Exam 6: Cost Behaviour: Analysis and Use

A cost driver is:

Reference: 06-11 Porter Company has provided the following data for the second quarter of the most recent year: Sales \ 300,000 Fixed manufacturing overhead 55,000 Direct labour 72,500 Fixed selling expense 46,250 Variable manufacturing overhead 41,000 Variable administrative expense 48,000 Direct materials 51,500 Fixed administrative expense 44,500 Variable selling expense 49,750 Assume that direct labour is a variable cost and that there were no beginning or ending inventories. -The total contribution margin of Porter Company for the second quarter was

The contribution margin approach to the income statement:

An example of a cost that is variable with respect to the number of units produced is:

Reference: 06-01 Rymore Company would like to classify the following costs according to their cost behaviour: July August Sales in units 1,500 1,600 Cost A \ 35,000 \ 36,000 Cost B 16,000 16,000 Cost C 67,500 72,000 -Which of the following classifications best describes the behaviour of Cost B

Cost C is best described as?

The following data pertains to activity and costs for two months: June July Activity level in units 10,000 20,000 Variable costs \ 20,000 \ ? Fixed costs 15,000 ? Mixed costs 10,000 ? Total costs \ 45,000 \ 70,000 Assuming that these activity levels are within the relevant range, the mixed costs for July were?

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: Selling price per unit \ 40 Sales commission 5\% Purchase price (cost) per unit \ 18 Advertising expense \ 4,000 per month Administrative expense \ 4,500 per month plus 15\% of sales Assume that all activity mentioned in this problem is within the relevant range. -The expected total administrative expense next month is?

The following data pertains to activity and utility costs for two recent years: Year 2 Year 1 Activity level in units 12,000 8,000 Utilities cost \ 15,000 \ 12,000 Using the high-low method, the cost formula for utilities is?

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 business sells a product with variable costs per unit of $30. per period. The selling price per unit is $100. Assuming 1,000 units are sold in a period, what is the contribution margin for the period?

Reference: 06-02 Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below: July August Sales in Units 11,000 10,000 Sales Revenue \ 165,000 \ 150,000 Less Cost of Goods Sold 72,600 66,000 Gross Margin 92,400 84,000 Less Operating Expenses: Rent 12,000 12,000 Sales Commissions 13,200 12,000 Maintenance Expenses 13,500 13,000 Clerical Expense 16,000 15,000 Total Operating Expenses 54,700 52,000 Net income \ 37,700 \ 32,000 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?

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

Advantages of the high-low method are that it is easy to understand and apply.

Reference: 06-04 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 depreciation was $60,000 (all fixed). The balance of the overhead cost 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. -The variable cost for maintenance per machine hour is?

Reference: 06-05 Maxwell Company has a total expense per unit of $2.00 at the 16,000 unit level of activity and total expense per unit of $1.95 at the 21,000 unit level of activity. -The best estimate of the total expected costs at the 19,000 unit level of activity for Maxwell Company is?

If the contribution margin is $70,000 and the total of variable expenses is $50,000, then total sales is $120,000.

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?

Bell Company has provided the following data for maintenance costs: April May Machine hours incurred 12,000 16,000 Maintenance cost incurred \ 24,000 \ 26,000 Using the high-low method, the cost formula for maintenance cost is?

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 April May June Sales in units 4,500 5,250 6,000 Sales revenue \ 630,000 \ 735,000 \ 840,000 Less cost of goods sold 252,000 294,000 336,000 Gross Margin 378,000 441,000 504,000 Less operating expenses: Shipping expense 56,000 63,500 71,000 Advertising expense 70,000 70,000 70,000 Salaries and commissions 143,000 161,750 180,500 Insurance expense 9,000 9,000 9,000 Depreciation expense 42,000 42,000 42,000 Total operating expenses 320,000 346,250 372,500 Net income \ 131,500 -What is the best estimate of the company's variable operating expenses per unit