An increase in the level of activity will have the following
effects on unit costs for variable and fixed costs:
Unit Variable Cost,
Unit Fixed Cost
If a firm increases its activity level,
costs should remain the same.
most costs will rise.
no costs will remain the same.
some costs will change, others will remain the same.
If the activity level increases 10%, total variable costs will
remain the same.
increase by more than 10%.
decrease by less than 10%.
Which of the following costs are variable?
Cost 5,000 Units
1 and 2.
1 and 4.
Firms operating at 100% capacity
are the exception rather than the rule.
have no fixed costs.
have no variable costs.
At the high level of activity in November, 7,000 machine
hours were run and power costs were $12,000. In April, a month
of low activity, 2,000 machine hours were run and power costs
amounted to $6,000. Using the high-low method, the estimated
fixed cost element of power costs is
Wynne Company’s high and low level of activity last year
was 60,000 units of product produced in May and 20,000 units
produced in November. Machine maintenance costs were
$39,000 in May and $15,000 in November. Using the high-low
method, determine an estimate of total maintenance cost for a
month in which production is expected to be 45,000 units.
If American Airlines cuts its domestic fares by 30%,
its fixed costs will decrease.
profit will increase by 30%.
a profit can only be earned by decreasing the number of
a profit can be earned either by increasing the number
of passengers or by decreasing variable costs.
Use the following information for questions 62–63.
In applying the high-low method, which months are
January and February
January and April
February and April
February and March
In applying the high-low method, what is the unit variable
cannot be determined from the information given.
In CVP analysis, the term “cost”
includes only manufacturing costs.
means cost of goods sold.
includes manufacturing costs plus selling and
excludes all fixed manufacturing costs.
If a company had a contribution margin of $200,000 and a
contribution margin ratio of 40%, total variable costs must have