Deck 3: Cost Behaviour: Analysis and Use

Question 1

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.

Answer 1

D

Question 2

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.

Answer 2

C

Question 3

The following data pertain to activity and costs for two months:
$\begin{array}{|l|r|r|} \hline& \text { October } & \text { November } \\\hline \text { Activity level in units } & 5,000 & 10,000 \\\hline \text { Variable costs } & \$ 10,000 & ? \\\hline \text { Fixed costs } & 30,000 & ? \\\hline \text { Mixed costs } & 20,000 & ? \\\hline \text { Total costs } & \$ 60,000 & \$ 75,000 \\\hline\end{array}$
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.

Answer 3

$25,000.

Question 4

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 5

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

A) It organizes costs on a functional basis.
B) It shows data based on the cost behavior aspect of fixed and variable.
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 6

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.

Question 7

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 8

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 9

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 10

What are committed fixed costs?

A) They vary directly and proportionately with the level of activity.
B) They have a long-term planning horizon, generally encompassing several years.
C) They are made up of plant, equipment, and basic organizational costs.
D) They can be reduce in the short run with minimal damage to the long-run organizational objectives

Question 11

The following data pertain to activity and costs for two months:
$\begin{array}{|l|r|r|} \hline& \text { June } & \text { July } \\\hline \text { Activity level in units } & 10,000 & 20,000 \\\hline \text { Variable costs } & \$ 20,000 & ? \\\hline \text { Fixed costs } & 15,000 & ? \\\hline \text { Mixed costs } & 10,000 & ? \\\hline \text { Total costs } & \$ 45,000 & \$ 70,000 \\\hline\end{array}$
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 12

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 13

What is an activity base?

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 measure of whatever causes a variable cost to be incurred
D) It is an indirect cost that is essential to the business.

Question 14

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 15

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.

Question 16

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 17

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 18

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 19

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 20

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 21

Which of the following statements about contribution format income statement is incorrect?

A) It is used as an internal planning and decision making tool
B) It facilitates cost volume profit analysis
C) It separates costs into fixed and variable first deducting variable expenses from sale to obtain contribution margin
D) It emphasizes the function of production, administration and sales with no distinguish between fixed and variable costs

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

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 24

Rymore Company would like to classify the following costs according to their cost behaviour:
$\begin{array}{|l|r|r|}\hline & \text { July } & \text { August } \\\hline \text { Sales in Units } & 1,500 & 1,600 \\\hline \text { Cost A } & \$ 35,000 & \$ 36,000 \\\hline \text { Cost B } & 16,000 & 16,000 \\\hline \text { Cost C } & 67,500 & 72,000 \\\hline\end{array}$



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

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

Question 25

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 26

The following data pertain to activity and utilities costs for two recent years:
$\begin{array}{|l|r|r|}\hline & \text { Year 2 } & \text { Year 1 } \\\hline \text { Activity Level in Units } & 10,000 & 6,000 \\\hline \text { Utilities Cost } & \$ 12,000 & \$ 9,000 \\\hline\end{array}$
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 27

Bell Company has provided the following data for maintenance costs:
$\begin{array}{|l|r|r|} \hline& \text { April } & \text { May } \\\hline \text { Machine Hours Incurred } & 12,000 & 16,000 \\\hline \text { Maintenance Cost Incurred } & \$ 24,000 & \$ 26,000 \\\hline\end{array}$
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 28

Selected information about Buehler Corporation's operations at high and at low levels of activity follow:
$\begin{array}{|l|r|r|}\hline &{\text { Level of Activity }} \\\hline & \text { Low } & \text { High } \\\hline \text { Number of Units Produced } & 25,000 & 30,000 \\\hline \text { Total manufacturing } & \$ 575,000 & \$ 680,000\\\text { overhead costs }\\\hline \text { Direct material cost per unit } & \$ 5 & \$ 5 \\\hline \text { Direct labour cost per unit } & \$ 6 & \$ 6\\\hline\end{array}$
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 29

Rymore Company would like to classify the following costs according to their cost behaviour:
$\begin{array}{|l|r|r|}\hline & \text { July } & \text { August } \\\hline \text { Sales in Units } & 1,500 & 1,600 \\\hline \text { Cost A } & \$ 35,000 & \$ 36,000 \\\hline \text { Cost B } & 16,000 & 16,000 \\\hline \text { Cost C } & 67,500 & 72,000 \\\hline\end{array}$



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

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

Question 30

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 31

Reddy Company has the following cost formulas for overhead:
$\begin{array}{|l|r|}\hline \text { Cost } & \text { Cost Formula } \\\hline \text { Indirect Materials } & \$ 2,000 \text { plus } \$ 0.40 \text { per machine hour } \\\hline \text { Maintenance } & \$ 1,500 \text { plus } \$ 0.60 \text { per machine hour } \\\hline \text { Machine Setup } & \$ 0.30 \text { per machine hour } \\\hline \text { Utilities } & \$ 200 \text { plus } \$ 0.10 \text { per machine hour } \\\hline \text { Amortization } & \$ 800 \\\hline\end{array}$
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 32

Rymore Company would like to classify the following costs according to their cost behaviour:
$\begin{array}{|l|r|r|}\hline & \text { July } & \text { August } \\\hline \text { Sales in Units } & 1,500 & 1,600 \\\hline \text { Cost A } & \$ 35,000 & \$ 36,000 \\\hline \text { Cost B } & 16,000 & 16,000 \\\hline \text { Cost C } & 67,500 & 72,000 \\\hline\end{array}$



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

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

Question 33

Buckeye Company has provided the following data for maintenance cost:
$\begin{array}{|l|r|r|} \hline& \text { Prior Year } & \text { Current Year } \\\hline \text { Machine Hours } & 12,500 & 15,000 \\\hline \text { Maintenance Cost } & \$ 27,000 & \$ 31,000 \\\hline\end{array}$
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 34

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 35

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 36

The following data pertain to activity and utilities costs for two recent years:
$\begin{array}{|l|r|r|}\hline & \text { Year 2 } & \text { Year 1 } \\\hline \text { Activity Level in Units } & 12,000 & 8,000 \\\hline \text { Utilities Cost } & \$ 15,000 & \$ 12,000 \\\hline\end{array}$
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 37

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 38

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 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:
$\begin{array}{|l|r|r|}\hline & \text { Production in units } & \text { Manufacturing supplies } \\\hline \text { March } & 450,000 & \$ 723,060 \\\hline \text { April } & 540,000 & 853,560 \\\hline \text { May } & 480,000 & 766,560 \\\hline\end{array}$
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

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 41

Johnson Company has provided the following data for the first five months of the year:
$\begin{array} {|l | r | r | } \hline & \text { Machine Hours } & \text { Lubrication Cost } \\\hline \text { January } & 120 & \$ 750 \\\hline \text { February } & 160 & 800 \\\hline \text { March } & 200 & 870 \\\hline \text { April } & 150 & 790 \\\hline \text { May } & 170 & 840 \\\hline\end{array}$



-Using the least squares regression method,the estimated monthly fixed component of lubrication cost is closest to which of the following?

A) $561.
B) $565.
C) $570.
D) $585.

Question 42

Wilson Company's activity for the first six months of the current year is as follows:
$\begin{array} {| l | r | r | } \hline & \text { Machine Hours } & \text { Electrical Cost } \\\hline \text { January } & 2,000 & \$ 1,560 \\\hline \text { February } & 3,000 & 2,200 \\\hline \text { March } & 2,400 & 1,750 \\\hline \text { April } & 1,900 & 1,520 \\\hline \text { May } & 1,800 & 1,480 \\\hline \text { June } & 2,100 & 1,600\\\hline\end{array}$



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

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

Question 43

Wilson Company's activity for the first six months of the current year is as follows:
$\begin{array} {| l | r | r | } \hline & \text { Machine Hours } & \text { Electrical Cost } \\\hline \text { January } & 2,000 & \$ 1,560 \\\hline \text { February } & 3,000 & 2,200 \\\hline \text { March } & 2,400 & 1,750 \\\hline \text { April } & 1,900 & 1,520 \\\hline \text { May } & 1,800 & 1,480 \\\hline \text { June } & 2,100 & 1,600\\\hline\end{array}$



-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 44

Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000-unit level of activity, and total expense per unit of $1.95 at the 21,000-unit level of activity.

-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 45

Prater Company has provided the following data:
$\begin{array}{|l|r|r|}\hline & \text { This Year } & \text { Last Year } \\\hline \text { Units Sold } & 300,000 & 250,000 \\\hline \text { Sales Revenue } & \$ 1,300,000 & \$ 1,050,000 \\\hline \text { Less: Cost of Goods Sold } & \underline{910,000} & \underline{\mathbf{7 3 5 , 0 0 0}} \\\hline \text { Gross Margin } & 390,000 & 315,000 \\\hline \text { Less: Operating Expenses } & \underline{\mathbf{2 7 2 , 0 0 0}} & \underline{\mathbf{2 6 0 , 0 0 0}} \\\hline \text { Operating Income } & \underline{\$ 118,000} & \underline{\$ 55,000} \\\hline\end{array}$



-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 46

Comparative income statements for Boggs Sporting Equipment Company for the last two months are presented below:
$\begin{array}{|l|r|r|}\hline & \text { July } & \text { August } \\\hline \text { Sales in Units } & 11,000 & 10,000 \\\hline \text { Sales Revenue } & \$ 165,000 & \$ 150,000 \\\hline \text { Less: Cost of Goods Sold } & \underline{72,600} & \underline{66,000} \\\hline \text { Gross Margin } & 92,400 & 84,000 \\\hline \text { Less: Operating Expenses: } & & \\\hline \text { Rent } & 12,000 & 12,000 \\\hline \text { Sales Commissions } & 13,200 & 12,000 \\\hline \text { Maintenance Expenses } & 13,500 & 13,000 \\\hline \text { Clerical Expenses } & \underline{16,000} & \underline{15,000} \\\hline \text { Total Operating Expenses } & \underline{\$ 54,700} & \underline{\$ 52,000} \\\hline \text { Operating Income } & \underline{\$ 37,700} & \underline{\$ 32,000} \\\hline\end{array}$
All of the company's costs are either fixed, variable, or a mixture of the two (that is, mixed). Assume that the relevant range includes all of the activity levels mentioned in this problem.



-Which of the operating expenses of the company is variable?

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

Question 47

In the O'Donnell Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were $223,000. Of this amount, utilities were $48,000 (all variable) and amortization was $60,000 (all fixed). The balance of the overhead costs consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were $130,000.
Assume that all of the activity levels mentioned in this problem are within the relevant range.


-What is the variable cost for maintenance per machine hour?

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

Question 48

Gasson Company is a merchandising firm. Next month, the company expects to sell 800 units. The following data describe the company's revenue and cost structure: $\begin{array} { | l | r | } \hline \text { Selling price per unit } & \$ 40 \\\hline \text { Sales commission } & 5 \% \\\hline \text { Purchase price (cost) per unit } & \$ 18 \\\hline \text { Advertising expense } & \$ 4,000 \text { per month } \\\hline \text { Administrative expense } & \$ 4,500 \text { per month plus } 15 \% \text { of sales } \\\hline\end{array}$ Assume that all activity mentioned in this problem is within the relevant range.



-What is the expected gross margin next month?

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

Question 49

Comparative income statements for Boggs Sporting Equipment Company for the last two months are presented below:
$\begin{array}{|l|r|r|}\hline & \text { July } & \text { August } \\\hline \text { Sales in Units } & 11,000 & 10,000 \\\hline \text { Sales Revenue } & \$ 165,000 & \$ 150,000 \\\hline \text { Less: Cost of Goods Sold } & \underline{72,600} & \underline{66,000} \\\hline \text { Gross Margin } & 92,400 & 84,000 \\\hline \text { Less: Operating Expenses: } & & \\\hline \text { Rent } & 12,000 & 12,000 \\\hline \text { Sales Commissions } & 13,200 & 12,000 \\\hline \text { Maintenance Expenses } & 13,500 & 13,000 \\\hline \text { Clerical Expenses } & \underline{16,000} & \underline{15,000} \\\hline \text { Total Operating Expenses } & \underline{\$ 54,700} & \underline{\$ 52,000} \\\hline \text { Operating Income } & \underline{\$ 37,700} & \underline{\$ 32,000} \\\hline\end{array}$
All of the company's costs are either fixed, variable, or a mixture of the two (that is, mixed). Assume that the relevant range includes all of the activity levels mentioned in this problem.



-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 50

Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the last five months of operations:
$\begin{array} { | l | r | r | } \hline & \text { Machine Hours } & \text { Electrical Cost } \\\hline \text { August } & 1,000 & \$ 1,620 \\\hline \text { September } & 900 & 1,510 \\\hline \text { October } & 1,500 & 1,870 \\\hline \text { November } & 2,000 & 1,950 \\\hline \text { December } & 1,300 & 1,730 \\\hline\end{array}$



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

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

Question 51

Johnson Company has provided the following data for the first five months of the year:
$\begin{array} {|l | r | r | } \hline & \text { Machine Hours } & \text { Lubrication Cost } \\\hline \text { January } & 120 & \$ 750 \\\hline \text { February } & 160 & 800 \\\hline \text { March } & 200 & 870 \\\hline \text { April } & 150 & 790 \\\hline \text { May } & 170 & 840 \\\hline\end{array}$



-Using the least squares regression method,the estimated variable lubrication cost per machine hour is closest to which of the following?

A) $0.67.
B) $1.56.
C) $1.40.
D) $1.50.

Question 52

Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000-unit level of activity, and total expense per unit of $1.95 at the 21,000-unit level of activity.

-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 53

Gasson Company is a merchandising firm. Next month, the company expects to sell 800 units. The following data describe the company's revenue and cost structure: $\begin{array} { | l | r | } \hline \text { Selling price per unit } & \$ 40 \\\hline \text { Sales commission } & 5 \% \\\hline \text { Purchase price (cost) per unit } & \$ 18 \\\hline \text { Advertising expense } & \$ 4,000 \text { per month } \\\hline \text { Administrative expense } & \$ 4,500 \text { per month plus } 15 \% \text { of sales } \\\hline\end{array}$ Assume that all activity mentioned in this problem is within the relevant range.



-What is the expected total administrative expense next month?

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

Question 54

In the O'Donnell Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were $223,000. Of this amount, utilities were $48,000 (all variable) and amortization was $60,000 (all fixed). The balance of the overhead costs consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were $130,000.
Assume that all of the activity levels mentioned in this problem are within the relevant range.


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

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

Question 55

Comparative income statements for Boggs Sporting Equipment Company for the last two months are presented below:
$\begin{array}{|l|r|r|}\hline & \text { July } & \text { August } \\\hline \text { Sales in Units } & 11,000 & 10,000 \\\hline \text { Sales Revenue } & \$ 165,000 & \$ 150,000 \\\hline \text { Less: Cost of Goods Sold } & \underline{72,600} & \underline{66,000} \\\hline \text { Gross Margin } & 92,400 & 84,000 \\\hline \text { Less: Operating Expenses: } & & \\\hline \text { Rent } & 12,000 & 12,000 \\\hline \text { Sales Commissions } & 13,200 & 12,000 \\\hline \text { Maintenance Expenses } & 13,500 & 13,000 \\\hline \text { Clerical Expenses } & \underline{16,000} & \underline{15,000} \\\hline \text { Total Operating Expenses } & \underline{\$ 54,700} & \underline{\$ 52,000} \\\hline \text { Operating Income } & \underline{\$ 37,700} & \underline{\$ 32,000} \\\hline\end{array}$
All of the company's costs are either fixed, variable, or a mixture of the two (that is, mixed). Assume that the relevant range includes all of the activity levels mentioned in this problem.



-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 56

In the O'Donnell Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were $223,000. Of this amount, utilities were $48,000 (all variable) and amortization was $60,000 (all fixed). The balance of the overhead costs consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were $130,000.
Assume that all of the activity levels mentioned in this problem are within the relevant range.


-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 57

Gasson Company is a merchandising firm. Next month, the company expects to sell 800 units. The following data describe the company's revenue and cost structure: $\begin{array} { | l | r | } \hline \text { Selling price per unit } & \$ 40 \\\hline \text { Sales commission } & 5 \% \\\hline \text { Purchase price (cost) per unit } & \$ 18 \\\hline \text { Advertising expense } & \$ 4,000 \text { per month } \\\hline \text { Administrative expense } & \$ 4,500 \text { per month plus } 15 \% \text { of sales } \\\hline\end{array}$ Assume that all activity mentioned in this problem is within the relevant range.



-What is the expected operating income next month?

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

Question 58

Gasson Company is a merchandising firm. Next month, the company expects to sell 800 units. The following data describe the company's revenue and cost structure: $\begin{array} { | l | r | } \hline \text { Selling price per unit } & \$ 40 \\\hline \text { Sales commission } & 5 \% \\\hline \text { Purchase price (cost) per unit } & \$ 18 \\\hline \text { Advertising expense } & \$ 4,000 \text { per month } \\\hline \text { Administrative expense } & \$ 4,500 \text { per month plus } 15 \% \text { of sales } \\\hline\end{array}$ Assume that all activity mentioned in this problem is within the relevant range.



-What is the expected contribution margin next month?

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

Question 59

Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the last five months of operations:
$\begin{array} { | l | r | r | } \hline & \text { Machine Hours } & \text { Electrical Cost } \\\hline \text { August } & 1,000 & \$ 1,620 \\\hline \text { September } & 900 & 1,510 \\\hline \text { October } & 1,500 & 1,870 \\\hline \text { November } & 2,000 & 1,950 \\\hline \text { December } & 1,300 & 1,730 \\\hline\end{array}$



-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 60

Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000-unit level of activity, and total expense per unit of $1.95 at the 21,000-unit level of activity.

-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 61

An income statement for Crandall's Bookstore for the first quarter of the current year is presented below:
CRANDALL's BOOKSTORE
Income Statement for the First Quarter of the Current Year
$\begin{array}{|l|r|r|}\hline \text { Sales } && \$ 800,000 \\\hline \begin{array}{l}\text { Less: Cost of Goods Sold - } \\\text { all variable }\end{array} && \underline{560,000} \\\hline \text { Gross Margin } & & 240,000 \\\hline \text { Less: Operating Expenses: } & & \\\hline \text { Selling } & \$ 98,000 & \\\hline \text { Administrative } & 98,000 & \underline{196,000} \\\hline \text { Operating Income } & & \underline{\$ 44,000} \\\hline\end{array}$ On average, a book sells for $50. Variable selling expenses are $5.50 per book, with the remaining selling expenses being fixed. The variable administrative expenses are 3% of sales, with the remainder being fixed.



-What is the cost formula for operating expenses where X represents 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 62

Porter Company has provided the following data for the second quarter of the most recent year:
$\begin{array}{|l|r|}\hline \text { Sales } & \$ 300,000 \\\hline \text { Fixed Manufacturing Overhead } & 55,000 \\\hline \text { Direct Labour } & 72,500 \\\hline \text { Fixed Selling Expenses } & 46,250 \\\hline \text { Variable Manufacturing Overhead } & 41,000 \\\hline \text { Variable Administrative Expenses } & 48,000 \\\hline \text { Direct Materials } & 51,500 \\\hline \text { Fixed Administrative Expenses } & 44,500 \\\hline \text { Variable Selling Expenses } & 49,750 \\\hline\end{array}$ Assume that direct labour is a variable cost and that there was no beginning or ending inventories.




-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 63

Prater Company has provided the following data:
$\begin{array}{|l|r|r|}\hline & \text { This Year } & \text { Last Year } \\\hline \text { Units Sold } & 300,000 & 250,000 \\\hline \text { Sales Revenue } & \$ 1,300,000 & \$ 1,050,000 \\\hline \text { Less: Cost of Goods Sold } & \underline{910,000} & \underline{\mathbf{7 3 5 , 0 0 0}} \\\hline \text { Gross Margin } & 390,000 & 315,000 \\\hline \text { Less: Operating Expenses } & \underline{\mathbf{2 7 2 , 0 0 0}} & \underline{\mathbf{2 6 0 , 0 0 0}} \\\hline \text { Operating Income } & \underline{\$ 118,000} & \underline{\$ 55,000} \\\hline\end{array}$



-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 64

An income statement for Crandall's Bookstore for the first quarter of the current year is presented below:
CRANDALL's BOOKSTORE
Income Statement for the First Quarter of the Current Year
$\begin{array}{|l|r|r|}\hline \text { Sales } && \$ 800,000 \\\hline \begin{array}{l}\text { Less: Cost of Goods Sold - } \\\text { all variable }\end{array} && \underline{560,000} \\\hline \text { Gross Margin } & & 240,000 \\\hline \text { Less: Operating Expenses: } & & \\\hline \text { Selling } & \$ 98,000 & \\\hline \text { Administrative } & 98,000 & \underline{196,000} \\\hline \text { Operating Income } & & \underline{\$ 44,000} \\\hline\end{array}$ On average, a book sells for $50. Variable selling expenses are $5.50 per book, with the remaining selling expenses being fixed. The variable administrative expenses are 3% of sales, with the remainder being fixed.



-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 65

The following data have been provided by a retailer that sells a single product:
$\begin{array}{|l|r|r|}\hline & \text { This Year } & \text { Last Year } \\\hline \text { Units Sold } & 200,000 & 150,000 \\\hline \text { Sales Revenue } & \$ 1,000,000 & \$ 1750,000 \\\hline \text { Less: Cost of Goods Sold } & \underline{700,000} & \underline{\mathbf{5 2 5 , 0 0 0}} \\\hline \text { Gross Margin } & 300,000 & 225,000 \\\hline \text { Less: Operating Expenses } & \underline{222,000} & \underline{\mathbf{2 1 0 , 0 0 0}} \\\hline \text { Operating Income } & \underline{\$ 78,000} & \underline{\$ 15,000} \\\hline\end{array}$



-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 66

Sorter Company has provided the following data for the third quarter of the most recent year:
$\begin{array}{|l|r|}\hline \text { Sales } & \$ 500,000 \\\hline \text { Fixed Manufacturing Overhead } & 55,000 \\\hline \text { Direct Labour } & 72,500 \\\hline \text { Fixed Selling Expenses } & 46,250 \\\hline \text { Variable Manufacturing Overhead } & 41,000 \\\hline \text { Variable Administrative Expenses } & 48,000 \\\hline \text { Direct Materials } & 51,500 \\\hline \text { Fixed Administrative Expenses } & 44,500 \\\hline \text { Variable Selling Expenses } & 49,750\\\hline \end{array}$ Assume that direct labour is a variable cost and that there was no beginning or ending inventories.




-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 67

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 68

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 69

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

Question 70

The following information has been provided by the Evans Retail Stores, Inc., for the first quarter of the year:
$\begin{array} { | l | r | } \hline \text { Sales } & \$ 350,000 \\\hline \text { Variable Selling Expenses } & \$ 35,000 \\\hline \text { Fixed Selling Expenses } & \$ 25,000 \\\hline \text { Cost of Goods Sold } & \$ 160,000 \\\hline \text { Fixed Administrative Expenses } & \$ 55,000 \\\hline \text { Variable Administrative Expenses } & \$ 15,000 \\\hline\end{array}$



-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 71

The following information has been provided by the Evans Retail Stores, Inc., for the first quarter of the year:
$\begin{array} { | l | r | } \hline \text { Sales } & \$ 350,000 \\\hline \text { Variable Selling Expenses } & \$ 35,000 \\\hline \text { Fixed Selling Expenses } & \$ 25,000 \\\hline \text { Cost of Goods Sold } & \$ 160,000 \\\hline \text { Fixed Administrative Expenses } & \$ 55,000 \\\hline \text { Variable Administrative Expenses } & \$ 15,000 \\\hline\end{array}$



-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 72

The following data have been provided by a retailer that sells a single product:
$\begin{array}{|l|r|r|}\hline & \text { This Year } & \text { Last Year } \\\hline \text { Units Sold } & 200,000 & 150,000 \\\hline \text { Sales Revenue } & \$ 1,000,000 & \$ 1750,000 \\\hline \text { Less: Cost of Goods Sold } & \underline{700,000} & \underline{\mathbf{5 2 5 , 0 0 0}} \\\hline \text { Gross Margin } & 300,000 & 225,000 \\\hline \text { Less: Operating Expenses } & \underline{222,000} & \underline{\mathbf{2 1 0 , 0 0 0}} \\\hline \text { Operating Income } & \underline{\$ 78,000} & \underline{\$ 15,000} \\\hline\end{array}$



-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 73

An income statement for Crandall's Bookstore for the first quarter of the current year is presented below:
CRANDALL's BOOKSTORE
Income Statement for the First Quarter of the Current Year
$\begin{array}{|l|r|r|}\hline \text { Sales } && \$ 800,000 \\\hline \begin{array}{l}\text { Less: Cost of Goods Sold - } \\\text { all variable }\end{array} && \underline{560,000} \\\hline \text { Gross Margin } & & 240,000 \\\hline \text { Less: Operating Expenses: } & & \\\hline \text { Selling } & \$ 98,000 & \\\hline \text { Administrative } & 98,000 & \underline{196,000} \\\hline \text { Operating Income } & & \underline{\$ 44,000} \\\hline\end{array}$ On average, a book sells for $50. Variable selling expenses are $5.50 per book, with the remaining selling expenses being fixed. The variable administrative expenses are 3% of sales, with the remainder being fixed.



-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 74

Sorter Company has provided the following data for the third quarter of the most recent year:
$\begin{array}{|l|r|}\hline \text { Sales } & \$ 500,000 \\\hline \text { Fixed Manufacturing Overhead } & 55,000 \\\hline \text { Direct Labour } & 72,500 \\\hline \text { Fixed Selling Expenses } & 46,250 \\\hline \text { Variable Manufacturing Overhead } & 41,000 \\\hline \text { Variable Administrative Expenses } & 48,000 \\\hline \text { Direct Materials } & 51,500 \\\hline \text { Fixed Administrative Expenses } & 44,500 \\\hline \text { Variable Selling Expenses } & 49,750\\\hline \end{array}$ Assume that direct labour is a variable cost and that there was no beginning or ending inventories.




-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 75

The following data have been provided by a retailer that sells a single product:
$\begin{array}{|l|r|r|}\hline & \text { This Year } & \text { Last Year } \\\hline \text { Units Sold } & 200,000 & 150,000 \\\hline \text { Sales Revenue } & \$ 1,000,000 & \$ 1750,000 \\\hline \text { Less: Cost of Goods Sold } & \underline{700,000} & \underline{\mathbf{5 2 5 , 0 0 0}} \\\hline \text { Gross Margin } & 300,000 & 225,000 \\\hline \text { Less: Operating Expenses } & \underline{222,000} & \underline{\mathbf{2 1 0 , 0 0 0}} \\\hline \text { Operating Income } & \underline{\$ 78,000} & \underline{\$ 15,000} \\\hline\end{array}$



-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 76

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

Question 77

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 78

Porter Company has provided the following data for the second quarter of the most recent year:
$\begin{array}{|l|r|}\hline \text { Sales } & \$ 300,000 \\\hline \text { Fixed Manufacturing Overhead } & 55,000 \\\hline \text { Direct Labour } & 72,500 \\\hline \text { Fixed Selling Expenses } & 46,250 \\\hline \text { Variable Manufacturing Overhead } & 41,000 \\\hline \text { Variable Administrative Expenses } & 48,000 \\\hline \text { Direct Materials } & 51,500 \\\hline \text { Fixed Administrative Expenses } & 44,500 \\\hline \text { Variable Selling Expenses } & 49,750 \\\hline\end{array}$ Assume that direct labour is a variable cost and that there was no beginning or ending inventories.




-What was the gross margin(loss)for Porter Company for the second quarter?

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

Question 79

Sorter Company has provided the following data for the third quarter of the most recent year:
$\begin{array}{|l|r|}\hline \text { Sales } & \$ 500,000 \\\hline \text { Fixed Manufacturing Overhead } & 55,000 \\\hline \text { Direct Labour } & 72,500 \\\hline \text { Fixed Selling Expenses } & 46,250 \\\hline \text { Variable Manufacturing Overhead } & 41,000 \\\hline \text { Variable Administrative Expenses } & 48,000 \\\hline \text { Direct Materials } & 51,500 \\\hline \text { Fixed Administrative Expenses } & 44,500 \\\hline \text { Variable Selling Expenses } & 49,750\\\hline \end{array}$ Assume that direct labour is a variable cost and that there was no beginning or ending inventories.




-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 80

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.