Variable Cost and Net Income
Chapter 2 Questions
2-1. I agree with this statement. I would also like to add that cost behavior is also identifying the key resources that are performed, resources used in performing these activities, costs of the resources, and what the cost is driven from.
2-2. Two rules of thumb when analyzing cost behavior are to manage what the company manufactures, sells, and to give advice as to where costs can be reduced.
2-3. Three examples of a variable cost are a 12% increase in the production of dresses, which will cause a 12% increase in variable costs. A 10% increase in clothes will cause an 10% increase in variable costs. A 30% increase in labor hours will cause a 30% increase in variable costs. Three examples of a fixed cost are a 12% increase in airline costs but the fixed costs remain unchanged. A 50% increase in marketing advertisements and the fixed costs remain unchanged. Lastly, a 60% increase in units of production but the fixed costs remain the same.
2-4. The word immediately is used in the definition of a fixed cost and not in the definition of a variable cost because changes to the cost drivers to not happen immediately with a fixed cost like they do with a variable cost.
2-5. I agree that it is confusing to think of fixed costs on a per-unit basis because changes to the cost driver take place at a slower rate than they do with a variable cost. So it would be difficult to single out any costs.
2-6. I disagree because you also must link the resource costs to the activities to get the result of your output.
2-7. I agree with this statement because fixed costs take longer to get back. That is why the relevant range is important for a fixed cost, since you can estimate the amount.
2-8. The major assumption that underlies CVP analysis is the effects of output volume on revenue, expenses, and net income. When you know what the effects are you can then figure out where you can improve or make cuts.
2-9. I agree with this statement because any
2-1. I agree with this statement. I would also like to add that cost behavior is also identifying the key resources that are performed, resources used in performing these activities, costs of the resources, and what the cost is driven from.
2-2. Two rules of thumb when analyzing cost behavior are to manage what the company manufactures, sells, and to give advice as to where costs can be reduced.
2-3. Three examples of a variable cost are a 12% increase in the production of dresses, which will cause a 12% increase in variable costs. A 10% increase in clothes will cause an 10% increase in variable costs. A 30% increase in labor hours will cause a 30% increase in variable costs. Three examples of a fixed cost are a 12% increase in airline costs but the fixed costs remain unchanged. A 50% increase in marketing advertisements and the fixed costs remain unchanged. Lastly, a 60% increase in units of production but the fixed costs remain the same.
2-4. The word immediately is used in the definition of a fixed cost and not in the definition of a variable cost because changes to the cost drivers to not happen immediately with a fixed cost like they do with a variable cost.
2-5. I agree that it is confusing to think of fixed costs on a per-unit basis because changes to the cost driver take place at a slower rate than they do with a variable cost. So it would be difficult to single out any costs.
2-6. I disagree because you also must link the resource costs to the activities to get the result of your output.
2-7. I agree with this statement because fixed costs take longer to get back. That is why the relevant range is important for a fixed cost, since you can estimate the amount.
2-8. The major assumption that underlies CVP analysis is the effects of output volume on revenue, expenses, and net income. When you know what the effects are you can then figure out where you can improve or make cuts.
2-9. I agree with this statement because any