Cost Behavior

A company has a contribution margin ratio of 40%. The president believes that spending $1,500 to advertise its product will increase sales by $10,000. How much will net income increase if the president is correct? TO CALCULATE: 10000x40%-1500

$2500

After fixed costs have been covered, ___ ___ becomes net operating income.

Contribution Margin

Step-Variable costs ___

Have many steps within the relevant range.

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

R Square

Mixed costs are also known as ___

Semivariable Costs

True or false: Presenting fixed costs on an average per unit basis makes them look like they are variable costs.

True

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

level of activity

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

the variable cost per unit

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

total fixed cost

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

total mixed cost

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

variable

Variable costs ______.

remain constant per unit and vary in total

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

variable cost per unit of activity

Drawing a line though a scattergraph's data to provide an estimate of total fixed and variable cost per unit is called the ___ ___ method.

visual fit

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? TO CALCULATE: 1. 10-4=6=CM 2. CM x 1500

$9000

Which of the following is not a method used to estimate the fixed and variable portions of mixed costs? Relevant range analysis High-low method Least-squares regression Scattergraph plot

Relevant Range Analysis

Mixed costs ______.

change both in total and per unit as activity changes

Baker's contribution margin ratio is 60%, which means that a $7,000 increase in sales will result in a $___ increase in net operating income. TO CALCULATE: 7000*60%

$4200

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

True

The linearity assumption states ______.

a straight line approximates the relationship between cost and activity

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

behavior

Fixed costs should not be expressed on a per -nit basis because ______.

it may make managers believe they can reduce costs by producing more

The assumption that the relationship between total cost and activity can be approximated by a straight line is called the ___ assumption.

linearity

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

Which of the following statements are true? Within the relevant range of activity, fixed costs remain constant in total. Within the relevant range of activity, total variable costs do not change. The relevant range of activity is approximated by a straight line. Outside of the relevant range, cost behavior conclusions may not be valid.

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

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 ______.

activity

Step-fixed costs ______.

are fixed over a fairly wide range of activity

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

scattergraph