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Exam 2: Cost Behavior and Cost Estimation Summary of Questions by Objectives and Blooms Taxonomy

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Question 31

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Jenny's Cutting Station is a new concept in haircuts; low cost and very quick.Set in a local mall,Jenny's offers 15 minute haircuts for harried shoppers who do not have time for lengthy appointments.To ensure that the clients are in and out quickly,she schedules her 5 employees based on expected client traffic.Each of the employees is paid $1,200 per month,with part of their pay coming from client tips.Jenny pays rent and overhead costs of $2,000 per month.Because of the quick nature of the service,Jenny doesn't have time to clean combs in between clients,so she uses a new comb for each customer,at a cost of $.55 each.She also provides shampoo and conditioner for each client at a cost of $.95 per client.The average price for a haircut is $12.Jenny pays herself $5,000 per month.What is Jenny's contribution margin per haircut?

A) $11.45
B) $10.50
C) $11.05
D) $10.20

E) A) and D)
F) C) and D)

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Question 32

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Suppose you are charged a $10 per month base charge for your electrical service.You are also charged an additional $0.08 for every kwh of electricity you use.The cost is an example of a

A) Variable cost.
B) Fixed cost.
C) Mixed cost.
D) Step cost.

E) None of the above
F) B) and D)

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Question 33

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The relevant range is the normal level of operating activity.

The amount of income presented on a contribution format income statement

Contribution margin is the amount of revenue that remains to cover fixed costs and provide a profit.

Three methods used for estimating the fixed and variable portions of a cost include: cost-cover graphs,the high-False - Three methods used for estimating the fixed and variable portions of a cost include scattergraphs,the high-low method and regression analysis.

Total cost is a combination of fixed and variable costs.The algebraic equation,where T = total costs,v = variable costs,x =

An example of a step cost is the natural gas bill you receive for heating your apartment.

There is an important relation between contribution margin and profit.Which of the following statements is not true? A)As the number of units sold rises, profit increases by the variable cost per unit. B) As the number of units sold increases, total contribution margin increases, but fixed costs remain the same. C) As the number of units sold rises, profit increases by the additional contribution margin per unit. D) As the number of units sold decreases, total contribution margin decreases, but fixed costs remain the same.

When managers talk about cost behavior,they are referring to

Cost behaviors and estimates are valid only within what is referred to as a precision range.

Dana owns her own real estate agency.She has been working hard to increase her client base.She offers the most comprehensive advertising campaign in the city and it has been paying off by the steady increase in the number of listings over the last several months.However,Dana is concerned that her extensive cost for advertising is eating into her profits.It is difficult to determine how much she spends on advertising for each listing because some of her advertising sources are fixed amounts each month and others are more variable in nature.She would like to analyze the following information to determine how her advertising costs behave based on the number of listings. If Dana believes she will have 52 listings in December,what is her expected cost for advertising?

If activity level increases,what happens to the total variable cost?

You are considering moving off campus.You have found a one-bedroom apartment very near campus that is clean and safe.However,you do not want to live alone.A one-bedroom apartment is roomy enough to have one or two roommates.The manager discourages having more than one individual in an apartment and so charges rent per person.The relationship between the number of roommates,the total cost,and the cost per person is: This is an example of

An example of a committed fixed cost is when a company signs a 10-year lease on an office building.

Unlike the scattergraph,the high-low method requires only two data points - the lowest point of activity and the highest point of activity.

A limitation of the high-low method is that

Which of the following is a characteristic of a fixed cost?

Any cost that varies in proportion to a business activity is a

The contribution format income statement presents cost by behavior.