdrawn from the company for the proprietor’s personal use is debited to the proprietor’s drawing account. The drawing account is a contra to the owner’s Equity Account.
Q: For a typical business, how would you classify the following costs
(i.e., variable, committed fixed, discretionary fixed, or mixed.)
a. Annual insurance premium
b. Phone bill
c. Raw material costs
d. Factory depreciation
e. Advertising
f. Charitable contributions
Answer:
(a) Annual insurance premium - Committed fixed
(b) Phone bill - Mixed
(c) Raw material costs - Variable
(d) Factory depreciation - Committed fixed
(e) Advertising - Discretionary fixed
Related Articles
Use the links below to see other articles in the same category.
Tags:
Management Accounting
Tags:
Marginal Costing This article is part of a book. Use the below links to navigate through the book.
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