Junior Philippine Institute of Accountants

University of Cebu – Banilad Chapter

FIXED AND VARIABLE COSTING TEST BANK

True or False
1. A variable cost remains constant on a per unit basis as production increases.
2. A fixed cost remains constant on a per unit basis as production changes.
3. The relevant range is valid for all levels of activity.
4. An indirect cost can be easily traced to a cost object.
5. Both accountants and economists view variable costs as linear in nature.
6. Fixed cost per unit varies directly with production.
7. Variable cost per unit remains constant within the relevant range.
8. A cost that shifts upward or downward when activity changes by a certain interval
is referred to as a mixed cost.
9. A variable cost will be an effective cost driver.
10. Variable costing is not permitted for income tax purposes, but it is widely accepted
for external financial reports.

Multiple Choice

1. Which of the following defines variable cost behavior?

Total cost reaction Cost per unit reaction

to increase in activity to increase in activity

a. remains constant remains constant

b. remains constant increases
c. increases increases
d. increases remains constant

2. Which of the following would not generally be considered a fixed overhead cost?

Straight-line Factory Units-of-production

depreciation insurance depreciation

a. no no no
b. yes no yes
c. yes yes no
d. no yes no
3. An example of a fixed cost is

a. total indirect material cost.

b. total hourly wages.
c. cost of electricity.
d. straight-line depreciation.

4. A cost that remains constant in total but varies on a per-unit basis with changes
in activity is called a(n)

a. expired cost.
b. fixed cost.
c. variable cost.
d. mixed cost.

5. When the number of units manufactured increases, the mostsignificant change in

unit cost will be reflected as a(n)

a. increase in the fixed element.

b. decrease in the variable element.
c. increase in the mixed element.
d. decrease in the fixed element.

6. Broussard Company is a construction company that buildshouses on special

request. What is the proper classification of the cost of the cemnt building slab
used

Direct Fixed

a. no no
b. no yes
c. yes yes
d. yes no

7. Which of the following costs would be considered overhead in theproduction of

chocolate chip cookies?

a. flour
b. chocolate chips
c. sugar
d. oven electricity

8. Depreciation based on the number of units produced is classified as what type of

cost?

a. Out-of-pocket
b. Marginal
 c. Variable
d. Fixed

9. A cost that remains unchanged on a per unit basis in a given time period despite
changes in the level of activity should be considered.

a. A prime cost
b. An overhead cost
c. A fixed cost
d. A variable cost

10. Unit Fixed costs

a. Are constant per unit regardless of units produced or sold

b. Are determined by dividing total fixed costs by a denominator such as
production or sales volume
c. Vary directly with the activity level when stated on a per unit basis
d. Include both fixed and variable elements

CLASSIFY EACH COST AS VARIABLE OR FIXED COST

1. Meat costs the company $3.25 per pound of sausage produced.
2. Compensation of production employees is $2.25 per pound of sausage produced.
3. Supervisory salaries total $23,000 per month.
4. Truck fuel consumed by a road construction company.
5. Insurance and property taxes average $6,400 per month.

PROBLEM SOLVING
Problem # 1
Viscount Corporation has a machining capacity of 200,000 hours per year. Utilization of
capacity is normally 75%; it has been as low as 40% and as high as 90%. An analysis of
the accounting records revealed the following selected costs:
At a 40% At a 90%
Utilization Rate Utilization Rate
COST A:
Total $440,000 $440,000
Per hour $5.50 ?
COST B:
Total ? $1,944,000
Per hour $10.80 $10.80
COST C:
Total $680,000 $1,330,000
Per hour $8.50 $7.39
1. Calculate amounts for the two unknowns in the preceding table.
Problem # 2
Selected account balances for the year May 31, 2011, are provided below for Khyle
Company.
Insurance factory 65,000
Utilities factory 70,000
Indirect labor 360,000
Direct Labor 1,300,000
Advertising expense 55,500
Rent, factory building 960,000
Depreciation expense 130,000
Direct materials 1,100,000
Interest expense 75,000
Sales agent’s commission 125,000

1. Compute the total fixed cost.

2. Compute the total variable cost.
3. Assuming the company produces 20,000 units during the year, compute the cost per
unit of:
a. Direct materials
b. Rent, factory building
4. Assume that in 2012, the company produces 30,000 units, compute:
a. Direct material cost per unit
b. Rent on factory building per unit
c. Direct material total cost
d. Total rent on factory building
Problem #3
ABC Company, a toy manufacturing unit, manufactures P10,000 number of toys in April
2019. The total fixed cost for that month is P8,500 and the variable per unit is P2.50.
1. Compute the fixed cost per unit
2. Compute the total variable cost

Problem #4
XYZ Ltd, a shoe manufacturing unit has the following information available:
Raw materials cost per unit P25
Total number of shoe manufacturer is 1,000
Labor charge is P45 per hour
Time taken to produce a shoe is 30 minutes
The total cost of production is P80,000

Calculate the total variable cost per unit.

ANSWERS:
True or False Multiple Choice Fixed or Variable
1. True 6. False 1. D 6. D 1. Variable Cost
2. False 7. True 2. C 7. D 2. Variable Cost
3. False 8. False 3. D 8. D 3. Variable Cost
4. False 9. True 4. B 9. D 4. Fixed Cost
5. False 10. False 5. D 10. B 5. Fixed Cost

Problem Solving:
Problem #1:
Cost A: $440,000 ÷ (200,000 hours x 90%) = $2.44
Cost B: (200,000 hours x 40%) x $10.80 = $864,000
Problem #2:
Fixed Cost Variable Cost
Insurance factory 65,000 65,000
Utilities factory 70,000 70,000
Indirect labor 360,000 360,000
Direct Labor 1,300,000 1,300,000
Advertising expense 55,500 55,500
Rent, factory building 960,000 960,000
Depreciation expense 130,000 130,000
Direct materials 1,100,000 1,100,000
Interest expense 75,000 75,000
Sales agent’s commission 125,000 125,000
TOTAL 1,220,500 3,020,000
3. 20,000 units:
a. 1,100,000/20,000 = 55.00
b. 960,000/20,000 = 48.00
4. 30,000 units:
a. 55.00 remains unchanged
b. 960,000/30,000 = 32.00
c. 55 x 30,000 = 1,650,000
d. 960,000 remains unchanged

Problem #3:
1. 8,500/10,000 = 0.85
2. 2.50 X 10,000 = 25,000

Problem #4:
1. (P25 + P45) x 30mins./60mins.
70 x 0.50 = P35.00