Exam 21: Cost Behavior and Cost-Volume-Profit Analysis

The relevant activity base for a cost depends upon which base is most closely associated with the cost and the decision-making needs of management.

Given the following cost and activity observations for Bounty Company's utilities, use the high-low method to calculate Bounty' variable utilities costs per machine hour.

The contribution margin ratio is the same as the profit-volume ratio.

Even if a business sells six products, it is possible to estimate the break-even point.

Assuming no other changes, operating income will be the same under both the variable and absorption costing methods when the number of units manufactured equals the number of units sold.

When units manufactured exceed units sold:

Rusty Co. sells two products, X and Y. Last year Rusty sold 5,000 units of X's and 35,000 units of Y's. Related data are: What was Rusty Co.'s weighted average unit selling price?

Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are: What was Carter Co.'s sales mix last year?

Given the following cost and activity observations for Smithson Company's utilities, use the high-low method to calculate Smithson's fixed costs per month. Do not round your intermediate calculations.

Variable costs as a percentage of sales are equal to 100% minus the contribution margin ratio.

In an absorption costing income statement, the manufacturing margin is the excess of sales over the variable cost of goods sold.

For the past year, Hornbostel Company had fixed costs of $6,552,000, a unit variable cost of $444, and a unit selling price of $600. For the coming year, no changes are expected in revenues and costs, except that a new wage contract will increase variable costs by $6 per unit. Determine the break-even sales (units) for (a) the past year and (b) the coming year.

Variable costs are costs that remain constant on a per-unit basis as the level of activity changes.

Costs that vary in total in direct proportion to changes in an activity level are called:

Define operating leverage. Explain the relationship between a company's operating leverage and how a change in sales is expected to impact profits.

Which of the following is an example of a cost that varies in total as the number of units produced changes?

The following data are available from the accounting records of Suwanee Co. for the month ended May 31, 2012. 17,000 units were manufactured and sold during the accounting period at a price of $60 per unit. There was no beginning inventories and all units were completed (no work in process).

Cost behavior refers to the methods used to estimate costs for use in managerial decision making.

If a business had a capacity of $10,000,000 of sales, actual sales of $6,000,000, break-even sales of $4,200,000, fixed costs of $1,800,000, and variable costs of 60% of sales, what is the margin of safety expressed as a percentage of sales?

Cordell, Inc. has an operating leverage of 3. Sales are expected to increase by 9% next year. What is the expected change in operating income next year?