Order Discretionary Fixed Costs Discussion

Order Discretionary Fixed Costs Discussion

3–1 Identify some examples of variable costs for a manufacturing company.
3–2 What effect does a decrease in volume have on
a. Unit fixed costs?
b. Unit variable costs?
c. Total fixed costs?
d. Total variable costs?
3–3 Define the following terms: ( a ) cost behaviour and ( b ) relevant range.
3–4 What are curvilinear costs? What are some examples of costs that might behave in a
curvilinear fashion?
3–5 Define a step-variable cost and give an example.
3–6 Managers often assume a strictly linear relationship between cost and volume. How can
this practice be defended in light of the fact that many costs are curvilinear?
3–7 Is advertising a discretionary fixed cost or a committed fixed cost? Explain.
3–8 Classify the following fixed costs as normally being either committed or discretionary:
a. Insurance on buildings.
b. Advertising.
c. Travel.
d. Long-term equipment leases.
e. Pension payments to a company’s retirees.
f. Training.

Order Discretionary Fixed Costs Discussion

3–9 Does the concept of the relevant range apply to fixed costs? Explain.
3–10 What is the engineering approach to cost analysis? In what situations might this approach be used?
3–11 What is the purpose of preparing a scattergram?
3–12 Why does the high–low method use the high–low activity levels instead of the high–low
cost levels?
3–13 Give the general formula for a mixed cost. Which term represents the variable cost?
The fixed cost?
3–14 How is the contribution margin calculated?

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