What is a variable cost? Describe how a variable cost behaves as activity changes both in total and per-unit. Describe 2 examples of costs that are likely to be variable costs. 2. Draw a graph of a variable cost with activity on the X axis and $ on the Y axis. 3. What CAUSES a variable cost? In other words, what does the organization receive when it incurs a variable cost? 4. What is a fixed cost? Describe how fixed costs behave as activity changes both in total and on a per-unit basis. Describe 2 examples of costs that are likely to be fixed costs. 5. Draw a graph of a FIXED cost with activity on the X axis and $ on the Y axis. 6. What CAUSES a fixed cost? In other words, what does the organization receive when it incurs a fixed cost? 7. What is a mixed cost? What challenges do mixed costs present? How would we go about predicting them? 8. Draw a graph of a mixed cost with activity on the X axis and $ on the Y axis. 9. Whats a step cost? Describe how step costs behave as activity changes both in total and per unit. Describe 2 examples of costs that might be step costs. ALASKA MANUFACTURING produces widgets, which they sell for $5 each. They are preparing their budget for production costs for February 2021. Actual production costs in the previous month, January 2021, were as follows, when production was 20,000 widgets: Raw materials (variable) $ 50,000 Labor costs (variable) 20,000 Factory rent (fixed) 12,000 Equipment depreciation (fixed) 16,000 Other production costs (fixed) 2,000 Total $ 100,000 10. What was the prime cost for January, both total AND per-unit? (Look it up somewhere) 11. What was the conversion cost of January, both total AND per-unit? (Look it up somewhere)

12. The total costs for the month of January are given above. Compute the per- unit costs. 13. ALASKA anticipates that production will rise to 25,000 widgets in February. Using the above numbers as your guide, what would be the expected production cost for February? 14. What was the actual production cost per unit for the January? What is the expected production cost for February? Explain WHY the total production cost per unit changed in the direction that it did. 15. What is the formula that you could use to determine the total production cost for ALASKA for any particular month? 16. What formula could you use to determine the profit for any particular month? What is the anticipated profit for February? (Assume that there are no other expenses other than those mentioned above.) 17. What is the formula that you could use to determine the total production cost for ALASKA for the year? 18. Prepare a graph which shows ALASKAs monthly production costs. Show $(cost) on the Y axis and PRODUCTION (units) on the x axis. The graph should separately show: variable costs, fixed cost and total cost. Include points for BOTH January (actual) and February (budgeted). You may do this graph BY HAND and it need NOT be to scale. NOW ASSUME that ALASKA is producing and selling 300,000 widgets annually at a selling price of $5.00 per unit. The company is exploring the effects of possibly lowering their list price to $4.60 per unit and feel that this would increase demand for their widgets by 50,000, to a level of 350,000 per year. 19. What are the incremental (additional) revenues (the benefits) expected from the price reduction? 20. What are the incremental (additional) costs (costs) of producing the extra widgets? 21. What is the incremental (additional) income (loss) expected from the price reduction? 22. Should ALASKA lower their list price of widgets?