Accounting - Chapter 005 Cost Behavior Analysis and Use True False Questions 1 Economists correctly point out that many costs that the accountant

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Unformatted text preview: Chapter 005, Cost Behavior Analysis and Use True / False Questions 1. Economists correctly point out that many costs that the accountant classifies as variable are actually curvilinear. True False SA tz 69 M PL @ gm E ai l.c om 2. A cost that is obtained in large chunks and that increases or decreases only in response to fairly wide changes in the activity level is known as a step-variable cost. True False 3. Fixed cost per unit increases as activity decreases and decreases as activity increases. True False 4. A cost formula may not be valid outside the relevant range of activity. True False 5. The relevant range concept is not applicable to mixed costs. True False nu 6. The planning horizons for committed fixed costs and discretionary fixed costs are generally the same. True False do 7. With automation, fixed costs increase relative to variable costs. True False 5-1 Chapter 005, Cost Behavior Analysis and Use 8. The high-low method is generally less accurate than the least-squares regression method for analyzing the behavior of mixed costs. True False SA tz 69 M PL @ gm E ai l.c om 9. The fact that the high-low method uses only two data points is a major defect of the method. True False 10. The contribution approach to the income statement classifies costs by behavior rather than by function. True False 11. On an income statement prepared by the traditional approach, costs are organized and presented according to function. True False Multiple Choice Questions do nu 12. Expense A is a fixed cost; expense B is a variable cost. During the current year the activity level has increased, but is still within the relevant range. In terms of cost per unit of activity, we would expect that: A. expense A has remained unchanged. B. expense B has decreased. C. expense A has decreased. D. expense B has increased. 5-2 Chapter 005, Cost Behavior Analysis and Use A. Choice A B. Choice B C. Choice C D. Choice D SA tz 69 M PL @ gm E ai l.c om 13. When the level of activity increases within the relevant range, how does each of the following change? 14. Which costs will change with a decrease in activity within the relevant range? A. Total fixed costs and total variable cost. B. Unit fixed costs and total variable cost. C. Unit variable cost and unit fixed cost. D. Unit fixed cost and total fixed cost. 15. Within the relevant range, the variable cost per unit: A. remains constant as activity changes. B. increases as activity increases. C. decreases as activity increases. D. can increase or decrease as the activity changes. do nu 16. An increase in the activity level within the relevant range results in: A. an increase in fixed cost per unit. B. a proportionate increase in total fixed costs. C. an unchanged fixed cost per unit. D. a decrease in fixed cost per unit. 5-3 Chapter 005, Cost Behavior Analysis and Use 17. The linear equation Y = a + bX is often used to express cost formulas. In this equation: A. the b term represents variable cost per unit of activity. B. the a term represents variable cost in total. C. the X term represents total cost. D. the Y term represents total fixed cost. SA tz 69 M PL @ gm E ai l.c om 18. An example of a discretionary fixed cost is: A. insurance. B. taxes on real estate. C. management training. D. depreciation of buildings and equipment. 19. Discretionary fixed costs: A. vary directly and proportionately with the level of activity. B. have a long-term planning horizon, generally encompassing many years. C. are made up of plant, equipment, and basic organizational costs. D. None of these. nu 20. An example of a cost that is variable with respect to the number of units produced and sold is: A. insurance on the headquarters building. B. power to run production equipment. C. supervisory salaries. D. depreciation of factory facilities. do 21. The cost of goods sold in a merchandising company typically would be classified as a: A. fixed cost. B. variable cost. C. step-variable cost. D. mixed cost. 5-4 Chapter 005, Cost Behavior Analysis and Use 22. A cost driver is: A. the largest single category of cost in a company. B. a fixed cost that cannot be avoided. C. a factor that causes variations in a cost. D. an indirect cost that is essential to the business. SA tz 69 M PL @ gm E ai l.c om 23. A disadvantage of the high-low method of cost analysis is that: A. it cannot be used when there are a very large number of observations. B. it is too time consuming to apply. C. it uses two extreme data points, which may not be representative of normal conditions. D. it relies totally on the judgment of the person performing the cost analysis. 24. The contribution approach to the income statement: A. organizes costs on a functional basis. B. is useful to managers in planning and decision making. C. shows a contribution margin rather than a net operating income figure at the bottom of the statement. D. can be used only by manufacturing companies. nu 25. Contribution margin is the excess of revenues over: A. cost of goods sold. B. manufacturing cost. C. all direct costs. D. all variable costs. do 26. The _______________ approach to the income statement organizes costs by function. A. contribution B. traditional C. comparable D. None of these is true. 5-5 Chapter 005, Cost Behavior Analysis and Use 27. _________________ is a method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors. A. quick and dirty method B. scattergraph method C. high-low method D. least-square regression method SA tz 69 M PL @ gm E ai l.c om 28. Iacopi Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $172.50 per unit. The best estimate of the total contribution margin when 4,300 units are sold is: A. $343,140 B. $65,790 C. $121,260 D. $411,080 do nu 29. An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine-hour at an activity level of 10,000 machine-hours and $0.25 per machinehour at an activity level of 8,000 machine-hours. Assuming that this activity is within the relevant range, what is the total expected maintenance cost if the activity level is 8,700 machine-hours? A. $2,000 B. $400 C. $2,250 D. $1,740 5-6 Chapter 005, Cost Behavior Analysis and Use SA tz 69 M PL @ gm E ai l.c om 30. Shipping expense is $9,000 for 8,000 pounds shipped and $11,250 for 11,000 pounds shipped. Assuming that this activity is within the relevant range, if the company ships 9,000 pounds, its expected shipping expense is closest to: A. $10,125 B. $8,583 C. $9,972 D. $9,750 31. The controller of JoyCo has requested a quick estimate of the manufacturing supplies needed for the month of July when production is expected to be 470,000 units. Below are actual data from the prior three months of operations. do nu Using these data and the high-low method, what is the best estimate of the cost of manufacturing supplies that would be needed for July? (Assume that this activity is within the relevant range.) A. $805,284 B. $1,188,756 C. $755,196 D. $752,060 5-7 Chapter 005, Cost Behavior Analysis and Use 32. Anderton Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. SA tz 69 M PL @ gm E ai l.c om The best estimate of the total monthly fixed manufacturing cost is: A. $391,200 B. $271,200 C. $656,400 D. $351,200 33. Bakken Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. do nu The best estimate of the total variable manufacturing cost per unit is: A. $16.50 B. $90.40 C. $45.50 D. $106.90 5-8 Chapter 005, Cost Behavior Analysis and Use 34. Carbert Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. SA tz 69 M PL @ gm E ai l.c om The best estimate of the total cost to manufacture 4,300 units is closest to: A. $899,345 B. $951,160 C. $847,530 D. $915,010 35. Dabbs Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. do nu The best estimate of the total monthly fixed manufacturing cost is: A. $737,950 B. $686,400 C. $274,000 D. $789,500 5-9 Chapter 005, Cost Behavior Analysis and Use 36. Eddins Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. SA tz 69 M PL @ gm E ai l.c om The best estimate of the total variable manufacturing cost per unit is: A. $60.10 B. $38.40 C. $21.70 D. $22.30 37. Faram Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. do nu The best estimate of the total cost to manufacture 2,300 units is closest to: A. $446,660 B. $465,840 C. $462,415 D. $478,170 5-10 Chapter 005, Cost Behavior Analysis and Use 38. Gamba Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $170.00 per unit. SA tz 69 M PL @ gm E ai l.c om The best estimate of the total monthly fixed cost is: A. $865,800 B. $321,000 C. $820,400 D. $775,000 39. Haram Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $182.10 per unit. do nu The best estimate of the total variable cost per unit is: A. $120.40 B. $158.40 C. $167.90 D. $96.30 5-11 Chapter 005, Cost Behavior Analysis and Use 40. A company that produces and sells a single product has provided the following volume and average cost data for two accounting periods: SA tz 69 M PL @ gm E ai l.c om The best estimates of the total fixed cost and variable cost per unit are closest to: A. $2,000 fixed; $1.50 variable B. $2,000 fixed; $7.00 variable C. $3,000 fixed; $7.00 variable D. $3,000 fixed; $8.50 variable 41. Tempcon, Inc. sells and installs furnaces for $3,000 per furnace. The following cost formula relates to last year's operations at Tempcon: Y = $125,000 + $1,800X If Tempcon sold and installed 500 furnaces last year, what was its total contribution margin last year? A. $475,000 B. $900,000 C. $1,025,000 D. $600,000 do nu 42. The following information was collected for one of the costs at Demetra Manufacturing Corporation over the past two years: Assuming that there has been no change in the cost structure over the last two years and this activity is within the relevant range, this cost at Demetra would best be described as a: A. fixed cost B. mixed cost C. step-variable cost D. true variable cost 5-12 Chapter 005, Cost Behavior Analysis and Use 43. The following data pertain to activity and costs for two recent months: SA tz 69 M PL @ gm E ai l.c om Assuming that these activity levels are within the relevant range, the mixed costs for November were: A. $40,000 B. $35,000 C. $25,000 D. $20,000 44. At an activity level of 10,000 units, variable costs totaled $35,000 and fixed costs totaled $20,800. If 16,000 units are produced and this activity is within the relevant range, then: A. total cost would equal $89,280. B. total unit cost would equal $4.80. C. fixed cost per unit would equal $5.58. D. total costs would equal $55,800. do nu 45. Given the cost formula Y = $12,000 + $6X, total cost at an activity level of 8,000 units would be: A. $20,000 B. $60,000 C. $12,000 D. $48,000 5-13 Chapter 005, Cost Behavior Analysis and Use 46. Reddy Company has the following cost formulas for overhead: SA tz 69 M PL @ gm E ai l.c om Based on these cost formulas, the total overhead cost at 600 machine hours is expected to be: A. $4,500 B. $5,200 C. $5,620 D. $5,340 47. Given the cost formula Y = $17,500 + $4X, at what level of activity will total cost be $42,500? A. 10,625 units B. 4,375 units C. 6,250 units D. 5,250 units do nu 48. Krouse Corporation reports that at an activity level of 8,100 units, its total variable cost is $509,652 and its total fixed cost is $197,316. What would be the total cost, both fixed and variable, at an activity level of 8,400 units? Assume that this level of activity is within the relevant range. A. $725,844 B. $706,968 C. $720,060 D. $733,152 5-14 Chapter 005, Cost Behavior Analysis and Use SA tz 69 M PL @ gm E ai l.c om 49. At an activity level of 4,500 machine-hours in a month, Novosel Corporation's total variable maintenance and repair cost is $394,830 and its total fixed maintenance and repair cost is $105,570. What would be the total maintenance and repair cost, both fixed and variable, at an activity level of 4,600 units in a month? Assume that this level of activity is within the relevant range. A. $511,520 B. $505,960 C. $509,174 D. $500,400 50. At an activity level of 9,600 machine-hours in a month, Montgomery Corporation's total variable production engineering cost is $402,336 and its total fixed production engineering cost is $570,240. What would be the total production engineering cost, both fixed and variable, at an activity level of 9,900 machine-hours in a month? Assume that this level of activity is within the relevant range. A. $101.31 B. $99.51 C. $98.24 D. $99.78 do nu 51. You are applying the scattergraph method and find that the regression line you have drawn passes through a data point with the following coordinates: 1,000 units and $9,600. The regression line passes through the Y axis at the $600 point. Which of the following is the cost formula that represents the slope of this line? A. Y=$600+$9.00X B. Y=$600+$9.60X C. Y=$9,600+$.06X D. None of these is true. 5-15 Chapter 005, Cost Behavior Analysis and Use 52. The following data pertains to activity and utility costs for two recent years: SA tz 69 M PL @ gm E ai l.c om Using the high-low method, the cost formula for utilities is: A. $1.50 per unit B. $8,000 plus $0.50 per unit C. $1.25 per unit D. $6,000 plus $0.75 per unit 53. At an activity level of 6,000 units the cost for maintenance is $7,200 and at 10,000 units the cost for maintenance is $11,600. Using the high-low method, the cost formula for maintenance is: A. $1.20 per unit B. $1.16 per unit C. $1,200 plus $1.10 per unit D. $600 plus $1.10 per unit 54. Bell Company has provided the following data for maintenance costs: do nu Using the high-low method, the cost formula for maintenance cost would be: A. $2.00 per machine hour B. $1.625 per machine hour C. $18,000 plus $0.50 per machine hour D. $24,000 plus $0.50 per machine hour 5-16 Chapter 005, Cost Behavior Analysis and Use 55. The following data for a production department relate to two accounting periods: SA tz 69 M PL @ gm E ai l.c om The best estimate of the fixed departmental cost is closest to: A. $5,250 B. $59,500 C. $187,000 D. $246,500 56. Electrical costs at one of Gotch Corporation's factories are listed below: do nu Management believes that electrical cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to: A. $0.15 per machine-hour; $35,115 per month B. $9.11 per machine-hour; $1,249 per month C. $9.43 per machine-hour; $35,406 per month D. $6.57 per machine-hour; $10,728 per month 5-17 Chapter 005, Cost Behavior Analysis and Use SA tz 69 M PL @ gm E ai l.c om 57. Maintenance costs at a Neller Corporation factory are listed below: do nu Management believes that maintenance cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to: A. $1.85 per machine-hour; $21,325 per month B. $3.77 per machine-hour; $15,648 per month C. $9.07 per machine-hour; $26,762 per month D. $0.27 per machine-hour; $26,071 per month 5-18 Chapter 005, Cost Behavior Analysis and Use SA tz 69 M PL @ gm E ai l.c om 58. Supply costs at Rupard Corporation's chain of gyms are listed below: Management believes that supply cost is a mixed cost that depends on client-visits. Using the high-low method to estimate the variable and fixed components of this cost, those estimates would be closest to: A. $0.76 per client-visit; $18,152 per month B. $1.31 per client-visit; $10,462 per month C. $2.08 per client-visit; $28,489 per month D. $0.77 per client-visit; $17,952 per month nu 59. A clothing manufacturer incurred the following factory maintenance costs: 2,100 units produced with maintenance cost of $61,500, and 750 units produced with maintenance cost of $41,250. How much of the maintenance cost is made up of fixed cost? (Use the high-low method.) A. $11,181 B. $20,125 C. $30,000 D. $50,319 do 60. The cost of goods sold in a retail store totaled $325,000. Fixed selling and administrative expenses totaled $115,000 and variable selling and administrative expenses were $210,000. If the store's contribution margin totaled $590,000, then sales must have been: A. $1,125,000 B. $1,030,000 C. $915,000 D. $650,000 5-19 Chapter 005, Cost Behavior Analysis and Use SA tz 69 M PL @ gm E ai l.c om 61. At a sales level of $300,000, James Company's gross margin is $15,000 less than its contribution margin, its net operating income is $50,000, and its selling and administrative expenses total $120,000. At this sales level, its contribution margin would be: A. $250,000 B. $155,000 C. $170,000 D. $185,000 62. Kalbach Corporation, a manufacturing company, has provided the following financial data for November: do nu The company had no beginning or ending inventories. The contribution margin for November was: A. $285,000 B. $166,000 C. $310,000 D. $36,000 5-20 Chapter 005, Cost Behavior Analysis and Use SA tz 69 M PL @ gm E ai l.c om 63. The management of Harper Corporation, a manufacturing company, has provided the following financial data for December: The contribution margin for December was: A. $204,000 B. $64,000 C. $340,000 D. $319,000 64. The management of Degenhart Corporation, a manufacturing company, has provided the following data for February: do nu The contribution margin for February was: A. $34,000 B. $323,000 C. $191,000 D. $310,000 5-21 Chapter 005, Cost Behavior Analysis and Use 65. The following data pertains to activity and the cost of electricity for two recent months: SA tz 69 M PL @ gm E ai l.c om The best estimate of the total monthly fixed electrical cost is: A. $300 B. $1,200 C. $1,500 D. $1,050 Callaham Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $115.80 per unit. nu 66. The best estimate of the total monthly fixed cost is: A. $24,000 B. $478,050 C. $427,600 D. $528,500 do 67. The best estimate of the total variable cost per unit is: A. $84.50 B. $100.90 C. $106.90 D. $105.70 5-22 Chapter 005, Cost Behavior Analysis and Use 68. The best estimate of the total contribution margin when 4,300 units are sold is: A. $134,590 B. $43,430 C. $64,070 D. $38,270 SA tz 69 M PL @ gm E ai l.c om Stewart Company is attempting to classify costs according to their cost behavior. Data concerning activity and costs are listed below: 69. The costs that Stewart Company would classify as variable would be: A. maintenance and supplies. B. maintenance, supplies, utilities, lubrication and advertising. C. supplies and advertising. D. maintenance, utilities and advertising. do nu 70. The cost(s) that Stewart Company would classify as fixed would be: A. insurance. B. insurance and lubrication. C. supplies and lubrication. D. insurance and advertising. 5-23 Chapter 005, Cost Behavior Analysis and Use 71. The costs that Stewart Company would classify as mixed would be: A. lubrication and advertising. B. maintenance and insurance. C. supplies and lubrication. D. supplies and utilities. SA tz 69 M PL @ gm E ai l.c om 72. If Stewart Company sells 1,150 units in March and this activity is within the relevant range, the expected total cost would most likely be closest to: A. $2,610.50 B. $1,774.00 C. $4,343.92 D. $4,384.50 Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000 level of activity and total expense per unit of $1.95 at the 21,000 unit level of activity. 73. The best estimate of the variable cost per unit for Maxwell Company is: A. $0.56 B. $1.79 C. $2.00 D. $1.95 do nu 74. The best estimate of the total fixed cost per period for Maxwell Company is: A. $40,950 B. $32,000 C. $3,360 D. $29,190 5-24 Chapter 005, Cost Behavior Analysis and Use 75. The best estimate of the total expected costs at the 19,000 level of activity for Maxwell Company is: A. $37,050 B. $38,000 C. $37,370 D. $39,830 SA tz 69 M PL @ gm E ai l.c om The following production and average cost data for two levels of monthly production volume have been supplied by a company that produces a single product: 76. The best estimate of the total monthly fixed manufacturing cost is: A. $222,000 B. $284,400 C. $305,200 D. $633,600 nu 77. The best estimate of the total variable manufacturing cost per unit is: A. $116.40 B. $137.20 C. $20.80 D. $76.70 do 78. The best estimate of the total cost to manufacture 3,200 units is closest to: A. $675,840 B. $616,640 C. $661,040 D. $646,240 5-25 Chapter 005, Cost Behavior Analysis and Use SA tz 69 M PL @ gm E ai l.c om Baaca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. 79. The best estimate of the total monthly fixed manufacturing cost is: A. $1,424,400 B. $1,506,400 C. $932,400 D. $1,465,400 80. The best estimate of the total variable manufacturing cost per unit is: A. $82.00 B. $70.20 C. $56.70 D. $11.80 do nu 81. The best estimate of the total cost to manufacture 6,300 units is closest to: A. $1,425,690 B. $1,355,760 C. $1,495,620 D. $1,449,000 5-26 Chapter 005, Cost Behavior Analysis and Use SA tz 69 M PL @ gm E ai l.c om Buffo Company fabricates metal folding chairs. Data concerning the company's revenue and cost structure follow: 82. If Buffo plans to produce and sell 3,000 units next month, the expected contribution margin would be: A. $30,750 B. $74,250 C. $26,750 D. $96,500 83. If Buffo plans to produce and sell 4,000 units next month, the expected gross margin would be: A. $41,000 B. $37,000 C. $68,000 D. $57,500 do nu 84. If Buffo expects to produce and sell 2,000 units next month, the total expected manufacturing cost would be: A. $34,000 B. $39,000 C. $45,500 D. $38,000 5-27 Chapter 005, Cost Behavior Analysis and Use 85. If Buffo expects to produce and sell 5,000 units next month, the expected net operating income would be: A. $51,250 B. $42,750 C. $71,000 D. $62,500 SA tz 69 M PL @ gm E ai l.c om Rymore Company would like to classify the following costs according to their cost behavior: 86. Which of the following classifications best describes the behavior of Cost A? A. Mixed B. Variable C. Fixed D. None of these nu 87. Which of the following classifications best describes the behavior of Cost B? A. Mixed B. Variable C. Fixed D. None of these do 88. Which of the following classifications best describes the behavior of Cost C? A. Mixed B. Variable C. Fixed D. None of these 5-28 Chapter 005, Cost Behavior Analysis and Use Bacho Corporation reports that at an activity level of 5,400 units, its total variable cost is $416,934 and its total fixed cost is $142,560. SA tz 69 M PL @ gm E ai l.c om 89. What would be the total variable cost at an activity level of 5,500 units? Assume that this level of activity is within the relevant range. A. $424,655 B. $559,494 C. $416,934 D. $145,200 do nu 90. What would be the average fixed cost per unit at an activity level of 5,500 units? Assume that this level of activity is within the relevant range. A. $26.40 B. $103.61 C. $25.92 D. $51.98 5-29 Chapter 005, Cost Behavior Analysis and Use Key True / False Questions 1. Economists correctly point out that many costs that the accountant classifies as variable are actually curvilinear. TRUE SA tz 69 M PL @ gm E ai l.c om AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 2. A cost that is obtained in large chunks and that increases or decreases only in response to fairly wide changes in the activity level is known as a step-variable cost. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 3. Fixed cost per unit increases as activity decreases and decreases as activity increases. TRUE do nu AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 5-30 Chapter 005, Cost Behavior Analysis and Use Key 4. A cost formula may not be valid outside the relevant range of activity. TRUE SA tz 69 M PL @ gm E ai l.c om AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 5. The relevant range concept is not applicable to mixed costs. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 6. The planning horizons for committed fixed costs and discretionary fixed costs are generally the same. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy nu 7. With automation, fixed costs increase relative to variable costs. TRUE do AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 5-31 Chapter 005, Cost Behavior Analysis and Use Key 8. The high-low method is generally less accurate than the least-squares regression method for analyzing the behavior of mixed costs. TRUE SA tz 69 M PL @ gm E ai l.c om AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Learning Objective: 5 Level: Easy 9. The fact that the high-low method uses only two data points is a major defect of the method. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy 10. The contribution approach to the income statement classifies costs by behavior rather than by function. TRUE nu AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy do 11. On an income statement prepared by the traditional approach, costs are organized and presented according to function. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy 5-32 Chapter 005, Cost Behavior Analysis and Use Key Multiple Choice Questions SA tz 69 M PL @ gm E ai l.c om 12. Expense A is a fixed cost; expense B is a variable cost. During the current year the activity level has increased, but is still within the relevant range. In terms of cost per unit of activity, we would expect that: A. expense A has remained unchanged. B. expense B has decreased. C. expense A has decreased. D. expense B has increased. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium 13. When the level of activity increases within the relevant range, how does each of the following change? nu A. Choice A B. Choice B C. Choice C D. Choice D do AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium 5-33 Chapter 005, Cost Behavior Analysis and Use Key 14. Which costs will change with a decrease in activity within the relevant range? A. Total fixed costs and total variable cost. B. Unit fixed costs and total variable cost. C. Unit variable cost and unit fixed cost. D. Unit fixed cost and total fixed cost. SA tz 69 M PL @ gm E ai l.c om AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 15. Within the relevant range, the variable cost per unit: A. remains constant as activity changes. B. increases as activity increases. C. decreases as activity increases. D. can increase or decrease as the activity changes. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy nu 16. An increase in the activity level within the relevant range results in: A. an increase in fixed cost per unit. B. a proportionate increase in total fixed costs. C. an unchanged fixed cost per unit. D. a decrease in fixed cost per unit. do AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium 5-34 Chapter 005, Cost Behavior Analysis and Use Key 17. The linear equation Y = a + bX is often used to express cost formulas. In this equation: A. the b term represents variable cost per unit of activity. B. the a term represents variable cost in total. C. the X term represents total cost. D. the Y term represents total fixed cost. SA tz 69 M PL @ gm E ai l.c om AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium 18. An example of a discretionary fixed cost is: A. insurance. B. taxes on real estate. C. management training. D. depreciation of buildings and equipment. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy nu 19. Discretionary fixed costs: A. vary directly and proportionately with the level of activity. B. have a long-term planning horizon, generally encompassing many years. C. are made up of plant, equipment, and basic organizational costs. D. None of these. do AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 5-35 Chapter 005, Cost Behavior Analysis and Use Key 20. An example of a cost that is variable with respect to the number of units produced and sold is: A. insurance on the headquarters building. B. power to run production equipment. C. supervisory salaries. D. depreciation of factory facilities. SA tz 69 M PL @ gm E ai l.c om AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 21. The cost of goods sold in a merchandising company typically would be classified as a: A. fixed cost. B. variable cost. C. step-variable cost. D. mixed cost. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy nu 22. A cost driver is: A. the largest single category of cost in a company. B. a fixed cost that cannot be avoided. C. a factor that causes variations in a cost. D. an indirect cost that is essential to the business. do AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium Source: CMA, adapted 5-36 Chapter 005, Cost Behavior Analysis and Use Key 23. A disadvantage of the high-low method of cost analysis is that: A. it cannot be used when there are a very large number of observations. B. it is too time consuming to apply. C. it uses two extreme data points, which may not be representative of normal conditions. D. it relies totally on the judgment of the person performing the cost analysis. SA tz 69 M PL @ gm E ai l.c om AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Medium 24. The contribution approach to the income statement: A. organizes costs on a functional basis. B. is useful to managers in planning and decision making. C. shows a contribution margin rather than a net operating income figure at the bottom of the statement. D. can be used only by manufacturing companies. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy nu 25. Contribution margin is the excess of revenues over: A. cost of goods sold. B. manufacturing cost. C. all direct costs. D. all variable costs. do AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy Source: CMA, adapted 5-37 Chapter 005, Cost Behavior Analysis and Use Key 26. The _______________ approach to the income statement organizes costs by function. A. contribution B. traditional C. comparable D. None of these is true. SA tz 69 M PL @ gm E ai l.c om AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy 27. _________________ is a method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors. A. quick and dirty method B. scattergraph method C. high-low method D. least-square regression method do nu AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 5 Level: Easy 5-38 Chapter 005, Cost Behavior Analysis and Use Key 28. Iacopi Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $172.50 per unit. SA tz 69 M PL @ gm E ai l.c om The best estimate of the total contribution margin when 4,300 units are sold is: A. $343,140 B. $65,790 C. $121,260 D. $411,080 Variable component of cost of goods sold: Variable cost = Change in costs Change in units Variable cost = ($384,500 - $307,600) (5,000 - 4,000) Variable cost = $76.90 per unit Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($337,000 - $321,200) (5,000 - 4,000) Variable cost = $15.80 per unit do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Learning Objective: 4 Level: Hard 5-39 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om 29. An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine-hour at an activity level of 10,000 machine-hours and $0.25 per machinehour at an activity level of 8,000 machine-hours. Assuming that this activity is within the relevant range, what is the total expected maintenance cost if the activity level is 8,700 machine-hours? A. $2,000 B. $400 C. $2,250 D. $1,740 Variable cost = Change in cost Change in activity = ($2,000 - $2,000) (10,000 - 8,000) = $0.00 Fixed cost element = Total cost - Variable cost element = $2,000 - ($0.00 x 10,000) = $2,000 Therefore, the cost formula for total maintenance cost is $2,000 per period plus $0.00 per machine-hour, or Y = $2,000 + $0.00X. At an activity level of 8,700 machine-hours, total cost is estimated to be: Y = $2,000 + ($0.00 x 8,700) = $2,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-40 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om 30. Shipping expense is $9,000 for 8,000 pounds shipped and $11,250 for 11,000 pounds shipped. Assuming that this activity is within the relevant range, if the company ships 9,000 pounds, its expected shipping expense is closest to: A. $10,125 B. $8,583 C. $9,972 D. $9,750 Variable cost = Change in cost Change in activity = ($11,250 - $9,000) (11,000 - 8,000) = $0.75 Fixed cost element = Total cost - Variable cost element = $11,250 - ($0.75 x 11,000) = $3,000 Therefore, the cost formula for total shipping cost is $3,000 per period plus $0.75 per pound shipped, or Y = $3,000 + $0.75X. At an activity level of 9,000 pounds shipped, total cost is estimated to be: Y = $3,000 + ($0.75 x 9,000) = $9,750 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-41 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om 31. The controller of JoyCo has requested a quick estimate of the manufacturing supplies needed for the month of July when production is expected to be 470,000 units. Below are actual data from the prior three months of operations. Using these data and the high-low method, what is the best estimate of the cost of manufacturing supplies that would be needed for July? (Assume that this activity is within the relevant range.) A. $805,284 B. $1,188,756 C. $755,196 D. $752,060 Variable cost = Change in cost Change in activity = ($853,560 - $723,060) (540,000 - 450,000) = $1.45 Fixed cost element = Total cost - Variable cost element = $853,560 - ($1.45 x 540,000) = $70,560 Therefore, the cost formula for total manufacturing supplies is $70,560 per period plus $1.45 per unit produced, or Y = $70,560 + $1.45X. At an activity level of 470,000 units produced, total cost is estimated to be: Y = $70,560 + ($1.45 x 470,000) = $752,060 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium Source: CMA, adapted 5-42 Chapter 005, Cost Behavior Analysis and Use Key 32. Anderton Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. SA tz 69 M PL @ gm E ai l.c om The best estimate of the total monthly fixed manufacturing cost is: A. $391,200 B. $271,200 C. $656,400 D. $351,200 Direct materials and direct labor are entirely variable since cost per unit does not change with changes in volume. Thus none of these costs are fixed and only manufacturing overhead is used to calculate the monthly fixed manufacturing cost. First, calculate the variable manufacturing cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($391,200 - $351,200) (6,000 - 4,000) = $20.00 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $391,200 - ($20.00 x 6,000) = $271,200 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Hard 5-43 Chapter 005, Cost Behavior Analysis and Use Key 33. Bakken Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. SA tz 69 M PL @ gm E ai l.c om The best estimate of the total variable manufacturing cost per unit is: A. $16.50 B. $90.40 C. $45.50 D. $106.90 Direct materials and direct labor are entirely variable since cost per unit does not change with changes in volume. Thus none of these costs are fixed and only manufacturing overhead is used to calculate the monthly fixed manufacturing cost. First, calculate the variable manufacturing cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($542,500 - $526,000) (5,000 - 4,000) = $16.50 Variable manufacturing cost = $45.50 + $44.90 + $16.50 = $106.90 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Hard 5-44 Chapter 005, Cost Behavior Analysis and Use Key 34. Carbert Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. SA tz 69 M PL @ gm E ai l.c om The best estimate of the total cost to manufacture 4,300 units is closest to: A. $899,345 B. $951,160 C. $847,530 D. $915,010 Direct materials and direct labor are entirely variable since cost per unit does not change with changes in volume. Thus none of these costs are fixed and only manufacturing overhead is used to calculate the monthly fixed manufacturing cost. To calculate the variable manufacturing cost per unit: do nu Variable manufacturing overhead cost = Change in cost Change in activity = ($553,500 - $539,200) (5,000 - 4,000) = $14.30 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $553,500 - ($14.30 x 5,000) = $482,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Hard 5-45 Chapter 005, Cost Behavior Analysis and Use Key 35. Dabbs Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. SA tz 69 M PL @ gm E ai l.c om The best estimate of the total monthly fixed manufacturing cost is: A. $737,950 B. $686,400 C. $274,000 D. $789,500 To calculate the variable manufacturing cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($358,000 - $341,200) (5,000 - 4,000) = $16.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $358,000 - ($16.80 x 5,000) = $274,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-46 Chapter 005, Cost Behavior Analysis and Use Key 36. Eddins Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. SA tz 69 M PL @ gm E ai l.c om The best estimate of the total variable manufacturing cost per unit is: A. $60.10 B. $38.40 C. $21.70 D. $22.30 Direct material cost per unit = $89,200 4,000 units = $22.30 (Alternatively, direct material cost per unit = $111,500 5,000 units = $22.30) Direct labor cost per unit = $64,400 4,000 units = $16.10 (Alternatively, direct labor cost per unit = $80,500 5,000 units = $16.10) Variable manufacturing overhead cost = Change in cost Change in activity = ($314,500 - $292,800) (5,000 - 4,000) = $21.70 Total variable manufacturing cost per unit = $22.30 + $16.10 + $21.70 = $60.10 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-47 Chapter 005, Cost Behavior Analysis and Use Key 37. Faram Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. SA tz 69 M PL @ gm E ai l.c om The best estimate of the total cost to manufacture 2,300 units is closest to: A. $446,660 B. $465,840 C. $462,415 D. $478,170 To calculate the variable manufacturing cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($151,800 - $128,600) (3,000 - 2,000) = $23.20 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $151,800 - ($23.20 x 3,000) = $82,200 do nu * $262,500 3,000 units = $87.50 per unit ** $168,300 3,000 units = $56.10 per unit AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-48 Chapter 005, Cost Behavior Analysis and Use Key 38. Gamba Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $170.00 per unit. SA tz 69 M PL @ gm E ai l.c om The best estimate of the total monthly fixed cost is: A. $865,800 B. $321,000 C. $820,400 D. $775,000 nu Variable component of cost of goods sold: Variable cost = Change in costs Change in units Variable cost = ($472,200 - $393,500) (6,000 - 5,000) Variable cost = $78.70 per unit Fixed cost: High units: $472,200 - $78.70 x 6,000 = $0 Low units: $393,500 - $78.70 x 5,000 = $0 Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($393,600 - $381,500) (6,000 - 5,000) Variable cost = $12.10 per unit Fixed cost: High units: $393,600 - $12.10 x 6,000 = $321,000 Low units: $381,500 - $12.10 x 5,000 = $321,000 Total variable cost per unit: $78.70 + $12.10 = $90.80 per unit Total fixed cost: $0 + $321,000 = $321,000 do AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-49 Chapter 005, Cost Behavior Analysis and Use Key 39. Haram Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $182.10 per unit. SA tz 69 M PL @ gm E ai l.c om The best estimate of the total variable cost per unit is: A. $120.40 B. $158.40 C. $167.90 D. $96.30 nu Variable component of cost of goods sold: Variable cost = Change in costs Change in units Variable cost = ($481,500 - $385,200) (5,000 - 4,000) Variable cost = $96.30 per unit Fixed cost: High units: $481,500 - $96.30 x 5,000 = $0 Low units: $385,200 - $96.30 x 4,000 = $0 Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($310,500 - $286,400) (5,000 - 4,000) Variable cost = $24.10 per unit Fixed cost: High units: $310,500 - $24.10 x 5,000 = $190,000 Low units: $286,400 - $24.10 x 4,000 = $190,000 Total variable cost per unit: $96.30 + $24.10 = $120.40 per unit Total fixed cost: $0 + $190,000 = $190,000 do AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-50 Chapter 005, Cost Behavior Analysis and Use Key 40. A company that produces and sells a single product has provided the following volume and average cost data for two accounting periods: SA tz 69 M PL @ gm E ai l.c om The best estimates of the total fixed cost and variable cost per unit are closest to: A. $2,000 fixed; $1.50 variable B. $2,000 fixed; $7.00 variable C. $3,000 fixed; $7.00 variable D. $3,000 fixed; $8.50 variable do nu Variable component of manufacturing overhead: Variable cost = Change in costs Change in units Variable cost = ($5,000* - $3,500**) (2,000 - 1,000) Variable cost = $1.50 per unit * $2.50 x 2,000 units = $5,000 ** $3.50 x 1,000 units = $3,500 Fixed cost: High units: $5,000 - $1.50 x 2,000 = $2,000 Low units: $3,500 - $1.50 x 1,000 = $2,000 Variable component of general, selling, and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($1,000* - $1,000**) (2,000 - 1,000) Variable cost = $0 per unit * $0.50 x 2,000 units = $1,000 ** $1.00 x 1,000 units = $1,000 Fixed cost: High units: $1,000 - $0 x 2,000 = $1,000 Low units: $1,000 - $0 x 1,000 = $1,000 Total variable cost per unit (includes direct material, direct labor, variable manufacturing overhead, and variable other overhead): $4.00 + $3.00 + $1.50 + $0 = $8.50 per unit Total fixed cost: $2,000 + $1,000 = $3,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Hard Source: CIMA, adapted 5-51 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om 41. Tempcon, Inc. sells and installs furnaces for $3,000 per furnace. The following cost formula relates to last year's operations at Tempcon: Y = $125,000 + $1,800X If Tempcon sold and installed 500 furnaces last year, what was its total contribution margin last year? A. $475,000 B. $900,000 C. $1,025,000 D. $600,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 4 Level: Medium 5-52 Chapter 005, Cost Behavior Analysis and Use Key 42. The following information was collected for one of the costs at Demetra Manufacturing Corporation over the past two years: SA tz 69 M PL @ gm E ai l.c om Assuming that there has been no change in the cost structure over the last two years and this activity is within the relevant range, this cost at Demetra would best be described as a: A. fixed cost B. mixed cost C. step-variable cost D. true variable cost Variable component of cost: Variable cost = Change in costs Change in units Variable cost = ($147,000 - $125,000) (6,000 - 5,000) Variable cost = $22.00 per unit Fixed cost: High units: $147,000 - $22.00 x 6,000 = $15,000 Low units: $125,000 - $22.00 x 5,000 = $15,000 Since there is a variable component and a fixed component, this cost would be considered to be a mixed cost. do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium 5-53 Chapter 005, Cost Behavior Analysis and Use Key 43. The following data pertain to activity and costs for two recent months: SA tz 69 M PL @ gm E ai l.c om Assuming that these activity levels are within the relevant range, the mixed costs for November were: A. $40,000 B. $35,000 C. $25,000 D. $20,000 October variable cost per unit = $10,000 ÷ 5,000 units = $2.00 per unitNovember variable costs = $2.00 × 10,000 units = $20,000Fixed costs do not change with changes in activity level, so November fixed costs will be the same as October, or $30,000.Total costs for November - November variable costs - November fixed costs= November mixed costs$75,000 - $20,000 - $30,000 = $25,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium 5-54 Chapter 005, Cost Behavior Analysis and Use Key 44. At an activity level of 10,000 units, variable costs totaled $35,000 and fixed costs totaled $20,800. If 16,000 units are produced and this activity is within the relevant range, then: A. total cost would equal $89,280. B. total unit cost would equal $4.80. C. fixed cost per unit would equal $5.58. D. total costs would equal $55,800. SA tz 69 M PL @ gm E ai l.c om Variable cost per unit: $35,000 10,000 units = $3.50 per unit Fixed cost per unit = $20,800 16,000 units = $1.30 per unit Total cost at 16,000 units = $20,800 + ($3.50 x 16,000) = $76,800 Total unit cost = $76,800 16,000 units = $4.80 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 45. Given the cost formula Y = $12,000 + $6X, total cost at an activity level of 8,000 units would be: A. $20,000 B. $60,000 C. $12,000 D. $48,000 Y = $12,000 + $6X Y = $12,000 + $6(8,000) Y = $60,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 5-55 Chapter 005, Cost Behavior Analysis and Use Key 46. Reddy Company has the following cost formulas for overhead: SA tz 69 M PL @ gm E ai l.c om Based on these cost formulas, the total overhead cost at 600 machine hours is expected to be: A. $4,500 B. $5,200 C. $5,620 D. $5,340 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 5-56 Chapter 005, Cost Behavior Analysis and Use Key 47. Given the cost formula Y = $17,500 + $4X, at what level of activity will total cost be $42,500? A. 10,625 units B. 4,375 units C. 6,250 units D. 5,250 units SA tz 69 M PL @ gm E ai l.c om Y = $17,500 + $4X $42,500 = $17,500 + $4X $25,000 = $4X X = 6,250 units AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium 48. Krouse Corporation reports that at an activity level of 8,100 units, its total variable cost is $509,652 and its total fixed cost is $197,316. What would be the total cost, both fixed and variable, at an activity level of 8,400 units? Assume that this level of activity is within the relevant range. A. $725,844 B. $706,968 C. $720,060 D. $733,152 8,100 units = $62.92 per unit nu Variable cost per unit: $509,652 The cost function is: Y = $197,316 + $62.92X Y = $197,316 + $62.92(8,400) Y = $725,844 do AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 5-57 Chapter 005, Cost Behavior Analysis and Use Key 49. At an activity level of 4,500 machine-hours in a month, Novosel Corporation's total variable maintenance and repair cost is $394,830 and its total fixed maintenance and repair cost is $105,570. What would be the total maintenance and repair cost, both fixed and variable, at an activity level of 4,600 units in a month? Assume that this level of activity is within the relevant range. A. $511,520 B. $505,960 C. $509,174 D. $500,400 4,500 units = $87.74 per unit SA tz 69 M PL @ gm E ai l.c om Variable cost per unit: $394,830 The cost function is: Y = $105,570 + $87.74X Y = $105,570 + $87.74(4,600) Y = $509,174 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 5-58 Chapter 005, Cost Behavior Analysis and Use Key 50. At an activity level of 9,600 machine-hours in a month, Montgomery Corporation's total variable production engineering cost is $402,336 and its total fixed production engineering cost is $570,240. What would be the total production engineering cost, both fixed and variable, at an activity level of 9,900 machine-hours in a month? Assume that this level of activity is within the relevant range. A. $101.31 B. $99.51 C. $98.24 D. $99.78 SA tz 69 M PL @ gm E ai l.c om Variable cost per unit: $402,336 9,600 machine-hours = $41.91 per machine-hour The cost function is: Y = $570,240 + $41.91X Y = $570,240 + $41.91(9,900) Y = $985,149 $985,149 9,900 units = $99.51 per unit AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy nu 51. You are applying the scattergraph method and find that the regression line you have drawn passes through a data point with the following coordinates: 1,000 units and $9,600. The regression line passes through the Y axis at the $600 point. Which of the following is the cost formula that represents the slope of this line? A. Y=$600+$9.00X B. Y=$600+$9.60X C. Y=$9,600+$.06X D. None of these is true. do Variable cost = Change in cost Change in activity = ($9,600 - $600) (1,000 - 0) = $9.00 Since the regression line passes through the Y axis at the $600 point, the $600 represents the fixed costs. Therefore, the cost formula would be Y=$600+$9.00X. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 2 Level: Easy 5-59 Chapter 005, Cost Behavior Analysis and Use Key 52. The following data pertains to activity and utility costs for two recent years: SA tz 69 M PL @ gm E ai l.c om Using the high-low method, the cost formula for utilities is: A. $1.50 per unit B. $8,000 plus $0.50 per unit C. $1.25 per unit D. $6,000 plus $0.75 per unit Variable cost = Change in cost Change in activity = ($15,000 - $12,000) (12,000 - 8,000) = $0.75 Fixed cost element = Total cost - Variable cost element = $15,000 - ($0.75 x 12,000) = $6,000 Therefore, the cost formula for total maintenance cost is $6,000 per period plus $0.75 per unit, or Y = $6,000 + $0.75X. do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy 5-60 Chapter 005, Cost Behavior Analysis and Use Key 53. At an activity level of 6,000 units the cost for maintenance is $7,200 and at 10,000 units the cost for maintenance is $11,600. Using the high-low method, the cost formula for maintenance is: A. $1.20 per unit B. $1.16 per unit C. $1,200 plus $1.10 per unit D. $600 plus $1.10 per unit SA tz 69 M PL @ gm E ai l.c om Variable cost = Change in cost Change in activity = ($11,600 - $7,200) (10,000 - 6,000) = $1.10 Fixed cost element = Total cost - Variable cost element = $11,600 - ($1.10 x 10,000) = $600 Therefore, the cost formula for total maintenance cost is $600 per period plus $1.10 per unit, or Y = $600 + $1.10X. do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy 5-61 Chapter 005, Cost Behavior Analysis and Use Key 54. Bell Company has provided the following data for maintenance costs: SA tz 69 M PL @ gm E ai l.c om Using the high-low method, the cost formula for maintenance cost would be: A. $2.00 per machine hour B. $1.625 per machine hour C. $18,000 plus $0.50 per machine hour D. $24,000 plus $0.50 per machine hour Variable cost = Change in cost Change in activity = ($26,000 - $24,000) (16,000 - 12,000) = $0.50 Fixed cost element = Total cost - Variable cost element = $26,000 - ($0.50 x 16,000) = $18,000 Therefore, the cost formula for total maintenance cost is $18,000 per period plus $0.50 per machine-hour, or Y = $18,000 + $0.50X. do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy 5-62 Chapter 005, Cost Behavior Analysis and Use Key 55. The following data for a production department relate to two accounting periods: SA tz 69 M PL @ gm E ai l.c om The best estimate of the fixed departmental cost is closest to: A. $5,250 B. $59,500 C. $187,000 D. $246,500 Variable cost = Change in cost Change in activity = ($251,750 - $246,500) (18,500 - 17,000) = $3.50 Fixed cost element = Total cost - Variable cost element = $251,750 - ($3.50 x 18,500) = $187,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy Source: CIMA, adapted 5-63 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om 56. Electrical costs at one of Gotch Corporation's factories are listed below: Management believes that electrical cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to: A. $0.15 per machine-hour; $35,115 per month B. $9.11 per machine-hour; $1,249 per month C. $9.43 per machine-hour; $35,406 per month D. $6.57 per machine-hour; $10,728 per month Variable cost = Change in cost Change in activity = ($35,694 - $35,044) (3,800 - 3,701) = $6.57 Fixed cost element = Total cost - Variable cost element = $35,694 - ($6.57 x 3,800) = $10,728 Therefore, the cost formula for total electrical cost is $10,728 per period plus $6.57 per machine-hour, or Y = $10,728 + $6.57X do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy 5-64 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om 57. Maintenance costs at a Neller Corporation factory are listed below: Management believes that maintenance cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to: A. $1.85 per machine-hour; $21,325 per month B. $3.77 per machine-hour; $15,648 per month C. $9.07 per machine-hour; $26,762 per month D. $0.27 per machine-hour; $26,071 per month Variable cost = Change in cost Change in activity = ($26,860 - $26,532) (2,974 - 2,887) = $3.77 Fixed cost element = Total cost - Variable cost element = $26,860 - ($3.77 x 2,974) = $15,648 Therefore, the cost formula for total maintenance cost is $15,648 per period plus $3.77 per machine-hour, or Y = $15,648 + $3.77X do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy 5-65 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om 58. Supply costs at Rupard Corporation's chain of gyms are listed below: Management believes that supply cost is a mixed cost that depends on client-visits. Using the high-low method to estimate the variable and fixed components of this cost, those estimates would be closest to: A. $0.76 per client-visit; $18,152 per month B. $1.31 per client-visit; $10,462 per month C. $2.08 per client-visit; $28,489 per month D. $0.77 per client-visit; $17,952 per month Variable cost = Change in cost Change in activity = ($28,707 - $28,093) (13,968 - 13,166) = $0.77 Fixed cost element = Total cost - Variable cost element = $28,707 - ($0.77 x 13,968) = $17,952 Therefore, the cost formula for total supply cost is $17,952 per period plus $0.77 per clientvisit, or Y = $17,952 + $0.77X do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy 5-66 Chapter 005, Cost Behavior Analysis and Use Key 59. A clothing manufacturer incurred the following factory maintenance costs: 2,100 units produced with maintenance cost of $61,500, and 750 units produced with maintenance cost of $41,250. How much of the maintenance cost is made up of fixed cost? (Use the high-low method.) A. $11,181 B. $20,125 C. $30,000 D. $50,319 SA tz 69 M PL @ gm E ai l.c om Variable cost = Change in cost Change in activity = ($61,500 - $41,250) (2,100 - 750) = $15.00 Fixed cost element = Total cost - Variable cost element = $61,500 - ($15.00 x 2,100) = $30,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 3 Level: Easy nu 60. The cost of goods sold in a retail store totaled $325,000. Fixed selling and administrative expenses totaled $115,000 and variable selling and administrative expenses were $210,000. If the store's contribution margin totaled $590,000, then sales must have been: A. $1,125,000 B. $1,030,000 C. $915,000 D. $650,000 do To solve this problem, work backwards. First, calculate what total variable expenses must be by adding the variable cost of goods sold and the variable selling and administrative expenses, or $325,000 + $210,000 = $535,000. Next, add the total variable expenses to the contribution margin to get sales, or $535,000 + $590,000 = $1,125,000. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Hard 5-67 Chapter 005, Cost Behavior Analysis and Use Key 61. At a sales level of $300,000, James Company's gross margin is $15,000 less than its contribution margin, its net operating income is $50,000, and its selling and administrative expenses total $120,000. At this sales level, its contribution margin would be: A. $250,000 B. $155,000 C. $170,000 D. $185,000 SA tz 69 M PL @ gm E ai l.c om Gross margin - Selling and administrative expenses = Net operating income Gross margin = Net operating income + Selling and administrative expenses Gross margin = $50,000 + $120,000 = $170,000 Since the gross margin is $15,000 less than the contribution margin, the contribution margin must be $170,000 + $15,000 = $185,000. do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Hard 5-68 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om 62. Kalbach Corporation, a manufacturing company, has provided the following financial data for November: The company had no beginning or ending inventories. The contribution margin for November was: A. $285,000 B. $166,000 C. $310,000 D. $36,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy 5-69 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om 63. The management of Harper Corporation, a manufacturing company, has provided the following financial data for December: The contribution margin for December was: A. $204,000 B. $64,000 C. $340,000 D. $319,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy 5-70 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om 64. The management of Degenhart Corporation, a manufacturing company, has provided the following data for February: The contribution margin for February was: A. $34,000 B. $323,000 C. $191,000 D. $310,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy 5-71 Chapter 005, Cost Behavior Analysis and Use Key 65. The following data pertains to activity and the cost of electricity for two recent months: SA tz 69 M PL @ gm E ai l.c om The best estimate of the total monthly fixed electrical cost is: A. $300 B. $1,200 C. $1,500 D. $1,050 To calculate the variable manufacturing cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($1,800 - $1,500) (5,000 - 4,000) = $0.30 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $1,800 - ($0.30 x 5,000) = $300 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 4 Level: Easy do nu Callaham Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $115.80 per unit. 5-72 Chapter 005, Cost Behavior Analysis and Use Key 66. The best estimate of the total monthly fixed cost is: A. $24,000 B. $478,050 C. $427,600 D. $528,500 SA tz 69 M PL @ gm E ai l.c om Variable component of cost of goods sold: Variable cost = Change in costs Change in units Variable cost = ($422,500 - $338,000) (5,000 - 4,000) Variable cost = $84.50 per unit Fixed cost: High units: $422,500 - $84.50 x 5,000 = $0 Low units: $338,000 - $84.50 x 4,000 = $0 Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($106,000 - $89,600) (5,000 - 4,000) Variable cost = $16.40 per unit Fixed cost: High units: $106,000 - $16.40 x 5,000 = $24,000 Low units: $89,600 - $16.40 x 4,000 = $24,000 Total variable cost per unit: $84.50 + $16.40 = $100.90 per unit Total fixed cost: $0 + $24,000 = $24,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-73 Chapter 005, Cost Behavior Analysis and Use Key 67. The best estimate of the total variable cost per unit is: A. $84.50 B. $100.90 C. $106.90 D. $105.70 SA tz 69 M PL @ gm E ai l.c om Variable component of cost of goods sold: Variable cost = Change in costs Change in units Variable cost = ($422,500 - $338,000) (5,000 - 4,000) Variable cost = $84.50 per unit Fixed cost: High units: $422,500 - $84.50 x 5,000 = $0 Low units: $338,000 - $84.50 x 4,000 = $0 Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($106,000 - $89,600) (5,000 - 4,000) Variable cost = $16.40 per unit Fixed cost: High units: $106,000 - $16.40 x 5,000 = $24,000 Low units: $89,600 - $16.40 x 4,000 = $24,000 Total variable cost per unit: $84.50 + $16.40 = $100.90 per unit Total fixed cost: $0 + $24,000 = $24,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-74 Chapter 005, Cost Behavior Analysis and Use Key 68. The best estimate of the total contribution margin when 4,300 units are sold is: A. $134,590 B. $43,430 C. $64,070 D. $38,270 nu SA tz 69 M PL @ gm E ai l.c om Variable component of cost of goods sold: Variable cost = Change in costs Change in units Variable cost = ($422,500 - $338,000) (5,000 - 4,000) Variable cost = $84.50 per unit Fixed cost: High units: $422,500 - $84.50 x 5,000 = $0 Low units: $338,000 - $84.50 x 4,000 = $0 Variable component of selling and administrative expenses: Variable cost = Change in costs Change in units Variable cost = ($106,000 - $89,600) (5,000 - 4,000) Variable cost = $16.40 per unit Fixed cost: High units: $106,000 - $16.40 x 5,000 = $24,000 Low units: $89,600 - $16.40 x 4,000 = $24,000 Total variable cost per unit: $84.50 + $16.40 = $100.90 per unit Total fixed cost: $0 + $24,000 = $24,000 do AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Learning Objective: 4 Level: Medium 5-75 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om Stewart Company is attempting to classify costs according to their cost behavior. Data concerning activity and costs are listed below: nu 69. The costs that Stewart Company would classify as variable would be: A. maintenance and supplies. B. maintenance, supplies, utilities, lubrication and advertising. C. supplies and advertising. D. maintenance, utilities and advertising. do Since variable costs, by definition, do not change with changes in activity level, maintenance, utilities, and advertising would all be variable costs. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Medium 5-76 Chapter 005, Cost Behavior Analysis and Use Key 70. The cost(s) that Stewart Company would classify as fixed would be: A. insurance. B. insurance and lubrication. C. supplies and lubrication. D. insurance and advertising. SA tz 69 M PL @ gm E ai l.c om Fixed costs, by definition, do not change in total with changes in activity level. Therefore, the fixed cost would be insurance. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy nu 71. The costs that Stewart Company would classify as mixed would be: A. lubrication and advertising. B. maintenance and insurance. C. supplies and lubrication. D. supplies and utilities. do Mixed costs change on both a per unit basis and in total with changes in activity level. Therefore, supplies and lubrication are both mixed costs. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-77 Chapter 005, Cost Behavior Analysis and Use Key do nu SA tz 69 M PL @ gm E ai l.c om 72. If Stewart Company sells 1,150 units in March and this activity is within the relevant range, the expected total cost would most likely be closest to: A. $2,610.50 B. $1,774.00 C. $4,343.92 D. $4,384.50 5-78 SA tz 69 M PL @ gm E ai l.c om Chapter 005, Cost Behavior Analysis and Use Key nu To calculate variable and fixed portions of mixed costs: Variable component of supplies: Variable cost = Change in costs Change in units Variable cost = ($790 - $750) (1,400 - 1,200) Variable cost = $0.20 per unit Fixed cost: High units: $790 - ($0.20 x 1,400) = $510 Feedback: Low units: $750 - ($0.20 x 1,200) = $510 Variable component of lubrication: Variable cost = Change in costs Change in units Variable cost = ($576 - $560) (1,400 - 1,200) Variable cost = $0.08 per unit Fixed cost: High units: $576 - ($0.08 x 1,400) = $464 Low units: $560 - ($0.08 x 1,200) = $464 Total variable cost per unit (includes maintenance, utilities, advertising, supplies, and lubrication): $0.50 + $0.74 + $0.75 + $0.20 + $0.08 = $2.27 Total fixed cost: $800 + $510 + $464 = $1,774 Total cost at 1,150 units = $1,774 + ($2.27 x 1,150) = $4,384.50 do AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-79 Chapter 005, Cost Behavior Analysis and Use Key Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000 level of activity and total expense per unit of $1.95 at the 21,000 unit level of activity. SA tz 69 M PL @ gm E ai l.c om 73. The best estimate of the variable cost per unit for Maxwell Company is: A. $0.56 B. $1.79 C. $2.00 D. $1.95 To calculate the variable manufacturing cost per unit: Variable manufacturing overhead cost = Change in cost = ($40,950 - $32,000) (21,000 - 16,000) = $1.79 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-80 Change in activity Chapter 005, Cost Behavior Analysis and Use Key 74. The best estimate of the total fixed cost per period for Maxwell Company is: A. $40,950 B. $32,000 C. $3,360 D. $29,190 SA tz 69 M PL @ gm E ai l.c om To calculate the variable manufacturing cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($40,950 $32,000) (21,000 - 16,000) = $1.79 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $40,950 - ($1.79 x 21,000) = $3,360 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-81 Chapter 005, Cost Behavior Analysis and Use Key 75. The best estimate of the total expected costs at the 19,000 level of activity for Maxwell Company is: A. $37,050 B. $38,000 C. $37,370 D. $39,830 SA tz 69 M PL @ gm E ai l.c om To calculate the variable manufacturing cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($40,950 - $32,000) (21,000 - 16,000) = $1.79 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $40,950 - ($1.79 x 21,000) = $3,360 Total cost at 19,000 units = $3,360 + ($1.79 x 19,000) = $37,370 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-82 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om The following production and average cost data for two levels of monthly production volume have been supplied by a company that produces a single product: 76. The best estimate of the total monthly fixed manufacturing cost is: A. $222,000 B. $284,400 C. $305,200 D. $633,600 To calculate the variable manufacturing cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($305,200 - $284,400) (4,000 - 3,000) = $20.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $305,200 - ($20.80 x 4,000) = $222,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Hard 5-83 Chapter 005, Cost Behavior Analysis and Use Key 77. The best estimate of the total variable manufacturing cost per unit is: A. $116.40 B. $137.20 C. $20.80 D. $76.70 SA tz 69 M PL @ gm E ai l.c om To calculate the variable manufacturing cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($305,200 - $284,400) (4,000 - 3,000) = $20.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $305,200 - ($20.80 x 4,000) = $222,000 Variable manufacturing cost per unit = Direct material + Direct labor + Variable manufacturing overhead = $76.70 + $39.70 + $20.80 = $137.20 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Hard 5-84 Chapter 005, Cost Behavior Analysis and Use Key 78. The best estimate of the total cost to manufacture 3,200 units is closest to: A. $675,840 B. $616,640 C. $661,040 D. $646,240 SA tz 69 M PL @ gm E ai l.c om To calculate the variable manufacturing cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($305,200 - $284,400) (4,000 - 3,000) = $20.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $305,200 - ($20.80 x 4,000) = $222,000 Variable manufacturing cost per unit = Direct material + Direct labor + Variable manufacturing overhead = $76.70 + $39.70 + $20.80 = $137.20 Y = $222,000 + $137.20(3,200) Y = $661,040 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Hard 5-85 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om Baaca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. 79. The best estimate of the total monthly fixed manufacturing cost is: A. $1,424,400 B. $1,506,400 C. $932,400 D. $1,465,400 First, calculate the variable manufacturing overhead cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($1,015,000 - $1,003,200) (7,000 - 6,000) = $11.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $1,015,000 - ($11.80 x 7,000) = $932,400 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-86 Chapter 005, Cost Behavior Analysis and Use Key 80. The best estimate of the total variable manufacturing cost per unit is: A. $82.00 B. $70.20 C. $56.70 D. $11.80 SA tz 69 M PL @ gm E ai l.c om First, calculate the variable manufacturing overhead cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($1,015,000 - $1,003,200) (7,000 - 6,000) = $11.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $1,015,000 - ($11.80 x 7,000) = $932,400 Variable direct materials cost = $340,200 6,000 units = $56.70 Variable direct labor cost = $81,000 6,000 units = $13.50 Total variable manufacturing cost per unit = Direct materials + Direct labor + Manufacturing overhead Total variable manufacturing cost per unit = $56.70 + $13.50 + $11.80 = $82.00 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-87 Chapter 005, Cost Behavior Analysis and Use Key 81. The best estimate of the total cost to manufacture 6,300 units is closest to: A. $1,425,690 B. $1,355,760 C. $1,495,620 D. $1,449,000 SA tz 69 M PL @ gm E ai l.c om First, calculate the variable manufacturing overhead cost per unit: Variable manufacturing overhead cost = Change in cost Change in activity = ($1,015,000 - $1,003,200) (7,000 - 6,000) = $11.80 Fixed cost element of manufacturing overhead = Total cost - Variable cost element = $1,015,000 - ($11.80 x 7,000) = $932,400 Variable direct materials cost = $340,200 6,000 units = $56.70 Variable direct labor cost = $81,000 6,000 units = $13.50 Total variable manufacturing cost per unit = Direct materials + Direct labor + Manufacturing overhead Total variable manufacturing cost per unit = $56.70 + $13.50 + $11.80 = $82.00 Y = $932,400 + ($82.00 x 6,300) = $1,449,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 3 Level: Medium 5-88 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om Buffo Company fabricates metal folding chairs. Data concerning the company's revenue and cost structure follow: 82. If Buffo plans to produce and sell 3,000 units next month, the expected contribution margin would be: A. $30,750 B. $74,250 C. $26,750 D. $96,500 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 4 Level: Medium 5-89 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om 83. If Buffo plans to produce and sell 4,000 units next month, the expected gross margin would be: A. $41,000 B. $37,000 C. $68,000 D. $57,500 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 4 Level: Hard 84. If Buffo expects to produce and sell 2,000 units next month, the total expected manufacturing cost would be: A. $34,000 B. $39,000 C. $45,500 D. $38,000 Total expected manufacturing cost = $4,000 + ($17 x 2,000 units) = $38,000 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 4 Level: Medium 5-90 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om 85. If Buffo expects to produce and sell 5,000 units next month, the expected net operating income would be: A. $51,250 B. $42,750 C. $71,000 D. $62,500 do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Learning Objective: 4 Level: Medium 5-91 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om Rymore Company would like to classify the following costs according to their cost behavior: 86. Which of the following classifications best describes the behavior of Cost A? A. Mixed B. Variable C. Fixed D. None of these Since Cost A both changes in total when activity level changes and Cost A changes on a per unit basis with changes in activity level, Cost A must, by definition, be a mixed cost. do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 5-92 Chapter 005, Cost Behavior Analysis and Use Key SA tz 69 M PL @ gm E ai l.c om 87. Which of the following classifications best describes the behavior of Cost B? A. Mixed B. Variable C. Fixed D. None of these Since Cost B does not change in total with changes in activity level, Cost B must, by definition, be a fixed cost. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 88. Which of the following classifications best describes the behavior of Cost C? A. Mixed B. Variable C. Fixed D. None of these Since Cost C does not change on a per unit basis with changes in activity level, Cost C must, by definition, be a variable cost. do nu AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 5-93 Chapter 005, Cost Behavior Analysis and Use Key Bacho Corporation reports that at an activity level of 5,400 units, its total variable cost is $416,934 and its total fixed cost is $142,560. SA tz 69 M PL @ gm E ai l.c om 89. What would be the total variable cost at an activity level of 5,500 units? Assume that this level of activity is within the relevant range. A. $424,655 B. $559,494 C. $416,934 D. $145,200 Variable cost per unit: $416,934 5,400 units = $77.21 per unit Total variable cost = $77.21 x 5,500 units = $424,655 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 90. What would be the average fixed cost per unit at an activity level of 5,500 units? Assume that this level of activity is within the relevant range. A. $26.40 B. $103.61 C. $25.92 D. $51.98 nu Average fixed cost per unit = Total fixed costs total units Average fixed cost per unit = $142,560 5,500 units = $25.92 do AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 1 Level: Easy 5-94 Chapter 005, Cost Behavior Analysis and Use Key do nu SA tz 69 M PL @ gm E ai l.c om At an activity level of 7,900 machine-hours in a month, Manchester Corporation's total variable maintenance cost is $430,550 and its total fixed maintenance cost is $417,120. 5-95 ...
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This note was uploaded on 10/05/2010 for the course ACCT 2200 taught by Professor Rose during the Spring '08 term at Kennesaw.

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