Exam 6: Cost Behaviour: Analysis and Use

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

Reference: 06-07 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. Machine Hours Electrical Cost August 1,000 \ 1,550 September 900 1,510 October 1,500 1,750 November 2,000 1,950 December 1,300 1,670 -Using the high-low method of analysis, the estimated fixed cost per month for electricity is closest to?

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

The following data pertains to activity and utility costs for two recent years: Year 2 Year I Activity level in units 10,000 6,000 Utilities cost observed \ 12,000 \ 9,000 Using the high-low method, the cost formula for utilities is?

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

The linear equation Y = a + bX is often used to express cost formulas.

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 Sales \ 800,000 Less cost of goods sold 560,000 Gross margin 240,000 Less operating expenses: Selling \ 98,000 Administrative 98,000 Net income \ 44,000 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 contribution margin for Crandall's Bookstore for the first quarter is

In preparing contribution margin income statements when will the total cost of goods sold be included as a variable cost?

Discretionary fixed costs usually arise from annual decisions by management to spend in certain fixed cost areas.

Within the relevant range of activity, variable cost per unit will:

The following data pertain to activity and costs for two recent months: October November Activity level in units 5,000 10,000 Variable costs \ 10,000 ? Fixed costs 30,000 ? Mixed costs 20,000 ? Total costs \ 75,000 Assuming that these activity levels are within the relevant range, the mixed costs for November were?

Reference: 06-08 Wilson Company's activity for the first six months of the current year is as follows: Month Machine Hours Electrical Cost January 2,000 \ 1,600 February 3,000 \ 2,200 March 2,400 \ 1,840 April 1,900 \ 1,540 May 1,800 \ 1,480 June 2,100 \ 1,660 -Using the high-low method, the variable cost per machine hour would be

Which of the statements is correct about using the scattergraph method in analyzing costs?

Contribution margin is the excess of revenues over:

Selected information about Buehler Corporation's operations at high and at low levels of activity follows: Level of Activity Low High Number of units produced 25,000 30,000 Total manufacturing costs \ 575,000 \ 680,000 Direct material cost per unit \ 5 \ 5 Direct labour cost per unit \ 6 \ 6 Using the high-low method, what is the cost formula for manufacturing overhead?

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 net income next month is?

The high-low method is generally less accurate than the least-squares regression method for analyzing the behaviour of mixed costs.

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 \ 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. -If sales are projected to be 8,000 units in September, total expected operating expenses would be?

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 company's net income for the quarter?

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 Sales \ 800,000 Less cost of goods sold 560,000 Gross margin 240,000 Less operating expenses: Selling \ 98,000 Administrative 98,000 Net income \ 44,000 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 cost formula for operating expenses with "X" equal to the number of books sold is