Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

A cost formula may not be valid outside the relevant range of activity.

Accepted Answer

A) True 
 B)False  True

Question 3

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:
$\begin{array} { | l | r | r | } 
\hline & \text { Machine Hours } & \text { Electrical Cost } \
\hline \text { August } & 1,000 & \$ 1,620 \
\hline \text { September } & 900 & 1,510 \
\hline \text { October } & 1,500 & 1,870 \
\hline \text { November } & 2,000 & 1,950 \
\hline \text { December } & 1,300 & 1,730 \
\hline
\end{array}$

-Using the high-low method,the estimated variable cost per machine hour for electricity is closest to which of the following?

Accepted Answer

A)  $0.40 per hour. 
B)  $0.98 per hour. 
C)  $1.68 per hour. 
D)  $2.50 per hour. 
A)  $0.40 per hour. 
B)  $0.98 per hour. 
C)  $1.68 per hour. 
D)  $2.50 per hour. A

Question 4

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
$\begin{array}{|l|r|r|}
\hline \text { Sales } && \$ 800,000 \
\hline \begin{array}{l}
\text { Less: Cost of Goods Sold - } \
\text { all variable }
\end{array} && \underline{560,000} \\hline \text { Gross Margin } & & 240,000 \
\hline \text { Less: Operating Expenses: } & & \
\hline \text { Selling } & \$ 98,000 & \\hline \text { Administrative } & 98,000 & \underline{196,000} \
\hline \text { Operating Income } & & \underline{\$ 44,000} \
\hline
\end{array}$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.

-What is the cost formula for operating expenses where X represents the number of books sold?

Accepted Answer

A)  Y = $84,000 + $7.00X. 
B)  Y = $84,000 + $8.50X. 
C)  Y = $98,000 + $7.00X. 
D)  Y = $98,000 + $8.50X. 
A)  Y = $84,000 + $7.00X. 
B)  Y = $84,000 + $8.50X. 
C)  Y = $98,000 + $7.00X. 
D)  Y = $98,000 + $8.50X.

Question 5

Suppose a firm reports the following results using the least-squares regression method:
Y = $750 - $2.56X
Y is the daily repair and maintenance cost and X is the daily units of production in hundreds.The daily observations were over a one-month period.The results do not make sense to the manager of the repair and maintenance department.
Required:
What is the most plausible explanation for the apparently meaningless results?

Accepted Answer

According to the results,total daily rep

Question 6

The following data pertain to activity and costs for two months:
$\begin{array}{|l|r|r|} 
\hline& \text { October } & \text { November } \
\hline \text { Activity level in units } & 5,000 & 10,000 \
\hline \text { Variable costs } & \$ 10,000 & ? \
\hline \text { Fixed costs } & 30,000 & ? \
\hline \text { Mixed costs } & 20,000 & ? \
\hline \text { Total costs } & \$ 60,000 & \$ 75,000 \
\hline
\end{array}$
Assuming that these activity levels are within the relevant range,what were the mixed costs for November?

Accepted Answer

A)  $20,000. 
B)  $25,000. 
C)  $35,000. 
D)  $40,000. 
A)  $20,000. 
B)  $25,000. 
C)  $35,000. 
D)  $40,000.

Question 7

What are discretionary fixed costs?

Accepted Answer

A)  They vary directly and proportionately with the level of activity. 
B)  They have a long-term planning horizon, generally encompassing many years. 
C)  They are made up of plant, equipment, and basic organizational costs. 
D)  None of these options. 
A)  They vary directly and proportionately with the level of activity. 
B)  They have a long-term planning horizon, generally encompassing many years. 
C)  They are made up of plant, equipment, and basic organizational costs. 
D)  None of these options.

Question 8

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:$\begin{array} { | l | r | } 
\hline \text { Selling price per unit } & \$ 40 \
\hline \text { Sales commission } & 5 \% \
\hline \text { Purchase price (cost) per unit } & \$ 18 \
\hline \text { Advertising expense } & \$ 4,000 \text { per month } \
\hline \text { Administrative expense } & \$ 4,500 \text { per month plus } 15 \% \text { of sales } \
\hline
\end{array}$Assume that all activity mentioned in this problem is within the relevant range.

-What is the expected gross margin next month?

Accepted Answer

A)  $11,200. 
B)  $14,400. 
C)  $16,400. 
D)  $17,600. 
A)  $11,200. 
B)  $14,400. 
C)  $16,400. 
D)  $17,600.

Question 9

Wilson Company's activity for the first six months of the current year is as follows:
$\begin{array} {| l | r | r | } 
\hline & \text { Machine Hours } & \text { Electrical Cost } \
\hline \text { January } & 2,000 & \$ 1,560 \
\hline \text { February } & 3,000 & 2,200 \
\hline \text { March } & 2,400 & 1,750 \
\hline \text { April } & 1,900 & 1,520 \
\hline \text { May } & 1,800 & 1,480 \
\hline \text { June } & 2,100 & 1,600\\hline
\end{array}$

-Using the high-low method,what is the fixed portion of the electrical cost each month?

Accepted Answer

A)  $190. 
B)  $280. 
C)  $400. 
D)  $760. 
A)  $190. 
B)  $280. 
C)  $400. 
D)  $760.

Question 10

Porter Company has provided the following data for the second quarter of the most recent year:
$\begin{array}{|l|r|}
\hline \text { Sales } & \$ 300,000 \
\hline \text { Fixed Manufacturing Overhead } & 55,000 \
\hline \text { Direct Labour } & 72,500 \
\hline \text { Fixed Selling Expenses } & 46,250 \
\hline \text { Variable Manufacturing Overhead } & 41,000 \
\hline \text { Variable Administrative Expenses } & 48,000 \
\hline \text { Direct Materials } & 51,500 \
\hline \text { Fixed Administrative Expenses } & 44,500 \
\hline \text { Variable Selling Expenses } & 49,750 \
\hline
\end{array}$Assume that direct labour is a variable cost and that there was no beginning or ending inventories.

-What was the gross margin(loss)for Porter Company for the second quarter?

Accepted Answer

A)  $(12,500). 
B)  $80,000. 
C)  $131,500. 
D)  $135,000. 
A)  $(12,500). 
B)  $80,000. 
C)  $131,500. 
D)  $135,000.

Question 11

Which of the following statements about the methods for estimating a cost formula is incorrect?

Accepted Answer

A)  A scattergram plot should precede the high-low method. 
B)  A scattergram plot should precede the least-squares regression method. 
C)  The preferred method is high-low. 
D)  The preferred method is least-squares regression. 
A)  A scattergram plot should precede the high-low method. 
B)  A scattergram plot should precede the least-squares regression method. 
C)  The preferred method is high-low. 
D)  The preferred method is least-squares regression.

Question 12

A mixed cost is partially variable and partially fixed.

Accepted Answer

A) True 
 B)False

Question 13

Johnson Company has provided the following data for the first five months of the year:
$\begin{array} {|l | r | r | } 
\hline & \text { Machine Hours } & \text { Lubrication Cost } \
\hline \text { January } & 120 & \$ 750 \
\hline \text { February } & 160 & 800 \
\hline \text { March } & 200 & 870 \
\hline \text { April } & 150 & 790 \
\hline \text { May } & 170 & 840 \
\hline
\end{array}$

-Using the least squares regression method,the estimated variable lubrication cost per machine hour is closest to which of the following?

Accepted Answer

A)  $0.67. 
B)  $1.56. 
C)  $1.40. 
D)  $1.50. 
A)  $0.67. 
B)  $1.56. 
C)  $1.40. 
D)  $1.50.

Question 14

The following data have been provided by a retailer that sells a single product:
$\begin{array}{|l|r|r|}
\hline & \text { This Year } & \text { Last Year } \
\hline \text { Units Sold } & 200,000 & 150,000 \
\hline \text { Sales Revenue } & \$ 1,000,000 & \$ 1750,000 \
\hline \text { Less: Cost of Goods Sold } & \underline{700,000} & \underline{\mathbf{5 2 5 , 0 0 0}} \
\hline \text { Gross Margin } & 300,000 & 225,000 \
\hline \text { Less: Operating Expenses } & \underline{222,000} & \underline{\mathbf{2 1 0 , 0 0 0}} \
\hline \text { Operating Income } & \underline{\$ 78,000} & \underline{\$ 15,000} \
\hline
\end{array}$

-What is the best estimate of the company's contribution margin for this year?

Accepted Answer

A)  $252,000. 
B)  $300,000. 
C)  $158,000. 
D)  $225,000. 
A)  $252,000. 
B)  $300,000. 
C)  $158,000. 
D)  $225,000.

Question 15

(Appendix 3A)The Stephens Leadership Centre provides training seminars in personal development and time management.The company is relatively new and management is seeking information regarding the Centre's cost structure.The following information has been gathered since the inception of the business in January of the current year:
 $\begin{array}{|l|r|r|}
\hline & \text { Seminars offered } & \text { Costs incurred } \
\hline \text { January } & 10 & \$ 17,000 \
\hline \text { February } & 12 & 18,800 \
\hline \text { March } & 15 & 20,900 \
\hline \text { April } & 18 & 23,762 \
\hline \text { May } & 16 & 21,800 \
\hline \text { June } & 13 & 19,400 \
\hline
\end{array}$ 
Required:
a.Using the high-low method,estimate the variable cost per seminar and the total fixed cost per month.
b.Using the least-squares regression method and the equations for a and b,estimate the variable cost per seminar and the total fixed cost per month.

Accepted Answer

a.High-low method:
  X)]/n
= [

Question 16

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 amortization was $60,000 (all fixed). The balance of the overhead costs 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.

-What is the variable cost for maintenance per machine hour?

Accepted Answer

A)  $0.75. 
B)  $1.30. 
C)  $1.35. 
D)  $1.44. 
A)  $0.75. 
B)  $1.30. 
C)  $1.35. 
D)  $1.44.

Question 17

Unified Parcel,Inc.operates a local parcel delivery service.The company keeps detailed records relating to operating costs of trucks,and has found that if a truck is driven 110,000 kilometres per year,the operating cost is 7.5 cents per kilometre.This cost increases to 8.75 cents per kilometre if a truck is driven 60,000 kilometres per year.
Required:
Estimate the cost formula for truck operating costs using the high-low method.

Accepted Answer

Total cost at high level of activity: 11

Question 18

Reddy Company has the following cost formulas for overhead:
$\begin{array}{|l|r|}
\hline \text { Cost } & \text { Cost Formula } \
\hline \text { Indirect Materials } & \$ 2,000 \text { plus } \$ 0.40 \text { per machine hour } \
\hline \text { Maintenance } & \$ 1,500 \text { plus } \$ 0.60 \text { per machine hour } \
\hline \text { Machine Setup } & \$ 0.30 \text { per machine hour } \
\hline \text { Utilities } & \$ 200 \text { plus } \$ 0.10 \text { per machine hour } \
\hline \text { Amortization } & \$ 800 \
\hline
\end{array}$
Based on these cost formulas,what is the expected total overhead cost at 600 machine hours?

Accepted Answer

A)  $4,500. 
B)  $5,200. 
C)  $5,620. 
D)  $5,340. 
A)  $4,500. 
B)  $5,200. 
C)  $5,620. 
D)  $5,340.

Question 19

Which costs will change with a decrease in activity within the relevant range?

Accepted Answer

A)  Total fixed costs and total variable costs. 
B)  Unit fixed cost and total variable costs. 
C)  Unit variable cost and unit fixed cost. 
D)  Unit fixed cost and total fixed costs. 
A)  Total fixed costs and total variable costs. 
B)  Unit fixed cost and total variable costs. 
C)  Unit variable cost and unit fixed cost. 
D)  Unit fixed cost and total fixed costs.

Question 20

Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000-unit level of activity, and total expense per unit of $1.95 at the 21,000-unit level of activity.
-What is the best estimate of the variable cost per unit for Maxwell Company?

Accepted Answer

A)  $0.56. 
B)  $1.79. 
C)  $1.95. 
D)  $2.00. 
A)  $0.56. 
B)  $1.79. 
C)  $1.95. 
D)  $2.00.

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

A cost formula may not be valid outside the relevant range of activity.

What are discretionary fixed costs?

Which of the following statements about the methods for estimating a cost formula is incorrect?

A mixed cost is partially variable and partially fixed.

Which costs will change with a decrease in activity within the relevant range?

Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000-unit level of activity, and total expense per unit of $1.95 at the 21,000-unit level of activity. -What is the best estimate of the variable cost per unit for Maxwell Company?

Managerial Accounting and the Business Environment

Cost Terms,concepts,and Classifications

Cost-Volume-Profit Relationships

Systems Design: Job-Order Costing

Systems Design: Process Costing

Activity-Based Costing: A Tool to Aid Decision Making

Variable Costing: A Tool for Management

Budgeting

Standard Costs and Overhead Analysis

Reporting for Control

Relevant Costs for Decision Making

Capital Budgeting Decisions

Financial Statement Analysis

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Exam 3: Cost Behaviour: Analysis and Use

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

A cost formula may not be valid outside the relevant range of activity.

What are discretionary fixed costs?

Which of the following statements about the methods for estimating a cost formula is incorrect?

A mixed cost is partially variable and partially fixed.

Which costs will change with a decrease in activity within the relevant range?

Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000-unit level of activity, and total expense per unit of $1.95 at the 21,000-unit level of activity. -What is the best estimate of the variable cost per unit for Maxwell Company?

Managerial Accounting and the Business Environment

Cost Terms,concepts,and Classifications

Cost-Volume-Profit Relationships

Systems Design: Job-Order Costing

Systems Design: Process Costing

Activity-Based Costing: A Tool to Aid Decision Making

Variable Costing: A Tool for Management

Budgeting

Standard Costs and Overhead Analysis

Reporting for Control

Relevant Costs for Decision Making

Capital Budgeting Decisions

Financial Statement Analysis

Filters