Chapter 6 If a per unit cost remains constant over a wide range of volume the cost is most likely a variable cost The cost per unit decreases as volume increases for which of the following cost behaviors fixed costs and mixed costs What amount represents the TVC component y vx f vx Which of the following would generally be considered a committed fixed cost lease payments made on the store building Which method is used to see if a relationship between the cost driver and total cost exists scatter plot When choosing the high point for the high low method how is the high point selected the point with the highest volume of activity is chosen What is the advantage of using regression analysis to determine the cost equation all above are true objective all data points are used to calculate the equation generally be more accurate Which of the following statements about using regression analysis is true the R2 generated by the regression analysis is a measure of how well the regression analysis cost equation fits the data The only difference between variable costing and absorption costing lies in the treatment of fixed manufacturing overhead costs When performing account analysis managers use their judgment to classify each general ledger account as a variable cost fixed cost or mixed cost Step costs when graphed resemble stair steps Total variable costs change as the cost driver volume changes Regression analysis uses all of the historical data points in estimating the cost equation of activity On cost graphs the vertical axis always shows total costs while the horizontal axis shows the volume of activity Fixed costs are costs that do not change in total despite changes in the level The cost of occupancy are committed fixed costs because the organization is locked into these costs due to management decisions made in the past A statistic R square tell us how well the line fits the data A variable cost is a cost that varies in total in direct proportion to changes in the level of activity The high low method uses only two of the historical data points in determining an estimate of the cost estimation equation The average cost per unit should not be used to predict total costs at different levels of activity because it changes as the volume changes Mixed costs are costs that change in total when the volume changes but not in direct proportion to that change in volume Curvilinear costs are not linear and therefore do not fit into a straight line The total mixed costs line increases as the volume of activity increases but the line does not begin at the origin The slope of the total variable costs line is the variable cost per unit of The high low method uses two data points to arrive at a cost equation to activity describe a mixed cost Account analysis is a method for determining cost behavior that is based on a manager s judgment Step costs are a type of cost behavior that is fixed over a small range of activity and then jumps to a different fixed level with moderate changes in volume The fixed cost per unit is inversely related to the volume of activity An s shaped line would represent a curvilinear cost The R square value is referred to as the goodness of fit statistic As the activity level rises and falls fixed costs remain constant in total Committed fixed costs are fixed costs that management has little or not control over in the short run Total costs is equal to the sum of variable costs fixed costs Average cost per unit is the cost to produce a single unit of production as calculated by dividing the total cost by the total number of units produced The cost equation resulting from using regression analysis is described as the line of best fit When inventories decline operating income under variable costing is higher than operating income under absorption costing Variable Cost total costs increase and per unit costs remain constant as Fixed Cost total costs stay the same and the per unit costs decrease as the the volume increases y vx volume increases y f Mixed Cost total costs are not constant and per unit costs are not constant as the volume increases y vx f f TFC over a pd of time v VC per unit of activity x volume of activity y total cost R Square 0 1 goodness of fit Fixed depr on equip aptents salary Var materials Chapter 7 When a company is operating at its breakeven point its total revenues will be equal to its total expenses If a company sells one unit above its breakeven sales volume then its operating income would be equal to the unit contribution margin How is the unit sales volume necessary to reach a target profit calculated fixed exp target profit unit CM The number of units to be sold to reach a certain target profit is calculated as fixed exp target profit unit CM The breakeven point on a CVP graph is the intersection of the sales revenue line and the total expense line If the sales price of a product increases while everything else remains the same what happens to the breakeven point the breakeven point will decrease Target profit analysis is used to calculate the sales volume that is needed to earn a specific amount of net operating income A shift in the sales mix from a product with a high contribution margin ratio toward a product with a low contribution margin ratio will cause the breakeven point to increase If the degree of operating leverage is 3 then a 2 change in the number of units sold should result in a 6 change in operating income What is the margin of safety the excess of expected sales over breakeven sales CM per unit sales price per unit variable cost per unit CM ratio CM per unit sales price per unit operating income total CM fixed exp total CM CM per passenger X of passengers operating income increase CM per passenger X additional tickets sold breakeven sales in units fixed exp operating income CM per unit breakeven sales in dollars fixed exp operating income CM ratio CM per unit ratio sales price per unit variable sales cost per unit breakeven sales in units fixed exp operating income weighed avg target sales unit fixed exp operating income cont margin per unit CM per unit sales in dollars units margin of safety in dollars units expected sales in dollars units breakeven margin of safety as a of sale margin of safety in expected sales in CM expected units sold X sales price variable cost operating leverage factor CM operating income Chapter 8 In making short term special decisions you should separate variable from fixed costs When making decisions