Chapter 2

Frisco Corporation is analyzing its fixed and variable costs within its current relevant range. As its cost driver activity changes within the relevant​ range, which of the following statements​is/are correct? I. As the cost driver level​ increases, total fixed cost remains unchanged. II. As the cost driver level​ increases, unit fixed cost increases. III. As the cost driver level​ decreases, unit variable cost decreases.

I. As the cost driver level​ increases, total fixed cost remains unchanged.

Market Focus is a marketing research firm that organizes focus groups for​ consumer-product companies. Each focus group has eight individuals who are paid​ $60 per session to provide comments on new products. These focus groups meet in hotels and are led by a​ trained, independent marketing specialist hired by Market Focus. Each specialist is paid a fixed retainer to conduct a minimum number of sessions and a per session fee of​ $2,200. A Market Focus staff member attends each session to ensure that all the logistical aspects run smoothly. Costs incurred to improve the design of focus groups to make them more effective

Indirect Cost; Fixed Cost

Market Focus is a marketing research firm that organizes focus groups for​ consumer-product companies. Each focus group has eight individuals who are paid​ $60 per session to provide comments on new products. These focus groups meet in hotels and are led by a​ trained, independent marketing specialist hired by Market Focus. Each specialist is paid a fixed retainer to conduct a minimum number of sessions and a per session fee of​ $2,200. A Market Focus staff member attends each session to ensure that all the logistical aspects run smoothly. Lease payment by Market Focus for corporate office

Indirect Cost; Fixed Cost

Market Focus is a marketing research firm that organizes focus groups for​ consumer-product companies. Each focus group has eight individuals who are paid​ $60 per session to provide comments on new products. These focus groups meet in hotels and are led by a​ trained, independent marketing specialist hired by Market Focus. Each specialist is paid a fixed retainer to conduct a minimum number of sessions and a per session fee of​ $2,200. A Market Focus staff member attends each session to ensure that all the logistical aspects run smoothly. Phone calls made by Market Focus staff member to confirm individuals will attend a focus group session*

Indirect Cost; Fixed Cost

Market Focus is a marketing research firm that organizes focus groups for​ consumer-product companies. Each focus group has eight individuals who are paid​ $60 per session to provide comments on new products. These focus groups meet in hotels and are led by a​ trained, independent marketing specialist hired by Market Focus. Each specialist is paid a fixed retainer to conduct a minimum number of sessions and a per session fee of​ $2,200. A Market Focus staff member attends each session to ensure that all the logistical aspects run smoothly. Retainer paid to focus group leader to conduct 18 focus groups per year on new medical products

Indirect Cost; Fixed Cost

Market Focus is a marketing research firm that organizes focus groups for​ consumer-product companies. Each focus group has eight individuals who are paid​ $60 per session to provide comments on new products. These focus groups meet in hotels and are led by a​ trained, independent marketing specialist hired by Market Focus. Each specialist is paid a fixed retainer to conduct a minimum number of sessions and a per session fee of​ $2,200. A Market Focus staff member attends each session to ensure that all the logistical aspects run smoothly. Gasoline costs of Market Focus staff for company-owned vehicles***

Indirect Cost; Variable Cost

Define cost object and give three examples.

A cost object is anything for which a separate measurement of costs is desired. Examples include a​ product, a​ service, and a customer.

Choose the correct description of variable and fixed costs.

A variable cost changes in total in proportion to changes in the related level of total activity or​ volume, such as a sales commission that is a percentage of each sales revenue dollar. A fixed cost remains unchanged in total for a given time​ period, despite wide changes in the related level of total activity or​ volume, such as a fixed annual leasing cost of a machine.

Market Focus is a marketing research firm that organizes focus groups for​ consumer-product companies. Each focus group has eight individuals who are paid​ $60 per session to provide comments on new products. These focus groups meet in hotels and are led by a​ trained, independent marketing specialist hired by Market Focus. Each specialist is paid a fixed retainer to conduct a minimum number of sessions and a per session fee of​ $2,200. A Market Focus staff member attends each session to ensure that all the logistical aspects run smoothly. Cost of tapes used to record comments made by individuals in a focus group session**

Direct Cost; Variable Cost

Market Focus is a marketing research firm that organizes focus groups for​ consumer-product companies. Each focus group has eight individuals who are paid​ $60 per session to provide comments on new products. These focus groups meet in hotels and are led by a​ trained, independent marketing specialist hired by Market Focus. Each specialist is paid a fixed retainer to conduct a minimum number of sessions and a per session fee of​ $2,200. A Market Focus staff member attends each session to ensure that all the logistical aspects run smoothly. Payment to individuals in each focus group to provide comments on new products

Direct Cost; Variable Cost

What are three different types of inventory that manufacturing companies​ hold?

Direct​ materials, work-in-process, and finished goods

Comprehensive Care Nursing Home is required by statute and regulation to maintain a minimum​ 3:1 ratio of direct service staff to residents to maintain the licensure associated with nursing home beds. The salary expense associated with direct service staff for the Comprehensive Care Nursing Home would most likely be classified as

Fixed cost

Applewhite ​Corporation, a manufacturing​ company, is analyzing its cost structure in a project to achieve some cost savings. Which of the following statements​ is/are correct? I. The cost of the direct materials in Applewhite​'s products is considered a variable cost. II. The cost of the depreciation of Applewhite​'s plant machinery is considered a variable cost because Applewhite uses an accelerated depreciation method for both book and income tax purposes. III. The cost of electricity for Applewhite​'s manufacturing facility is considered a fixed​ cost, even if the cost of the electricity has both variable and fixed components.

I. The cost of the direct materials in Applewhite​'s products is considered a variable cost.

Market Focus is a marketing research firm that organizes focus groups for​ consumer-product companies. Each focus group has eight individuals who are paid​ $60 per session to provide comments on new products. These focus groups meet in hotels and are led by a​ trained, independent marketing specialist hired by Market Focus. Each specialist is paid a fixed retainer to conduct a minimum number of sessions and a per session fee of​ $2,200. A Market Focus staff member attends each session to ensure that all the logistical aspects run smoothly. Annual subscription of Market Focus to Consumer Reports magazine

Indirect Cost; Fixed Cost

Market Focus is a marketing research firm that organizes focus groups for​ consumer-product companies. Each focus group has eight individuals who are paid​ $60 per session to provide comments on new products. These focus groups meet in hotels and are led by a​ trained, independent marketing specialist hired by Market Focus. Each specialist is paid a fixed retainer to conduct a minimum number of sessions and a per session fee of​ $2,200. A Market Focus staff member attends each session to ensure that all the logistical aspects run smoothly. Recruiting cost to hire marketing specialists

Indirect Cost; Variable Cost

Explain why unit costs must often be interpreted with caution.

Unit costs are computed by dividing some amount of total costs by the related number of units. In many​ cases, the total costs include a fixed cost that will not change despite changes in the number of units.​ Therefore, it can be misleading to multiply the unit cost by activity or volume change to predict changes in total costs at different activity or volume levels.

Why do managers consider direct costs to be more accurate than indirect​ costs?

When costs are​ allocated, managers are less certain whether the cost allocation base accurately measures the resources demanded by a cost​ object, and​ therefore, direct costs are considered to be more accurate. Cost​ tracing, which is used when assigning direct costs to a particular cost​ object, is more accurate than cost​ allocation, which is used to assign indirect costs to the same cost object. Allocating indirect costs is more subjective and generally more difficult to assign to a cost object than are direct costs.​ Therefore, direct costs are deemed by managers to be more accurate costs than indirect costs.