Chapter 2

Question 1

What 4 questions should managers ask regarding costs?

Answer 1

1. What costs are involved in making a product or providing a service?
2. If we decrease prodcution volume, will costs decrease?
3. What impact will automation have on total costs? (CIM)
4. How can we best control costs?

Question 2

What s need for cost behabioru analysis?

Answer 2

need reliable and relevant cost info

Question 3

What are some points about a service industry

Answer 3

1. services are consumed immediately
2. they do not produce inventory
3. need to keep track of cstos fo its services in order to tell if they are generating a profit
4. need to track what the costsa re on each consulting job
5. can prepare a cost of service provided schedule

Question 4

For a service company what do they use?

Answer 4

Cost of services provided schedule

Question 5

Define cost behviour analsysis

Answer 5

the study of how specific costs respond to changes in the level of business activity.

Question 6

in the cost behaviour analysis do all cost change?

Answer 6

no, some costs change, others remain the same

Question 7

what is the starting point for cost behavoiur analysis?

Answer 7

measuring the key business activity levels in terms of dollars, km, room occupancy, dance lessons taught etc.

Question 8

what is needed for an activity level to be useful?

Answer 8

changes in level or volume must correlate to changes in cost

Question 9

what is the activity index

Answer 9

the avtivity level selected

Question 10

What does the activity index do?

Answer 10

it identifies the the activity that causes the changes in the behaviour of costs

Question 11

what are the 3 categoris of cost behvaiour analysis

Answer 11

1. fixed
2. variable
3. mixed

Question 12

what isthe importance of identifying variable dn fixed costs?

Answer 12

see book

Question 13

What is the formula used to determine mixed costs

Answer 13

High low method
high cost - low cost / highest activity - lowest activity = variable cost

high cost - (variabel cost x highest activity) = fixed
*double check this