ch04 - Chapter 4 Techniques for Estimating Fixed and...

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Unformatted text preview: Chapter 4 Techniques for Estimating Fixed and Variable Costs True/False 1. The contribution margin statement groups costs by their function. LO1 False The contribution margin groups cost by their variability or behavior. 2. The contribution margin is the amount that contributes toward recovering fixed costs and earning a profit. LO1 True 3. The contribution margin is well suited to evaluate short-term decision options. LO1 True 4. Most firms rely on future data to estimate their cost structure. LO1 False Most firms rely on historical data to estimate their cost structure. 5. Capacity costs are controllable in the short term. LO1 False Capacity costs are not controllable in the short tern. 6. We obtain the data for the account classification method from the contribution margin statement. LO2 False We obtain the data for the account classification method from accounting records that list the expenses for each account. 7. Because account classification requires us to examine each account in detail, it often provides inaccurate estimates. LO2 False Because account classification requires us to examine each account in detain, it can provide very accurate estimates. 8. The major disadvantage of the account classification method is that it uses few observations of aggregate cost data to estimate total fixed and variable costs. LO2 False the major disadvantage of the account classification method is the difficulty associated with implementing it. 9. With advances in computer and information technologies, the account classification task may still be a daunting task. LO2 True 4-1 10. The account classification is both time-consuming and subjective in nature. LO2 True 11. The high-low method uses two observations of aggregate cost data to estimate total fixed costs and the unit variable cost. LO3 True 4-2 Techniques For Estimating Fixed and Variable Costs 12. Using the high-low method, managers use the two observations pertaining to the highest and lowest activity levels because these values are most likely to define any abnormal costs. LO3 False Using the high-low method, managers use the two observations pertaining to the highest and lowest activity levels because these values are most likely to define the normal range of operations. 13. An advantage of using the high-low method is that we can apply it if we know only total revenues, total costs, and activity volume....
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This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.

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ch04 - Chapter 4 Techniques for Estimating Fixed and...

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