Ch.5 Cost-Volume-Profit Relationships
A company with a high ratio of fixed costs ______.
is more likely to experience greater profits when sales are up than a company with mostly variable costs.
Cost behavior is considered linear whenever ______.
straight line approximates the relationship between cost and activity
The rise-over-run formula for the slope of a straight line is the basis of ______.
the high-low method
Which of the following statements are true? - When plotting a scattergraph, cost is the independent variable. - Plotting data on a scattergraph is an important diagnostic step. - Scattergraphs are a way to diagnose cost behavior. - Scattergraphs should be used after high-low or regression analysis is performed.
- Plotting data on a scattergraph is an important diagnostic step. - Scattergraphs are a way to diagnose cost behavior.
It makes sense to perform a high-low or regression analysis if a scattergraph plot reveals (1) (2) behavior.
1. linear 2. cost
The Cutting Edge sells ice skates. Total sales are $845,000, total variable expenses are $245,050 and total fixed expenses are $302,000. The variable expense ratio is ______.
29%
When a company produces and sells multiple products ______.
A change in the sales mix will most likely change the break-even point Each product most likely has different costs Each product most likely has a unique CM
A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called ______.
Least-squares regression
The measure of how a percentage change in sales affects profits at any given level of sales is the ______.
degree of operating leverage
Estimating the fixed and variable components of a mixed cost using the _________________ approach involves a detailed analysis of what cost behavior should be.
engineering
True or False: Cost structure refers to the relative portion of product and period costs in an organization.
false
true or false: Account analysis involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation.
false
A company's current sales are $300,000 and fixed expenses total $85,000. The contribution margin ratio is 30%. The company has decided to expand production which is expected to increase sales by $70,000 and fixed expenses by $15,000. If these results occur, net operating income will ______.
increase by $6,000
The best fitting line minimizes the sum of the squared errors when using ______.
least-square regression
When using the high-low method, the slope of the line equals the _________________ cost per unit of activity.
variable
