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Trang 1Chapter 4: Cost Classification and
Behaviour Exam
Prepared for Students
August 12, 2025
Trang 21 Part 1: Questions
This section contains 35 multiple-choice questions on Chapter 4 content Each question may require selecting one correct answer, all that apply, or other formats Students should answer
on separate answer sheets
1 Which of the following should be classified as indirect labour?
A Machinists in a factory producing clothes
B Assembly workers on a car production line
C Bricklayers in a house building company
D Truck drivers in the stores of an engineering company
2 An organisation has the following costs at two activity levels:
Activity level (units) Total costs ($)
The variable cost per unit is constant within this range of activity, but there is a step up
of $5,000 in the total fixed costs when the activity exceeds 17,500 units What is the total cost at an activity of 20,000 units?
A $163,000
B $160,000
C $155,000
D $158,000
3 An organisation has the following costs at two activity levels:
Activity level (units) Total costs ($)
What is the total cost at an activity of 22,000 units?
A $120,000
B $115,000
C $130,000
D $125,000
Trang 34 Which of the following costs for a manufacturing organisation would be classified as pro-duction costs? (Select all that apply)
A Commission paid to the sales persons
B Packing the products before moving them to the warehouse
C Inspecting all products
5 A semi-variable cost is one that, in the short-term, remains the same over a given range
of activity but beyond that increases and then remains constant at the higher level of activity Is this statement true or false?
A True
B False
6 Which of the following is an example of a fixed cost?
A Raw materials used in production
B Rent for the factory building
C Wages paid to hourly workers
D Electricity costs for machinery
7 Variable costs are those that:
A Remain constant regardless of activity level
B Change in proportion to the level of activity
C Increase in steps at certain activity levels
D Are fixed in the short term but variable in the long term
8 Which of the following is classified as a direct cost?
A Factory supervisor’s salary
B Depreciation of factory equipment
C Timber used in furniture manufacturing
D Maintenance costs for machinery
9 Semi-variable costs include:
A Only fixed components
Trang 4B Only variable components
C Both fixed and variable components
D Neither fixed nor variable components
10 Stepped fixed costs increase:
A Continuously with activity level
B In proportion to activity level
C At specific points or thresholds of activity
D Randomly over time
11 In cost behaviour, the high-low method is used to:
A Classify costs as direct or indirect
B Separate fixed and variable costs
C Determine production costs only
D Calculate total overheads
12 Which of the following is an indirect cost?
A Direct materials
B Direct labour
C Factory rent
D Assembly line wages
13 True or False: Fixed costs per unit decrease as production volume increases
A True
B False
14 An example of a semi-variable cost is:
A Annual insurance premium
B Telephone bill with a fixed line rental and usage charges
C Property taxes
D Salary of the CEO
Trang 515 In a manufacturing company, quality control inspections are typically classified as:
A Direct costs
B Variable costs
C Indirect costs
D Fixed costs
16 The contribution margin is calculated as:
A Sales revenue minus fixed costs
B Sales revenue minus variable costs
C Total costs minus fixed costs
D Variable costs minus fixed costs
17 Which costs are relevant for decision-making?
A Sunk costs
B Historical costs
C Future costs that differ between alternatives
D All past costs
18 True or False: Variable costs per unit remain constant as activity levels change
A True
B False
19 Overhead costs are usually:
A Direct costs
B Indirect costs
C Variable costs only
D Fixed costs only
20 In cost classification, prime costs include:
A Direct materials and direct labour
B Direct materials and overheads
Trang 6C Direct labour and overheads
D All indirect costs
21 A cost that is fixed in total but variable per unit is:
A A variable cost
B A fixed cost
C A semi-variable cost
D A stepped cost
22 Which of the following is a non-production cost? (Select all that apply)
A Selling and distribution costs
B Administration costs
C Factory overheads
D Direct materials
23 The break-even point is where:
A Total revenue equals total costs
B Total revenue exceeds total costs
C Fixed costs equal variable costs
D Contribution margin is zero
24 In the high-low method, the variable cost per unit is calculated as:
A Change in cost divided by change in activity
B Total cost divided by activity level
C Fixed cost divided by activity level
D Contribution divided by sales
25 True or False: All fixed costs are unavoidable in the short term
A True
B False
26 An avoidable cost is one that:
Trang 7A Can be eliminated by choosing a different alternative
B Remains the same regardless of the decision
C Has already been incurred
D Is fixed in nature
27 Which of the following is an example of a sunk cost?
A Future rental payments
B Cost of machinery already purchased
C Expected future revenues
D Variable production costs
28 Marginal cost is:
A The total cost of production
B The cost of producing one additional unit
C Fixed costs per unit
D Average variable cost
29 In cost-volume-profit analysis, the margin of safety is:
A The difference between actual sales and break-even sales
B The contribution margin ratio
C Fixed costs divided by contribution per unit
D Variable costs as a percentage of sales
30 Which costs are classified as period costs?
A Production costs
B Selling and administrative costs
C Direct materials
D Direct labour
31 True or False: Opportunity costs are recorded in the financial accounts
A True
Trang 8B False
32 An opportunity cost is:
A The cost of the best alternative forgone
B A sunk cost
C An unavoidable cost
D A historical cost
33 In absorption costing, fixed overheads are:
A Treated as period costs
B Allocated to units produced
C Ignored in cost calculations
D Subtracted from variable costs
34 Which of the following is true about marginal costing? (Select all that apply)
A Fixed costs are treated as period costs
B It is useful for decision-making
C Inventory is valued at variable cost only
D Fixed costs are allocated to units
35 The relevant range is the range of activity where:
A Costs behave unpredictably
B Fixed costs remain constant and variable costs per unit are constant
C All costs are variable
D Stepped costs do not occur
Trang 92 Part 2: Answers and Detailed Explanations
This section is for instructors Each answer includes an explanation based on fundamental cost classification and behaviour concepts
1 D Truck drivers in the stores of an engineering company Explanation: Indirect
labour supports production but is not directly traceable to products Machinists, assembly workers, and bricklayers are direct labour involved in production Truck drivers in stores are indirect as they handle materials but do not directly produce goods
2 B $160,000 Explanation: Using the high-low method adjusted for the step: Variable cost
= ($170,000 - $135,000 - $5,000) / (22,000 - 16,000) = $30,000 / 6,000 = $5 per unit Fixed cost below 17,500 = $135,000 - 16,000×$5 = $55, 000.At20, 000units(above17, 500), totalcost =
$55, 000 + $5, 000 + 20, 000 × $5 = $160, 000.
3 A $120,000 Explanation: Variable cost = ($135,000 - $110,000) / (25,000 - 20,000) = $25,000
/ 5,000 = $5 per unit Fixed cost = $110,000 - 20,000×$5 = $10, 000.At22, 000units : $10, 000+
22, 000 × $5 = $120, 000.
4 B, C Explanation: Production costs include costs incurred in manufacturing Packing and
inspecting are part of production Sales commission is a selling cost, not production
5 B False Explanation: The statement describes a stepped fixed cost, not a semi-variable cost.
Semi-variable costs have both fixed and variable elements that change continuously with activity
6 B Rent for the factory building Explanation: Fixed costs remain constant regardless of
activity level Raw materials and wages are variable, electricity is semi-variable
7 B Change in proportion to the level of activity Explanation: Variable costs vary directly
with activity (e.g., materials) Fixed costs remain constant, stepped costs increase at thresholds
8 C Timber used in furniture manufacturing Explanation: Direct costs are traceable to
products Timber is direct material Supervisor salary, depreciation, and maintenance are indirect
9 C Both fixed and variable components Explanation: Semi-variable costs have a fixed base
and a variable portion (e.g., utility bills)
10 C At specific points or thresholds of activity Explanation: Stepped fixed costs remain
constant within ranges but jump at certain activity levels (e.g., adding a supervisor)
Trang 1011 B Separate fixed and variable costs Explanation: The high-low method estimates variable
and fixed costs from highest and lowest activity data
12 C Factory rent Explanation: Indirect costs cannot be traced directly to products Rent is
overhead Direct materials and labour are direct
13 A True Explanation: Fixed costs in total are constant, so per unit they decrease as volume
increases (spreading over more units)
14 B Telephone bill with a fixed line rental and usage charges Explanation: This has a
fixed component (rental) and variable (usage) Others are purely fixed
15 C Indirect costs Explanation: Quality inspections are overhead, not directly traceable to
units, though they may be semi-variable in behaviour
16 B Sales revenue minus variable costs Explanation: Contribution margin covers fixed costs
and contributes to profit
17 C Future costs that differ between alternatives Explanation: Relevant costs are
incre-mental and avoidable Sunk and historical costs are irrelevant
18 A True Explanation: Variable costs per unit are constant within the relevant range.
19 B Indirect costs Explanation: Overheads are indirect costs allocated to products They can
be fixed, variable, or semi-variable
20 A Direct materials and direct labour Explanation: Prime costs are the main direct costs
of production
21 B A fixed cost Explanation: Fixed costs are constant in total but vary per unit inversely with
activity
22 A, B Explanation: Non-production costs include selling, distribution, and administration
Fac-tory overheads and direct materials are production costs
23 A Total revenue equals total costs Explanation: At break-even, profit is zero.
24 A Change in cost divided by change in activity Explanation: This gives the variable cost
per unit in the high-low method
25 B False Explanation: Some fixed costs are discretionary and avoidable (e.g., advertising),
others committed
Trang 1126 A Can be eliminated by choosing a different alternative Explanation: Avoidable costs
can be saved by not pursuing an option
27 B Cost of machinery already purchased Explanation: Sunk costs are past and
irrecover-able, irrelevant for future decisions
28 B The cost of producing one additional unit Explanation: Marginal cost is the incremental
cost of one more unit, usually variable costs
29 A The difference between actual sales and break-even sales Explanation: Margin of
safety shows how much sales can drop before losses occur
30 B Selling and administrative costs Explanation: Period costs are expensed in the period
incurred, not inventoried
31 B False Explanation: Opportunity costs are notional and not recorded in accounts, but used
in decision-making
32 A The cost of the best alternative forgone Explanation: Opportunity cost is the benefit
sacrificed by choosing one option over another
33 B Allocated to units produced Explanation: In absorption costing, fixed overheads are
included in product costs
34 A, B, C Explanation: Marginal costing treats fixed costs as period costs (A), is useful for
decisions (B), and values inventory at variable cost (C) Fixed costs are not allocated to units (D)
35 B Fixed costs remain constant and variable costs per unit are constant Explanation:
Within the relevant range, cost behaviour assumptions hold