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Exam 2: Cost Behavior and Cost Estimation Summary of Questions by Objectives and Blooms Taxonomy

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Question 71

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Four common cost behavior patterns that serve as the foundation for cost-volume-profit analysis are

A) Variable cost,fixed cost,mixed cost,and step cost.
B) Variable cost,fixed cost,selling cost,and administrative cost.
C) Cost of goods sold,period cost,other cost,and depreciation.
D) Selling cost,administrative cost,cost of goods sold,and depreciation.

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Question 72

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Restate the following income statement in contribution margin format.

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Question 73

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Which of the following is not a method of estimating costs?

Nancy's Nursery provides and maintains live plants in office buildings.The company's 120 customers are charged $90 per month for this service,which includes weekly watering visits.The variable cost to service a customer's location is $22 per month.The company incurs $2,000 each month to maintain its equipment and service vans and $3,000 each month in salaries.Nancy pays a CPA firm $5 per customer for accounting services. a.Prepare Nancy's contribution format income statement for the month. b.What is the expected monthly operating income if 10 customers are added?

Since a mixed cost has both a fixed and a variable component, both the total cost and the unit cost will vary with changes in the level of activity.

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

Upton,Inc.has collected the following information on its copying costs for the month. a.Using the high-low-method,compute the variable cost per copy. b.Compute the total fixed cost per month. c.Represent the copy cost function in equation form. d.What is the expected cost if 800 copies are made?

Assume a selling price of $20 per unit, variable cost per unit of $12, and total fixed cost of $500. If 200 units are sold, calculate the contribution margin and the operating income.

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.

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 charge is an example of a

Restate the following income statement in contribution format.

Suppose Kathy Lentz Company sells hand tatted lace for $25 per yard.Her materials cost $4 per yard and labor costs her $10 per yard.She also estimates her fixed cost to be $50 per month.If she sells 2,000 yards of lace during the month,what is her contribution margin ratio?

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:

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

A traditional GAAP income statement does not help managers predict the financial results of their decisions because the format of the statement is based on cost function rather than cost behavior.Which of the following is not classified as a cost behavior?

With a variable cost,as the level of activity decreases,the total cost remains the same.

You are considering moving off campus.You have found a two-bedroom apartment for $1,200 per month,but you cannot afford that much rent.You are considering inviting up to three of your friends to become your roommates.The relationship between the number of roommates,the total cost,and the cost per person is: This is an example of

The formula,Electricity cost = $10 + $0.08 x kwh used is the formula for a

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. If Georgiana believes next month is going to be busier than the last few months and she expects 1,850 customers relevant range is 1,000 - 2,000 customers per month,what is the expected cost for electricity?

Fixed costs are those costs that do not change as the level of activity increases or decreases.However,fixed costs may be classified as discretionary or committed.Explain the differences in these classifications and give an example of each.Discuss why managers should consider the impact of these costs in the decision making process in times of falling profits.