Discuss discretionary and common fixed costs
Define each of the following terms: variable cost, fixed
cost, step cost, and mixed cost. Give an example of each.
2. Explain what happens to the following when activity level
a. Total fixed cost.
b. Total variable cost.
c. Total mixed cost.
d. Fixed cost per unit.
e. Variable cost per unit.
f. Mixed cost per unit.
3. Explain the difference between discretionary and common
fixed costs. Give an example of each.
4. What is the relevant range and why is it important?
5. The formula for estimating cost behavior is y = a bx.
Explain what each term represents.
6. Why is a scattergraph useful?
7. Describe the three methods used to estimate cost behavior. What are the strengths and weaknesses of each
method? Will these methods always yield exactly the
8. What does the R square value measure?
CHAPTER 5 Cost Behavior 235
9. Why is a contribution margin income statement more useful to managerial decision makers than the income statement intended for external users?
10. Explain how to calculate total contribution margin, contribution margin per unit, and contribution margin ratio.
What is the meaning of each?
11. When activity level increases, explain what happens to:
a. Contribution margin per unit.
b. Contribution margin ratio.
c. Total contribution margin.
d. Total fixed cost.
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