Variable Cost and Net Income Essay

820 Words Apr 5th, 2013 4 Pages
Chapter 2 Questions
2-1. I agree with this statement. I would also like to add that cost behavior is also identifying the key resources that are performed, resources used in performing these activities, costs of the resources, and what the cost is driven from.
2-2. Two rules of thumb when analyzing cost behavior are to manage what the company manufactures, sells, and to give advice as to where costs can be reduced.
2-3. Three examples of a variable cost are a 12% increase in the production of dresses, which will cause a 12% increase in variable costs. A 10% increase in clothes will cause an 10% increase in variable costs. A 30% increase in labor hours will cause a 30% increase in variable costs. Three examples of a fixed cost are a 12%
…show more content…
2-11. A break-even analysis is a misnomer because the CVP is sometime referred to the break-even analysis. A break-even point tells you at which point the profits exceed the expenses. The CVP can be used to plan, and make decisions based on sales or costs.
2-12. I do not agree with this statement because every company is different. One company may have higher expenses then another, making their break-even point higher. It does not matter what industry it is, because the break-even point will always be different based upon revenue or expenses.
2-13. I agree with this statement because it is important that you choose the correct method based upon your company’s revenue, expenses, and net income. All three of these are good methods, but there may be a more detailed plan that works better for you.
2-14. Three ways of lowering a break-even point are lowering your expenses, lower the product levels and reducing your staff.
2-15. I agree with this statement because the incremental analysis will do the same as the CVP, such as seeking the change in revenue, expenses, and income.
2-16. Operating leverage is the firm’s ratio of fixed to variable costs. A highly leveraged company may be risky because little changes in sales volume result in large changes in net income.
2-17. An increase in sales volume would result in decreasing economies of scale for

More about Variable Cost and Net Income Essay

Open Document