Question 1

Using the high-low method and the information below,compute the variable cost per telephone hour for PSA Corporation.

Accepted Answer

The answer of Using the high-low method and the information...

Question 2

Using the high-low method and the information below,compute the monthly total fixed costs for Coral Corporation.

Accepted Answer

The answer of Using the high-low method and the information...

Question 3

You have calculated,using the high-low method,a variable cost per machine hour of $0.80 for your production power costs.Power costs at 6,000 machine hours are $5,400;at 9,000 machine hours,they are $7,800.What are the total fixed costs that you would use to estimate production power costs for your company at any level within your relevant range?

Accepted Answer

The high-low method calculates fixed costs by subtracting the total variable cost at either the high or low level of activity from the total cost at that level. At 6,000 hours, variable costs are 6,000 * $0.80 = $4,800. Fixed costs are $5,400 - $4,800 = $600.

Question 4

The new Corina watch has an expected selling price per watch of $42,the projected variable cost per unit is $24,and estimated fixed costs per month are $24,120. The expected breakeven point in units per month is

Accepted Answer

The formula to calculate the breakeven point is:

Breakeven Point (in units) = Fixed Costs / (Price per unit - Variable cost per unit)

Substituting the given values:

Breakeven Point (in units) = $24,120 / ($42 - $24)

Breakeven Point (in units) = 1,340 watches

Therefore, the best choice is C, as it represents the expected breakeven point in units per month.

Question 5

Dapper Hat Makers is in the business of designing and producing specialty hats.The material used for derbies costs $4.50 per unit,and Dapper pays each of its two full-time employees $250 per week.If the company makes 30 derbies in a week,what is the variable cost per derby?

Accepted Answer

The variable cost per derby includes only the cost of the materials used, which is $4.50 per unit. The employee salaries are a fixed cost and do not vary based on the number of derbies produced. Therefore, the variable cost per derby is $4.50.

Question 6

Given below are the costs and activity observations for Ncwin Company's maintenance costs.  Using the high-low method,what is Ncwin's monthly fixed costs for maintenance?

Accepted Answer

First, we need to determine the variable cost per unit of activity.

Highest level of activity: 9,000 machine hours, Maintenance cost: $19,800 
Lowest level of activity: 3,000 machine hours, Maintenance cost: $9,300

Variable cost per unit = (Cost at highest activity level - Cost at lowest activity level) / (Highest activity level - Lowest activity level)
= ($19,800 - $9,300) / (9,000 - 3,000)
= $10,500 / 6,000
= $1.75 per machine hour

Next, we can use either the high or the low data point to solve for the fixed cost. Let's use the high point.

Maintenance Cost at highest activity level = Fixed cost + (Variable cost per unit x Highest activity level)
$19,800 = Fixed cost + ($1.75 x 9,000)
$19,800 = Fixed cost + $15,750
Fixed cost = $19,800 - $15,750
Fixed cost = $4,050

Therefore, the monthly fixed cost for maintenance is $3,750 (rounded to the nearest dollar).

Question 7

Repair bills for large machinery may include a flat fee for the visit to the company's premises plus additional labor charges per hour of repair work and various costs of replacement parts needed.What type of cost is the repair?

Accepted Answer

Repair costs are a mixed cost as they include both fixed and variable components. The flat fee for the visit and the cost of replacement parts are fixed costs, while the labor charges per hour of repair work are variable costs. Therefore, repair costs are considered a mixed cost.

Question 8

Clark International produces designer watches.Each watch requires materials worth $14.50 and three direct labor hours.The company pays its production supervisor a salary of $500 per week.Hourly wage rate at Clark is $5.If 25 watches are produced in a week,what is the fixed cost per watch?

Accepted Answer

Fixed costs are the expenses that do not vary with the level of production. In this case, the fixed costs would include the production supervisor's salary, which is $500 per week.

To calculate the fixed cost per watch, we need to divide the total fixed cost ($500) by the number of watches produced (25).

Fixed cost per watch = Total fixed costs / Number of watches produced 
Fixed cost per watch = $500 / 25 
Fixed cost per watch = $20

Therefore, the best choice is (C) $20.00 as the fixed cost per watch.

Question 9

In terms of cost behavior,supervisory salaries and direct labor are classified as

Accepted Answer

Supervisory salaries are typically fixed costs as they remain constant regardless of the level of production. Direct labor is a variable cost as it varies proportionally with changes in production levels. Therefore, choice A correctly classifies supervisory salaries as fixed costs and direct labor as variable costs.

Question 10

Theoretical capacity refers to

Accepted Answer

Theoretical capacity refers to the maximum productive output possible for a business, assuming everything works perfectly without any downtime or interruptions. This is the ideal or theoretical maximum capacity that a business can achieve, but may not always be possible to achieve in practice due to various factors such as equipment breakdowns, maintenance, employee absenteeism, etc.

Question 11

Product X sells for $20 per unit and has variable costs of $10 per unit.If the fixed costs amount to $45,000,the breakeven point will be:

Accepted Answer

The breakeven point is the point at which total revenue equals total costs. In this case, the total revenue is equal to the selling price per unit multiplied by the number of units sold. The total costs are equal to the variable costs per unit multiplied by the number of units sold plus the fixed costs. So, the breakeven point is the point at which the selling price per unit multiplied by the number of units sold equals the variable costs per unit multiplied by the number of units sold plus the fixed costs. In this case, the selling price per unit is $20, the variable costs per unit are $10, and the fixed costs are $45,000. So, the breakeven point is the point at which 20x = 10x + 45,000. Solving for x, we get x = 4,500. So, the breakeven point is 4,500 units.

Question 12

The delivery trucks of Italiana's Pizzeria incurred maintenance costs of $2,400 during its busiest month of 2014,in which 8,000 miles were driven collectively.During its slowest month,the trucks were driven for only 5,000 miles,for a maintenance cost of $1,800.Using the high-low method,calculate the expected maintenance cost for a month in which trucks are driven for 5,350 miles?

Accepted Answer

Using the high-low method, we first need to calculate the variable cost per mile:

Variable cost per mile = (Cost in the busiest month - Cost in the slowest month) / (Miles driven in the busiest month - Miles driven in the slowest month)
Variable cost per mile = ($2,400 - $1,800) / (8,000 - 5,000)
Variable cost per mile = $0.20

Now that we have the variable cost per mile, we can use either the busiest or slowest month to calculate the fixed cost:

Fixed cost = Total cost - (Variable cost per mile x Total miles)
Using the busiest month:

Fixed cost = $2,400 - ($0.20 x 8,000)
Fixed cost = $2,400 - $1,600
Fixed cost = $800

Using the fixed cost and the variable cost per mile, we can calculate the expected maintenance cost for a month in which the trucks are driven for 5,350 miles:

Expected maintenance cost = Fixed cost + (Variable cost per mile x Total miles)
Expected maintenance cost = $800 + ($0.20 x 5,350)
Expected maintenance cost = $800 + $1,070
Expected maintenance cost = $1,870

Therefore, the best choice is A) $1,870.

Question 13

Given the following cost and activity observations for Levo Enterprises' utilities,use the high-low method to calculate Levo's variable utilities cost per machine hour.Round your answer to two decimal places.

Accepted Answer

The answer of Given the following cost and activity observations...

Question 14

Which of the following costs is most likely to remain fixed within a relevant range?

Accepted Answer

Property taxes are generally fixed within a relevant range since they are assessed based on the value of a property and do not vary significantly with changes in production levels or sales volumes. Indirect labor, operating supplies, and direct labor are likely to vary based on production levels or sales volumes, and therefore, are not fixed costs.

Question 15

Retleb Manufacturing Company noticed that,during its busiest month of 2014,maintenance costs totaled $15,400,resulting from the production of 32,000 units.During its slowest month,$12,600 in maintenance costs were incurred,resulting from the production of 24,000 units.Use the high-low method to estimate the maintenance cost that the company will incur if it produces 20,000 units?

Accepted Answer

First, calculate the variable cost per unit using the high-low method: $$ \text{Variable Cost per Unit} = \frac{\text{High Cost} - \text{Low Cost}}{\text{High Activity Level} - \text{Low Activity Level}} $$$$ = \frac{15,400 - 12,600}{32,000 - 24,000} = \frac{2,800}{8,000} = 0.35 \text{ per unit} $$Next, calculate the fixed cost:$$ \text{Fixed Cost} = \text{Total Cost} - (\text{Variable Cost per Unit} \times \text{Activity Level}) $$Using the high month for easier calculation:$$ \text{Fixed Cost} = 15,400 - (0.35 \times 32,000) = 15,400 - 11,200 = 4,200 $$Finally, estimate the maintenance cost for 20,000 units:$$ \text{Total Cost} = \text{Fixed Cost} + (\text{Variable Cost per Unit} \times \text{Desired Activity Level}) $$$$ = 4,200 + (0.35 \times 20,000) = 4,200 + 7,000 = 11,200 $$

Question 16

The salary of a retail organization's sales personnel consist of a base amount plus a commission of 5 percent on each sale.Which of the following would properly classify the cost of sales salaries?

Accepted Answer

Sales salaries are mixed costs because they include a fixed base salary and a variable commission. They are considered period costs as they are not directly tied to the production of goods.

Question 17

In terms of cost behavior,telephone expenses are often classified as

Accepted Answer

Telephone expenses are often classified as mixed costs because they typically have a fixed component (e.g., monthly service charge) and a variable component (e.g., charges per minute for calls).

Question 18

Which of the following is the realistic measure of what an organization is likely to produce,not what it can produce?

Accepted Answer

Normal capacity represents the realistic measure of what an organization is likely to produce given the limiting factors such as resources, labor, demand, etc. It considers the practical limitations faced by the organization and therefore provides a more accurate estimate of what can be produced rather than what optimal (ideal) or maximum (excess) production capacity could be if all factors were optimal.

Question 19

The high-low method

Accepted Answer

The high-low method is a technique used in cost accounting to separate fixed and variable costs associated with a mixed cost. It does this by examining the highest and lowest levels of activity and the corresponding total costs, allowing for the calculation of variable cost per unit and the total fixed cost.

Question 20

Which of the following is true of the engineering method of separating costs?

Accepted Answer

The engineering method of separating costs is generally used to estimate the cost of activities and new products. It is also sometimes called a time and motion study. It involves separating costs by performing a step-by-step analysis of various elements involved. Therefore, all of the choices are correct.

Quiz 21: Cost-Volume-Profit Analysis