Chapter 20: Q22RQ (page 1122)
What is cost stickiness? Why do managers need to be aware of cost stickiness?
Short Answer
Answer
Variable cost and contribution margin have an inverse connection.
Chapter 20: Q22RQ (page 1122)
What is cost stickiness? Why do managers need to be aware of cost stickiness?
Answer
Variable cost and contribution margin have an inverse connection.
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Get started for freeScotty’s Scooters plans to sell a standard scooter for \(55 and a chrome scooter for \)70. Scotty’s purchases the standard scooter for \(30 and the chrome scooter for \)40. Scotty’s expects to sell one standard scooter for every three chrome scooters. Scotty’s monthly fixed costs are \(23,000.
Requirements
1. How many of each type of scooter must Scotty’s Scooters sell each month to break even?
2. How many of each type of scooter must Scotty’s Scooters sell each month to earn \)25,300?
3. Suppose Scotty’s expectation to sell one standard scooter for every three chrome scooters was incorrect and for every four scooters sold two are standard scooters and two are chrome scooters. Will the breakeven point of total scooters increase or decrease? Why? (Calculation not required.)
What is sensitivity analysis? How do managers use this tool
What is a company’s cost structure? How can cost structure affect a company’s profits?
Why is the calculation to determine the target profit considered a variation of the breakeven calculation?
Diversified Investor Group is opening an office in Boise, Idaho. Fixed monthly costs are office rent (\(8,000), depreciation on office furniture (\)1,700), utilities (\(2,400), special telephone lines (\)1,500), a connection with an online brokerage service (\(2,500), and the salary of a financial planner (\)11,900). Variable costs include payments to the financial planner (9% of revenue), advertising (11% of revenue), supplies and postage (4% of revenue), and usage fees for the telephone lines and computerized brokerage service (6% of revenue).
Requirements
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