Chapter 6: Cost Behavior

What is the total cost at an activity level of 5,000 units if y = $12,000 + $3x?

$27,000

Which of these is a FALSE statement about a scatterplot?

The scatterplot is a graph of the historical cost data on the x-axis and volume data on the y-axis.

Graphs of variable costs begin at the point that represents zero volume and zero cost. True or False

True

absorption costing

costing method where products "absorb" both fixed and variable manufacturing costs

Total variable costs vary in _________

direct proportion to changes in volume

An expense such as advertising could be considered a _____________________

discretionary fixed cost.

At an activity level of 6,900 units in a month, Zeus Corporation's total variable maintenance and repair cost is $408,756, and its total fixed maintenance and repair cost is $230,253. What would be the total maintenance and repair cost of both fixed and variable costs combined at an activity level of 7,100 units in a month? Assume that this level of activity is within the relevant range.

$650,857

Cooke Corporation reports that at an activity level of 7,000 units, the total variable cost is $590,730, and the total fixed cost is $372,750. What would be the total cost, both fixed and variable, at an activity level of 7,100 units? Assume that this level of activity is within the relevant range.

$971,919

The scatterplot is a graph of the historical cost data on the x-axis and volume data on the y-axis. True or False

False

The variable cost line slopes downward but does NOT begin at the origin. True or False

False

Mike's Bike Shop rents mopeds to tourists at the beach. The old manager charged $20 per day plus $0.05 per mile. The new manager wants to change the marketing strategy and charge $15 per day and exclude the extra $0.05 per mile. What type of costs are most important to consider when the new manager plans to lower the charges to customers?

Fixed Costs

An argument against the use of variable costing

Fixed factory overhead is necessary to produce a product.

Which of these is an argument against the use of variable costing?

Fixed factory overhead is necessary to produce a product.

Which of the following is a TRUE statement about the graphing of variable costs?

Graphs of variable costs begin at the point that represents zero volume and zero cost.

What is the most likely change to total variable costs if a manager increases the production of a product by 25%?

a 25% increase

Account analysis is ________.

a method to determine cost behavior that is based on a manager's judgment in classifying each general ledger account as a variable, fixed, or a mixed cost

________ is an example of a discretionary fixed cost expense. Depreciation Insurance Advertising Property tax

advertising

The total variable costs ________.

are plotted on the vertical axis (y-axis) of a graph

Fixed costs that are the result of previous management decisions that current managers have no control over in the short run are called​ ________ fixed costs.

committed

A fixed cost expense that management has little or no control over in the short run is a ________.

committed fixed cost

mixed costs are _________________

costs that contain both variable and fixed cost components

Under variable costing, a unit of a product includes ________.

direct materials, direct labor, and variable overhead costs

A unit of product under absorption costing includes ________.

direct materials, direct labor, variable overhead, and fixed overhead costs

Cost behavior can be mathematically expressed using___________

equations

For most​ businesses, annual straight line depreciation expense on the​ company's building is what type of​ cost?

fixed

Variable costing is also known as ________.

marginal costing

Renting a scooter and paying​ $30 per day plus​ $.20 per mile driven is an example of what type of​ cost?

mixed cost

when graphing, the cost line begins at ___________

origin

A scatterplot can indicate a ________.

positive correlation

How well a regression line fits the data points is illustrated by the ________.

r-square statistic

The R-square statistic is often referred to as a "goodness of fit" statistic because it describes the _______.

regression line fit of the data points

On a per-unit basis, variable costs ________.

remain constant

When using a variable costing system, the contribution margin (CM) is calculated as the excess of ________.

revenues over variable costs

Which of the following costs is an example of a fixed​ cost? A. Sales commissions B. Salary of plant manager C Delivery costs D. Direct materials

salary of plant manager

________ are fixed over a small range of activity and then jump up to a new fixed level with moderately small changes in volume.

step costs

Total mixed cost graphs intersect the yminus−axis at____________

the level of fixed costs

When sales exceed production, the net operating income reported under variable costing is greater than ________.

the net operating income reported under absorption costing

relevant range

the range of activity​ (volume) over which total fixed costs and variable costs per unit can be assumed to remain the same.

Total fixed costs do not change in response to changes in _______________

the volume of production.

The total variable costs are plotted on ________.

the y axis

The vertical axis (y-axis) on a graph plots ________.

total fixed costs

________ stay constant over a wide range of volume

total fixed costs

Which of the following types of costs would remain constant on a per-unit basis?

total variable costs

​A(n) ________ cost is a cost whose total amount changes in direct proportion to a change in volume.

variable

Total mixed costs increase as volume increases because of_________________

variable cost component

________ are treated as product costs under the variable costing method.

variable production costs

Contribution margin is also known as ________.

variable profit

Rochelle Corporation makes reservations for vacation homes. Rochelle Corporation provides complimentary coffee packets at a cost of $2 per guest who stay at the mountain resort. The general manager reported a total cost of $5,000 for coffee during the previous quarter. The historical number of guests at the mountain resort is 10,000 guests during the year. The manager uses the formula to compute the total variable cost (y) = Variable cost per unit of activity (v) × Volume of activity (x). The manager expects 500 guests in December. Which of the following is the correct cost equation to compute y in the cost equation for 500 guests?

y = $2 × 500

The following data pertains to activity and maintenance cost for two recent periods: Activity level (units) 5,000 4,000 Maintenance cost $16,750 $15,000 Maintenance cost is a mixed cost with both fixed and variable components. The cost formula for maintenance using the high-low method is ________.

y = $8,000 + $1.75x

Which of the following equations best expresses the straight line equation for a mixed cost equation when y = total cost, v = variable cost per unit, x = volume of activity, and f = fixed cost (vertical intercept)?

y=vx+f