Exam 2: Cost Behavior and Cost Estimation

Suppose your cell phone company offers a plan under which you pay $15 for a 100-minute block.For each minute over 100 minutes you have to pay $0.10 per minute.This is an example of a

If activity level increases, what happens to the unit variable cost?

To calculate the unit cost of the Neoprene stocking foot waders he sells, Gary Guinn added up all his costs and divided by the number of waders he sold during the year.He then used this unit cost to estimate total costs for the coming year.Explain why Gary's method is not useful in predicting total costs for the coming year.

Suppose your cell phone company offers a plan under which you buy time per minute.A one-minute call costs you $0.10.If you talk 100 minutes it costs you $10.This is an example of a

A fixed cost is a cost that does not change in total with the activity level.

If an organization wants to make a profit, it must generate more sales revenue than the total costs it incurs.This relation can be expressed using which of the following profit equations?

Complete each of the following contribution format income statements by supplying the missing amounts.

A traditional GAAP income statement does not help managers 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

Express the relationship between total cost (TC), variable cost per unit (VC), sales volume (X), and fixed cost (FC) in equation form.

Determine the fixed cost given the following information: Lowest level of activity - 200 units at a total cost of $600 Highest level of activity - 800 units at a total cost of $1,800

Cost behaviors and estimates are valid only within what is referred to as a precision range.

Step costs are fixed over only a small range of activity.Once that level of activity has been exceeded, total cost

If an organization wants to make a profit, it must generate more sales revenue than the total costs it incurs.This relation can be expressed using which of the following profit equations?

Jenny's Cutting Station offers a new concept in haircuts; low cost and very quick.Set in a local mall, Jenny's offers 15-minute haircuts with a shampoo for harried shoppers who do not have time for lengthy appointments.To ensure that the clients are in and out quickly, Jenny 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 for the facility.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 $0.55 each.She also provides shampoo and conditioner for each client at a cost of $0.95 per client.The average price for a haircut is $12.Jenny pays herself $5,000 per month.What are Jenny's fixed costs for the month?

Companies should reduce fixed costs whenever possible during times of falling profits.

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 $2 for each ski lift ride.You believe you will ride the ski lift 40 times during the week, so you budget $80.The ski lift cost is an example of a

A committed fixed cost is one that cannot be changed over the short run.

An example of a variable cost for a cell phone manufacturer is

J Bryson, Ltd.is a local coat retailer.The store's accountant prepared the following income statement for the month ended January 31. Bryson sells its coats for $250 each.Selling expenses consist of fixed costs plus a commission of $6.50 per coat.Administrative expenses consist of fixed costs plus a variable component equal to 6% of sales. Required: a.Prepare a contribution format income statement for January. b.Using the format y = mx + b, develop a cost formula for the operating expenses. c.If 2,700 coats are sold next month, what is the expected total contribution margin?