Exam 3: Cost Behaviour: Analysis and Use

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 total expected costs at the 19,000 level of activity for Maxwell Company?

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. -What is the expected operating income next month?

Wilson Company's activity for the first six months of the current year is as follows: Machine Hours Electrical Cost January 2,000 \ 1,560 February 3,000 2,200 March 2,400 1,750 April 1,900 1,520 May 1,800 1,480 June 2,100 1,600 -Using the high-low method,what is the variable cost per machine hour?

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. -What is the expected contribution margin next month?

Significant reductions in committed fixed costs can usually be made on a temporary basis without seriously impairing the long-term goals of a firm.

The linear equation Y = a + bX is often used to express cost formulas.Which of the following representations in this equation is correct?

The following data have been provided by a retailer that sells a single product: This Year Last Year Units Sold 200,000 150,000 Sales Revenue \ 1,000,000 \ 1750,000 Less: Cost of Goods Sold Gross Margin 300,000 225,000 Less: Operating Expenses Operating Income -What is the best estimate of the company's total fixed operating expenses per year?

An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine hour at an activity level of 10,000 machine hours and $0.25 per machine hour at an activity level of 8,000 machine hours.Assuming that this activity is within the relevant range,what is the total expected maintenance cost if the activity level is 8,700 machine hours?

Which of the following concepts used in estimating cost behaviour is unique to the least-squares regression method?

The Accounting Department of Archer Company,a merchandising company,has prepared the following analysis: Cost Cost formula Cost of goods sold \ 56 per unit Sales commissions 12\% of sales Advertising expense \ 300,000 per month Administrative salaries \ 160,000 per month Billing expense \ Depreciation expense \6 2,000 per month The Accounting Department feels that billing expense is a mixed cost,containing both fixed and variable cost elements.A tabulation has been made of billing expense and sales in units over the last several months,as follows: Units sold (000) Billing expense January 9 \ 30,000 February 11 33,000 March 14 36,000 April 17 42,000 May 15 39,000 June 12 35,000 The Accounting Department now plans to develop a cost formula for billing expense so that a contribution-type income statement can be prepared for management's use. Required: a.Using the least-squares regression method and the equations for a and b,estimate the cost formula for billing expense. b.Assume that the company plans to sell 30,000 units during July at a selling price of $100 per unit.Prepare a budgeted income statement for the month,using the contribution format.

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. -What is the expected total administrative expense next month?

The contribution approach to the income statement classifies costs by behaviour rather than by function.

R² is a measure of goodness of fit.

At an activity level of 10,000 units,total variable costs were $35,000 while total fixed costs were $20,800.If 16,000 units are produced and this activity is within the relevant range,which of the following statements is correct?

Contribution margin is the excess of revenues over which of the following?

The following data pertain 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,what were the mixed costs for July?

Given the cost formula Y = $15,000 + $5X,what is the total cost at an activity level of 8,000 units?

In order for a cost to be variable,it must vary with either units produced or units sold.

The graph below was produced after recording the processing costs of Oki Products observed over the last 10 months using the following data: Month Units Produced Processing Costs 1 7,500 \ 44,000 2 11,000 52,000 3 15,000 59,000 4 5,500 38,000 5 9,000 47,000 6 8,500 52,000 7 2,500 28,000 8 7,000 41,000 9 11,500 52,000 10 6,000 41,000 Required: a.Using the graph identify the monthly fixed costs.What additional information might you determine from the graph? b.The chart above indicates total processing costs of $47,000 at a level of 9,000 units for month 5.Using this level of activity and your fixed costs determined in a,calculate the variable cost per unit to the nearest cent.Express your results in the form of a linear equation y = a + bx. c.Use the high low method to determine the variable cost per unit and fixed cost per month.Express your results in the form of a linear equation y = a + bx. d.Comment on the differences between the results in b and c.Which result would you consider more accurate and why?

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 total fixed overhead cost for O'Donnell?