1.
What is a mixed cost? What
happens to a mixed cost as the level of activity changes?

2.
Express the relationship
between total cost (TC), variable cost per unit (VC), sales volume (X), and
fixed cost (FC) in equation form.

3.
When managers talk about cost
behavior, they are referring to the way in which total costs change in response
to changes of the level of activity. List the four common cost behavior
patterns that serve as the foundation for cost-volume-profit analysis and give
an example of each.

4.
Assume sales revenue of
$50,000, variable costs of $22,000, fixed costs of $25,000, period costs of
$18,000 and product costs of $29,000. Prepare a contribution format income
statement.

Essay:

5.
Walker Boat Company produces
bass boats. The following comments were found in the “Management’s Discussion
and Analysis†section of the annual report’s.
“Bass boat
production includes a significant amount of robotic manufacturing costs, a
portion of which do not vary with production rates.â€
As industry practice,
Walker spreads its robotic costs over the estimated number of boats that are
expected to be produced for each type of bass boat. At the end of the previous
year, the number of boats produced was 2,400 while the expected number of boats
to be produced in the current year is 2,700.

Required:

a.
What effect would the change in
level of boats produced have on the total robotic costs?
b.
What effect would the change in
level of boats produced have on the unit costs of the boats?

6.
Fixed costs are those costs
that do not change as the level of activity increases or decreases. However,
fixed costs may be classified as discretionary or committed. Explain the
differences in these classifications and give an example of each. Discuss why
managers should consider the impact of these costs in the decision making
process in times of falling profits.

7.
Three popular methods of
identifying variable and fixed components of a cost are the scattergraph
method, the high-low method and regression analysis. Compare and contrast these
three methods.

8.
There are four common cost
behavior patterns that serve as the foundation for cost-volume-profit analysis.

Required:

a.
Explain the term, cost
behavior.
b.
List the four common cost
behavior patterns that serve as the foundation for cost-volume-profit analysis
and give an example of each type of cost classified by behavior.
c.
Explain the relationship
between level of activity and each of the four types of cost behavior.

9.
You have been hired by
University Bike Shop as the controller. The CEO has been using a traditional
GAAP income statement for internal decision making. However the CEO has just
completed an MBA program where she covered the contribution format income
statement. She has asked you to explain the contribution format income
statement to the other managers of the company with emphasis on the differences
between the two income statements and how the contribution format income
statement can help all the managers.

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