In Assessing the Costs and Benefits of Using a Particular

question 5

Multiple Choice

In assessing the costs and benefits of using a particular cost driver, which of the following must be taken into account?
i. The availability of cost data.
ii. The time frame for analysing the cost behaviour.
iii. Whether it is a fixed or variable cost.

• A) i
• B) ii
• C) i and ii
• D) i and iii

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Definitions:

Contribution Margin

The gap between sales income and variable expenses, showing the extent to which income helps in covering fixed expenses.

Standard Cost Formula

A predefined cost based on historical data, industry standards, and projected material, labor, and overhead costs, used for budgeting and cost management.

Level Of Activity

A measure of the amount of work performed or production achieved in a specific period of time, often related to capacity utilization in operations management.

Fixed Cost

Expenses that do not change with the level of output or sales in the short term, such as rent or salaries.