Determine the Cost Behavior for Each of the Following Items

question 35

Essay

Determine the cost behavior for each of the following items as Fixed (F), Variable (V), or Semi-variable (S). $\begin{array}{c}\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Production Level }\\\begin{array}{lll}\\\underline{\quad\quad}1. &\text {Production Supervisor's Salary}\\\underline{\quad\quad}2.&\text { Direct Materials}\\\underline{\quad\quad}3.&\text { Factory Wages}\\\underline{\quad\quad}4.&\text { Utilities for machines}\\\underline{\quad\quad}5.&\text { Lights, Heating \& Cooling}\\\underline{\quad\quad}6.&\text { Repair and Maintenance}\\\underline{\quad\quad}7.&\text { Janitorial Expense}\\\underline{\quad\quad}8. &\text {Property Taxes}\\\underline{\quad\quad}9. &\text {Transportation Expense}\\\underline{\quad\quad}10. &\text {Reengineering Expense}\end{array}\begin{array}{rr}10,000 & 12,500 \\30,000 & 30,000 \\140,000 & 175,000 \\76,000 & 95,000 \\13,500 & 16,875 \\20,000 & 20,000 \\34,000 & 48,000 \\12,500 & 12,500 \\4,256 & 4,256 \\6,000 & 7,000 \\5,000 & 9,000\end{array}\end{array}$

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Definitions:

Operating Leverage

The degree to which a company uses fixed operating costs, with all else being equal, the higher the operating leverage, the more sensitive net operating income is to a given percentage change in sales.

Cost-Volume-Profit Graph

A graphical representation that shows the relationship between the total cost, total revenue, and level of output or volume, to analyze the profitability at different levels of operation.

Contribution Margin

The amount remaining from sales revenue after variable expenses are deducted, showing the revenue available to cover fixed expenses and provide profit.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, demonstrating the effect of fixed costs on profits.