A202 Chapter 2B

Differential costs, opportunity costs and sunk costs are all cost classifications used in:

Decision making

A change in revenues between two alternatives is known as _____ revenue or incremental revenue

Differential

The difference in costs between two alternatives is called a/an _____ cost

Differential

In a least-squares regression line, the vertical intercept (a) of the line represents the total ______ cost.

Fixed

A method that uses all the available data pints to divide a mixed cost into its fixed and variable components is called:

Least-squares regression

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 cost of producing one more unit is the _____ cost

Marginal

The revenue obtained from selling one additional unit of product is called _____ revenue

Marginal

A potential benefit that is forfeited or lost when one decision is chosen over another is called a/an

Opportunity Cost

Contribution margin is:

Sales revenue minus variable costs

High-low or least squares regression analysis should only be done if a/an ____ plot depicts linear cost behavior

Scatter

What type of cost is never relevant and should be disregarded when making decisions?

Sunk

When using account analysis, an account is classified as either fixed or variable based on:

The analyst's prior knowledge of how the cost behaves

The rise-over-run formula for the slope of a straight line is the basis of:

The high-low method

When using the high low method, the change in cost divided by the change in units equals:

The variable cost per unit

True or False: When using the high-low method, fixed costs are calculated after variable costs are determined

True

When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity:

-Choose the periods with the highest and lowest levels of activity and their associated costs

The financial statements that organizes costs by their behavior instead of by their function is the:

-Contribution format income statement

The high-low method:

-Is based on periods where the activity tends to be unusual -Uses only two data points

Which statements regarding the high-low method are true?

-It only uses two data points -The high-low method should only be used if a scattergraph plot indicates a linear relationship between cost and activity

Which if the following is true? -Scattergraphs are a way to diagnose cost behavior. -Scattergraphs should be prepared 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 -Plotting data on a scattergraph is an important diagnostic step

A contribution format income statement:

-Separates costs into their fixed and variable components -Can assist with management decision making

Using the high-low method, the fixed cost is calculated

-Using either the high or low level of activity -After the variable cost per unit is calculated

Cost behavior is considered linear whenever:

A straight line approximates the relationship between cost and activity

When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity

Choose the periods with the highest and lowest level of activity and their associated

Sales revenue minus expenses equals ____ ____

Contribution Margin

Sales revenue minus variable expenses equals _____ _____

Contribution Margin

Differential costs are also known as ____ costs

Incremental

Differential costs are also known as _____ costs

Incremental

Which of the following is not a cost classification associated with decision making?

Indirect costs

When preparing a scattergraph, the activity X is plotted on the ______ (horizontal or vertical) axis. Activity is the _____ (dependent or independent) variable because it causes variations in the cost.

horizontal, independent

When preparing a scattergraph, Y is plotted on the _____ (horizontal or vertical) axis. Cost is the _____ (dependent or independent) variable because the amount of cost incurred during a period depends on the level of activity for the period.

-Vertical -Dependent