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bambersm_ch06

# bambersm_ch06 - Chapter 6 Cost Behavior Chapter Review Quiz...

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Chapter 6 Cost Behavior Τ Chapter Review Quiz Answers: 1. b 3. d 5. c 7. d 9. a 2. a 4. d 6. b 8. c 10. c Τ Short Exercises (5-10 min.) S 6-1 a. Depreciation on equipment used to cut wood enclosures…………………………………………… Fixed b. Wood for speaker enclosures………………………. Variable c. Patents on crossover relays………………………… Fixed d. Crossover relays………………………………………. Variable e. Grill cloth……………………………………………….. Variable f. Glue……………………………………………………… Variable g. Quality inspector’s salary……………………………. Fixed Chapter 6 Cost Behavior 97

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(10 min.) S 6-2 Managerial Accounting Class-Test Edition On each of the following graphs, the y-axis is “Total Cost” and the x-axis is “Volume of Activity” a. Step b. Fixed c. Curvilinear e. Variable d. Mixed (Any curved line) Y X Y X Y Y Y X X X 98
(5-10 min.) S 6-3 Total fixed cost = \$3.00 / basketball × 12,000 basketballs Total fixed cost = \$36,000 Since a volume of 15,000 basketballs is in the same relevant range, the total fixed costs will remain constant at \$36,000 Therefore, the new fixed cost per basketball will be: Fixed cost per basketball = Total fixed cost Number of basketballs produced Fixed cost per basketball = \$36,000 15,000 Fixed cost per basketball = \$2.40 Chapter 6 Cost Behavior Total Fixed Cost 12,000 15,000 \$36,000 99 Number of Basketballs produced

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(5-10 min.) S 6-4 a. Fixed y = f Where y = total fixed cost f = fixed amount over a period of time (vertical intercept) b. Mixed y = vx + f Where y = total mixed cost v = variable cost per unit of activity (slope) x = volume of activity f = fixed amount over a period of time (vertical intercept) c. Variable y = vx Where y = total variable cost v = variable cost per unit of activity (slope) x = volume of activity Managerial Accounting Class-Test Edition 100
(5-10 min.) S 6-5 Cost A is a variable cost. The cost is constant on a per unit basis and increases in total as volume increases. Cost B is a fixed cost. The cost is constant in total, and decreases on a per unit basis as volume increases. Cost C is mixed. It is not constant in total, and it is not constant on a per unit basis. Chapter 6 Cost Behavior 101

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(5-10 min.) S 6-6 Req. 1 a. Call for 20 minutes \$5.00 + (20 × \$0.35) \$5.00 + \$7.00 = \$12.00 b. Call for 40 minutes \$5.00 + (40 × \$0.35) \$5.00 + \$14.00 = \$19.00 c. Call for 80 minutes \$5.00 + (80 × \$0.35) \$5.00 + \$28.00 = \$33.00 Req. 2 Managerial Accounting Class-Test Edition 102
(5-10 min.) S 6-7 Find the answer to Ritter Razor’s questions by 1) finding the company’s cost equation, and then 2) using the cost equation to predict total costs at a different volume. First, determine the firm’s cost equation: Total costs = variable component + fixed component y = vx + f \$100,000 = \$40,000 = f \$60,000 = f Also, since: vx = \$40,000 when x = 20,000 v (20,000) = \$40,000 v = \$2.00 per package of razors Therefore, the production cost equation is: y = \$2.00x + \$60,000 Predict total costs for other volumes in the same relevant range using the cost equation found above: y = (\$2.00 per package × 25,000 packages) + \$60,000 y = \$50,000 + \$60,000 y = \$110,000 Total production costs are predicted to be \$110,000 when 25,000 packages of razors are produced.

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