Question 1

If a company had a pure variable cost structure,what would be the relationship between contribution margin and net income,and what would be the magnitude of operating leverage?

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Question 2

Describe the format of an income statement prepared using the contribution margin approach.

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Question 3

Select the term from the list provided that best matches each of the following descriptions.The first is done for you.

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Question 4

What is meant by the phrase,"relevant range"? How does the concept of relevant range affect fixed costs?

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Question 5

What is the high-low method used for?

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Question 6

How is operating leverage related to cost structure?

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Question 7

Why would a company need to estimate the fixed and variable components of a mixed cost?

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Question 8

Describe the steps in the high-low method.

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Question 9

Compare least squares regression and the scattergraph method of analyzing mixed costs.

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Question 10

Assume that management uses the regression method to separate a mixed cost into its fixed and variable components.Briefly describe the significance of the R Square (R²)when interpreting the reliability of cost estimates that result.

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Question 11

What is operating leverage,and how does a company achieve operating leverage?

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Question 12

Assume that wages expense is a variable cost and that the relevant range is 10,000 to 15,000 labor hours.Within that range,the cost is $15 per hour.What can you assume about wages expense outside this range?

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Question 13

What advantages does the regression method of cost estimation offer,compared to the high-low and scattergraph methods of estimating mixed costs?

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Question 14

What is a primary disadvantage of the high-low method of analyzing a mixed cost?

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Question 15

For Marvin Company,the magnitude of operating leverage was 3.5 during the current year.Demonstrate what this magnitude of operating leverage would mean for the company's profitability by creating an example.

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Question 16

Why would a company often calculate and use average costs of its products and services rather than actual costs?

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Question 17

What is an activity base,and how does the activity base relate to a variable cost?

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Question 18

What is meant by the phrase,"cost structure?"

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Question 19

If a company had a pure fixed cost structure,what would be the relationship between a given dollar increase in sales and net income?

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Question 20

What are mixed or semivariable costs? Give an example of a mixed cost.

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Quiz 2: Cost Behavior, operating Leverage, and Profitability Analysis