Cost Behavior Defined
I. Cost behavior defined
Module 4 Review Questions
The left column lists several cost classifications. The right column presents short definitions of those costs. In the blank space beside each of the numbers in the right column, write the letter of the cost best described by the definition.
A. Curvilinear cost B. Step-wise cost C. Fixed cost
D. Mixed cost E. Variable cost F. Total Cost
___E_1. This cost increases in direct proportion to increases in volume; its amount is constant for each unit produced.
__B__2. This cost remains constant over a limited range of volume; when it reaches the end of its limited range, it changes by a lump sum and remains at that level until it exceeds another limited range.
_D___3. This cost has a component that remains the same overall volume levels and another component that increases in direct proportion to increases in volume.
_A___4. This cost increases when volume increases, but the increase is not constant for each unit produced.
_C___5. This cost remains constant overall volume levels within the productive capacity for the planning period.
_F___6. This cost is the combined amount of all the other costs. II. Contribution margin and breakeven
Apollo Company manufactures a single product that sells for $168 per unit and whose total variable costs are $126 per unit. The company’s annual fixed costs are $630,000.
Use this information to compute the company’s (a). Contribution margin, (b). Contribution margin ratio,(c). Break-even point in units,(d). Break-even point in dollars of sales.
(a). CM/unit = P/unit - VC/unit = 168 -126 = 42
(b). CM ratio = CM/P = 42/168 = .25
(c). BEP units = FC/CM = $630,000/42 = 15000 units
(d). BEP in dollars = FC/CM ratio = 630,000/.25 = 2,520,000
15000 units * 168 = 2,520,000
III. Computing sales to achieve target income
Apollo Company management (in problem II) targets an annual after-tax income of $840,000. The company is subject to a 20% income tax rate. Assume that fixed
Module 4 Review Questions
The left column lists several cost classifications. The right column presents short definitions of those costs. In the blank space beside each of the numbers in the right column, write the letter of the cost best described by the definition.
A. Curvilinear cost B. Step-wise cost C. Fixed cost
D. Mixed cost E. Variable cost F. Total Cost
___E_1. This cost increases in direct proportion to increases in volume; its amount is constant for each unit produced.
__B__2. This cost remains constant over a limited range of volume; when it reaches the end of its limited range, it changes by a lump sum and remains at that level until it exceeds another limited range.
_D___3. This cost has a component that remains the same overall volume levels and another component that increases in direct proportion to increases in volume.
_A___4. This cost increases when volume increases, but the increase is not constant for each unit produced.
_C___5. This cost remains constant overall volume levels within the productive capacity for the planning period.
_F___6. This cost is the combined amount of all the other costs. II. Contribution margin and breakeven
Apollo Company manufactures a single product that sells for $168 per unit and whose total variable costs are $126 per unit. The company’s annual fixed costs are $630,000.
Use this information to compute the company’s (a). Contribution margin, (b). Contribution margin ratio,(c). Break-even point in units,(d). Break-even point in dollars of sales.
(a). CM/unit = P/unit - VC/unit = 168 -126 = 42
(b). CM ratio = CM/P = 42/168 = .25
(c). BEP units = FC/CM = $630,000/42 = 15000 units
(d). BEP in dollars = FC/CM ratio = 630,000/.25 = 2,520,000
15000 units * 168 = 2,520,000
III. Computing sales to achieve target income
Apollo Company management (in problem II) targets an annual after-tax income of $840,000. The company is subject to a 20% income tax rate. Assume that fixed