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ACC 406 Lecture Notes - Lecture 2: Denim, The Intercept, Variable Cost

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rubyhound283
26 Jan 2017
School
Ryerson University
Department
Accounting
Course
ACC 406
Professor
George Gekas

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Document Summary

Knowing how costs change as output changes is essential for managers in planning, controlling, and decision making. Cost behaviour is the general term to describe whether a cost changes when the level of activity changes. A fixed cost is a cost that does not change in total as activity changes. A variable cost increases in total with an increase in activity and decreases in total with a decrease in activity. Cost behaviour measures of output cost driver. A cost driver is a key determinant of cost behaviour. A cost driver is a causal measurement that causes costs to change. A cost is fixed or variable with respect to some output measure or cost driver. First we determine the underlying business activity and ask ourselves to understand the behaviour of (cid:272)osts, (cid:862)what (cid:272)auses the (cid:272)ost of this parti(cid:272)ular a(cid:272)ti(cid:448)it(cid:455) to go up or do(cid:449)(cid:374)? (cid:863)

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Related Questions

If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would:

a. increase.
b. remain the same.
c. decrease.

d. increase or decrease, depending upon the percentage increase in wage rates.

Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit, and fixed costs are $75,000. The contribution margin ratio and the unit contribution margin are:

a. 53% and $7 per unit.
b. 47% and $11 per unit.
c. 52% and $11 per unit.

d. 47% and $8 per unit.

If sales are $500,000, variable costs are 75% of sales, and operating income is $40,000, what is the operating leverage?

a. 0
b. 1.3
c. 3.1

d. 1.25

Which of the following describes the behavior of the fixed cost per unit?

a. Increases with increasing production
b. Remains constant with changes in production
c. Decreases with increasing production

d. Decreases with decreasing production

If variable costs per unit decreased because of a decrease in utility rates, the break-even point would:

a. increase.
b. increase or decrease, depending upon the percentage increase in utility rates.
c. decrease.

d. remain the same.

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

a. differential costs.
b. fixed costs.
c. variable costs.

d. sunk costs

Which of the following conditions would cause the break-even point to increase?

a. Total fixed costs decrease
b. Unit variable cost decreases
c. Unit variable cost increases

d. Unit selling price increases

In cost-volume-profit analysis, all costs are classified into the following two categories:

a. discretionary costs and sunk costs
b. variable costs and fixed costs
c. mixed costs and variable costs
d. sunk costs and fixed costs

Which one of the following statements is not true?

a. Total fixed costs remain the same regardless of volume.

b. Total variable costs change with volume.

c. Total variable costs decrease as the volume increases.

d. Fixed cost per unit increase as the volume decreases.

e. Variable costs per unit remain the same regardless of volume.

Why is it important to identify the most appropriate costdrivers for a particular product?

A) so managers can identify the activities necessary tomanufacture a product

B) so managers can control product costs better

C) so managers can predict product costs better and make betterdecisions

D) B and C

Answer:

Cost drivers are ________.

A) the different functions in the value chain

B) different types of functional areas in the firm

C) measures of activities that require the use of resources andthereby cause costs

D) different types of cost calculations

Answer:

Within the relevant range, the total amount of ________ costchanges in direct proportion to changes in the cost driver. Withinthe relevant range, the total amount of ________ cost does notchange in direct proportion to changes in the cost driver.

A) fixed; variable

B) variable; fixed

C) step; mixed

D) mixed; step

Answer:

What happens when the cost-driver level increases within therelevant range?

A) Total fixed costs remain unchanged.

B) Fixed costs per unit of cost driver increase.

C) Total variable costs decrease.

D) Variable costs per unit of cost driver increase.

Answer:

Which of the following costs is a fixed cost?

A) cost of dairy ingredients used to produce ice cream

B) depreciation expense on factory building

C) fuel used by delivery trucks

D) labor wages of workers who mix dairy ingredients to make icecream