Ex 4 - Ch 11

Question 1

cost behavior - variable costs

Answer 1

change in total costs in direct proportion to changes in volume

making more or less units then variable costs would increase or decrease

Question 2

fixed costs

Answer 2

stay the same in total costs over wide range of activity levels

think rent which stays the same no matter how many units sold

Question 3

Mixed Costs

total costs = ?+?

Answer 3

contains a fixed proportion that stay the same and a variable portion that increases with activity.

total costs = fixed costs +(var. cost per unit X # of units)

Question 4

operating leverage

Answer 4

a measure of the extent to which fixed costs are being used in an organization

it is an used for an indicator of risk… larger OL means there are more fixed costs to cover before making a profit