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Sample Test
|
Chapter_3_Cost_Behavior
1. A cost that changes in total as output changes is a
variable cost.
|
|
2. The cost of raw materials used
is usually a fixed cost.
|
ANSWER:
|
False
|
|
RATIONALE:
|
The cost of raw materials used is usually a variable
cost.
|
|
|
3. Fixed costs are costs that in total
remain constant within the relevant range as the level of output increases or
decreases.
|
|
4. As output decreases fixed costs
per unit will increase.
|
|
5. As output increases variable
cost per unit will also increase.
|
|
6. The cost of advertising is
usually a discretionary fixed cost.
|
|
7. A discretionary fixed cost can
be changed relatively easily at management discretion.
|
|
8. The relevant range is the range
of output within which the assumed cost relationship is valid for the normal
operations of the firm.
|
|
9. Determining cost behavior
is not essential
to planning, controlling, and decision making.
|
ANSWER:
|
False
|
|
RATIONALE:
|
Determining cost behavior is essential to planning,
controlling, and decision making.
|
|
|
10. A variable cost increases in
total when output increases but the per-unit costs remains the same.
|
|
11. Cost relationships may change
at output levels outside of the relevant range.
|
|
12. Computing unit fixed costs may
result in misleading information.
|
|
13. Discretionary fixed costs
often involve a long-term contract.
|
ANSWER:
|
False
|
|
RATIONALE:
|
Discretionary fixed costs can be changed at management’s
discretion.
|
|
|
14. Total variable costs =
Variable rate × amount of output.
|
|
15. A driver is a factor that
causes or leads to a change in a cost.
|
|
16. Mixed costs have both a fixed
and a variable component.
|
|
17. Managerial judgment is
critically important in determining cost behavior.
|
|
18. The high-low method is an
objective method to separate the cost behavior of a mixed cost.
|
|
19. “Outliers” are points that
seem to fit the general pattern of behavior.
|
ANSWER:
|
False
|
|
RATIONALE:
|
“Outliers” are points that do not seem to fit the general pattern of
behavior.
|
|
|
20. The slope of a mixed cost line
is equal to the fixed element of the cost.
|
|
21. Using the high-low method, the
calculation of the cost line uses the highest and lowest activity period.
|
|
22. Calculation of the cost line
using the high-low method tests the lowest cost period to see if it is an
outlier.
|
|
23. Using a linear regression
program, the term ‘Intercept’ refers to the variable cost.
|
ANSWER:
|
False
|
|
RATIONALE:
|
Using a regression program, the term ‘Intercept’ refers
to the fixed cost.
|
|
|
24. Using a regression program,
the term ‘X Variable 1’ refers to the dependent variable.
|
|
25. Using regression, the value of
‘X Variable 1’ equals the slope of the line.
|
|
26. The ________________ is the
range of output over which the assumed cost relationship is valid for the
normal operations of a firm.
|
|
27. A cost __________ is a casual
factor that measures the output of the activity that leads costs to change.
|
|
28. __________________ is the
general term for describing whether a cost changes when the level of output
changes.
|
|
29. The fabric used to manufacture
curtains is an example of a material or a ____________ cost.
|
|
30. Depreciation on factory
equipment would be an example of a(n) _________ cost.
|
|
31. A type of cost behavior where
the true total cost function is increasing at a decreasing rate is called
______________.
|
|
32. Rental expense for a warehouse
is an example of a ___________ cost.
|
|
33. Fixed costs that cannot be
easily changed and typically involve a long-term contract are known as
___________________.
|
ANSWER:
|
committed fixed costs.
|
|
|
34. A fixed cost that management
can easily decide to increase or decrease is known as a _________________.
|
ANSWER:
|
discretionary fixed cost.
|
|
|
35. ___________________ are costs
that in total vary in direct proportion to changes in output within the
relevant range.
|
|
36. A _______________ displays a constant
level of cost for a range of output and then jumps to a higher level of cost
at some point.
|
|
37. _______________________ are
costs that have both a fixed and a variable component.
|
|
38. ______________________________
is a statistical way to find the best-fitting line through a set of data
points.
|
ANSWER:
|
The method of least squares or regression analysis
|
|
|
39. __________________________ is
critically important in determining cost behavior and is by far the most
widely used method in practice.
|
ANSWER:
|
Managerial judgement
|
|
|
40. The _________________________
is a way to see the cost relationship by plotting the data points on a graph.
|
ANSWER:
|
scattergraph method
|
|
|
41. The ________________________
is a variable whose value depends on the value of another variable.
|
ANSWER:
|
dependent variable
|
|
|
42. Graphically, the
______________ is the point at which the cost line intercepts the cost (vertical)
axis.
|
|
43. An advantage of the high-low
method is that it ___________.
|
ANSWER:
|
is objective
provides a quick overview
is easy to use
|
|
|
44. The percentage of variability
in the dependent variable explained by an independent variable is called the
____________________________________.
|
ANSWER:
|
coefficient of determination.
|
|
|
45. The spreadsheet regression
program supplies more than the estimates of the coefficients; it also
provides information that can be used to see how ________ the cost equation
is which is a feature not available for the high-low method.
|
|
46. Knowing how costs change as
output changes is essential to
|
|
a.
|
planning and controlling.
|
|
|
b.
|
controlling and decision making.
|
|
|
c.
|
planning, controlling and decision making.
|
|
|
d.
|
None of these are correct.
|
|
|
47. A fixed cost within the
relevant range
|
|
a.
|
increases in total as output decreases.
|
|
|
b.
|
does not change in total as output changes.
|
|
|
c.
|
decreases in total as output increases.
|
|
|
d.
|
All of these are correct.
|
|
|
48. Which of the following would
be an example of a fixed cost?
|
|
a.
|
wages for an assembly line worker
|
|
|
b.
|
electric bill
|
|
|
c.
|
depreciation on equipment
|
|
|
d.
|
materials used
|
|
|
49. Which of the following
would not be
an example of a fixed cost?
|
|
a.
|
glue used to put together tables
|
|
|
b.
|
insurance on factory building
|
|
|
c.
|
depreciation on factory building
|
|
|
d.
|
property taxes
|
|
|
50. Discretionary fixed costs
|
|
a.
|
cannot be easily changed.
|
|
|
b.
|
often involve a long-term contract.
|
|
|
c.
|
can be changed easily at management’s discretion.
|
|
|
d.
|
increase as output increases.
|
|
|
51. Which of the following is an
example of a discretionary fixed cost?
|
|
a.
|
depreciation of equipment
|
|
|
b.
|
advertising costs
|
|
|
c.
|
rental of machinery
|
|
|
d.
|
insurance on automobiles
|
|
|
52. Which of the following
is not an
example of a discretionary fixed cost?
|
|
a.
|
research and development
|
|
|
b.
|
training costs
|
|
|
c.
|
advertising costs
|
|
|
d.
|
direct materials
|
|
|
53. A committed fixed cost
|
|
a.
|
can easily be changed.
|
|
|
b.
|
often involves a long-term contract.
|
|
|
c.
|
changes when the level of output changes.
|
|
|
d.
|
all of these are correct
|
|
|
54. Variable costs within the
relevant range
|
|
a.
|
stay constant on a per unit basis as output changes.
|
|
|
b.
|
increase in total as output increases.
|
|
|
c.
|
decrease in total as output decreases.
|
|
|
d.
|
All of these are correct.
|
|
|
55. Which of the following would
be a variable cost for a dentist’s office?
|
|
a.
|
depreciation on equipment
|
|
|
b.
|
cost of renting office space
|
|
|
c.
|
cost of teeth cleaning material
|
|
|
d.
|
salary of dentist
|
|
|
56. Total variable costs
|
|
a.
|
increases as output increases.
|
|
|
b.
|
decreases as output decreases.
|
|
|
c.
|
equal a variable rate × amount of output.
|
|
|
d.
|
all of these are correct.
|
|
|
57. A factor that causes or leads
to a change in a cost or activity is a(n)
|
|
a.
|
cost formula.
|
|
|
b.
|
step cost.
|
|
|
c.
|
mixed cost.
|
|
|
d.
|
driver.
|
|
|
58. Which of the following would
probably be a fixed cost in a fast-food restaurant?
|
|
a.
|
cost of hamburger
|
|
|
b.
|
cost of french fries
|
|
|
c.
|
shift manager’s salary
|
|
|
d.
|
utility cost
|
|
|
59. Which of the following would
probably be a variable cost at a college?
|
|
a.
|
salary of the head janitor
|
|
|
b.
|
cost of registration forms
|
|
|
c.
|
salary of the college president
|
|
|
d.
|
none of these options
|
|
|
60. The relevant range
|
|
a.
|
is the normal range of output.
|
|
|
b.
|
is the range of output where cost relationships are
valid.
|
|
|
c.
|
may change from period to period.
|
|
|
d.
|
All of these are correct.
|
|
|
61. Per-unit fixed costs
|
|
a.
|
can be misleading and lead to poor decisions.
|
|
|
b.
|
stay the same as output changes.
|
|
|
c.
|
decrease as output decreases.
|
|
|
d.
|
increase as output increases.
|
|
|
62. Which of the following would
probably be a discretionary fixed cost for a law firm?
|
|
a.
|
salary of receptionist
|
|
|
b.
|
advertising
|
|
|
c.
|
depreciation on furniture and equipment
|
|
|
d.
|
cost of legal forms
|
|
|
63. Which of the following would
probably be a committed fixed cost for an accounting firm?
|
|
a.
|
lease of computers
|
|
|
b.
|
rent on the office building
|
|
|
c.
|
property taxes on building
|
|
|
d.
|
All of these are correct.
|
|
|
64. Per-unit variable costs
|
|
a.
|
can be misleading and lead to poor decisions.
|
|
|
b.
|
increase as output increases.
|
|
|
c.
|
decrease as output decreases.
|
|
|
d.
|
remain constant within the relevant range.
|
|
|
65. If output increases
|
|
a.
|
per-unit fixed cost will increase.
|
|
|
b.
|
total variable costs will increase.
|
|
|
c.
|
per-unit variable costs will increase.
|
|
|
d.
|
per-unit variable costs will decrease.
|
|
|
66. If output decreases
|
|
a.
|
total fixed costs will remain the same.
|
|
|
b.
|
total variable costs will increase.
|
|
|
c.
|
per-unit fixed costs will decrease.
|
|
|
d.
|
All of these are correct.
|
|
|
67. If output increases by 50% and
is still within the relevant range
|
|
a.
|
total fixed costs will increase by 50%.
|
|
|
b.
|
per-unit fixed cost will remain the same.
|
|
|
c.
|
total variable costs will increase by 50%.
|
|
|
d.
|
net income will increase by 50%.
|
|
|
Figure 3-2.
|
Lassiter Toys, Inc.
Cost of Materials
|
|
No. of toys produced
|
Total cost of materials
|
|
100,000
|
$20,000
|
|
200,000
|
40,000
|
|
300,000
|
60,000
|
|
|
68. Refer to Figure 3-2. The cost
behavior of the materials cost is
|
|
a.
|
fixed
|
|
|
b.
|
variable
|
|
|
c.
|
committed
|
|
|
d.
|
discretionary
|
|
|
69. Refer to Figure 3-2. What is the
materials cost per unit of output?
|
|
a.
|
$0.10
|
|
|
b.
|
$0.20
|
|
|
c.
|
$0.60
|
|
|
d.
|
$0.40
|
|
ANSWER:
|
b
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS: $20,000 / 100,000 = $0.20
|
|
|
70. Refer to Figure 3-2. What
should the total materials cost be at a production level of 220,000 toys?
|
|
a.
|
$44,000
|
|
|
b.
|
$88,000
|
|
|
c.
|
$22,000
|
|
|
d.
|
$132,000
|
|
ANSWER:
|
a
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS: 220,000 × $0.20
|
|
|
Figure 3-6.
Taran Company incurred the following costs for the months of
January and February.
|
Type of Cost
|
January
|
February
|
|
Insurance
|
$ 5,000
|
$ 5,000
|
|
Utilities
|
4,000
|
5,000
|
|
Depreciation
|
3,500
|
3,500
|
|
Materials
|
10,000
|
20,000
|
|
|
71. Refer to Figure 3-6. From the
information above we can assume that
|
|
a.
|
insurance and depreciation are fixed costs.
|
|
|
b.
|
output decreased from January to February.
|
|
|
c.
|
output stayed the same from January to February.
|
|
|
d.
|
insurance is a mixed cost.
|
|
|
72. Refer to Figure 3-6. Assume
that output was 5,000 units in January and 10,000 units in February, utility
cost is a mixed cost, and the fixed cost of utilities was $3,000. What was
the variable rate per unit of output for utilities cost?
|
|
a.
|
$0.60
|
|
|
b.
|
$0.40
|
|
|
c.
|
$0.20
|
|
|
d.
|
$0.30
|
|
ANSWER:
|
c
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS:
Variable cost = $4,000 − $3,000
Variable rate: $1,000 / 5,000 = $0.20
|
|
|
73. Refer to Figure 3-6. If output
was 5,000 units in January and 10,000 units in February we can assume that
|
|
a.
|
utilities and materials are variable costs.
|
|
|
b.
|
utilities, insurance, and depreciation are fixed costs.
|
|
|
c.
|
insurance and depreciation are mixed costs.
|
|
|
d.
|
materials are the only variable cost.
|
|
|
74. The range of output over which
the assumed cost relationship is valid for normal operations of a firm is
called the
|
|
a.
|
mixed range.
|
|
|
b.
|
relevant range.
|
|
|
c.
|
linear range.
|
|
|
d.
|
dependent range.
|
|
|
75. Cost behavior analysis focuses
on
|
|
a.
|
how costs react to increases in activity levels only.
|
|
|
b.
|
how costs will change in the future.
|
|
|
c.
|
how costs react to changes in activity level.
|
|
|
d.
|
None of these are correct.
|
|
|
76. Fixed cost per unit is $9 when
20,000 units are produced and $6 when 30,000 units are produced.
What is the total fixed cost when nothing is produced?
|
|
a.
|
$180,000
|
|
|
b.
|
$360,000
|
|
|
c.
|
$150,000
|
|
|
d.
|
$240,000
|
|
ANSWER:
|
a
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS:
$9 × 20,000 or $6 × 30,000
|
|
|
77. If production volume increases
from 8,000 to 10,000 units,
|
|
a.
|
total costs will increase by 20%.
|
|
|
b.
|
total costs will increase by 25%.
|
|
|
c.
|
total variable costs will increase by 25%.
|
|
|
d.
|
mixed and variable costs will increase by 25%.
|
|
|
78. When the volume of activity
increases within the relevant range, the fixed cost per unit
|
|
a.
|
decreases.
|
|
|
b.
|
increases at first, then decreases.
|
|
|
c.
|
remains the same.
|
|
|
d.
|
increase.
|
|
|
79. The cost formula for monthly
depreciation cost in a factory is
Total cost = $10,000
This cost is
|
|
a.
|
strictly variable.
|
|
|
b.
|
strictly fixed.
|
|
|
c.
|
a mixed cost.
|
|
|
d.
|
a step cost.
|
|
|
80. A mixed cost
|
|
a.
|
remains constant when the output level increases.
|
|
|
b.
|
cannot be separated.
|
|
|
c.
|
contains both a fixed and variable component.
|
|
|
d.
|
All of these are correct.
|
|
|
81. When a mixed cost is graphed
the Y-intercept corresponds to the
|
|
a.
|
step cost.
|
|
|
b.
|
variable rate.
|
|
|
c.
|
fixed cost.
|
|
|
d.
|
price of the units sold.
|
|
|
82. When a mixed cost is graphed
the slope of the line equals
|
|
a.
|
the variable cost per unit of the activity driver.
|
|
|
b.
|
the total variable cost.
|
|
|
c.
|
the sales price per unit.
|
|
|
d.
|
the total fixed cost.
|
|
|
83. Step costs
|
|
a.
|
remain the same within the relevant range.
|
|
|
b.
|
have an increased fixed component at specified
intervals.
|
|
|
c.
|
increase in direct proportion to increases in output.
|
|
|
d.
|
None of these are correct.
|
|
|
84. The formula for a mixed cost
is
|
|
a.
|
total cost = total variable cost + ( fixed rate
× amount of output).
|
|
|
b.
|
total cost = total fixed cost + (variable rate × amount
of output).
|
|
|
c.
|
total cost = variable rate × amount of output.
|
|
|
d.
|
None of these are correct.
|
|
|
85. Which of the following would
probably be a mixed cost?
|
|
a.
|
rent on building
|
|
|
b.
|
raw materials
|
|
|
c.
|
repairs and maintenance
|
|
|
d.
|
depreciation
|
|
|
86. A mixed cost
|
|
a.
|
will vary in direct proportion to changes in output.
|
|
|
b.
|
stays the same regardless of output.
|
|
|
c.
|
has the same cost behavior as a step cost.
|
|
|
d.
|
will decrease in total when output decreases.
|
|
|
87. If a cost’s step-cost behavior
follows very narrow steps, the costs may be approximated using:
|
|
a.
|
straight variable cost assumptions.
|
|
|
b.
|
fixed costs assumptions.
|
|
|
c.
|
step-fixed cost assumptions.
|
|
|
d.
|
mixed cost assumptions.
|
|
|
Figure 3-1.
Total cost = Fixed cost + (Variable Rate × Output)
|
|
88. Refer to Figure 3-1. In the
cost formula above which element would be the dependent variable?
|
|
a.
|
variable rate
|
|
|
b.
|
fixed cost
|
|
|
c.
|
total cost
|
|
|
d.
|
output
|
|
|
89. Refer to Figure 3-1. In the
cost formula above which element would be the independent variable?
|
|
a.
|
fixed cost
|
|
|
b.
|
total cost
|
|
|
c.
|
output
|
|
|
d.
|
variable rate
|
|
|
90. Refer to Figure 3-1. In the
cost formula above which element would be the intercept?
|
|
a.
|
fixed cost
|
|
|
b.
|
total cost
|
|
|
c.
|
output
|
|
|
d.
|
variable rate
|
|
|
91. Refer to Figure 3-1. In the
cost formula above which element would be the slope?
|
|
a.
|
variable rate
|
|
|
b.
|
output
|
|
|
c.
|
fixed cost
|
|
|
d.
|
total cost
|
|
|
92. The high-low method
|
|
a.
|
is the most accurate methods.
|
|
|
b.
|
is not affected by the presence of outliers.
|
|
|
c.
|
has the advantage of objectivity.
|
|
|
d.
|
has the advantage of subjectivity.
|
|
|
93. The scatter-graph method
|
|
a.
|
displays a constant level of cost for a range of output.
|
|
|
b.
|
has the advantage of subjectivity.
|
|
|
c.
|
may reveal the presence of outliers.
|
|
|
d.
|
all of these are correct
|
|
|
94. The method of least squares
|
|
a.
|
is a way to find the “best
fitting” line through a set of data points.
|
|
|
b.
|
is a statistical way of separating a mixed cost.
|
|
|
c.
|
always produces the same cost formula when used on the
same data set.
|
|
|
d.
|
all of these are correct
|
|
|
95. Using the high-low method, the
variable rate of a mixed cost equals
|
|
a.
|
total cost at high point − (variable rate × output at
high point)
|
|
|
b.
|
total cost at high point − (variable rate × output at
low point)
|
|
|
c.
|
|
|
|
d.
|
|
|
|
96. The method of least squares
|
|
a.
|
uses the results of regression analysis to construct a
cost formula.
|
|
|
b.
|
is the least accurate method.
|
|
|
c.
|
analyzes a cost relationship by plotting the data points
on a graph.
|
|
|
d.
|
can easily be calculated by hand.
|
|
|
97. Managerial judgment
|
|
a.
|
is the most accurate way to determine cost behavior.
|
|
|
b.
|
is the least used method in practice.
|
|
|
c.
|
is critically important in determining cost behavior.
|
|
|
d.
|
none of these are correct
|
|
|
98. The scatter-graph method
|
|
a.
|
allows a cost analyst to inspect data visually.
|
|
|
b.
|
is objective.
|
|
|
c.
|
only uses two data points.
|
|
|
d.
|
none of these are correct
|
|
|
99. Ruskin Company had utilities
cost of $95,000 at an output level of 30,000 units. The utilities cost was a
mixed cost and the fixed portion was $50,000. What would the estimate of
total utilities cost be at an output level of 40,000 units?
|
|
a.
|
$65,000
|
|
|
b.
|
$95,000
|
|
|
c.
|
$110,000
|
|
|
d.
|
$125,000
|
|
ANSWER:
|
c
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS:
Variable rate: $45,000 / 30,000 = $1.50
Total cost: (40,000 × $1.50) + $50,000 = $110,000
|
|
|
Figure 3-3.
Okafor Company manufactures skis. The management accountant
wants to calculate the fixed and variable costs associated with the leasing
of machinery. Data for the past four months were collected.
|
|
|
Machine
|
|
Month
|
Lease cost
|
hours
|
|
April
|
$21,000
|
550
|
|
May
|
16,500
|
420
|
|
June
|
19,000
|
510
|
|
July
|
22,230
|
570
|
|
|
100. Refer to Figure 3-3. Using
the high-low method calculate the variable rate for the lease cost
|
|
a.
|
$38.18
|
|
|
b.
|
$38.20
|
|
|
c.
|
$61.50
|
|
|
d.
|
$37.25
|
|
ANSWER:
|
b
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS:
($22,230 − $16,500) / (570 − 420) = $38.20
|
|
|
101. Refer to Figure 3-3. Using
the high-low method calculate the fixed cost of leasing
|
|
a.
|
$482
|
|
|
b.
|
$516
|
|
|
c.
|
$420
|
|
|
d.
|
$456
|
|
ANSWER:
|
d
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS:
$22,230 − ($38.20 × 570) = $456.00
OR
$16,500 – ($38.20 × 420) = $456.00
|
|
|
102. Refer to Figure 3-3. What
would Okafor Company’s cost formula be to estimate the cost of leasing within
the relevant range?
|
|
a.
|
total lease cost = $456 + ($38.20 × machine hours)
|
|
|
b.
|
total lease cost = $516 + ($38.18 × machine hours)
|
|
|
c.
|
total lease cost = $420 + ($37.25 × machine hours)
|
|
|
d.
|
none of these are correct
|
|
|
103. Refer to Figure 3-3. What
would the estimate of Okafor Company’s total lease cost be at a level of 500
machine hours?
|
|
a.
|
$19,606
|
|
|
b.
|
$19,556
|
|
|
c.
|
$16,464
|
|
|
d.
|
$18,546
|
|
ANSWER:
|
b
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS: $19,556 = $456 + ($38.20 × 500)
|
|
|
Figure 3-4.
Botana Company constructed the following formula for monthly
utility cost.
Total utility cost = $1,200 + ($8.10 × labor hours)
Assume that 775 labor hours are budgeted for the month of
April.
|
|
104. Refer to Figure 3-4.
Calculate the total variable utility cost for the month of April.
|
|
a.
|
$1,200.00
|
|
|
b.
|
$7,477.50
|
|
|
c.
|
$6,277.50
|
|
|
d.
|
$5,077.50
|
|
ANSWER:
|
c
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS: ($8.10 × 775)
|
|
|
105. Refer to Figure 3-4.
Calculate the total utility cost for the month of April.
|
|
a.
|
$7,477.50
|
|
|
b.
|
$6,277.50
|
|
|
c.
|
$1,200.00
|
|
|
d.
|
$5,077.50
|
|
ANSWER:
|
a
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS: $7,477.50 = $1,200 + ($8.10 ×
775)
|
|
|
106. Refer to Figure 3-4. If
Botana Company incurs 9,600 labor hours for the year, what would be the
estimate of total utility cost?
|
|
a.
|
$76,560
|
|
|
b.
|
$78,960
|
|
|
c.
|
$92,160
|
|
|
d.
|
none of these are correct
|
|
ANSWER:
|
c
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS: ($1,200 × 12) + ($8.10 × 9,600)
|
|
|
Figure 3-5.
Maxwell Company makes treadmills. The company controller wants
to calculate the fixed and variable costs associated with the janitorial
costs incurred in the factory. Data for the past four months were collected.
|
|
Janitorial
|
Machine
|
|
Month
|
costs
|
hours
|
|
September
|
$11,000
|
575
|
|
October
|
11,400
|
610
|
|
November
|
10,200
|
510
|
|
December
|
10,725
|
550
|
|
|
107. Refer to Figure 3-5. Using
the high-low method calculate the fixed cost of the janitorial services
|
|
a.
|
$4,080
|
|
|
b.
|
$7,320
|
|
|
c.
|
$6,120
|
|
|
d.
|
none of these are correct
|
|
ANSWER:
|
a
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS:
($11,400 − $10,200) / (610 − 510) = $12
$11,400 − ($12 × 610) = $4,080
OR
$10,200 − ($12 × 510) = $4,080
|
|
|
108. Refer to Figure 3-5. What
would Maxwell Company’s estimate of total janitorial cost be at a level of
600 machine hours?
|
|
a.
|
$11,280
|
|
|
b.
|
$7,500
|
|
|
c.
|
$4,080
|
|
|
d.
|
$6,120
|
|
ANSWER:
|
a
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS: $4080 + ($12 × 600)
|
|
|
Figure 3-7.
Margola Company produces hand-held calculators. The company
controller wanted to calculate the fixed and variable costs associated with
the maintenance cost incurred by the factory. Data for the past four months
were collected.
|
|
Maintenance
|
Machine
|
|
Month
|
cost
|
hours
|
|
June
|
$4,180
|
328
|
|
July
|
3,956
|
310
|
|
August
|
4,686
|
386
|
|
September
|
4,240
|
352
|
Coefficients shown by a regression program are:
|
Intercept
|
1,150
|
|
X Variable 1
|
9.06
|
|
|
109. Refer to Figure 3-7. Using
the results of regression, calculate the fixed cost of maintenance.
|
|
a.
|
$1,150.00
|
|
|
b.
|
$978.37
|
|
|
c.
|
$9.06
|
|
|
d.
|
None of these are correct.
|
|
|
110. Refer to Figure 3-7. Using
the results of regression, calculate the variable rate of maintenance cost.
|
|
a.
|
$1,150 per machine hour
|
|
|
b.
|
$12.74 per machine hour
|
|
|
c.
|
$9.06 per machine hour
|
|
|
d.
|
$12.14 per machine hour
|
|
|
111. Refer to Figure 3-7. Using
the results of regression, the cost formula for maintenance cost was
|
|
a.
|
$1,150 × machine hours
|
|
|
b.
|
($4,686 − $3,956) / (386 − 310)
|
|
|
c.
|
$9.06 × machine hours
|
|
|
d.
|
$1,150 + ($9.06 × machine hours)
|
|
|
112. Refer to Figure 3-7. Using
the results of regression, what would be the budgeted cost for maintenance
next month assuming that 340 machine hours are budgeted? (Round to the
nearest dollar.)
|
|
a.
|
$4,230
|
|
|
b.
|
$3,928
|
|
|
c.
|
$1,150
|
|
|
d.
|
$2,943
|
|
ANSWER:
|
a
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS: $1,150 + ($9.06 × 340)
|
|
|
Figure 3-8.
Martin Company makes cell phones. The company controller
wanted to calculate the fixed and variable costs associated with electricity
use in the factory. Data for the past four months were collected.
|
|
Electricity
|
Machine
|
|
Month
|
cost
|
hours
|
|
January
|
$7,560
|
570
|
|
February
|
8,220
|
625
|
|
March
|
7,480
|
546
|
|
April
|
7,186
|
518
|
Coefficients shown by a regression program are:
|
Intercept
|
2,255
|
|
X Variable 1
|
9.48
|
|
|
113. Refer to Figure 3-8. Using
the results of regression, calculate the variable rate of the electricity
cost.
|
|
a.
|
$9.67 per machine hour
|
|
|
b.
|
$9.48 per machine hour
|
|
|
c.
|
$2,255 per machine hour
|
|
|
d.
|
none of these are correct
|
|
|
114. Refer to Figure 3-8. Using
the results of regression, calculate the fixed cost of electricity.
|
|
a.
|
$2,255
|
|
|
b.
|
$9.48
|
|
|
c.
|
$2,200
|
|
|
d.
|
None of these are correct.
|
|
|
115. Refer to Figure 3-8. Using
the results of regression, the cost formula for electricity cost was
|
|
a.
|
$9.48 × machine hours
|
|
|
b.
|
$2,255 × machine hours
|
|
|
c.
|
$2,255 + ($9.48 × machine hours)
|
|
|
d.
|
None of these are correct.
|
|
|
116. Refer to Figure 3-8. Using
the results of regression, what would be the total budgeted cost for
electricity next month assuming that 615 machine hours are budgeted? (Round
to the nearest dollar.)
|
|
a.
|
$2,225
|
|
|
b.
|
$8,240
|
|
|
c.
|
$8,085
|
|
|
d.
|
$4,015
|
|
ANSWER:
|
c
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS: $2,255 + ($9.48 × 615)
|
|
|
Figure 3-9.
The following cost formula was developed using monthly data
for a retail clothing store.
Total cost = $75,620 + ($242 × number of customers)
|
|
117. Refer to Figure 3-9. The term
$75,620
|
|
a.
|
is the independent variable.
|
|
|
b.
|
is the dependent variable.
|
|
|
c.
|
is the intercept.
|
|
|
d.
|
is the variable rate.
|
|
|
118. Refer to Figure 3-9. The term
$242
|
|
a.
|
is the independent variable.
|
|
|
b.
|
is the dependent variable.
|
|
|
c.
|
is the intercept.
|
|
|
d.
|
is the variable rate.
|
|
|
119. Refer to Figure 3-9. The term
“number of customers”
|
|
a.
|
is the independent variable.
|
|
|
b.
|
is the dependent variable.
|
|
|
c.
|
is the intercept.
|
|
|
d.
|
is the variable rate.
|
|
|
120. Refer to Figure 3-9. The term
“total cost”
|
|
a.
|
is the independent variable.
|
|
|
b.
|
is the dependent variable.
|
|
|
c.
|
is the intercept.
|
|
|
d.
|
is the variable rate.
|
|
|
Figure 3-10.
The following cost formula was developed using the monthly
data for an accounting firm.
Total cost = $87,100 + ($210 × number of tax returns)
|
|
121. Refer to Figure 3-10. The
term $87,100
|
|
a.
|
is the independent variable.
|
|
|
b.
|
is the dependent variable.
|
|
|
c.
|
is the intercept.
|
|
|
d.
|
is the variable rate.
|
|
|
122. Refer to Figure 3-10. The
term “number of tax returns”
|
|
a.
|
is the independent variable.
|
|
|
b.
|
is the dependent variable.
|
|
|
c.
|
is the intercept.
|
|
|
d.
|
is the variable rate.
|
|
|
123. Refer to Figure 3-10. The
term $210
|
|
a.
|
is the independent variable.
|
|
|
b.
|
is the dependent variable.
|
|
|
c.
|
is the intercept.
|
|
|
d.
|
is the variable rate.
|
|
|
124. Refer to Figure 3-10. The
term “total cost”
|
|
a.
|
is the independent variable.
|
|
|
b.
|
is the dependent variable.
|
|
|
c.
|
is the intercept.
|
|
|
d.
|
is the variable rate.
|
|
|
Figure 3-11.
The following four months of data were collected on utility
cost and the number of labor hours in a factory.
|
|
Utility
|
Labor
|
|
Month
|
cost
|
hours
|
|
January
|
$22,100
|
3,975
|
|
February
|
24,600
|
5,430
|
|
March
|
23,500
|
4,400
|
|
April
|
20,140
|
3,200
|
|
|
125. Refer to Figure 3-11. Select
the correct set of high and low months.
|
|
a.
|
high: February, low: April
|
|
|
b.
|
high: February, low: March
|
|
|
c.
|
high: January, low: March
|
|
|
d.
|
high: January, low: April
|
|
|
126. Refer to Figure 3-11. Using
the high-low method, compute the variable rate for the utility cost.
|
|
a.
|
$1.02
|
|
|
b.
|
$2.80
|
|
|
c.
|
$1.07
|
|
|
d.
|
$2.00
|
|
ANSWER:
|
d
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS:
($24,600 − $20,140) / (5,430 − 3,200) = $2.00
|
|
|
127. Refer to Figure 3-11. Using
the high-low method, compute the fixed cost of electricity.
|
|
a.
|
$13,740
|
|
|
b.
|
$10,860
|
|
|
c.
|
$6,400
|
|
|
d.
|
None of these are correct.
|
|
ANSWER:
|
a
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS:
$24,600 − ($2.00 × 5,430) = $13,740
OR
$20,140 − ($2.00 × 3,200) = $13,470
|
|
|
128. Refer to Figure 3-11. What
would be the estimate of electricity cost if the factory incurred 4,700 labor
hours next month?
|
|
a.
|
$9,400
|
|
|
b.
|
$20,260
|
|
|
c.
|
$23,140
|
|
|
d.
|
$19,560
|
|
ANSWER:
|
c
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS: $13,740 + ($2.00 × 4,700)
|
|
|
Figure 3-12.
The method of least squares was used to develop a cost equation
to predict the cost of monthly equipment maintenance. The following computer
output was received:
|
Intercept
|
32,000
|
|
Slope
|
25
|
The driver used was the number of machine hours.
|
|
129. Refer to Figure 3-12. What
was the cost formula for equipment maintenance?
|
|
a.
|
total maintenance cost = $25 × machine hours
|
|
|
b.
|
total maintenance cost = $32,000
|
|
|
c.
|
total maintenance cost = $32,000 + ($25 × machine hours)
|
|
|
d.
|
None of these are correct.
|
|
|
130. Refer to Figure 3-12. Using
the cost formula for the equipment maintenance cost, what is the predicted
cost of equipment maintenance for April assuming that 5,000 machine hours
will be incurred in April?
|
|
a.
|
$32,000
|
|
|
b.
|
$125,000
|
|
|
c.
|
$157,000
|
|
|
d.
|
None of these are correct.
|
|
ANSWER:
|
c
|
|
RATIONALE:
|
SUPPORTING CALCULATIONS: $32,000 + ($25 × 5,000)
|
|
|
131. Refer to Figure 3-12. What is
the independent variable of the cost formula for equipment maintenance?
|
|
a.
|
number of machine hours
|
|
|
b.
|
the variable rate
|
|
|
c.
|
the fixed cost
|
|
|
d.
|
the total cost
|
|
|
Figure 3-13.
The following 6 months of data were collected on electricity
cost and the number of machine hours in a factory.
|
|
Electricity
|
Machine
|
|
Month
|
cost
|
hours
|
|
June
|
$25,160
|
4,500
|
|
July
|
26,170
|
4,810
|
|
August
|
27,250
|
5,120
|
|
September
|
26,680
|
5,010
|
|
October
|
27,950
|
5,430
|
|
November
|
27,500
|
5,190
|
|
|
132. Refer to Figure 3-13. Select
the correct set of high and low months.
|
|
a.
|
high: June, low: July
|
|
|
b.
|
high: June, low: October
|
|
|
c.
|
high: October, low: September
|
|
|
d.
|
high: October, low: June
|
|
|
133. Refer to Figure 3-13. An
independent variable value used in calculating the cost line using the
high-low method is:
|
|
a.
|
$27,950
|
|
|
b.
|
5,430
|
|
|
c.
|
$25,160
|
|
|
d.
|
4,000
|
|
|
134. Refer to Figure 3-13. A
dependent variable value used in calculating the cost line using the high-low
method is:
|
|
a.
|
$27,900
|
|
|
b.
|
5,430
|
|
|
c.
|
$25,160
|
|
|
d.
|
4,500
|
|
|
135. Margolo Company makes
cross-country skis. The company controller wants to calculate the fixed and
variable costs associated with janitorial services incurred by the factory.
Data for the past 6 months were collected.
|
|
Janitorial
|
Labor
|
|
Month
|
cost
|
hours
|
|
January
|
$9,200
|
10,120
|
|
February
|
8,800
|
9,500
|
|
March
|
9,350
|
10,500
|
|
April
|
9,620
|
11,100
|
|
May
|
8,400
|
8,660
|
|
June
|
9,400
|
10,650
|
Select the correct set of high and low months.
|
|
a.
|
high: June, low: April
|
|
|
b.
|
high: June, low: May
|
|
|
c.
|
high: January, low: February
|
|
|
d.
|
high: April, low: May
|
|
|
136. Advantages of the method of
least squares over the high-low method include all of the following except
|
|
a.
|
a statistical method is used to mathematically derive
the cost function.
|
|
|
b.
|
only two points are used to develop the cost function.
|
|
|
c.
|
the squared differences between actual observations and
the line (cost function) are minimized.
|
|
|
d.
|
All the observations have an effect on the cost
function.
|
|
|
137. If an automobile manufacturer
changes from skilled labor to computer-controlled assembly procedures, the
past data
|
|
a.
|
are useful in predicting future costs.
|
|
|
b.
|
are of little or no value in predicting future costs.
|
|
|
c.
|
should be used without adjustments to predict future
costs.
|
|
|
d.
|
are representative of future costs.
|
|
|
138. Which of the following is an
advantage of using the scatter-graph method over the high-low method to
estimate costs?
|
|
a.
|
It is a statistical method to determine “best fit”.
|
|
|
b.
|
A cost analyst can review the data visually and
eliminate outliers.
|
|
|
c.
|
The quality of the cost formula relies on the objective
judgment of the analysts.
|
|
|
d.
|
The cost formula can be determined simply by looking at
two points of data.
|
|
|
139. If at a given volume total
costs and fixed costs are known, the variable costs per unit may be computed
as follows:
|
|
a.
|
(total costs − fixed costs) / unit volume
|
|
|
b.
|
(total costs / unit volume) − fixed costs
|
|
|
c.
|
(total costs × unit volume) − (fixed costs / unit
volume)
|
|
|
d.
|
total costs − (fixed costs / unit volume)
|
|
|
Figure 3-14.
Blacken Company manufactures motorcycles. The company’s management
accountant wants to calculate the fixed and variable costs associated with
utility cost incurred by the factory. Data for the past five months were
collected.
|
|
Utility
|
Machine
|
|
Month
|
cost
|
hours
|
|
March
|
$30,255
|
2,200
|
|
April
|
32,750
|
2,525
|
|
May
|
34,712
|
2,710
|
|
June
|
31,850
|
2,410
|
|
July
|
30,720
|
2,290
|
|
|
140. Refer to Figure 3-14. Using a
regression program, the value of the intercept (rounded to the nearest penny)
is
|
|
a.
|
$0.99.
|
|
|
b.
|
$195.35.
|
|
|
c.
|
$10,630.80.
|
|
|
d.
|
$190,267.00.
|
|
|
141. Refer to Figure 3-14. Using a
regression program, the value of the X Variable 1 (rounded to the nearest
penny) is
|
|
a.
|
$0.99.
|
|
|
b.
|
$8.83.
|
|
|
c.
|
$195.35.
|
|
|
d.
|
$11,594.00.
|
|
|
142. Refer to Figure 3-14. Using a
regression program, the forecasted utility cost at 2,300 machine hours
(rounded to the nearest dollar) is
|
|
a.
|
$30,940.
|
|
|
b.
|
$37,116.
|
|
|
c.
|
$25,945.
|
|
|
d.
|
$10,631.
|
|
|
143. Refer to Figure 3-14. Using a
regression program, the forecasted utility cost at 2,600 machine hours
(rounded to the nearest dollar) is
|
|
a.
|
$28,288.
|
|
|
b.
|
$33,589.
|
|
|
c.
|
$45,945.
|
|
|
d.
|
$10,631.
|
|
|
144. Refer to Figure 3-14. Using a
regression program, the forecasted utility cost at 2,550 machine hours
(rounded to the nearest dollar) is
|
|
a.
|
$28,288.
|
|
|
b.
|
$37,116.
|
|
|
c.
|
$33,147.
|
|
|
d.
|
$10,631.
|
|
|
145. Refer to Figure 3-14. Using a
regression program, the yearly utility cost equation (with all variables to
the nearest penny) is
|
|
a.
|
total utility cost = $127,569.60 + ($8.83 × machine
hours).
|
|
|
b.
|
total utility cost = $10,630.80 + ($8.83 × machine
hours).
|
|
|
c.
|
total utility cost = $8.83 + ($10,630.80 × machine
hours).
|
|
|
d.
|
total utility cost = $10,630.80 − ($8.83 × machine
hours).
|
|
|
146. Laconic Company manufactures
ultra sound equipment. Based on past experience, Laconic has found that total
annual repair and maintenance cost can be represented by the following formula:
total annual repair and maintenance cost = $205,000 + $7.50x, where x =
machine hours. Last year, Laconic incurred 145,000 machine hours.
Required:
|
A.
|
What was the total repair and maintenance cost incurred
by Laconic last year?
|
|
B.
|
What was the total fixed repair and maintenance cost
incurred by Laconic last year?
|
|
C.
|
What was the total variable repair and maintenance cost
incurred by Laconic last year?
|
|
D.
|
What was the repair and maintenance cost per machine
hour last year?
|
|
E.
|
What was the fixed repair and maintenance cost per
machine hour last year?
|
|
F.
|
What was the variable repair and maintenance cost per
machine hour last year?
|
|
ANSWER:
|
|
A.
|
$205,000 + ($7.50 × 145,000) = $1,292,500
|
|
|
|
|
B.
|
$205,000
|
|
|
|
|
C.
|
$7.50 × 145,000 = $1,087,500
|
|
|
|
|
D.
|
$1,292,500 / 145,000 = $8.91
|
|
|
|
|
E.
|
$205,000 / 145,000 = $1.41
|
|
|
|
|
F.
|
$7.50
|
|
|
|
147. Harnow Company manufactures
drill presses. Based on past experience, Harnow has found that its total
overhead cost can be represented by the following formula: Total overhead
cost = $35,500 + $1.25x, where x = number of machine hours. Last year Harnow
incurred 120,000 machine hours.
Required (round to the nearest cent):
|
A.
|
What was the total overhead cost incurred by Harnow last
year?
|
|
B.
|
What was the total variable overhead cost incurred by
Harnow last year?
|
|
C.
|
What was the total overhead cost per machine hour last
year?
|
|
D.
|
What was the fixed overhead cost per machine hour last
year?
|
|
E.
|
If Harnow incurs 140,000 machine hours next year, what
will be the total overhead cost per machine hour?
|
|
ANSWER:
|
|
A.
|
$185,500 = $35,500 + ($1.25 × 120,000)
|
|
|
|
|
B.
|
$1.25 × 120,000 = $150,000
|
|
|
|
|
C.
|
$185,500 / 120,000 = $1.55
|
|
|
|
|
D.
|
$35,500 / 120,000 = $.30
|
|
|
|
|
E.
|
$210,500 = $35,500 + ($1.25 × 140,000)
|
|
|
|
|
|
$210,500 / 140,000 = $1.50
|
|
|
|
148. The average unit cost at a
monthly volume of 9,000 units is $3, and the average unit cost at a monthly
volume of 22,500 units is $2.10.
Required:
|
A.
|
Develop an equation for total monthly costs.
|
|
B.
|
What are the total monthly costs if 15,000 units are
produced?
|
|
ANSWER:
|
|
A.
|
(9,000 × $3) = $27,000
|
|
|
|
|
|
(22,500 × $2.10) = $47,250
|
|
|
|
|
|
Variable cost per unit = ($47,250 − $27,000) / (22,500
− 9,000) = $1.50
|
|
|
|
|
|
Fixed costs per month = $27,000 − ($1.50 × 9,000) =
$13,500
|
|
|
|
|
|
Total monthly costs = $13,500 + $1.50(# of units)
|
|
|
|
|
B.
|
$13,500 + (15,000 × $1.50) = $13,500 + $22,500 =
$36,000
|
|
|
|
149. Just Burn It! Manufactures
blank CDs. The company incurs $22,000 in monthly depreciation costs on its
manufacturing equipment as well as monthly advertising costs of $2,000 to place
ads in newspapers and on the radio. Each CD requires materials and
manufacturing overhead resources. On average the company uses 26,000 pounds
of material to manufacture 12,000 CDs per month. Each pound of material costs
$2.50. The manufacturing overhead is driven by machine hours and on average
the company incurs $30,000 in manufacturing overhead to produce 12,000 CDs
per month.
|
Required:
|
|
1.) Create a formula for the monthly cost of the CDs for
Just Burn It!
|
|
2.) If the company plans to manufacture 15,000 CDs next
month, what is the expected fixed cost? What is the total variable cost?
What is the total cost?
|
|
ANSWER:
|
|
Calculations:
|
|
1.) 26,000 pounds / 12,000 CDs = 2.17 pounds per CD
|
|
Cost per pound = $2.50 × 2.17/CD = $5.43 per CD
|
|
OR
|
|
26,000 × $2.50 = $65,000
|
|
$65,000 / 12,000 = $5.42
|
|
|
|
Cost of manufacturing overhead = $30,000 / 12,000 CDs
= $2.50 per CD
|
|
Total variable rate = $5.43 + 2.50 = $7.93
|
|
OR $5.42 + $2.50 = $7.92
|
|
|
|
Cost formula:
|
|
Total cost of CDs = $24,000 + ($7.93 × number of
CDs)
|
|
OR
|
|
$24,000 + ($7.92 × number of CDs)
|
|
2.) Total cost of CDs = $24,000 + (7.93 x 15,000) OR
$24,000 + ($7.92 × 15,000)
|
|
total cost of CDs = 24,000 + 118,950 OR $24,000 +
$118,000
|
|
total cost of CDs = $142,950 OR $142,800
|
|
Fixed cost = $24,000 Variable cost = $118,950 OR
$118,800
|
|
|
|
150. Boswan Company incurred the
following costs and machine hours for the months of April and May.
|
Type of cost
|
April
|
May
|
|
Insurance
|
$10,000
|
$10,000
|
|
Factory supplies
|
3,000
|
4,500
|
|
Direct labor
|
20,000
|
30,000
|
|
Maintenance
|
5,500
|
5,750
|
|
|
|
|
|
Machine hours
|
1,000
|
1,500
|
Required:
|
A.
|
Assuming that the driver for all costs is machine hours,
determine the cost behavior of each of the four types of costs above
(fixed, variable, or mixed).
|
|
|
|
|
B.
|
Assume that the following is the cost formula for
maintenance cost.
|
|
|
|
|
|
Total maintenance cost = $5,000 + ($0.50 × no. of
machine hours)
|
|
|
|
|
|
Construct a cost formula to be used to estimate total
monthly costs within the relevant range.
|
|
|
|
|
C.
|
Estimate the total monthly costs to be incurred by
Boswan Company at a level of 1,200 machine hours.
|
|
ANSWER:
|
|
A.
|
Insurance (Fixed)
|
|
|
Factory Supplies (Variable)
|
|
|
Direct Labor (Variable)
|
|
|
Maintenance (Mixed)
|
|
|
|
|
B.
|
Total costs
|
= Fixed costs ($10,000 + $5,000) +
|
|
|
|
[Variable rate ($3.00 + $20.00 + $0.50) × no. of
machine hours]
|
|
|
|
|
C.
|
$43,200 = $15,000 + ($23.50 × 1,200)
|
|
|
|
151. Consider each of the
following independent situations.
|
A.
|
The salary of a legal secretary in a law firm.
|
|
B.
|
A lease contract for an automobile which requires a
monthly payment of $300 plus $.05 per mile.
|
|
C.
|
The cost of lumber for a homebuilder.
|
|
D.
|
The cost of Internet service which is calculated based
on hours of usage.
|
|
E.
|
The cost of telephone service which includes a fixed
monthly charge of $50 plus $.10 a minute for long distance calls.
|
|
F.
|
The salary cost of seasonal tax preparers for a CPA
firm. One tax preparer can prepare 100 tax returns per month.
|
|
G.
|
A factory supervisor’s salary.
|
|
H.
|
The cost of sugar in the production of soft drinks.
|
Required: For each situation,
describe the cost as one of the following: fixed cost, variable cost, mixed
cost, or step cost.
|
ANSWER:
|
|
A.
|
Fixed
|
|
B.
|
Mixed
|
|
C.
|
Variable
|
|
D.
|
Variable
|
|
E.
|
Mixed
|
|
F.
|
Step
|
|
G.
|
Fixed
|
|
H.
|
Variable
|
|
|
|
152. Ross Company has the
following information available regarding costs at various levels of monthly
production:
|
Production volume
|
7,000 units
|
10,000 units
|
|
Direct materials
|
$ 70,000
|
$100,000
|
|
Direct labor
|
56,000
|
80,000
|
|
Indirect materials
|
21,000
|
30,000
|
|
Supervisors’ salaries
|
12,000
|
12,000
|
|
Depreciation on plant
|
10,000
|
10,000
|
|
Maintenance
|
32,000
|
44,000
|
|
Utilities
|
15,000
|
21,000
|
|
Insurance on plant and equipment
|
1,600
|
1,600
|
|
Property taxes on plant
|
2,000
|
2,000
|
|
Total
|
$219,600
|
$300,600
|
Required:
|
A.
|
Identify each cost as being variable, fixed, or mixed by
writing the name of each cost under one of the following headings:
|
|
|
|
|
|
Variable Costs
|
Fixed Costs
|
Mixed Costs
|
|
|
|
|
B.
|
Develop an equation for total monthly production costs.
|
|
C.
|
Predict total costs for a monthly production volume of
8,000 units.
|
|
|
|
|
|
ANSWER:
|
|
A.
|
Variable Costs
|
Fixed Costs
|
Mixed Costs
|
|
|
Direct materials
|
Supervisors’ salaries
|
Maintenance
|
|
|
Direct labor
|
Depreciation
|
Utilities
|
|
|
Indirect materials
|
Insurance
|
|
|
|
|
Property taxes
|
|
|
|
|
|
B.
|
Variable costs = ($300,600 − $219,600) / ($10,000 −
$7,000) = $27.00
|
|
|
Fixed costs = $300,600 − ($27.00 × 10,000) = $30,600
per month
|
|
|
Total monthly production costs = $30,600 + [$27.00
× (# of units)]
|
|
|
|
|
C.
|
Total costs = $30,600 + ($27.00 × 8,000) = $246,600
|
|
|
|
153. Olson Company makes hearing
aids. Olson has found that total electricity cost for the factory can be
represented by the following formula: total annual electricity cost =
$149,000 + $2.75x, where x = labor hours. Last year, Olson incurred 212,000
labor hours.
Required:
|
A.
|
What is the independent variable in Olson’s cost
formula?
|
|
B.
|
What was the total electricity cost incurred by Olson
last year?
|
|
C.
|
What would be Olson Company’s estimated electricity cost
for next year if they have budgeted 229,000 labor hours?
|
|
ANSWER:
|
|
A.
|
labor hours
|
|
|
|
|
B.
|
$149,000 + ($2.75 × 212,000) = $732,000
|
|
|
|
|
C.
|
$149,000 + ($2.75 × 229,000) = $778,750
|
|
|
|
154. Harnock Company constructed
the following cost formula for its monthly janitorial cost.
Total monthly janitorial cost = $5,000 + ($.48 × units of
output)
Required:
|
A.
|
Identify the independent variable.
|
|
B.
|
Identify the dependent variable.
|
|
C.
|
Identify the intercept.
|
|
D.
|
Identify the slope.
|
|
E.
|
Compute the total janitorial cost if Harnock produces
10,000 units of output next year.
|
|
ANSWER:
|
|
A.
|
units of output
|
|
B.
|
Total monthly janitorial cost
|
|
C.
|
$5,000
|
|
D.
|
0.48
|
|
E.
|
($5,000 × 12) + ($.48 × 10,000) = $64,800 (total
yearly janitorial costs)
|
|
|
|
155. Spangle Company constructed
the following cost formula for its monthly maintenance cost.
Total monthly maintenance cost = $9,000 + ($1.75 × no. machine
hours)
Required:
|
A.
|
Identify the independent variable.
|
|
B.
|
Identify the dependent variable.
|
|
C.
|
Identify the intercept.
|
|
D.
|
Identify the slope.
|
|
E.
|
Compute the total maintenance cost if Spangle uses
12,000 machine hours next year.
|
|
ANSWER:
|
|
A.
|
machine hours
|
|
B.
|
Total monthly maintenance cost
|
|
C.
|
$9,000
|
|
D.
|
$1.75
|
|
E.
|
($9,000 × 12) + ($1.75 × 12,000) = $129,000
|
|
|
|
156. Arcadia Company incurred the
following costs and machine hours during the first three months of the
current year. Assume that the driver for all costs is machine hours.
|
Type of cost
|
January
|
February
|
March
|
|
Electricity
|
$20,000
|
$15,000
|
$18,000
|
|
Depreciation
|
15,000
|
15,000
|
15,000
|
|
Factory supplies
|
9,600
|
5,600
|
7,600
|
|
Property taxes
|
12,000
|
12,000
|
12,000
|
|
|
|
|
|
|
Machine hours
|
1,200
|
700
|
950
|
Required:
|
A.
|
Using the high-low method, construct a cost formula for
electricity cost.
|
|
B.
|
If Arcadia had total costs in April of $53,000, how many
machine hours did they incur during April?
|
|
C.
|
If Arcadia expects to incur 1,500 machine hours in May
what would be the estimate of their total costs?
|
|
ANSWER:
|
|
A.
|
($20,000 − $15,000) / (1,200 − 700) = $10.00 per
machine hour
|
|
|
|
|
|
$20,000 − ($10.00 × 1,200) = $8,000 OR $15,000 –
($10.00 × 700) = $8,000
|
|
|
|
|
|
Total cost = $8,000 + ($10.00 × no. of machine hours)
|
|
|
|
|
B.
|
$53,000 − Fixed costs ($35,000) = $18,000 of variable
costs
|
|
|
Fixed Costs = Depreciation + Property Taxes + Fixed
Portion of Electricity
|
|
|
|
|
|
Variable rate (Factory Supplies; $8.00, Electricity;
$10.00) × machine hours = $18,000
|
|
|
|
|
|
Machine hours = 1,000
|
|
|
|
|
|
Alternate solution method:
Since all of the costs have the same driver, it is possible to do a high-low
calculation on the summarized costs or
($56,600 – $47,600) / (1200 – 700) = $18 per MH
$47,600 – ($18 × 700) = $35,000
OR
$56,000 – ($18 × 1,200) = $35,000
Total cost = $18 per MH + $35,000
|
|
|
|
|
C.
|
Fixed Costs ($8,000 + $15,000 + $12,000) + ($18.00 ×
1,500) = $62,000
|
|
|
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