Chapter 21, Problem 1BTN

To determine

Variable cost:

The cost which changes in response to the change in level of activity is called a variable cost.

Fixed Cost:

Fixed cost are rigid in nature, hence it is not affected by the change in level of activity.

Mixed Cost:

Mixed cost is combination of both variable component and fixed component. In mixed cost, the variable component moves according to the activity and fixed component does not change.

To determine:

1. Identify variable, mixed and fixed costs that Apple’s repair services department is likely to incur in carrying out its services.

2. Assume that Apple’s repair service revenues are expected to grow by 25% in the next year. How would we expect the costs identified in part 1 to change, it at all?

3. Based on the answer to part 2, can Apple use the contribution margin ratio to predict how income will change in response to increase in Apple’s repair service revenue?