5 (15 MINUTES) A FEW OF THESE COSTS MAY GENERATE DEBATE. FO...

Exercise 2-5 (15 minutes)

A few of these costs may generate debate. For example, some may argue

that the cost of advertising a Madonna rock concert is a variable cost since

the number of people who come to the rock concert depends on the

amount of advertising. However, one can argue that if the price is within

reason, any Madonna rock concert in New York City will be sold out and

the function of advertising is simply to let people know the event will be

happening. Moreover, while advertising may affect the number of persons

who ultimately buy tickets, the causation is in one direction. If more people

buy tickets, the advertising costs don’t go up.

Cost Behavior

Variable Fixed

1. X-ray film used in the radiology lab at Virginia

Mason Hospital in Seattle... X

2. The costs of advertising a Madonna rock con-

cert in New York City... X

3. Rental cost of a McDonald’s restaurant build-

ing in Hong Kong ... X

4. The electrical costs of running a roller coaster

at Magic Mountain... X

5. Property taxes on your local cinema... X

6. Commissions paid to salespersons at Nord-

strom ... X

7. Property insurance on a Coca-Cola bottling

plant ... X

8. The costs of synthetic materials used to make

Nike running shoes... X

9. The costs of shipping Panasonic televisions to

retail stores ... X

10. The cost of leasing an ultra-scan diagnostic

machine at the American Hospital in Paris... X