Question 2-Various -10 Minutes, 5 Marks) Circle the correct answer 1. Within the

Question

Question 2-Various -10 Minutes, 5 Marks) Circle the correct answer 1. Within the relevant range of activity, which costs remain the same in a neither fixed nor variable. b fixed c variable d. both fixed and variable 2. The total contribution margin increases if sales volume remains the same and a. fixed expenses increase. b. fixed expenses decrease. c. variable expense per unit increases d. variable expense per unit decreases 3. Within the relevant range of activity, which costs remain the same in total. a. neither fioxed nor variable. b. foxed c variable. d. both fixed and variable 4. Which of the following assumptions are false? a. the average fixed cost per unit decreases as activity level increases b. product costs are always variable costs. c. total variable costs decrease as the activity level decreases d. variable costs per unit increases as the activity level increases. 5. Contribution Margin Ratio always increases when: a. volume of sales increase. b. fixed costs decrease. c. total variable costs decrease. d. variable costs as a percentage of sales decrease.

Explanation / Answer

1. Within the relevant range of activity, Which costs remain the same in total.
Answer: (b) fixed

Fixed costs do not vary with the production level. Total fixed costs remain the same, within the relevant range. (Answer 1 & 3). However, the fixed cost per unit decreases as production increases, because the same fixed costs are spread over more units.

2. The total contribution margin increases if sales volume remains the same and:
Answer : (d) variable expense per unit decreases.

Contribution margin is defined as selling price minus variable cost so when volume remains same total contribution margin will increase if 1. Sales price per unit increases or 2. Variable cost per unit decreases.

3. Within the relevant range of activity, Which costs remain the same in total.
Answer: (b) fixed

Fixed costs do not vary with the production level. Total fixed costs remain the same, within the relevant range. (Answer 1 & 3). However, the fixed cost per unit decreases as production increases, because the same fixed costs are spread over more units.

4. Which of the following assumptions are false?
Answer: (b) product costs are always variable costs.

(d) variable costs per unit increases as the activity level increases.

A product cost is an expense incurred to produce a product that is capitalized as inventory. In other words, this costs provide are necessary to manufacturer a finished good. Product costs typically include direct materials, direct labour, and factory overhead. Costs of production may include many of the fixed and variable costs of operating a business.

Variable costs vary in a linear fashion with the production level. However, when stated on a per unit basis, variable costs remain constant across all production levels within the relevant range.

5. Contribution Margin Ratio always increases when:

Answer : (d) variable costs as a percentage of sales decreases

CM Ratio = (Unit Price – Unit Variable Cost) / Unit Price

So Contribution Margin Ratio always increases when variable costs as a percentage of sales decreases.

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