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Exam 2: Cost Behavior, Operating Leverage, and Profitability Analysis

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Question 21

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Executive management at Ballard Books is very optimistic about the chain's ability to achieve significant increases in sales in each of the next five years.The company will most benefit if management creates a:

A) low operating leverage cost structure.
B) medium operating leverage cost structure.
C) high operating leverage cost structure.
D) no operating leverage cost structure.

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

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Question 22

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If the company's volume increases to 5,000 units,the total cost per unit will be:

A) $18.00.
B) $20.00.
C) $20.50.
D) $22.50.

E) A) and C)
F) None of the above

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Question 23

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A low magnitude of operating leverage is best for most companies.

When using least-squares regression to determine variable and fixed costs,the r-square refers to the degree to which the change in the dependent variable can be explained by a change in the independent variable.

Select the incorrect statement regarding the use of average unit costs.

What is the high-low method used for?

When selecting the high and low observations under the high-low method of analyzing mixed costs,the selection should be based on the dependent variable (cost).

Grant Company and Lee Company compete in the same market.The following budgeted income statements illustrate their cost s

The contribution margin format income statement classifies costs according to their behavior patterns.

The BRC Company is considering the introduction of a new line of high end electronics.Because there is considerable uncertainty with regard to the demand for the products,the company would probably be served better by a variable cost s

The total variable cost increases in direct proportion to volume.

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

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

Which of the following items would not be found on a contribution format income statement?

Describe the steps in the high-low method.

Assuming that cost behavior did not change over the two-year period,what is the company's annual fixed general,selling,and administrative cost?

Cool Runnings operates a chain of frozen yogurt shops.The company pays $5,000 of rent expense per month for each shop.The managers of each shop are paid a salary of $3,000 per month and all other employees are paid on an hourly basis.Relative to the number of shops,the cost of rent is which kind of cost?

A cost that contains both fixed and variable elements is referred to as a:

A disadvantage of the high-low method is that the high point and low point may not be representative of the total data set available.

The excess of revenue over variable costs is referred to as: