1. A variable cost is a cost that remains constant in total throughout wide ranges of activity.
2. If the activity level increases, then one would expect the variable cost per unit to increase as well.
3. Fixed costs expressed on a per unit basis vary inversely with changes in activity.
4. Calculation of fixed costs on a per unit basis is critical for internal reporting to managers.
5. Management”s strategy will determine to a large degree the classification of a fixed cost as discretionary or committed.
6. Committed fixed costs cannot be reduced to zero without seriously impairing the company”s long term goals.
7. Unless the behavior pattern of each cost of a company is understood, the impact of a company”s activities on its costs will not be known until after the activity has occurred.
8. When using the high-low method, if the high and low activity levels do not coincide with the high and low levels of cost, then the analyst should use the points with the high and low levels of cost.
9. A traditional functional income statement organizes costs on the basis of behavior.
10. The contribution income statement organizes costs according to behavior.
11. The contribution margin represents the amount available to contribute toward covering fixed expenses and toward profits for the period.
12. Most companies use the contribution approach in preparing financial statements for external reporting purposes.
13. In the least-squares regression method, total cost is considered to be “Y”, the dependent variable.
14. The least-squares regression method computes the regression line that minimizes the sum of the squared deviations from the plotted points to the line.
15. Account analysis is a special form of least-squares regression in which more than one account is analysed at the same time.