Chapter 5 - Q5-8(a Depreciation on buildings –...

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Bus 215 Section 8 October 5, 2010 Homework Assignment: Chapter 5 Q5-1) (a) Variable Cost: a cost whose total dollar amount varies in direct proportion to changes in the activity level. (b) Fixed Cost: a cost that remains constant within the relevant range of activity. (c) Mixed Cost: contains both variable and fixed cost elements. Q5-2) (a) Unit fixed costs – gets progressively smaller (b) Unit variable costs – remains constant (c) Total fixed costs – remain constant (d) Total variable costs – increases Q5-4) Activity base: a measure of whatever causes the incurrence of variable cost, sometimes referred to as the cost driver. Examples of activity bases: number of miles driven by salespersons, the number of pounds of laundry cleaned by a hotel, the number of calls handled by technical support staff at a software company, and the number of beds occupied in a hospital.
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Unformatted text preview: Q5-8) (a) Depreciation on buildings – committed (b) Advertising – discretionary (c) Research – discretionary (d) Long-term equipment leases – committed (e) Pension payments to the company’s retirees – committed (f) Management development and training – discretionary Q5-14) A contribution income statement provides managers with an income statement that clearly distinguishes between fixed and variable costs and therefore facilitates planning, control, and decision-making. A traditional format concentrates on the production, sales, and administration. Q5-15) A contribution margin is the amount remaining from sales revenue after variable expenses have been deducted. This amount contributes toward covering fixed expenses and then toward profits for the period....
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