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G h 3 8 1020 15min accountanalysismethod 1

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Unformatted text preview: pound eventually equals a constant at $9.20, the total do llars o f cost increases linearly fro m that point onward. I The total costs will be the same regardless o f the volume level. L F This is a classic step­cost function. K C 10­19 (30 min.) Matching graphs with descriptions of cost and revenue behavior. a. b. c. d. e. f. (1) (6) (9) (2) (8) (10) A step­cost function. It is data plotted on a scatter diagram, showing a linear variable cost funct ion wit h constant variance of residuals. The constant variance o f residuals implies that there is a uniform dispersio n of the data points about the regression line. g. h. (3) (8) 10­20 (15 min.) Account analysis method. 1. Variable costs: Car wash labor $260,000 Soap, cloth, and supplies 42,000 Water 38,000 Electric power to move conveyor belt 72,000 Total variable costs $412,000 Fixed costs: Depreciat ion $ 64,000 Salaries 46,000 Total fixed costs $110,000 Some costs are classified as variable because the total costs in these categories change in proportion to the number of cars washed in Lorenzo’s operation. Some costs are classified as fixed because the total costs in these categories do not vary wit h the number of cars washed. If the conveyor belt moves regardless o f the number of cars on it, the electricit y costs to power the conveyor belt would be a fixed cost. 2. Variable costs per car = $412,000 = $5.15 per car 80,000 Total costs estimated for 90,000 cars = $110,000 + ($5.15 × 90,000) = $573,500 10­5 10­21 ( 15 min.) Account analysis 1. The electricit y cost is clearly variable since it ent irely depends on number of kilowatt hours used. The Waste Management contract is a fixed amount if the cost object is not number of quarters, since it does not depend on amount of activit y or output during the quarter. The telephone cost is a mixed cost because there is a fixed component and a component that depends on number of calls made. 2. The electricit y rate is $573 ÷ 3000 kw hour = $0.191 per kw hour The waste management fixed cost is $270 for three months, or $90 (270 ÷ 3) per mo...
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