Deck 6: Cost Behaviour: Analysis and Use

Question 1

Within the relevant range of activity,how will variable cost per unit behave?

A) It will increase in proportion with the level of activity.
B) It will remain constant.
C) It will vary inversely with the level of activity.
D) Its behaviour cannot be determined without additional information.

Answer 1

B

Question 2

What is a cost driver?

A) It is the largest single category of cost in a company.
B) It is a fixed cost that cannot be avoided.
C) It is a factor that causes variations in a cost.
D) It is an indirect cost that is essential to the business.

Answer 2

C

Question 3

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 machine hour 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) $400.
B) $1,740.
C) $2,000.
D) $2,250.

Answer 3

C

Question 4

The linear equation Y = a + bX is often used to express cost formulas.Which of the following representations in this equation is correct?

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 costs.
D) The Y term represents total fixed costs.

Question 5

In describing the cost formula equation Y = a + bX,which of the following statements is correct?

A) The X term is the dependent variable.
B) The a term is the fixed component.
C) In the high-low method,the b term equals change in activity divided by change in costs.
D) As the X term increases,the Y term decreases.

Question 6

Contribution margin is the excess of revenues over which of the following?

A) Cost of goods sold.
B) Manufacturing cost.
C) All direct costs.
D) All variable costs.

Question 7

Which of the following is an example of a committed fixed cost?

A) A training program for salespersons.
B) Executive travel expenses.
C) Property taxes on the factory building.
D) New product research and development.

Question 8

At an activity level of 10,000 units,total variable costs were $35,000 while total fixed costs were $20,800.If 16,000 units are produced and this activity is within the relevant range,which of the following statements is correct?

A) Total costs 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.

Question 9

What will result from an increase in the activity level within the relevant range?

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.

Question 10

Which of the following is an example of a cost that is variable with respect to the number of units produced and sold?

A) Insurance on the headquarters building.
B) Power to run production equipment.
C) Supervisory salaries.
D) Amortization of factory facilities.

Question 11

Which costs will change with a decrease in activity within the relevant range?

A) Total fixed costs and total variable costs.
B) Unit fixed cost and total variable costs.
C) Unit variable cost and unit fixed cost.
D) Unit fixed cost and total fixed costs.

Question 12

Which of the following is an example of a discretionary fixed cost?

A) Insurance.
B) Taxes on real estate.
C) Management training.
D) Amortization of buildings and equipment.

Question 13

The following data pertain to activity and costs for two months: Assuming that these activity levels are within the relevant range,what were the mixed costs for July?

A) $10,000.
B) $15,000.
C) $35,000.
D) $40,000.

Question 14

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,you would expect which of the following statements to be true?

A) Expense A has remained unchanged.
B) Expense B has decreased.
C) Expense A has decreased.
D) Expense B has increased.

Question 15

Shipping expense is $9,000 for 8,000 kilograms shipped and $11,250 for 11,000 kilograms shipped.Assuming that this activity is within the relevant range,if the company ships 9,000 kilograms,its expected shipping expense would be closest to which of the following?

A) $8,583.
B) $9,750.
C) $9,972.
D) $10,125.

Question 16

Which of the following best describes the contribution approach to the income statement?

A) It organizes costs on a functional basis.
B) It is useful to managers in planning and decision making.
C) It shows a contribution margin rather than an operating income figure at the bottom of the statement.
D) It can be used only by manufacturing companies.

Question 17

The following data pertain to activity and costs for two months: Assuming that these activity levels are within the relevant range,what were the mixed costs for November?

A) $20,000.
B) $25,000.
C) $35,000.
D) $40,000.

Question 18

Anaconda Mining Company shipped 9,000 tons of copper concentrate for $450,000 in March and 11,000 tons for $549,000 in April.Use the high-low method to estimate the shipping costs for 12,000 tons to be shipped in May.

A) $548,780.
B) $549,020.
C) $594,000.
D) $598,500.

Question 19

What are discretionary fixed costs?

A) They vary directly and proportionately with the level of activity.
B) They have a long-term planning horizon,generally encompassing many years.
C) They are made up of plant,equipment,and basic organizational costs.
D) None of these options.

Question 20

What does the term "relevant range" mean?

A) The range within which costs may fluctuate.
B) The range within which a particular cost formula is valid.
C) The range within which production may vary.
D) The range within which the relevant costs are incurred.

Question 21

Which of the following concepts used in estimating cost behaviour is unique to the least-squares regression method?

A) Independent variable.
B) Dependent variable.
C) R-squared.
D) Variable cost per unit.

Question 22

Given the cost formula Y = $15,000 + $5X,what is the total cost at an activity level of 8,000 units?

A) $15,000.
B) $23,000.
C) $40,000.
D) $55,000.

Question 23

Which of the following classifications best describes the behaviour of Cost C?

A) Mixed.
B) Variable.
C) Fixed.
D) Differential cost.

Question 24

Buckeye Company has provided the following data for maintenance cost: Using the high-low method,what is the cost formula for maintenance cost?

A) $7,000 per year plus $0.625 per machine hour.
B) $7,000 per year plus $1.60 per machine hour.
C) $21,625 per year plus $0.625 per machine hour.
D) $27,000 per year plus $1.60 per machine hour.

Question 25

The following data pertain to activity and utilities costs for two recent years: Using the high-low method,what is the variable cost per unit for utilities?

A) $1.25 per unit.
B) $1.50 per unit.
C) $1.33 per unit.
D) $0.75 per unit.

Question 26

Which of the following classifications best describes the behaviour of Cost A?

A) Mixed.
B) Variable.
C) Fixed.
D) Opportunity cost.

Question 27

At an activity level of 6,000 units,the cost for maintenance is $7,200; at 10,000 units,the cost for maintenance is $11,600.Using the high-low method,what is the cost formula for maintenance?

A) $1.16 per unit.
B) $1.20 per unit.
C) $600 plus $1.10 per unit.
D) $1,200 plus $1.10 per unit.

Question 28

Given the cost formula Y = $12,000 + $6X,what is the total cost at an activity level of 8,000 units?

A) $12,000.
B) $20,000.
C) $48,000.
D) $60,000.

Question 29

Bell Company has provided the following data for maintenance costs: Using the high-low method,what is the cost formula for maintenance cost?

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.

Question 30

Given the cost formula Y = $17,500 + $4X,at what level of activity will total cost be $42,500?

A) 4,375 units.
B) 5,250 units.
C) 6,250 units.
D) 10,625 units.

Question 31

What is the total monthly fixed cost for Boggs Sporting Equipment Company?

A) $12,000.
B) $22,500.
C) $25,000.
D) $40,000.

Question 32

At a sales level of $300,000,James Company's gross margin is $15,000 less than its contribution margin,its operating income is $50,000,and its total selling and administrative expenses are $120,000.At this sales level,what is the company's contribution margin?

A) $155,000.
B) $170,000.
C) $185,000.
D) $250,000.

Question 33

Reddy Company has the following cost formulas for overhead: Based on these cost formulas,what is the expected total overhead cost at 600 machine hours?

A) $4,500.
B) $5,200.
C) $5,620.
D) $5,340.

Question 34

The following data pertain to activity and utilities costs for two recent years: Using the high-low method,what is the cost formula for utilities?

A) $1.20 per unit.
B) $1.50 per unit.
C) $3,000 plus $3.00 per unit.
D) $4,500 plus $0.75 per unit.

Question 35

Selected information about Buehler Corporation's operations at high and at low levels of activity follow: Using the high-low method,what is the total variable cost per unit of product?

A) $11.05.
B) $21.00.
C) $32.00.
D) $35.00.

Question 36

Which of the following classifications best describes the behaviour of Cost B?

A) Mixed.
B) Variable.
C) Fixed.
D) Opportunity cost.

Question 37

Which of the operating expenses of the company is variable?

A) Rent.
B) Sales commissions.
C) Maintenance expenses.
D) Clerical expenses.

Question 38

Which of the following statements about the methods for estimating a cost formula is incorrect?

A) A scattergram plot should precede the high-low method.
B) A scattergram plot should precede the least-squares regression method.
C) The preferred method is high-low.
D) The preferred method is least-squares regression.

Question 39

The controller of Joy Co has requested a quick estimate of the manufacturing supplies needed for 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) $752,060.
B) $755,196.
C) $805,284.
D) $1,188,756.

Question 40

Average maintenance costs are $1.50 per machine hour at an activity level of 8,000 machine hours and $1.20 per machine hour at an activity level of 13,000 machine hours.Assuming that this activity is within the relevant range,total expected maintenance cost for a budgeted activity level of 10,000 machine hours would be closest to which of the following?

A) $11,433.
B) $13,440.
C) $15,000.
D) $16,128.

Question 41

Using the high-low method,what is the variable cost per machine hour?

A) $0.40.
B) $0.60.
C) $0.64.
D) $0.67.

Question 42

What is the expected gross margin next month?

A) $11,200.
B) $14,400.
C) $16,400.
D) $17,600.

Question 43

What is the best estimate of the variable cost per unit for Maxwell Company?

A) $0.56.
B) $1.79.
C) $1.95.
D) $2.00.

Question 44

Using the high-low method,the estimated variable cost per machine hour for electricity is closest to which of the following?

A) $0.40.
B) $0.98.
C) $1.68.
D) $2.50.

Question 45

What is the best estimate of the company's total fixed operating expense per year?

A) $72,000.
B) $188,000.
C) $200,000.
D) $212,000.

Question 46

What is the expected operating income next month?

A) $2,700.
B) $5,100.
C) $7,500.
D) $11,200.

Question 47

What is the total fixed overhead cost for O'Donnell?

A) $55,000.
B) $60,000.
C) $115,000.
D) $130,000.

Question 48

What is the expected total administrative expense next month?

A) $4,800.
B) $9,300.
C) $13,300.
D) $14,900.

Question 49

What is the best estimate of the company's variable operating expenses per unit?

A) $0.24 per unit.
B) $0.71 per unit.
C) $0.90 per unit.
D) $4.17 per unit.

Question 50

What is the expected contribution margin next month?

A) $11,200.
B) $14,400.
C) $16,000.
D) $17,600.

Question 51

If sales are projected to be 8,000 units in September,what would be total operating expenses?

A) $41,600.
B) $44,750.
C) $46,600.
D) $49,300.

Question 52

What is the best estimate of the company's variable operating expense per unit?

A) $0.24 per unit.
B) $0.91 per unit.
C) $0.96 per unit.
D) $4.17 per unit.

Question 53

If 110,000 machine hours of activity are projected for next period,what would be total expected overhead cost?

A) $242,500.
B) $256,000.
C) $263,500.
D) $306,625.

Question 54

Using the high-low method,the estimated monthly fixed component of lubrication cost is closest to which of the following?

A) $560.
B) $565.
C) $570.
D) $585.

Question 55

Using the high-low method,the estimated fixed cost per month for electricity is closest to which of the following?

A) $870.00.
B) $1,150.00.
C) $1,290.00.
D) $1,306.50.

Question 56

Using the high-low method,the estimated variable lubrication cost per machine hour is closest to which of the following?

A) $0.67.
B) $1.25.
C) $1.40.
D) $1.50.

Question 57

What is the best estimate of the total fixed cost per period for Maxwell Company?

A) $3,360.
B) $29,190.
C) $32,000
D) $40,950.

Question 58

What is the best estimate of the total expected costs at the 19,000 level of activity for Maxwell Company?

A) $37,050.
B) $37,370.
C) $38,000.
D) $39,830.

Question 59

Using the high-low method,what is the fixed portion of the electrical cost each month?

A) $190.
B) $280.
C) $400.
D) $760.

Question 60

What is the variable cost for maintenance per machine hour?

A) $0.75.
B) $1.30.
C) $1.35.
D) $1.44.

Question 61

What was the gross margin for Porter Company for the second quarter?

A) $(12,500).
B) $80,000.
C) $131,500.
D) $135,000.

Question 62

What is the contribution margin of Evans Retail Stores,Inc.,for the first quarter?

A) $140,000.
B) $190,000.
C) $210,000.
D) $300,000.

Question 63

What is the gross margin of Evans Retail Stores,Inc.,for the first quarter?

A) $140,000.
B) $190,000.
C) $210,000.
D) $220,000.

Question 64

Which of the following assumptions is implicit in the simplified contribution approach income statement?

A) There are two cost drivers,both units of production and units of sales.
B) The fixed expenses do vary with either units of production or units of sales.
C) Units of production and units of sales are equal.
D) Inventory levels in units do change.

Question 65

Which of the following should be the first step in the analysis of cost behaviour?

A) Estimating the slope coefficient.
B) Estimating the intercept term.
C) Estimating the R-squared in the case of least-squares regression.
D) Scattergram plot.

Question 66

Modern technology is causing shifts away from variable costs toward more fixed costs in many industries.

Question 67

What is the contribution margin for Crandall's Bookstore for the first quarter?

A) $128,000.
B) $152,000.
C) $240,000.
D) $688,000.

Question 68

What was the total contribution margin of Porter Company for the second quarter?

A) $37,250.
B) $87,000.
C) $176,000.
D) $211,000.

Question 69

Which of the following is generally true for the cost of goods sold amount that a merchandising company would report on its income statement?

A) It is a mixed cost.
B) It is a variable cost.
C) It is a fixed cost.
D) It has no effect on the contribution margin.

Question 70

Suppose the sales for the third quarter was the equivalent of 1,000 units and that the fixed manufacturing and non-manufacturing costs were valid between the relevant range of 800 and 1,200 units.If Sorter Company had sold 100 additional units,it would have reported what amount of additional operating income?

A) $9,150.
B) $23,725.
C) $50,000.
D) $100,650.

Question 71

What is the best estimate of the company's contribution margin for this year?

A) $252,000.
B) $300,000.
C) $158,000.
D) $225,000.

Question 72

At the level of sales for the third quarter,how much in additional fixed selling expenses could Sorter Company have afforded to spend and still would have reported $41,500 operating income?

A) $50,000.
B) $87,750.
C) $91,500.
D) $96,250.

Question 73

What is the best estimate of the company's total fixed operating expenses per year?

A) $0.
B) $44,000.
C) $80,000.
D) $174,000.

Question 74

What is the cost formula for operating expenses with X equal to the number of books sold?

A) Y = $84,000 + $7.00X.
B) Y = $84,000 + $8.50X.
C) Y = $98,000 + $7.00X.
D) Y = $98,000 + $8.50X.

Question 75

In order for a cost to be variable,it must vary with either units produced or units sold.

Question 76

Using the contribution approach,what is the operating income for the first quarter?

A) $44,000.
B) $128,000.
C) $152,000.
D) $240,000.

Question 77

Indirect costs,such as manufacturing overhead,are always fixed costs.

Question 78

Which of the following items of Sorter Company's expenses and/or costs can be misleading if reported on a per unit of production and/or sales basis?

A) Direct labour
B) Direct materials.
C) Variable administrative expenses.
D) Fixed manufacturing overhead.

Question 79

A cost that is obtainable 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.

Question 80

The concept of the relevant range does not apply to fixed costs.