Question 1

Selected information about Buehler Corporation's operations at high and at low levels of activity follows: $$\begin{array} { | l | l | l | } 
\hline &  { \text { Level of Activity } } \
\hline & \text { Low } & \text { High } \
\hline \text { Number of units produced } & 25,000 & 30,000 \
 \hline \text { Total manufacturing costs } & \$ 575,000 & \$ 680,000 \
\hline \text { Direct material cost per unit } & \$ 5 & \$ 5 \
\hline \text { Direct labour cost per unit } & \$ 6 & \$ 6 \
\hline
\end{array}$$ Using the high-low method, what is the cost formula for manufacturing overhead?
A)$50,000 per period plus $22 per unit.
B)$50,000 per period plus $21 perD unit.
C)$50,000 per period plus $10 per unit.
D)$347,000 per period plus $0.10 per unit.

Accepted Answer

The answer of Selected information about Buehler Corporation's operations at...

Question 2

Which of the following statements is true
A)Total variable cost change in direct proportion to changes in the amount of the activity.
B)In the short run, all cost are variable.
C)In the long run, all costs are fixed.
D)Mixed costs are step costs.

Accepted Answer

Total variable cost changes in direct proportion to changes in the amount of the activity, which means that as the level of activity increases or decreases, the total variable cost will increase or decrease accordingly. This is because variable costs vary with the level of activity. Option B is incorrect because in the short run, some costs are fixed, such as rent and property taxes. Option C is incorrect because in the long run, all costs are variable. Option D is incorrect because mixed costs have both variable and fixed components and do not necessarily exhibit step costs.

Question 3

Reference: 06-02
Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below: $\begin{array}{|l|l|l|}
\hline & \text { July } & \text { August } \
\hline \text { Sales in Units } & 11,000 & 10,000 \
\hline & & \
\hline \text { Sales Revenue } & \$ 165,000 & \$ 150,000 \
\hline \text { Less Cost of Goods Sold } & 72,600 & 66,000 \
\hline \text { Gross Margin } & 92,400 & 84,000 \
\hline \text { Less Operating Expenses: } & & \
\hline \text { Rent } & 12,000 & 12,000 \
\hline \text { Sales Commissions } & 13,200 & 12,000 \
\hline \text { Maintenance Expenses } & 13,500 & 13,000 \
\hline \text { Clerical Expense } & 16,000 & 15,000 \
\hline \text { Total Operating Expenses } & 54,700 & 52,000 \
\hline \text { Net income } & \$ 37,700 & \$ 32,000 \
\hline
\end{array}$ All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). The company is a merchandising company. Assume that the relevant range includes all of the activity levels mentioned in this problem.
-The contribution margin for August is?
A)$57,000.
B)$62,700.
C)$80,400.
D)$72,000.

Accepted Answer

The contribution margin is calculated as Sales Revenue minus Variable Costs. Variable costs include Cost of Goods Sold and Sales Commissions. For August, Sales Revenue is $150,000, Cost of Goods Sold is $66,000, and Sales Commissions are $12,000. Thus, the contribution margin is $150,000 - ($66,000 + $12,000) = $72,000.

Question 4

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

Accepted Answer

The term "relevant range" refers to the range of activity within which a cost formula is valid, meaning that the relationship between costs and activity levels is relatively constant. Outside of the relevant range, the cost formula may not accurately reflect cost behavior.

Question 5

Reference: 06-13
A comparative income statement for Jimbob Co., a merchandising company, for the three months ended June is presented below.
Jimbob Co.
Comparative Income Statement
For the Second Quarter $$\begin{array} { | l | r | r | l | } 
\hline & \text { April } & \text { May } & \text { June } \
\hline \text { Sales in units } & 4,500 & 5,250 & 6,000 \
\hline \text { Sales revenue } & \$ 630,000 & \$ 735,000 & \$ 840,000 \
\hline \text { Less cost of goods sold } & 252,000 & 294,000 & 336,000 \
\hline \text { Gross Margin } & 378,000 & 441,000 & 504,000 \
\hline \text { Less operating expenses: } & & & \
\hline \text { Shipping expense } & 56,000 & 63,500 & 71,000 \
\hline \text { Advertising expense } & 70,000 & 70,000 & 70,000 \
\hline \text { Salaries and commissions } & 143,000 & 161,750 & 180,500 \
\hline \text { Insurance expense } & 9,000 & 9,000 & 9,000 \
\hline \text { Depreciation expense } & 42,000 & 42,000 & 42,000 \
\hline \text { Total operating expenses } &  { 320,000 }  & 346,250 & 372,500 \
\hline \text { Net income } & \underline { \$ 88,000 } & \underline { \$ 94,750 } & \$ 131,500 \
\hline
\end{array}$$
-What is the best estimate of the company's variable operating expenses per unit
A)$44.22 per unit.
B)$65.95 per unit.
C)$35.00 per unit.
D)$71.11 per unit.

Accepted Answer

Variable expenses change with the level of output, so to find the variable operating expenses per unit, we can look at the change in total operating expenses relative to the change in units sold. From April to May, the operating expenses increased by $26,250 ($346,250 - $320,000), and the units sold increased by 750 units (5,250 - 4,500). Therefore, the variable operating expenses per unit are $26,250 / 750 = $35.00 per unit.

Question 6

Maintenance costs for a movie theatre totalled $85,000 for the month of April during which there were 150,000 paid admissions. For the month of May, total maintenance costs were $101,750 with 183,500 paid admissions. The company's accountant is budgeting for the month of June with projected sales of 195,000 paid admissions. What amount should she budget for June maintenance costs?
A)$108,127.
B)$110,500.
C)$111,750.
D)$107,500.

Accepted Answer

The answer of Maintenance costs for a movie theatre totalled...

Question 7

Which costs will change with a decrease in activity within the relevant range
A)Unit fixed costs and total variable cost.
B)Unit variable cost and unit fixed cost.
C)Unit fixed cost and total fixed cost.
D)Total fixed costs and total variable cost.

Accepted Answer

Unit fixed costs appear to decrease as activity decreases because the fixed cost is spread over more units, making the cost per unit seem lower. Total variable cost will also change with a decrease in activity, as it directly varies with the level of output or activity.

Question 8

An example of a discretionary fixed cost is:
A)insurance.
B)management development programs.
C)taxes on real estate.
D)depreciation of buildings and equipment.

Accepted Answer

Discretionary fixed costs are expenses that can be adjusted or eliminated at management's discretion. Management development programs fall under this category because they are not essential for the day-to-day operation of the business and can be cut if necessary without affecting the core operations of the company. The other options listed (insurance, taxes on real estate, and depreciation of buildings and equipment) are all fixed costs but are not discretionary because they are essential expenses required to maintain the business.

Question 9

Given the cost formula Y = $12,000 + $6X, total cost at an activity level of 8,000 units would be?
A)$60,000.
B)$20,000.
C)$12,000.
D)$48,000.

Accepted Answer

The total cost formula is Y = $12,000 + $6X, where $12,000 is the fixed cost and $6 is the variable cost per unit. For 8,000 units, the total cost is calculated as $12,000 + ($6 * 8,000) = $12,000 + $48,000 = $60,000.

Question 10

Of the costs listed below, which would most likely be considered as a discretionary fixed cost?
A)Research costs for new manufacturing products.
B)Depreciation of factory building.
C)Insurance for the factory building.
D)Property taxes for factory.

Accepted Answer

Research costs for new manufacturing products are considered discretionary fixed costs because they are usually decided on a case-by-case basis and can be adjusted based on the company's budget and priorities. Discretionary fixed costs are expenses that are planned in advance and can be reduced or eliminated if necessary. The other options, depreciation of factory building, insurance for the factory building, and property taxes for factory, are fixed costs but they are not discretionary because they are necessary for the operation of the factory and cannot be easily adjusted.

Question 11

Reference: 06-13
A comparative income statement for Jimbob Co., a merchandising company, for the three months ended June is presented below.
Jimbob Co.
Comparative Income Statement
For the Second Quarter $$\begin{array} { | l | l | l | l | } 
\hline & \text { April } & \text { May } & \text { June } \
\hline \text { Sales in units } & 4,500 & 5,250 & 6,000 \
\hline \text { Sales revenue } & \$ 630,000 & \$ 735,000 & \$ 840,000 \
\hline \text { Less cost of goods sold } & 252,000 & 294,000 & 336,000 \
\hline \text { Gross Margin } & 378,000 & 441,000 & 504,000 \
\hline \text { Less operating expenses: } & & & \
\hline \text { Shipping expense } & 56,000 & 63,500 & 71,000 \
\hline \text { Advertising expense } & 70,000 & 70,000 & 70,000 \
\hline \text { Salaries and commissions } & 143,000 & 161,750 & 180,500 \
\hline \text { Insurance expense } & 9,000 & 9,000 & 9,000 \
\hline \text { Depreciation expense } & 42,000 & 42,000 & 42,000 \
\hline \text { Total operating expenses } & 320,000 & 346,250 & 372,500 \
\hline \text { Net income } & \$ 58,000 & \$ 94,750 & \$ 131,500 \
\hline
\end{array}$$
-What is the best estimate of the company's total fixed operating expenses per month
A)$121,000.
B)$162,500.
C)$42,000.
D)$177,000.

Accepted Answer

The answer of Reference: 06-13
A comparative income statement for Jimbob...

Question 12

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, we would expect that:
A)expense A has remained unchanged.
B)expense A has decreased.
C)expense B has decreased.
D)expense B has increased.

Accepted Answer

Expense A, being a fixed cost, would see a decrease in cost per unit of activity as the activity level increases, because the total fixed cost is spread over more units.

Question 13

Given the cost formula Y = $15,000 + $5X, total cost at an activity level of 8,000 units would be?
A)$40,000.
B)$55,000.
C)$23,000.
D)$15,000.

Accepted Answer

To find the total cost at an activity level of 8,000 units, we substitute X = 8,000 into the cost formula Y = $15,000 + $5X:
Y = $15,000 + $5(8,000) = $15,000 + $40,000 = $55,000.
Therefore, the total cost at an activity level of 8,000 units would be $55,000. Answer choice B is correct.

Question 14

Bell Company has provided the following data for maintenance costs: $$\begin{array} { | l | l | l | } 
\hline & \text { April } & \text { May } \
\hline \text { Machine hours incurred } & 12,000 & 16,000 \
\hline \text { Maintenance cost incurred } & \$ 24,000 & \$ 26,000 \
\hline
\end{array}$$ Using the high-low method, the cost formula for maintenance cost is?
A)$1.625 per machine hour.
B)$24,000 plus $0.50 per machine hour.
C)$2.00 per machine hour.
D)$18,000 plus $0.50 per machine hour.

Accepted Answer

The high-low method calculates the variable cost per unit as the change in cost divided by the change in activity. Here, the change in cost is $2,000 ($26,000 - $24,000) and the change in machine hours is 4,000 (16,000 - 12,000), giving a variable cost of $0.50 per machine hour. The fixed cost is calculated by subtracting the total variable cost at either high or low activity level from the total cost, resulting in $18,000. Thus, the cost formula is $18,000 plus $0.50 per machine hour.

Question 15

At an activity level of 10,000 units, variable costs totalled $35,000 and fixed costs totalled $20,800. If 16,000 units are produced and this activity is within the relevant range, then:
A)fixed cost per unit would equal $5.58.
B)total unit cost would equal $4.80.
C)total costs would equal $55,800.
D)total cost would equal $89,280.

Accepted Answer

The answer of At an activity level of 10,000 units,...

Question 16

Which of the following classifications best describes the behaviour of Cost C
A)Variable.
B)Fixed.
C)Direct.
D)Mixed.

Accepted Answer

Cost C is classified as variable because variable costs change in proportion to the level of activity or volume of production.

Question 17

Reference: 06-12
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 $$\begin{array} { | l | l | l | } 
\hline \text { Sales } & & \$ 800,000 \
\hline \text { Less cost of goods sold } & &  { 560,000 }  \
\hline \text { Gross margin } & &{ 240,000 } \
\hline \text { Less operating expenses: } & & \
\hline \text { Selling } & \$ 98,000 & \
\hline \text { Administrative } & 98,000 & \underline { 196,000 } \
\hline \text { Net income } & & \$ 44,000 \
\hline
\end{array}$$ 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.
-The net income using the contribution approach for the first quarter is?
A)$128,000.
B)$152,000.
C)$240,000.
D)$44,000.

Accepted Answer

The answer of Reference: 06-12
An income statement for Crandall's Bookstore...

Question 18

Actual maintenance costs for a movie theatre for the months of July and August are as follows: $$\begin{array} { | l | l | l | } 
\hline & \text { July } & \text { August } \
\hline \text { Maintenance hours worked } & \underline { 1,550 } & 1,660 \
\hline & & \
\hline \text { Hourly wages and benefits } & \$ 18,600 & \$ 19,920 \
\hline \text { Cleaning supplies } & 3,100 & 3,320 \
\hline \text { Equipment lease costs } & \underline { 2,000 } & 2,000 \
\hline \text { Total maintenance costs } & \underline { \underline { \$ 23,700 } } & \underline { \underline { \underline { \$ 25,240 } } } \
\hline
\end{array}$$ The manager is checking to see that enough maintenance hours are scheduled for the month of September. The total budget for maintenance costs for September is $26,990 and experience has shown that maintenance cost behaviour is quite consistent from month to month. How many hours should be scheduled for September maintenance?
A)1,795 hours.
B)1,775 hours.
C)1,765 hours.
D)1,785 hours.

Accepted Answer

To find the number of hours for September, calculate the variable cost per hour from July and August, then use the budget to find the hours. The variable cost per hour is consistent, so use the total budget minus fixed costs (equipment lease) to find the variable cost portion, then divide by the variable cost per hour to find the hours.

Question 19

Reference: 06-03
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: $$\begin{array} { | l | l | } 
\hline \text { Selling price per unit } & \$ 40 \
\hline \text { Sales commission } & 5 \% \
\hline \text { Purchase price (cost) per unit } & \$ 18 \
\hline \text { Advertising expense } & \$ 4,000 \text { per month } \
\hline \text { Administrative expense } & \$ 4,500 \text { per month plus } 15 \% \text { of sales } \
\hline
\end{array}$$ Assume that all activity mentioned in this problem is within the relevant range.
-The expected contribution margin next month is?
A)$14,400.
B)$11,200.
C)$16,000.
D)$17,600.

Accepted Answer

The answer of Reference: 06-03
Gasson Company is a merchandising firm....

Question 20

Reference: 06-02
Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below: $\begin{array}{|l|l|l|}
\hline & \text { July } & \text { August } \
\hline \text { Sales in Units } & 11,000 & 10,000 \
\hline & & \
\hline \text { Sales Revenue } & \$ 165,000 & \$ 150,000 \
\hline \text { Less Cost of Goods Sold } & 72,600 & 66,000 \
\hline \text { Gross Margin } & 92,400 & 84,000 \\hline \text { Less Operating Expenses: } & & \
\hline \text { Rent } & 12,000 & 12,000 \
\hline \text { Sales Commissions } & 13,200 & 12,000 \
\hline \text { Maintenance Expenses } & 13,500 & 13,000 \
\hline \text { Clerical Expense } & 16,000 & 15,000 \
\hline \text { Total Operating Expenses } & 54,700 & 52,000 \
\hline \text { Net income } & \underline{\$ 37,700} & \$ 32,000 \
\hline
\end{array}$ All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). The company is a merchandising company. 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, total expected operating expenses would be?
A)$46,600.
B)$44,750.
C)$41,600.
D)$49,300.

Accepted Answer

Explanation:The variable costs are sales commissions and maintenance expenses. The total variable costs are $12,000 + $13,000 = $25,000. The fixed costs are rent and clerical expense. The total fixed costs are $12,000 + $15,000 = $27,000. The total expected operating expenses for 8,000 units would be $25,000 + $27,000 = $46,600.

Quiz 6: Cost Behaviour: Analysis and Use

Which of the following statements is true

The term "relevant range" means the range within which:

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

An example of a discretionary fixed cost is:

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

Of the costs listed below, which would most likely be considered as a discretionary fixed cost?

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, we would expect that:

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

At an activity level of 10,000 units, variable costs totalled $35,000 and fixed costs totalled $20,800. If 16,000 units are produced and this activity is within the relevant range, then:

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