In describing the cost equation, y = mx + b, \"m\" is: A. The dependent variable
ID: 2419105 • Letter: I
Question
In describing the cost equation, y = mx + b, "m" is:
A. The dependent variable, cost B. The independent variable, the level of activity C. The total fixed costs D. The variable cost per unit of activity
A disadvantage of the high-low method of cost analysis is that:
It cannot be used when there are a very large number of observations
It is too time consuming to apply
It uses two extreme data points, which may not be representative of normal conditions
It relies totally on the judgment of the person performing the cost analysis
A 45% contribution margin ratio means that:
The company contributes 45% of its operating income to charities
55% of the company’s revenue is consumed by fixed and variable costs
The company’s revenue has increased by 45% from the prior period
45% of the company’s revenue is available to cover fixed costs and to contribute towardoperating income
A.It cannot be used when there are a very large number of observations
B.It is too time consuming to apply
C.It uses two extreme data points, which may not be representative of normal conditions
D.It relies totally on the judgment of the person performing the cost analysis
A 45% contribution margin ratio means that:
A.The company contributes 45% of its operating income to charities
B.55% of the company’s revenue is consumed by fixed and variable costs
C.The company’s revenue has increased by 45% from the prior period
D.45% of the company’s revenue is available to cover fixed costs and to contribute towardoperating income
Explanation / Answer
1. cost equation Y = mx + b
where Y = total cost
m = the slope of the line, i.e., unit variable cost
X = the number of units of activity
b = the y-intercept, i.e. total fixed costs.
2. A is not true. It can applied no matter how many observations that you have. B is not true. It is easy to calculate. C is true. D is not true. There is no judgment.
3. Contribution Margin ratio = Contribution/sales * 100
Contribution is equal to Fixed costs and Profit
So the answer is D. 45% of the company’s revenue is available to cover fixed costs and to contribute towardoperating income
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