When Cost Relationships Are Linear, Total Variable Costs Will Vary

question 5

Multiple Choice

When cost relationships are linear, total variable costs will vary in proportion to changes in:

• A)Direct labor hours.
• B)Total material cost.
• C)Total overhead cost.
• D)Volume of production.
• E)Machine hours.

---

Definitions:

Fixed Expenses

Obligations that remain constant in total regardless of changes in business activity levels, such as lease payments and salaries.

Cost Formula Equation

An equation that determines the total cost based on fixed costs, variable rate per unit of activity, and the level of activity.

High-low Method

A technique used in cost accounting to estimate fixed and variable costs based on the highest and lowest levels of activity.

Net Operating Income

The net profit of a business is calculated by deducting operating expenses from the gross profit and before accounting for interest and taxes.