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Exam 2: Cost Behavior and Cost Estimation

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Question 51

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The contribution format income statement presents costs by behavior.

A) True
B) False

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Question 52

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Four common cost behavior patterns that serve as the foundation for cost-volume-profit analysis are

A) variable cost, fixed cost, selling cost, and administrative cost.
B) variable cost, fixed cost, mixed cost, and step cost.
C) variable cost, fixed cost, period cost, and other cost.
D) selling cost, administrative cost, cost of goods sold, and depreciation.

E) A) and C)
F) C) and D)

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Question 53

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A variable cost is one that varies in proportion to a business activity.

Three popular methods of identifying variable and fixed components of a cost are the scattergraph method, the high-low method and regression analysis.Compare and contrast these three methods.

Suppose you are charged a $10 per month base charge for your electrical service.You are also charged an additional $0.08 for every kwh of electricity you use.Which one of the following statements is not true?

International Imports is a merchandising firm.Last year they reported sales of $674,500 and cost of goods sold of $404,700.The company's total variable selling and administrative expense was $60,705, and fixed selling and administrative expense was $53,960.The total contribution margin for the firm is

A characteristic of a variable cost is that the

Like the high-low method of estimating the fixed and variable components of a mixed cost, regression analysis uses a statistical technique that identifies the line of best fit.

The formula for the contribution margin ratio is

The high-low method differs from the scattergraph in that the high-low method

If an organization wants to make a profit, it must generate more sales revenue than the total costs it incurs.Which of the following is not a correct expression of the profit equation?

Unlike the contribution margin in dollars, the contribution margin ratio cannot be used to determine the increase in profits from a given dollar increase in sales revenue.

A traditional GAAP income statement does not help managers predict the financial results of their decisions because the format of the statement is based on cost function rather than cost behavior.Which of the following is not classified as a cost function?

Which of the following is not an example of a fixed cost for manufacturer of bicycles?

The formula, Electricity cost = $10 + ($0.08 × kwh used) is the formula for a

What is a mixed cost? What happens to a mixed cost as the level of activity changes?

There are four common cost behavior patterns that serve as the foundation for cost-volume-profit analysis. Required: a.Explain the term cost behavior. b.List the four common cost behavior patterns that serve as the foundation for cost-volume-profit analysis and give an example of each type of cost classified by behavior. c.Explain the relationship between level of activity and each of the four types of cost behavior.

Indicate which of the following costs are classified as mixed or step costs.

The high-low method of estimating the fixed and variable components of a mixed cost is a precise approach that uses a statistical technique.

Jenny's Cutting Station offers a new concept in haircuts; low cost and very quick.Set in a local mall, Jenny's offers 15-minute haircuts for harried shoppers who do not have time for lengthy appointments.To ensure that the clients are in and out quickly, she schedules her 5 employees based on expected client traffic.Each of the employees is paid $1,200 per month, with part of their pay coming from client tips.Jenny pays rent and overhead costs of $2,000 per month on the facility.Because of the quick nature of the service, Jenny doesn't have time to clean combs in between clients, so she uses a new comb for each customer, at a cost of $0.55 each.She also provides shampoo and conditioner for each client at a cost of $0.95 per client.The average price for a haircut is $12.Jenny pays herself $5,000 per month.What is Jenny's contribution margin per haircut?