Exam 3: Cost Behavior

Graber and Johnson, Attorney's at Law, recently opened a law practice in the Northwest. Their goal is to generate a monthly net income of $10,000. They have initially set their billing rate at $150 per hour. Their billable hours in the first month of operations (January) were 150 and in the second month of operations (February), 175 billable hours. The costs incurred at these levels for January and February are given below. Required:

Which of the following would probably be a discretionary fixed cost for a law firm?

Figure 3-8. Martin Company makes cell phones. The company controller wanted to calculate the fixed and variable costs associated with electricity use in the factory. Data for the past four months were collected. Coefficients shown by a regression program are: -Refer to Figure 3-8. Using the results of regression, the cost formula for electricity cost was

Select the appropriate item for each of the definitions listed below. a. relevant range b. cost behavior c. driver d. variable cost e. fixed cost -may be discretionary or committed

Figure 3-10. The following cost formula was developed using the monthly data for an accounting firm. Total cost = $87,100 + ($210 *number of tax returns) -Refer to Figure 3-10. The term $210

__________________________ is critically important in determining cost behavior and is by far the most widely used method in practice.

Figure 3-11. The following four months of data were collected on utility cost and the number of labor hours in a factory. -Refer to Figure 3-11. Using the high-low method, compute the fixed cost of electricity.

Figure 3-11. The following four months of data were collected on utility cost and the number of labor hours in a factory. -Refer to Figure 3-11. Using the high-low method, compute the variable rate for the utility cost.

Figure 3-7. Margola Company produces hand-held calculators. The company controller wanted to calculate the fixed and variable costs associated with the maintenance cost incurred by the factory. Data for the past four months were collected. Coefficients shown by a regression program are: -Refer to Figure 3-7. Using the results of regression, what would be the budgeted cost for maintenance next month assuming that 340 machine hours are budgeted?

Using a regression program, the term 'X Variable 1' refers to the dependent variable.

A variable cost increases in total when output increases but the per-unit costs remains the same.

Machine hours and electricity costs for Wells Industries for 2011 were as follows: Required:

Figure 3-8. Martin Company makes cell phones. The company controller wanted to calculate the fixed and variable costs associated with electricity use in the factory. Data for the past four months were collected. Coefficients shown by a regression program are: -Refer to Figure 3-8. Using the results of regression, calculate the fixed cost of electricity.

MATCHING Select the appropriate cost behavior for each of the costs listed below. a. variable b. fixed -indirect materials

Select the appropriate type of fixed cost for each cost listed below. a. discretionary b. committed -cost of leasing

Step costs

Figure 3-11. The following four months of data were collected on utility cost and the number of labor hours in a factory. -Refer to Figure 3-11. What would be the estimate of electricity cost if the factory incurred 4,700 labor hours next month?

Harnow Company manufactures drill presses. Based on past experience, Harnow has found that its total overhead cost can be represented by the following formula: Total overhead cost = $35,500 + $1.25x, where x = number of machine hours. Last year Harnow incurred 120,000 machine hours. Required:

Managerial judgment

A _______________ displays a constant level of cost for a range of output and then jumps to a higher level of cost at some point.