Chapter 10 Solutions

# Chapter 10 Solutions - (Selected CHAPTER 10 DETERMINING HOW...

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(Selected) CHAPTER 10 DETERMINING HOW COSTS BEHAVE 10-16 (10 min.) Estimating a cost function. 1. Slope coefficient = = \$3,900 - \$3,000 7,000 - 4,000 = \$900 3,000 = \$0.30 per machine-hour Constant = Total cost – (Slope coefficient × Quantity of cost driver) = \$3,900 – (\$0.30 × 7,000) = \$1,800 = \$3,000 – (\$0.30 × 4,000) = \$1,800 The cost function based on the two observations is Maintenance costs = \$1,800 + \$0.30 × Machine-hours 2. The cost function in requirement 1 is an estimate of how costs behave within the relevant range, not at cost levels outside the relevant range. If there are no months with zero machine- hours represented in the maintenance account, data in that account cannot be used to estimate the fixed costs at the zero machine-hours level. Rather, the constant component of the cost function provides the best available starting point for a straight line that approximates how a cost behaves within the relevant range. 10-1

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10-17 (15 min.) Identifying variable-, fixed-, and mixed-cost functions. 1. See Solution Exhibit 10-17. 2. Contract 1: y = \$50 Contract 2: y = \$30 + \$0.20 X Contract 3: y = \$1 X where X is the number of miles traveled in the day. 3. Contract Cost Function 1 2 3 Fixed Mixed Variable SOLUTION EXHIBIT 10-17 Plots of Car Rental Contracts Offered by Pacific Corp. 10-2
10-19 (30 min.) Matching graphs with descriptions of cost and revenue behavior. a. (1) b. (6) A step-cost function. c. (9) d. (2) e. (8) f. (10) It is data plotted on a scatter diagram, showing a linear variable cost function with constant variance of residuals. The constant variance of residuals implies that there is a uniform dispersion of the data points about the regression line. g. (3) h. (8) 10-3

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10-21 (30 min.) Account analysis method. 1. Manufacturing cost classification for 2006: Account Total Costs (1) % of Total Costs That is Variable (2) Variable Costs (3) = (1) × (2) Fixed Costs (4) = (1) – (3) Variable Cost per Unit (5) = (3) ÷ 75,000 Direct materials Direct manufacturing labor Power Supervision labor Materials-handling labor Maintenance labor Depreciation Rent, property taxes, admin \$300,000 225,000 37,500 56,250 60,000 75,000 95,000 100,000 100% 100 100 20 50 40 0 0 \$300,000 225,000 37,500 11,250 30,000 30,000 0 0 \$ 0 0 0 45,000 30,000 45,000 95,000 100,000 \$4.00 3.00 0.50 0.15 0.40 0.40 0 0 Total \$948,750 \$633,750 \$315,000 \$8 .45 Total manufacturing cost for 2006 = \$948,750 Variable costs in 2007: Account Unit Variable Cost per Unit for 2006 (6) Percentage Increase (7) Increase in Variable Cost per Unit (8) = (6) × (7) Variable Cost per Unit for 2007 (9) = (6) + (8) Total Variable Costs for 2007 (10) = (9) × 80,000 Direct materials Direct manufacturing labor Power Supervision labor Materials-handling labor Maintenance labor Depreciation Rent, property taxes, admin. \$4.00
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Chapter 10 Solutions - (Selected CHAPTER 10 DETERMINING HOW...

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