Order Cost Behavior and Cost Volume Profit Analysis

Order Cost Behavior and Cost Volume Profit Analysis

1. Describe how total variable costs and unit variable
costs behave with changes in the level of activity.
2. Which of the following costs would be classified as
variable and which would be classified as fixed, if
units produced is the activity base?
a. Direct materials costs
b. Electricity costs of $0.35 per kilowatt-hour
3. Describe how total fixed costs and unit fixed costs
behave with changes in the level of activity.
4. In applying the high-low method of cost estimation,
how is the total fixed cost estimated?
5. If fixed costs increase, what would be the impact on the
(a) contribution margin? (b) income from operations?
6. An examination of the accounting records of
Clowney Company disclosed a high contribution

margin ratio and production at a level below maximum capacity. Based on this information, suggest a
likely means of improving income from operations.
Explain.

Order Cost Behavior and Cost Volume Profit Analysis

7. If the unit cost of direct materials is decreased, what
effect will this change have on the break-even point?
8. Both Austin Company and Hill Company had the
same unit sales, total costs, and income from operations for the current fiscal year; yet Austin Company
had a lower break-even point than Hill Company.
Explain the reason for this difference in break-even
points.
9. How does the sales mix affect the calculation of the
break-even point?
10. What does operating leverage measure, and how is
it computed?

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