SB 5

JVL Inc. sells its only product for $10 per unit. Variable costs are $4 per unit and total fixed costs are $40,000. The company is currently selling 10,000 units per year. By how much will profits increase if sales increase 1,500 units?

$9,000 Rationale: ($10 - $4) = $6 CM × 1,500 units = $9,000.

Which of the following statements are true?

-Both the total cost and the per-unit cost of mixed costs change with changes in the level of activity. -Mixed costs contain both fixed and variable cost elements. -The equation for a straight line can be used to express the relationship between mixed costs and the level of activity

The high-low method ______.

-uses only two data points -is based on the two most extreme periods of activity

How much of the variability of y is explained by x is identified by ______.

R square

Which of the following is not a method used to estimate the fixed and variable portions of mixed costs?

Relevant range analysis

True or false: The key to most managerial decision is understanding cost behavior.

True

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

True

Step-fixed costs ______.

are fixed over a fairly wide range of activity

A shift from product costing to a focus on cost ___ is the key to making most managerial decisions

behavior

Mixed costs ______.

change both in total and per unit as activity changes

How much contribution margin is generated by every dollar of sales is shown by the ______.

contribution margin ratio

Costs that remain constant in total and vary per unit are called ___ costs

fixed

In the equation Y = a + bX, a denotes the ______.

intercept total fixed cost

Step-___ costs have a fairly narrow range and rise in multiple steps across the relevant range.

variable

The formula to calculate the variable cost per unit using the high-low method is ______.

difference in total cost divided by difference in activity

Step costs ______.

may be either step-fixed or step-variable are fixed over some range of activity

The measure of goodness of fit of a model is called ___ ___.

r square

Cost assumptions are reasonably valid within the ___ ___ of activity.

relevant range

In the equation Y= a + bX, Y is the ______.

total mixed cost

Given: Calculated variable cost per unit of $1.40 High level of activity: 2,500 units and $5,300 total cost The low level of activity was 1,000 units. Total cost at the low level of activity equals ______.

$3,200 Rationale: $5,300 - ($1.40 x 2,500) = $1,800 of fixed costs. $1,800 + (1,000 x $1.40) = $3,200 of total cost at the low level of activity.

Which of the following statements are true?

-Scattergraphs are a way to diagnose cost behavior. -Scattergraphs are used to help determine if the linear assumption is reasonable.

Which of the following statements are true?

-The relevant range of activity is approximated by a straight line. -Within the relevant range of activity, fixed costs remain constant in total. -Outside of the relevant range, cost behavior conclusions may not be valid.

Why is it important to analyze mixed costs?

-To make decisions, managers need to know how costs change. -Managers need to know how much of a cost is variable and how much is fixed.

R square ______.

-is usually provided by least-squares regression software. -measures goodness of fit

The high-low method ______.

-provides a reasonable estimate as long as the data points are within the relevant range -calculates the line based on the most extreme activity data points -only uses two data points

In the equation Y = a + bX, b denotes the ______.

-slope of the line -variable cost per unit of activity

Using the high-low method, a company calculated the variable cost as $1.75 per unit. The high level of activity was 5,000 units and $10,000 of total cost. Total fixed costs equals $

1250

Webster, LLC sells its product for $20 per unit. Variable costs are $11 per unit and total fixed costs are $35,000. The company sells 8,000 units per year. Webster's contribution margin ratio is ___%

45

How total costs changes as some level of activity changes is called cost ___

behavior

How total costs changes as some level of activity changes is called cost ______.

behavior

The financial statement that organizes costs by their behavior instead of by their function is the ______.

contribution format income statement

Sales revenue minus variable costs equals ___ ___

contribution margin

A fixed cost remains fixed ______ within the relevant range of activity.

in total

The high-low method ______.

is easy to apply may produce inaccurate results

A statistical technique for finding the best fitting line based on historical data is ______.

least squares regression

The best fitting line minimizes the sum of the squared errors when using ______.

least-square 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

When using ______, proper interpretation of the results is critical.

least-squares regression

The level of activity over which cost behavior assumptions are true is known as the ___ ___

relevant range

Contribution margin is ______.

sales revenue minus variable costs

A visual representation of the relationship between cost and activity is provided by a(n) ___

scattergraph

A useful first step in analyzing cost behavior is to prepare a(n) ___ because it helps determine the nature of the relationship and whether the linearity assumption is valid

scattergraph or scatterplot

A useful first step in analyzing cost behavior is to prepare a(n) ___ because it helps determine the nature of the relationship and whether the linearity assumption is valid.

scattergraph or scatterplot

To answer preliminary questions such as whether the linearity assumption is valid, accountants use a(n) ___

scattergraph or scatterplot

A limitation of ______ is that it is (they are) subjective and inexact.

scattergraphs

When using the high-low method, the slope of the line equals the ___ cost per unit of activity.

variable

Which type of cost changes in total, in direct proportion to changes in activity level?

variable

The high-low method may provide a reasonable estimate of fixed and variable costs as long as the high and low data points fall ______ the relevant range.

within

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

-after the variable cost per unit is calculated -using either the high or low level of activity

A contribution margin income statement ______.

-can assist with management decision making -separates costs into their fixed and variable components

A simple approach that uses the two most extreme activity observations is the ___-___ method.

high low

Mixed costs are also commonly known as ___ costs.

semivariable

The unit contribution margin ______.

tells how much each additional unit contributes to profit

A simple approach that uses the two most extreme activity observations is ______.

the high-low method

When using the high low method, the difference in cost divided by the difference in activity is ______.

the variable cost per unit

Contribution margin ratio is ______.

unit contribution margin/unit sales price

A cost that changes in direct proportion to changes in the activity level is a ______ cost.

variable