Ch. 5 SB

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?

(10-4) = 6 x 1500 units = $9,000

The high-low method _____.

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

fixed costs______

- remain constant in total within the relevant range of activity -generally include rent and supervisor salaries -should not be expressed on a per unit basis when making decisions

step cost ______

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

Why is it important to analyze mixed cost?

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

Which of the following statements are true?

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

A contribution margin income statement ______.

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

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

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

Which of the following statements are true?

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

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

-total fixed cost -intercept

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% contribution margin ratio = unit contribution margin / unit sales price

Contribution margin ratio is ______.

= unit contribution margin / the selling price

Which of the following may not represent the general trend in the data?

The high-low method (it only looks at two data points)

The key to most managerial decision is understanding cost behavior.

True

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

Variable

Step-fixed costs ______.

are fixed over a fairly wide range of activity

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

bahavior

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

behavior

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

behavior

Mixed costs _____.

change both in total and per unit as activity changes

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

contribution format income statement

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

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

in total

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

the level of activity over which cost behavior assumptions are true is known as the _______ _______.

relevant range

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

relevant range analysis

Cost assumptions are reasonably valid within the ___________ ______________ of activity.

relevent range

to answer preliminary questions such as whether the linearity is valid, accountants use a(n) ______.

scattergraph

a limitation of _____ is that it is (they are) subjective and inexact.

scattergraphs

The unit contribution margin ______.

tells how much each additional unit contributes to profit

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

total mixed cost

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

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