SB Ch.02: Cost Behavior, Operating Leverage, and Profitability Analysis Flashcards
A cost that does not change regardless of volume is a blank cost.
fixed
A cost that changes proportionately in total as the activity level changes is a blank cost.
Variable
A cost that has both a fixed and variable component is called a(n)
______ cost.
mixed
The range of activity over which the definition of fixed and variable costs are valid is called the _______
range.
relevant
The activity base is used to determine blank.
whether a cost is defined as fixed or variable
To magnify small changes in revenue into dramatic changes in profitability, managers apply blank.
operating leverage
Assume a company estimates they will sell 300 units. What is the percentage change in units if actual sales are 450 units?
50% (450-300)/300
Risk is the possibility that blank.
sacrifices may exceed benefits
The range of activity over which the definition of fixed and variable costs are valid is called the blank range.
relevant
If a firm has high operating leverage, a small change in revenue will lead to blank change in profitability.
a large
Variable costs do not offer _______ leverage
operation leverage
The range of activity over which the definition of fixed and variable costs are valid is called the ________ range.
relevant
Earnings fluctuations are more likely if blank costs are high.
Fixed
To magnify small changes in revenue into dramatic changes in profitability, managers apply blank.
operating leverage
An income statement prepared using the contribution margin approach classifies costs as blank.
variable and fixed
Shifting the cost structure from fixed to variable cost blank profit potential.
reduces both risk and
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?
10 = ($1,000/$100)
Choosing a cost structure that relies heavily on fixed costs will blank.
cause earnings to fluctuate more than a structure that relies heavily on variable costs
If a firm has high operating leverage, a small change in revenue will lead to blank change in profitability.
a large
Revenue minus variable costs is the definition of
Contribution Margin
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?
$75
$3,000 ÷ 150 = $20 for the pool + $30 for the instructor + $25 profit = $75.00 per lesson.
Variable costs do not offer _______ leverage
operation
When performing a high-low analysis if the highest activity does not match the highest cost, chose the month with the highest blank.
Activity
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?
13 = (1300/100)
On a scattergraph the fixed cost is blank
the point where the line intercepts the Y axis
Earnings fluctuations are more likely if blank costs are high.
fixed
True or false: Least-squares regression is preferable to a scattergraph because it can calculate actual fixed and variable costs.
False
The primary difference between regression and multiple regression is that in multiple regression there are multiple blank variables.
independent
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
February and April for both costs and units
Using least-squares regression instead of a scattergraph is preferable because it blank.
is more accurate
Multiple regression explains the dependent variable with blank independent variable(s)
more than one
