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Exam 2: Cost Behavior and Cost Estimation

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Question 61

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There is an important relation between contribution margin and profit.Which of the following statements is not true?

A) As the number of units sold rises,profit increases by the variable cost per unit.
B) As the number of units sold increases,total contribution margin increases,but fixed costs remain the same.
C) As the number of units sold rises,profit increases by the additional contribution margin per unit.
D) As the number of

E) None of the above
F) All of the above

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Question 62

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Restate the following income statement in contribution margin format.

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Question 63

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Since a mixed cost has both a fixed and a variable component,

Which of the following is the simplest method for estimating the fixed and variable components of a mixed cost?

A 10 percent increase in sales volume will result in a

A statistical technique that identifies the line of best fit for the points plotted in a scattergraph is called

There is an important relation between contribution margin and profit.Which of the following statements is not true?

A contribution format income statement presents all costs

A traditional GAAP income statement does not help managers to predict the financial results of their decisions.Which of the following is a reason for this shortcoming?

You are considering moving off campus.You have found a one-bedroom apartment very near campus that is clean and safe.However,you do not want to live alone.A one-bedroom apartment is roomy enough to have one or two roommates.The manager discourages having more than one individual in an apartment and so charges rent per person.The relationship between the number of roommates,the total cost,and the cost per person is: This is an example of a

Dana owns her own real estate agency.She has been working hard to increase her client base.She offers the most comprehensive advertising campaign in the city and it has been paying off by the steady increase in the number of listings over the last several months.However,Dana is concerned that her extensive cost for advertising is eating into her profits.It is difficult to determine how much she spends on advertising for each listing because some of her advertising sources are fixed amounts each month and others are more variable in nature.She would like to analyze the following information to determine how her advertising costs behave based on the number of listings. If Dana believes she will have 52 listings in December,what is her expected cost for advertising?

The high-low method of estimating the fixed and variable components of a mixed cost is a precise approach that uses a statistical technique.

Which of the following is not a method of estimating costs?

Assume a scattergraph shows $100 at no activity and $1,500 at an activity level of 1,000

Unlike the scattergraph,the high-low method requires only two data points - the lowest point of activity and the highest point of activity.

Assume sales of $10,000,variable costs of $7,000,and fixed costs of $2,000.Calculate contribution margin and operating income.

Jenny's Cutting Station is a new concept in haircuts; low cost and very quick.Set in a local mall,Jenny's offers 15 minute haircuts for harried shoppers who do not have time for lengthy appointments.To ensure that the clients are in and out quickly,she schedules her 5 employees based on expected client traffic.Each of the employees is paid $1,200 per month,with part of their pay coming from client tips.Jenny pays rent and overhead costs of $2,000 per month.Because of the quick nature of the service,Jenny doesn't have time to clean combs in between clients,so she uses a new comb for each customer,at a cost of $.55 each.She also provides shampoo and conditioner for each client at a cost of $.95 per client.The average price for a haircut is $12.Jenny pays herself $5,000 per month.What is Jenny's contribution margin ratio?

Mike Mounts has a membership at the Marigold Men's Fitness Club.The membership costs $30 per month regardless of how many times the facility is used.The membership cost is classified as a

Three methods used for estimating the fixed and variable portions of a cost include: cost-cover graphs,the high-low method and regression analysis.

All costs are either fixed or variable.That is,a cost cannot have a fixed and a variable component.