U3: 3.3 Costs & Revenues

Which of the following is NOT a type of variable cost?

• a) Raw materials

• b) Rent

• c) Direct labor

• d) Commission on sales

Which of the following is considered a fixed cost?

• a) Utilities

• b) Salaries

• c) Packaging materials

• d) Sales commissions

What is the primary characteristic of variable costs?

• a) They remain constant regardless of production levels.

• b) They fluctuate with the level of production.

• c) They are always higher than fixed costs.

• d) They are not related to sales volume.

Which of the following costs would typically increase as production increases?

• a) Depreciation

• b) Rent

• c) Direct materials

• d) Insurance

How do variable costs affect pricing strategies?

• a) They have no impact on pricing.

• b) They determine the minimum price a product can be sold for.

• c) They allow for higher fixed costs.

• d) They are irrelevant to pricing decisions.

Which of the following statements about fixed costs is true?

• a) They vary with production levels.

• b) They remain constant over a relevant range of production.

• c) They are always lower than variable costs.

• d) All of the above

What is the formula for calculating total contribution?

• a) Total revenue - total variable costs

• b) Total revenue - total fixed costs

• c) Total fixed costs + total variable costs

• d) Price per unit x quantity sold

A business sells 1000 units of a product at a price of $20 per unit. The variable cost per unit is $12. What is the total contribution?

Mathematical Equivalence

OFF

Answer explanation

a) $8000. Total contribution = (Price per unit - Variable cost per unit) x Quantity sold = ($20 - $12) x 1000 = $8000 (Oxford, 2022, p.158)

Which of the following is an example of an indirect cost?

• a) Wages of factory workers directly involved in production

• b) Salary of the marketing manager

• c) Cost of raw materials used in manufacturing

• d) Commission paid to sales representatives

Answer explanation

b) Salary of the marketing manager. Indirect costs, also known as overheads, cannot be directly traced to a specific product or unit of output. (Oxford, 2022, p.155)

What is meant by the term "cost center"?

• a) A department or unit within a business that is responsible for generating revenue

• b) A department or unit within a business that is responsible for controlling costs

• c) A department or unit within a business that is responsible for both generating revenue and controlling costs

• d) None of the above

Answer explanation

b) A department or unit within a business that is responsible for controlling costs. Cost centers are typically departments like production or administration that incur costs but do not directly generate revenue. (Oxford, 2022, p.164)