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Marginal Costing- Classification of Expenses - Warm up Excercise Part 1
This article is a simple test of your knowledge in the Marginal costing expenses- fixed, variable, mixed expenses, sales commissions etc.
In this chapter, you will find different types of questions all accurately answered - true or false with reasons, fill in the blanks, multiple choice and FAQs.
Table of Contents [hide]
Fixed Expenses
Q: Why does the fixed cost per unit change?
Answer:
Fixed costs will not change in total within a reasonable range of volume or activity.
For example, the rent is $5,000 per month and the Manager’s salary is $7,000 per month. The volume is 3,000 units in one month and 4,000 units in another month
The total fixed cost is $12,000 per month ($5,000 + $7,000) whether the volume is 3,000 units or 4,000 units.
Whereas the fixed cost per unit will change as the level of volume or activity changes.
The fixed cost per unit is $4 when the volume is 3,000 units
($12,000 divided by 3,000 units).
When the volume is 4,000 units, the fixed cost per unit is $3
($12,000 divided by 4,000 units).
Q: Fixed expenses are best described as expenses that remain the same
- in total even when volume triples
- in total within a reasonable change in volume
- on a per unit basis as volume changes
Which one is right?
Answer:
In total within a reasonable change in volume - right
Reason:
Fixed Expenses are assumed to be the same in total only in a reasonable range of volume.
Fixed Expenses are the ones that do not change in total.
Q: Fixed Expenses do not change in total when there is a modest change in sales.
Whether this statement is True or False?
Answer:
This statement is true.
Reason:
The total of fixed expenses is fixed (does not change) as the volume increases or decreases by reasonable amount.
Q: If a company's sales were to triple, some fixed expenses are likely to increase.
Whether this statement is True or False?
Answer:
This statement is true.
Reason:
Expenses remain fixed in a reasonable range of sale or other activity.
Variable Expenses
Q: Variable expense are best described as expenses that change
- in total as volume changes
- on a per unit basis as volume changes
Which one is right?
Answer:
In total as volume changes - right
Reason:
Variables expenses change in total as volume changes. They are fixed on a per unit basis.
Q: A variable expense means that per unit amount will vary with sales.
Whether this statement is True or False?
Answer:
This statement is false.
Reason:
It is constant on a per unit basis. It varies in total as sales vary.
Q: Variable expenses change in total as volume changes.
Whether this statement is True or False?
Answer:
This statement is true.
Reason:
Variance expenses will increase in total as volume increases and decrease in total as volume decreases.
Mixed Expenses
Q: If a company has mixed expenses, the fixed component can be combined with the company's fixed expenses and the variable component can be combined with the company's variable expenses.
Whether this statement is True or False?
Answer:
This statement is true.
Q: The salary of the vice-president of human resources is likely to be classified into which cost behavior?
Fixed
Mixed
Variable
Which one is right?
Answer:
The answer is Fixed.
Reason:
The salary of the vice-president of human resources is not likely to change within a reasonable range of sales or other activity.
Classification of Expenses
Q: The office rent is likely to be classified into which cost behavior?
Fixed
Mixed
Variable
Which one is right?
Answer:
The answer is Fixed.
Reason:
The office rent is not likely to change within a reasonable range of sales or other activity.
Q: Commissions Expense is likely to be classified into which cost behavior?
Fixed
Mixed
Variable
Which one is right?
Answer:
The answer is Variable.
Reason:
Sales commission is a variable expense because the total amount of sales commission will increase in proportion to the increase in sales and it will decrease in total as sales decrease.
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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