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

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Question 21

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The contribution margin format income statement classifies costs according to their behavior patterns.

A) True
B) False

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Question 22

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Executive management at Ballard Books is very optimistic about the chain's ability to achieve significant increases in sales in each of the next five years.The company will most benefit if management creates a:

A) low operating leverage cost structure.
B) medium operating leverage cost structure.
C) high operating leverage cost structure.
D) no operating leverage cost structure.

E) A) and B)
F) A) and C)

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Question 23

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

What is the high-low method used for?

When selecting the high and low observations under the high-low method of analyzing mixed costs,the selection should be based on the dependent variable (cost).

Assuming that cost behavior did not change over the two-year period,what is the company's annual fixed general,selling,and administrative cost?

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?

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

A disadvantage of the high-low method is that the high point and low point may not be representative of the total data set available.

A cost that contains both fixed and variable elements is referred to as a:

The excess of revenue over variable costs is referred to as:

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 term from the list provided that best matches each of the following descriptions.The first is done for you.

The BRC Company is considering the introduction of a new line of high end electronics.Because there is considerable uncertainty with regard to the demand for the products,the company would probably be served better by a variable cost s

A low magnitude of operating leverage is best for most companies.

Which of the following items would not be found on a contribution format income statement?

Select the incorrect statement regarding the use of average unit costs.

Grant Company and Lee Company compete in the same market.The following budgeted income statements illustrate their cost s

Describe the steps in the high-low method.

The total variable cost increases in direct proportion to volume.