Costs: Practice Questions

• a.Rent is a direct cost and flour is an indirect cost.
• b.Both rent and flour are classified as fixed costs.
• c.Rent is a fixed cost and flour is a variable cost.
• d.Rent is a variable cost and flour is a fixed cost.

• a.Manager: Direct/Variable; Wood: Indirect/Fixed
• b.Manager: Direct/Fixed; Wood: Indirect/Variable
• c.Manager: Indirect/Fixed; Wood: Direct/Variable
• d.Manager: Indirect/Variable; Wood: Direct/Fixed

• a.The variable cost per unit is higher than the selling price per unit.
• b.The business is making a loss, but the selling price exceeds the variable cost per unit.
• c.The business is operating above the break-even point.
• d.The business is making a profit, but its cash flow is negative.

• a.\(\text{Actual sales} + \text{Break-even sales}\)
• b.\(\text{Current level of output} - \text{Break-even level of output}\)
• c.\(\text{Total revenue} - \text{Total variable costs}\)
• d.\(\text{Fixed costs} \div \text{Contribution per unit}\)

• a.It does not allow the business to calculate a total cost per unit.
• b.It ignores the variable costs of production.
• c.It can lead to arbitrary allocation of indirect costs to products.
• d.It only considers direct materials and direct labour.

Write your answer out first, then check it against the worked solution.

Write your answer out first, then check it against the worked solution.