Question

1. An example of a cost that is likely to have a variable cost behavior pattern...

1. An example of a cost that is likely to have a variable cost behavior pattern is:

salespersons' salaries

depreciation of plant equiptment

property taxes

materials used in production

2. ABC Company's sales are $100,000, fixed costs are $50,000, and variable costs are $30,000. ABC Company's contribution margin and operating income are __________ and __________ respectively.

50,000; 20,000

20,000; 70,000

70,000; 50,000

70,000; 20,000

3. When using a cost formula to determine total expected costs for cost items having a mixed (semi-variable) cost behavior pattern, total costs are expected to decrease and per unit variable costs are expected to:

increase as the level of activity increases.

decrease as the level of activity decreases.

decrease as the level of activity increases.

remain constant as the level of activity decreases.

Homework Answers

Answer #1

SOLUTION:

1) An example of a cost that is likely to have a variable cost behavior pattern is Material used in production.

Because it is only effected by the number of units produced.

salespersons' salaries, property taxes ,  depreciation of plant equiptment are fixed costs.

Therefore option D is correct.

2) contribution margin = sales - variable cost

= $100000 - $30000

= $70000.

Operating income = contribution margin - fixed costs

= $70000 - $50000

= $20000.

Therefore option D is correct.

3) Total costs are expected to decrease and per unit variable costs are expected to remain constant as the level of activity decreases.

Therefore option D is correct.

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