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Chapter 20: Q22RQ (page 1122)

What is cost stickiness? Why do managers need to be aware of cost stickiness?

Short Answer

Expert verified

Answer

Variable cost and contribution margin have an inverse connection.

Step by step solution

01

Meaning of cost stickiness

When the ratio of increase in cost due to increased sales is higher than the ratio of decrease in cost to reduce in sales is known as cost stickiness.

02

Why do managers need to be aware of cost stickiness?

Due to cost stickiness, costs can behave differently than expected from their CVP analysis; that’s why managers need to be aware of cost stickiness.

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Most popular questions from this chapter

What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.

What effect does an increase in sales price have on contribution margin? An increase in fixed costs? An increase in variable costs?

What is sensitivity analysis? How do managers use this tool?

What is a mixed cost? Give an example.

Use the following information to complete Short Exercises S20-16 and S20-17.

Wild Waters Swim Park sells individual and family tickets. With a ticket, each person receives a meal, three beverages, and unlimited use of the swimming pools. Wild Waters has the following ticket prices and variable costs for 2018:

Individual Family Sales price per ticket \( 50 \) 150 Variable cost per ticket 35 140

Wild Waters expects to sell one individual ticket for every four family tickets. Wild Waters’s total fixed costs are $27,500.

S20-16 Calculating breakeven point for two products

Using the Wild Waters Swim Park information presented, do the following tasks.

Requirements

1. Compute the weighted-average contribution margin per ticket.

2. Calculate the total number of tickets Wild Waters must sell to break even.

3. Calculate the number of individual tickets and the number of family tickets the company must sell to break even.
See all solutions

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