Exam 3: Cost Behaviour: Analysis and Use

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 is an example of a cost that is variable with respect to the number of units produced and sold?

Which of the following is generally true for the cost of goods sold amount that a merchandising company would report on its income statement?

Which of the following best describes the contribution approach to the income statement?

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

(Appendix 3A)The Accounting Department of Archer Company,a merchandising company,has prepared the following analysis: 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: 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.

The following data pertain to activity and costs for two months: Assuming that these activity levels are within the relevant range,what were the mixed costs for July?

What is the expected operating income next month?

Bell Company has provided the following data for maintenance costs: Using the high-low method,what is the cost formula for maintenance cost?

What was the total contribution margin of Porter Company for the second quarter?

Which of the following classifications best describes the behaviour of Cost C?

The following data pertain to activity and utilities costs for two recent years: Using the high-low method,what is the cost formula for utilities?

Stuart Manufacturing produces metal picture frames.The company's income statements for the last two years are presented below: The company has no beginning or ending inventories.All activity in this problem is in the relevant range. Required: a.Estimate the company's total variable cost per unit,and its total fixed costs per year.(Remember that this is a manufacturing firm. ) b.Compute the company's contribution margin for this year.

The Central Valley Company is a merchandising firm that sells a single product.The company's revenues and expenses for the last three months are presented below: Required: a.Determine which expenses are mixed and,by use of the high-low method,separate each mixed expense into its variable and fixed components.State the cost formula for each mixed expense. b.Compute the company's total contribution margin for May.

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

(Appendix 3A)Jenson Manufacturing is developing cost formula for future planning and cost control.Utilities is one of the mixed costs associated with production.The cost analyst has suggested that units produced be used as the activity base to determine the fixed and variable costs and the cost formula for utility costs.The controller feels the most appropriate cost base is direct labour hours.Below is information collected over the past 8 months: Required: Use the least squares regression method to determine the cost formula for utilites cost assuming units produced is the independent variable.Calculate the R-squared.Use the same method to determine the cost formula and R-squared assuming direct labour hours is the independent variable.Use a spreadsheet or calculator to determine the slope and intercept.Do you recommend the company use units produced or direct labour hours as a cost base? Explain.

Mateo Company's average cost per unit is $1.425 at the 16,000-unit level of activity and $1.38 at the 20,000-unit level of activity.The selling price is $3.00 per unit Assume that all of the activity levels mentioned in this problem are within the relevant range. Required: Predict the following items for Mateo Company: (a)Variable cost per unit. (b)Total fixed cost per period. (c)Total expected costs at the 18,000-unit level of activity. (d)Total Contribution Margin at the 18,000 unit level of production and sales.

Because the least-squares regression method is more accurate,a scattergram plot is unnecessary.

What will result from an increase in the activity level within the relevant range?

What does the term "relevant range" mean?