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
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