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

Why would a company often calculate and use average costs of its products and services rather than actual costs?

Select the incorrect statement regarding the relevant range of volume.

The contribution margin format income statement is not widely used for external financial reporting,but is allowed by GAAP.

Craft,Inc.normally produces between 120,000 and 150,000 units each year.Producing more than 150,000 units alters the company's cost structure.For example,fixed costs increase because more space must be rented,and additional supervisors must be hired.The production range between 120,000 and 150,000 is called the:

What are mixed or semivariable costs? Give an example of a mixed cost.

When using least-squares regression to determine variable and fixed costs,the r-square refers to the degree to which the change in the dependent variable can be explained by a change in the independent variable.

Select the correct statement regarding fixed costs.

Describe the format of an income statement prepared using the contribution margin approach.

For a mixed cost,total cost increases in direct proportion to volume.

The following information is provided for Southall Company: Sales revenue \ 125,000 Variable manufacturing costs 42,500 Fixed manufacturing costs 37,500 Variable selling and administrative costs 15,000 Fixed selling and administrative costs 12,500 What is this company's contribution margin?

What is the high-low method used for?

Describe the steps in the high-low method.

Companies with low operating leverage will experience lower profits when sales increase than will companies with higher operating leverage.

Assume that the management of Dairy Deli wants to expand operations.To help evaluate the risks involved in opening an additional store,the company president wants to know the amount of fixed cost a new store will likely incur.Management uses the regression method to analyze the company's mixed costs.In terms of interpreting the results:

Operating leverage enables a company to convert small changes in fixed costs into dramatic changes in profitability.

What is meant by the phrase,"relevant range"? How does the concept of relevant range affect fixed costs?

The total variable cost increases in direct proportion to volume.

Based on the following cost data,what conclusions can you make about the costs of Product A and Product B? $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Total Cost }$ Production: Product A Product B 10 units \ 100 ? 100 units \ 1,000 ? 1,000 units \ 10,000 ? $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Unit Cost }$ Production: Product A Product B 10 units ? \ 10,000 100 units ? \ 1,000 1,000 units ? \ 100

Southern Food Service operates six restaurants in the Atlanta area.The company pays rent of $20,000 per year for each shop.The managers of each shop are paid a salary of $4,200 per month and all other employees are paid on an hourly basis.Relative to the number of hours worked,total compensation cost for a particular shop is which kind of cost?

Potential problems associated with cost averaging can be reduced by averaging the cost over a shorter span of time.