Exam 6: Cost Behavior

Paula Corporation is trying to predict its manufacturing overhead costs for the upcoming year;they are debating the use of the high-low method versus the use of regression analysis.They have gathered information about their manufacturing overhead costs in each of the past six months.A table containing their cost data and the associated machine hours in each month (the cost driver)follows. The company performed a regression analysis using the above data and had the following results.(Note: the results are excerpts so not all of the regression analysis results are presented. ) Required: a.What is the cost equation if the high-low method is used to estimate costs? b.Using the high-low method,predict total manufacturing overhead costs if Paula Corporation uses 12,000 hours. c.What is the cost equation if regression analysis is used to estimate costs (use the results from the regression analysis provided)? d.Using the results from the regression analysis provided,predict total manufacturing overhead costs if Paula Corporation uses 12,000 hours. e.Which method (high-low or regression analysis)is a better predictor of total manufacturing overhead costs? Why?

At any given volume,average fixed costs must equal average variable costs.

Regression analysis uses all data points,not just the highest and lowest volume data points.

Using account analysis,what type of cost is the price of gasoline when your car gets 30 miles per gallon and each gallon costs $3.65?

Managers whose bonuses are based on operating income have more incentive to increase inventory levels when variable costing is used than when absorption costing is used.

The use of either absorption or variable costing will make little difference in companies

Sales revenue less variable expenses equals contribution margin.

The line on a graph representing total fixed costs will be a horizontal line.

Rent on a factory building would likely be classified as a fixed cost.

Total fixed costs for Randolph Manufacturing are $754,000.Total costs,including both fixed and variable,are $1,000,000 if 150,000 units are produced.The fixed cost per unit at 188,500 units would be closest to

Managers should consider which of the following when predicting costs at different volumes?

Within the relevant range,which of the following statements is true with respect to fixed costs per unit?

Total variable costs can be expressed as y = vx,where y = total mixed cost,v = mixed cost per unit of activity,and x = volume of activity.

Total fixed costs for Purple Figs Company are $52,000.Total costs,both fixed and variable are $160,000 if 80,000 units are produced.The fixed cost per unit at 80,000 units would be

Which of the following statements is true concerning income if production exceeds units sold?

The following data is related to sales and production of the Tauro Corporation for last year. Required: a.Prepare an income statement for last year using absorption costing. b.Calculate the value of the ending inventory using absorption costing. c.Prepare an income statement for last year using variable costing. d.Calculate the value of the ending inventory using variable costing.

Total costs for Locke & Company at 120,000 units are $289,000,while total fixed costs are $145,000.The total variable costs at a level of 250,000 units would be

Pablo was reviewing the water bill for his carwash business and determined that the highest bill,$5,000,occurred in July when 2,200 cars were washed and the lowest bill,$3,200,occurred in February when 1,400 cars were washed.What was the variable cost per carwash?

The traditional income statement is considered by most companies to be a better management tool than the contribution margin income statement.

Joe,Jeff and Jerry Frank own Frank Brothers Farm,a seed company specializing in seed corn.At their weekly meeting they tried to calculate the portion of the farm's overhead expenses that is fixed and the portion that is variable.Over the past twelve months,the number of bushels of seed corn that has been sold reached its peak in May,when the total monthly overhead costs totaled $250,000 for 95,000 bushels of seed corn sold.The lowest number of bushels sold in the last twelve months occurred in December,when total overhead costs were $75,000 for 7,500 bushels sold.What is the fixed portion of the monthly overhead expenses?