Question 1

Companies A and B are in the same industry and are identical except for cost structure.At a volume of 50,000 units,the companies have equal net incomes.At 60,000 units,Company A's net income would be substantially higher than B's.Based on this information,

Accepted Answer

A)  Company A's cost structure has more variable costs than B's. 
B)  Company A's cost structure has higher fixed costs than B's. 
C)  Company B's cost structure has higher fixed costs than A's. 
D)  At a volume of 50,000 units, Company A's magnitude of operating leverage was lower than B's.

Question 2

Match between columns
                        Premises:  A cost that remains constant in total when volume changes
 The way a cost changes relative to changes in a measure of activity
 A company's cost mix or relative proportion of variable and fixed costs to total costs
 The difference between a company's sales revenue and its variable costs
 Costs composed of both fixed and variable components
 A cost that changes in total in direct proportion to changes in volume
 A factor that causes (or drives) changes in costs
 A condition in which a percentage change in revenue will produce a proportionately larger percentage change in net income
 A method of estimating the fixed and variable components of a mixed cost using two data observations
 A method of estimating the fixed and variable components of a mixed cost where data are plotted on a graph and a line is visually fit to the data

Accepted Answer

The Answer of Mixed cost and Operating leverage and Scattergraph is...

Question 3

The following income statements are provided for Li Company's last two years of operation: $\begin{array}{lrr}
&\text { Year 1}&\text { Year 2}\
\text { Number of units produced and sold } & 3,500 & 3,000 \
\text { Sales revenue } & \$ 101,500& \$ 87,000 \
\text { Cost of goods sold } & 68,000& 60,000 \
\text { Gross margin } & 33,500& 27,000 \
\text { General, selling, and administrative expenses } & 13,000& 12,00 0 \
\text { Net income } & \$ 20,500 & \$ 15,000
\end{array}$  Assuming that cost behavior did not change over the two-year period,what is Li Company's contribution margin in Year 2?

Accepted Answer

A)  $33,000 
B)  $32,000 
C)  $39,000 
D)  $69,000

Question 4

What is a primary disadvantage of the high-low method of analyzing a mixed cost?

Accepted Answer

The answer of What is a primary disadvantage of the...

Question 5

Multiple regression analysis should be performed when a single independent variable influences multiple dependent variables.

Accepted Answer

A) True 
 B)False

Question 6

Contribution margin represents the amount available to cover fixed expenses and then provide company profits.

Accepted Answer

A) True 
 B)False

Question 7

Two different costs incurred by Ruiz Company exhibit the following behavior pattern per unit:  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Unit Sold }$
$\begin{array}{lrr}
&50&100&150&200\
  \text {Cost \#1  } &  \text {\$ 300 Per unit} & \text { \$ 150 Per unit }& \text { \$ 100 Per unit}&\text {  \$ 75 Per  unit} \
 \text {Cost\#2  } & \text { \$  2 Per unit}&\text { \$ 2 perunit}&\text { \$ 2 perunit}&\text { \$ 2 perunit}\
\end{array}$
 Cost #1 and Cost #2 exhibit which of the following cost behavior patterns,respectively?

Accepted Answer

A)  Fixed and variable 
B)  Variable and variable 
C)  Fixed and fixed 
D)  Variable and fixed

Question 8

Mug Shots operates a chain of coffee shops.The company pays rent of $15,000 per year for each shop.Supplies (napkins,bags,and condiments)are purchased as needed.The managers of each shop are paid a salary of $2,500 per month and all other employees are paid on an hourly basis.The cost of rent relative to the number of customers in a particular shop and relative to the number of customers in the entire chain of shops is which kind of cost,respectively?

Accepted Answer

A)  Variable cost and fixed cost 
B)  Fixed cost and fixed cost 
C)  Fixed cost and variable cost 
D)  Variable cost and variable cost

Question 9

The following information is for Companies M and N for the most recent year: $$\begin{array} { l l l } 
& \text { Company M } & \text { Company N } \
\text { Sales } & \$ 500,000 & \$ 500,000 \
\text { Variable costs } & \$ 300,000 & \$ 200,000 \
\text { Fixed costs } & \$ 50,000 & \$ 150,000
\end{array}$$ Based on this information,which of the following statements is incorrect?

Accepted Answer

A)  N's magnitude of operating leverage is lower than M's. 
B)  N would suffer more than M from an equal drop in sales revenue. 
C)  N's cost structure carries greater risk and greater potential for profit. 
D)  If N's sales increased by 20%, its net income would increase by 40%.

Question 10

If a company had a pure variable cost structure,what would be the relationship between contribution margin and net income,and what would be the magnitude of operating leverage?

Accepted Answer

The answer of If a company had a pure variable...

Question 11

Assume that management uses the regression method to separate a mixed cost into its fixed and variable components.Briefly describe the significance of the R Square (R²)when interpreting the reliability of cost estimates that result.

Accepted Answer

The answer of Assume that management uses the regression method...

Question 12

Phoenix Corporation manufactures smartphones,generally selling from 200,000 to 300,000 units per year.The following cost data apply to the activity levels shown:
 $\begin{array}{lrr}
\text { Number of Units }&200,000&250,000&300,000\
  \text {Total costs  } &\
 \text {  Fixed} &\$15,000,000\
 \text { Variable } &\underline{24,000,000}\
 \text { Total costs } &\underline{39,000,000}\
\
 \text { Cost per Unit } &\
 \text { Fixed } &\$75\
 \text {  Variable} &\underline{120}\
 \text {  Total Cost per unit} &\underline{\$195,000}\
\end{array}$
 Required:
1.Complete the preceding table by filling the missing amounts for 250,000 and 300,000 units.
2.Assume that Phoenix actually makes 280,000 units.What would be the total costs and the cost per unit at this level of activity? (Round the cost per unit to two decimal points.)
3.If Phoenix sells each unit for $220,what is Phoenix's magnitude of operating leverage at sales of 280,000 units? (Round to two decimal points.)

Accepted Answer

The answer of Phoenix Corporation manufactures smartphones,generally selling from 200,000...

Question 13

The activity director for City Recreation is planning an activity.She is considering alternative ways to set up the activity's cost structure.Select the incorrect statement from the following.

Accepted Answer

A)  If the director expects a low turnout, she should use a fixed cost structure. 
B)  If the director expects a large turnout, she should attempt to convert variable costs into fixed costs. 
C)  If the director shifts the cost structure from fixed to variable, the level of risk decreases. 
D)  If the director shifts the cost structure from fixed to variable, the potential for profits will be reduced.

Question 14

No contribution margin is provided by selling one unit of a product at a price of $35 if variable production costs are $20,variable general and administrative costs are $5,and fixed costs are $10 per unit.

Accepted Answer

A) True 
 B)False

Question 15

Rock Creek Bottling Company pays its production manager a salary of $6,000 per month.Salespersons are paid strictly on commission,at $1.50 for each case of product sold. For Rock Creek Bottling Company,the production manager's salary is an example of:

Accepted Answer

A)  a variable cost. 
B)  a mixed cost. 
C)  a fixed cost. 
D)  None of these

Question 16

Cool Runnings operates a chain of frozen yogurt shops.The company pays $5,000 of rent expense per month for each shop.The managers of each shop are paid a salary of $3,000 per month and all other employees are paid on an hourly basis.Relative to the number of shops,the cost of rent is which kind of cost?

Accepted Answer

A)  Variable cost 
B)  Fixed cost 
C)  Mixed cost 
D)  Opportunity cost

Question 17

Blackstock Company manufactures digital cameras.Indicate whether its cost behavior is fixed,variable,or mixed by placing X's in the appropriate boxes.As an example,commissions paid to sales staff would be classified as variable.
 $$\begin{array} { | l | l | l | l | } 
\hline  { \text { Cost } } & { \text { Cost Behavior } } \
\hline \text { Insurance on executive offices } & \text { Fixed } & \text { Variable } & \text { Mixed } \
\hline \text { Lens caps for digital cameras } & & & \
\hline \text { Depreciation on manufacturing equipment } & & & \
\hline \text { Shipping cost to deliver products to customers } & & & \
\hline \text { Salary of company president } & & & \
\hline \text { Wages of assembly workers } & & & \
\hline \text { Product advertising } & & & \
\hline \text { Utilities: electricity to run machines and for heat and } & & & \
\text { lights in factory } & & &\
\hline
\end{array}$$

Accepted Answer

The answer of Blackstock Company manufactures digital cameras.Indicate whether its...

Question 18

Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume doubles,the company's total cost will:

Accepted Answer

A)  stay the same. 
B)  double as well. 
C)  increase but will not double. 
D)  decrease.

Question 19

Select the incorrect statement regarding the relationship between cost behavior and profits.

Accepted Answer

A)  A pure variable cost structure offers higher potential rewards. 
B)  A pure fixed cost structure offers more security if volume expectations are not achieved. 
C)  In a pure variable cost structure, when revenue increases by $1, so do profits. 
D)  In a pure fixed cost structure, the unit selling price and unit contribution margin are equal.

Question 20

The activity base selected determines whether a cost behaves as a variable cost or fixed cost.

Accepted Answer

A) True 
 B)False

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

Companies A and B are in the same industry and are identical except for cost structure.At a volume of 50,000 units,the companies have equal net incomes.At 60,000 units,Company A's net income would be substantially higher than B's.Based on this information,

Select the term from the list provided that best matches each of the following descriptions.

What is a primary disadvantage of the high-low method of analyzing a mixed cost?

Multiple regression analysis should be performed when a single independent variable influences multiple dependent variables.

Contribution margin represents the amount available to cover fixed expenses and then provide company profits.

If a company had a pure variable cost structure,what would be the relationship between contribution margin and net income,and what would be the magnitude of operating leverage?

Assume that management uses the regression method to separate a mixed cost into its fixed and variable components.Briefly describe the significance of the R Square (R²)when interpreting the reliability of cost estimates that result.

The activity director for City Recreation is planning an activity.She is considering alternative ways to set up the activity's cost structure.Select the incorrect statement from the following.

No contribution margin is provided by selling one unit of a product at a price of $35 if variable production costs are $20,variable general and administrative costs are $5,and fixed costs are $10 per unit.

Rock Creek Bottling Company pays its production manager a salary of $6,000 per month.Salespersons are paid strictly on commission,at $1.50 for each case of product sold. For Rock Creek Bottling Company,the production manager's salary is an example of:

Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume doubles,the company's total cost will:

Select the incorrect statement regarding the relationship between cost behavior and profits.

The activity base selected determines whether a cost behaves as a variable cost or fixed cost.

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

Companies A and B are in the same industry and are identical except for cost structure.At a volume of 50,000 units,the companies have equal net incomes.At 60,000 units,Company A's net income would be substantially higher than B's.Based on this information,

Select the term from the list provided that best matches each of the following descriptions.

What is a primary disadvantage of the high-low method of analyzing a mixed cost?

Multiple regression analysis should be performed when a single independent variable influences multiple dependent variables.

Contribution margin represents the amount available to cover fixed expenses and then provide company profits.

If a company had a pure variable cost structure,what would be the relationship between contribution margin and net income,and what would be the magnitude of operating leverage?

Assume that management uses the regression method to separate a mixed cost into its fixed and variable components.Briefly describe the significance of the R Square (R2)when interpreting the reliability of cost estimates that result.

The activity director for City Recreation is planning an activity.She is considering alternative ways to set up the activity's cost structure.Select the incorrect statement from the following.

No contribution margin is provided by selling one unit of a product at a price of $35 if variable production costs are $20,variable general and administrative costs are $5,and fixed costs are $10 per unit.

Rock Creek Bottling Company pays its production manager a salary of $6,000 per month.Salespersons are paid strictly on commission,at $1.50 for each case of product sold. For Rock Creek Bottling Company,the production manager's salary is an example of:

Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume doubles,the company's total cost will:

Select the incorrect statement regarding the relationship between cost behavior and profits.

The activity base selected determines whether a cost behaves as a variable cost or fixed cost.

Assume that management uses the regression method to separate a mixed cost into its fixed and variable components.Briefly describe the significance of the R Square (R²)when interpreting the reliability of cost estimates that result.