Exam 2: Cost Behavior and Cost Estimation

Assume you are planning a spring break ski trip to Colorado.You are preparing a budget of your costs.You are staying at a lodge that has a special where the lodge charges you $25 for the first 30 ski lift rides and an additional charge of $5 for each ride in excess of 30.You believe you will ride the ski lift 40 times during the week, so you budget $75.The ski lift cost is an example of 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.

A contribution margin format income statement

Assume a scattergraph shows $500 at no activity and $2,500 at an activity level of 1,000 units.The variable cost per unit is

An example of a discretionary fixed cost is

Georgiana operates a nail salon.She is trying to plan her costs for the next month and is uncertain as to how to estimate those costs.Help her estimate next month's costs given the following information she collected, based on number of customers per month. Georgiana wants to know what her total costs would be if she estimates 1,450 customers next month.

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?

As the level of activity increases, the total variable cost

Which of the following is not a step in estimating total cost using the high-low method?

You have been hired by University Bike Shop as the controller.The CEO has been using a traditional GAAP income statement for internal decision making.However, the CEO has just completed an MBA program where she covered the contribution format income statement.She has asked you to explain the contribution format income statement to the other managers of the company with emphasis on the differences between the two income statements and how the contribution format income statement can help all the managers.

The relevant range is the normal level of operating activity.

Restate the following income statement for a merchandising company in contribution format.

A scattergraph is simply a graph that shows total costs in relation to volume, or activity level.

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

Discretionary fixed costs are fixed costs that cannot be changed over the short run.

Children's World Toy Shop is an online toy store specializing in hand-made stuffed animals.Children's World sold 4,000 Donny the Dragon stuffed toys during April and 6,000 during May.Shipping costs for the two months were $12,000 and $16,800 respectively.Using these two months' data, the shipping cost function is best estimated as

Indicate which of the following costs are classified as mixed, step, or variable costs.

If selling price is $100 per unit, variable cost is $70 per unit, and fixed cost is $200, calculate the contribution margin ratio.

MousePad Computer Company, in addition to its retail sales, conducts night classes in computer technology.MousePad has provided you the following information: Required: Construct a contribution margin format income statement.

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