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