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Total cost equals fixed cost plus variable cost per unit times the activity level in units.

True

False

2 points

Question 2

A significant weakness of regression analysis is that it uses only two data points.

True

False

2 points

Question 3

If the contribution margin ratio is 40%, it means that every $1.00 of sales will contribute $0.40 to covering fixed costs and generating a profit.

True

False

2 points

Question 4

When there is a constraint on how many units can be produced, the focus shifts from contribution margin per unit to contribution margin per unit of the constraint.

True

False

2 points

Question 5

Firms that have relatively high levels of fixed costs have low operating leverage.

True

False

2 points

Question 6

Variable costs per unit

	a.	can be estimated by the high-low method.
	b.	remains the same on a per unit basis when the level of activity changes.
	c.	are represented by the slope of the total cost line.
	d.	All of the above answers are correct.

2 points

Question 7

Three costs incurred by Jolie Company are summarized below:

1,000 units 2,000 units

Cost A $10,000 $15,000

Cost B $21,000 $21,000

Cost C $16,000 $32,000

Which of these costs are variable?

	a.	A, B, and C.
	b.	A and C.
	c.	A only.
	d.	C only.

4 points

Question 8

A significant weakness of the high-low method is that

	a.	a significant amount of management expertise is necessary to break out the variable and fixed costs.
	b.	the two data points that are used may not be representative of the general relation between cost and activity.
	c.	the calculations are so complex that a computer is usually necessary in order to get accurate results.
	d.	monthly data must be collected for at least three years before the method can be used.

2 points

Question 9

Kari

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