SB Ch.02: Cost Behavior, Operating Leverage, and Profitability Analysis

Question 1

A cost that does not change regardless of volume is a blank​ cost.

Answer 1

fixed

Question 2

A cost that changes proportionately in total as the activity level changes is a blank​ cost.

Answer 2

Variable

Question 3

A cost that has both a fixed and variable component is called a(n)
______ cost.

Answer 3

mixed

Question 4

The range of activity over which the definition of fixed and variable costs are valid is called the _______
range.

Answer 4

relevant

Question 5

The activity base is used to determine blank​.

Answer 5

whether a cost is defined as fixed or variable

Question 6

To magnify small changes in revenue into dramatic changes in profitability, managers apply blank​.

Answer 6

operating leverage

Question 7

Assume a company estimates they will sell 300 units. What is the percentage change in units if actual sales are 450 units?

Answer 7

50% (450-300)/300

Question 8

Risk is the possibility that blank​.

Answer 8

sacrifices may exceed benefits

Question 9

The range of activity over which the definition of fixed and variable costs are valid is called the blank​ range.

Answer 9

relevant

Question 10

If a firm has high operating leverage, a small change in revenue will lead to blank​ change in profitability.

Answer 10

a large

Question 11

Variable costs do not offer _______ leverage

Answer 11

operation leverage

Question 12

The range of activity over which the definition of fixed and variable costs are valid is called the ________ range.

Answer 12

relevant

Question 13

Earnings fluctuations are more likely if blank​ costs are high.

Answer 13

Fixed

Question 14

To magnify small changes in revenue into dramatic changes in profitability, managers apply blank​.

Answer 14

operating leverage

Question 15

An income statement prepared using the contribution margin approach classifies costs as blank​.

Answer 15

variable and fixed

Question 16

Shifting the cost structure from fixed to variable cost blank​ profit potential.

Answer 16

reduces both risk and

Question 17

Assume a company has a contribution margin of $1,000, net income of $100, and fixed costs of $900. What is the magnitude of operating leverage?

Answer 17

10 = ($1,000/$100)

Question 18

Choosing a cost structure that relies heavily on fixed costs will blank​.

Answer 18

cause earnings to fluctuate more than a structure that relies heavily on variable costs

Question 19

If a firm has high operating leverage, a small change in revenue will lead to blank​ change in profitability.

Answer 19

a large

Question 20

Revenue minus variable costs is the definition of

Answer 20

Contribution Margin

Question 21

Let’s Swim provides lessons every Friday, Saturday and Sunday. It costs the company $1,000 per day to rent the pool plus an additional $30 per lesson for instructors and other costs. Currently, the company has contracts to provide 50 lessons on Friday, 80 lessons on Saturday, and 20 lessons on Sunday. Desired profit is $25 per lesson. How much should the company charge for lessons given on Saturday using the cost averaging approach?

Answer 21

$75
$3,000 ÷ 150 = $20 for the pool + $30 for the instructor + $25 profit = $75.00 per lesson.

Question 22

Variable costs do not offer _______ leverage

Answer 22

operation

Question 23

When performing a high-low analysis if the highest activity does not match the highest cost, chose the month with the highest blank​.

Answer 23

Activity

Question 24

Assume a company has a contribution margin of $1,300, net income of $100, and fixed costs of $1,200. What is the magnitude of operating leverage?

Answer 24

13 = (1300/100)

Question 25

On a scattergraph the fixed cost is blank​

Answer 25

the point where the line intercepts the Y axis

Question 26

Earnings fluctuations are more likely if blank​ costs are high.

Answer 26

fixed

Question 27

True or false: Least-squares regression is preferable to a scattergraph because it can calculate actual fixed and variable costs.

Answer 27

False

Question 28

The primary difference between regression and multiple regression is that in multiple regression there are multiple blank​ variables.

Answer 28

independent

Question 29

Month Units Sold Total Cost
Jan. 190 $2,200
Feb. 200 $2,100
March 120 $1,300
April 110 $1,400

When performing a high-low analysis, the months used should be blank​

Answer 29

February and April for both costs and units

Question 30

Using least-squares regression instead of a scattergraph is preferable because it blank​.

Answer 30

is more accurate

Question 31

Multiple regression explains the dependent variable with blank​ independent variable(s)

Answer 31

more than one