Exam 2: Cost Behavior, Operating Leverage, and Profitability Analysis

The variable cost per unit increases in direct proportion to the activity base.

The following income statement is provided for Ramirez Company for the current year: Sales revenue (2,500 units x\ 40 per unit ) \ 100,000 Cost of goods sold (varable; 2,500 units x \ 16 per unit) (40,000) Cost of goods sold (fixed) (8,000) Gross margin 52,000 Administrative salaries (12,000) Depreciation (8,000) Supplies (2,500 units x \ 4 per unit) (10,000) Net income \ 22,000 What amount was the company's contribution margin?

In the graph below,which depicts the relationship between units produced and unit cost,the dotted line depicts which type of cost per unit?

Cannon Company operates a clothing store that reported the following operating results for the current year: Income Statement Sales revenue \ 2,000,000 Cost of goods sold (1,200,000) Gross margin \ 800,000 Employee commissions and bonuses ( \ \% of sales ) (100,000) Depreciation expense (150,000) Salaries expense (260,000) Shipping and delivery expense ( 2\% of sales) (40,000) Advertising expense (80,000) Net income \ 170,000 Required: Prepare an income statement for Cannon Company using the contribution margin format.

If a company had a mixed cost s

In order to prepare a contribution format income statement,costs must be separated into:

What advantages does the regression method of cost estimation offer,compared to the high-low and scattergraph methods of estimating mixed costs?

The following information is given regarding driving lessons provided by Arrive Alive Company over several spans of time: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Length of Time TODAY ONE YEAR FIVE YEARS Total cost of lessons \ 600 \ 110,000 \ 508,000 Number of lessons 50 10,000 55,000 Select the incorrect statement from the following.

Based on the following operating data,the operating leverage is: Sales \ 500,000 Variable costs 280,000 Contribution margin 220,000 Fired costs 180,000 Income from operations \ 40,000

Mark Company,Inc.sells electronics.The company generated sales of $45,000.Contribution margin is $20,000 and net income is $4,000.Based on this information,the magnitude of operating leverage is:

Select the correct statement regarding fixed costs.

The magnitude of operating leverage for Perkins Corporation is 4.5 when sales are $100,000.If sales increase to $110,000,profits would be expected to increase by what percent?

Companies A and B are in the same industry and are identical except for cost s

Assume that Microsoft and Sony both plan to introduce a new hand-held video game.Microsoft plans to use a heavily automated production process to produce its product while Sony plans to use a labor-intensive production process.The following revenue and cost relationships are provided: Selling price per unit Variable costs per unit Direct materials Direct labor Overhead Selling and administrative Annual fixed costs Overhead Selling and administrative Micros oft Game 150 \ 27.00 7.50 7.50 3.00 \ 600,000 135,000 Sony Game 150 \ 27.00 30.00 30.00 3.00 \ 240,000 135,000 Required: (a)Compute the contribution margin per unit for each company. (b)Prepare a contribution income statement for each company assuming each company sells 8,000 units. (c)Compute each firm's net income if the number of units sold increases by 10%. (d)Which firm will have more stable profits when sales change? Why?

In regression analysis,an r-square value of one indicates that there is a perfect fit between the independent and dependent variables.

Java Joe operates a chain of coffee shops.The company pays rent of $20,000 per year for each shop.Supplies (napkins,bags and condiments)are purchased as needed.The manager of each shop is paid a salary of $3,000 per month,and all other employees are paid on an hourly basis.Relative to the number of customers for a shop,the cost of supplies is which kind of cost?

What are the expected average quarterly costs of running a consulting practice if fixed costs are expected to be $4,000 a month and variable costs are expected to be $100 per client for each quarter? Expected number of clients for the year are: Jan-March April-June July-Sep Oct-Dec 110 140 150 100

The magnitude of operating leverage for Blue Ridge Corporation is 3.5 when sales are $200,000 and net income is $36,000.If sales decrease by 6%,net income is expected to decrease by what amount?

If the company's volume increases to 5,000 units,the company's total costs will be:

A cost that is part selling cost and part manufacturing cost is referred to as a mixed cost.