1.

An assembly plants accumulates its variable and fixed manufacturing overhead costs in as single cost
pool, which is then applied to work-in-process using a single application base. The assembly plant
management wants to estimate the magnitude of the total manufacturing overhead costs for different
volume levels of the application activity base using flexible budget formula. If there is an increase in the
application activity base that is within the relevant range of activity for the assembly plant, which one of
the following relationships regarding variable and fixed costs is true.
a. The variable cost per unit and the total fixed costs remain constant.
b. The variable cost per unit is constant and the total fixed costs decrease.
c. The variable cost per unit is constant and the total fixed costs increase.
d. The variable cost per unit increases, and the total fixed costs remain constant.
2. A company is attempting to determine if there is a cause-and-effect relationship between scrap value and
output produced. The following exhibit presents the companys scrap data for the last fiscal year.
Scrap as a Percent of Standard Dollar Value of Output Produced
Month
Standard Dollar Value Percent Scrap
of Output
(%)
Nov Year 7
$1,500,000
4.5
Dec Year 7
$1,650,000
2.5
Jan Year 8
$1,600,000
3.0
Feb Year 8
$1,550,000
2.5
Mar Year 8
$1,650,000
1.5
Apr Year 8
$1,500,000
4.0
May Year 8
$1,400,000
2.5
Jun Year 8
$1,300,000
3.5
Jul Year 8
$1,650,000
5.5
Aug Year 8
$1,000,000
4.5
Sep Year 8
$1,400,000
3.5
Oct Year 8
$1,600,000
2.5
The Companys scrap value in relation to the standard dollar value of output produced appears to be
a.
b.
c.
d.

A variable cost
A fixed cost
A semi-fixed cost
Unrelated to the standard dollar value of output