Ch.5 Cost-Volume-Profit Relationships

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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


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