Exam 2: Cost Behavior and Cost Estimation

Suppose your cell phone company offers a plan under which you pay $15 for a 100-minute block.For each minute over 100 minutes you have to pay $0.10 per minute.This is an example of a

If activity level increases,what happens to the total variable cost?

Stegman,Ltd.,provides nationwide passenger train service on 21,000 miles of routes.Selected operating data for fiscal 2014 are shown below. Required: a.The above data provide three possible activity measures that could influence fuel expense.Use the high-low method to develop a cost formula for fuel expense for each of the three measures. b.Do any of the cost formulas you developed in a appear to be a poor choice for estimating future train operations expense? Why? c.Which formula do you think will make the most accurate predictions? Why?

Cost behaviors and estimates are valid only within what is referred to as a precision range.

Some costs have both a fixed and a variable component.These costs are referred to as

Fixed costs are those costs that do not change as the level of activity increases or decreases.However,fixed costs may be classified as discretionary or committed.Explain the differences in these classifications and give an example of each.Discuss why managers should consider the impact of these costs in the decision making process in times of falling profits.

Complete each of the following contribution format income statements by supplying the missing numbers.

Restate the following income statement in contribution format.

Bailey Jones owns a catering company that stages banquets and parties for both individuals and companies.The business is seasonal,with heavy demand during the summer months and year-end holidays and light demand at other times.Bailey has gathered the following cost information from the past year: Required: a.Using the high-low method,compute the overhead cost per labor hour and the fixed overhead cost per month. b.Bailey has booked 2,800 labor hours for the coming month.How much overhead should he expect to incur? c.If Bailey books one more catering job for the month,requiring 200 labor hours,how much additional overhead should he expect to incur? d.Bailey recently attended a meeting of the local Chamber of Commerce,at which he heard an accounting professor discuss regression analysis and its business applications.After the meeting,Bailey enlisted the professor's assistance in preparing a regression analysis of the overhead data he collected.This analysis yielded an estimated fixed cost of $48,000 per month and a variable cost of $4 per labor hour.Why do these estimates differ from your high-low estimates,calculated in part a?

Indicate which of the following costs are classified as mixed or step costs.

International Imports is a merchandising firm.Last year they reported sales of $674,500 and cost of goods sold of $404,700.The company's total variable selling and administrative expense was $60,705,and fixed selling and administrative expense was $53,960.The total variable costs for the firm are

A limitation of using the scattergraph method to estimate the cost components of total cost is

International Imports is a merchandising Firm.Last year they reported sales of $674,500 and cost of goods sold of $404,700.The company's total variable selling and administrative expense was $60,705,and fixed selling and administrative expense was $53,960.The total contribution margin for the firm is

To estimate total cost using the high-low method,identify the highest and lowest level of activity and compute the slope of the line.

Restate the following income statement in contribution format.

Children's World Toy Shop is an on-line toy store specializing in hand made stuffed animals.Children's World sold 4,000 Donny the Dragon stuffed toys during April and 6,000 during May.Shipping costs for the two months were $12,000 and $16,800 respectively.Using these two months' data,the shipping cost function is best estimated as

Suppose your cell phone company offers a plan under which you buy time per minute.A one-minute call costs you $0.10.If you talk 100 minutes it costs you $10.This is an example of a

Which of the following is an example of a variable cost for a bicycle manufacturer?

Jenny's Cutting Station is a new concept in haircuts; low cost and very quick.Set in a local mall,Jenny's offers 15 minute haircuts for harried shoppers who do not have time for lengthy appointments.To ensure that the clients are in and out quickly,she schedules her 5 employees based on expected client traffic.Each of the employees is paid $1,200 per month,with part of their pay coming from client tips.Jenny pays rent and overhead costs of $2,000 per month.Because of the quick nature of the service,Jenny doesn't have time to clean combs in between clients,so she uses a new comb for each customer,at a cost of $.55 each.She also provides shampoo and conditioner for each client at a cost of $.95 per client.The average price for a haircut is $12.Jenny pays herself $5,000 per month.What is Jenny's contribution margin per haircut?

A contribution format income statement allows a manager to