Exam 5: How Do Organizations Identify Cost Behavior Patterns

Exhibit 5-5 Tyler Incorporated sells 5,000 units per month with the following costs: Variable costs: $1.25 per unit Fixed costs: $3,000 per month -Refer to Exhibit 5-5.Tyler recently switched vendors and expects variable costs to rise by $1.00 per unit.However,with a new lease on the factory,Tyler expects fixed costs to drop by $300 per month. In the month after the change in suppliers and the signing of the new lease,Tyler anticipates selling 5,500 units per month.What will be the estimated total costs each month?

Total fixed costs change with changes in volume of activity.

Last month,Pioneer Company sold its product for $50 per unit.Fixed production costs were $20,000,and variable production costs amounted to $8.00 per unit.Fixed selling and administrative costs totaled $13,000,and variable selling and administrative costs amount to $3.00 per unit.Pioneer produced and sold 4,000 units last month. (1)Prepare a traditional income statement for Pioneer Industries. (2)Prepare a contribution margin income statement for Pioneer Industries. (3)Why do companies use the contribution margin income statement format?

Exhibit 5-7 Last month,Ellison Industries sold its product for $100 per unit.Fixed production costs were $50,000,and variable production costs amounted to $21 per unit.Fixed selling and administrative costs totaled $20,000,and variable selling and administrative costs amount to $3.00 per unit.Dawson produced and sold 6,000 units last month. -Refer to Exhibit 5-7.Using a traditional income statement,which of the following amounts is the gross margin?

Exhibit 5-4 Wayside Company has machine hours of 5,000 and machine costs of $170,000 at the high data point.Machine hours are 2,000 and machine costs are $110,000 at the low data point.Wayside uses the high-low method to estimate costs. -Refer to Exhibit 5-4.What is the estimated cost per machine hour?

Riley Company would like to estimate production costs on an annual basis.Costs incurred for direct materials and direct labor are variable costs.The accounting records indicate the following production costs were incurred last year for 40,000 units: Use account analysis to estimate the fixed costs per year,and the variable cost per unit.

Exhibit 5-2 Manchester Company is a small company that has hired you to help them estimate costs.They present you with the following information from the company's most recent fiscal year. Sales (2,000 units)$1,000,000 Cost of goods sold (24% of sales)240,000 Store supervisor's annual salary 65,000 Annual operating costs 70,000 Annual advertising and promotion 10,000 Sales commissions (5% of sales)50,000 -Refer to Exhibit 5-2.What were the total fixed costs for the company's most recent fiscal year?

Exhibit 5-2 Manchester Company is a small company that has hired you to help them estimate costs.They present you with the following information from the company's most recent fiscal year. Sales (2,000 units)$1,000,000 Cost of goods sold (24% of sales)240,000 Store supervisor's annual salary 65,000 Annual operating costs 70,000 Annual advertising and promotion 10,000 Sales commissions (5% of sales)50,000 -Refer to Exhibit 5-2.What are the estimated total costs if Manchester expects to sell 2,100 computers next year?

Exhibit 5-7 Last month,Ellison Industries sold its product for $100 per unit.Fixed production costs were $50,000,and variable production costs amounted to $21 per unit.Fixed selling and administrative costs totaled $20,000,and variable selling and administrative costs amount to $3.00 per unit.Dawson produced and sold 6,000 units last month. -Refer to Exhibit 5-7.Which of the following amounts represents total cost of goods sold?

Exhibit 5-3 Hayley Inc.is using the account analysis approach to identify the cost behavior of production costs for one month.The production manager was asked to review these costs and provide her best guess as to how they should be categorized.Hayley produced 200 units for the month.She responded with the following information. -Refer to Exhibit 5-3.Which of the following best describes the production costs in equation form?

Exhibit 5-5 Tyler Incorporated sells 5,000 units per month with the following costs: Variable costs: $1.25 per unit Fixed costs: $3,000 per month -Refer to Exhibit 5-5.What are Tyler's total costs each month?

Exhibit 5-2 Manchester Company is a small company that has hired you to help them estimate costs.They present you with the following information from the company's most recent fiscal year. Sales (2,000 units)$1,000,000 Cost of goods sold (24% of sales)240,000 Store supervisor's annual salary 65,000 Annual operating costs 70,000 Annual advertising and promotion 10,000 Sales commissions (5% of sales)50,000 -Refer to Exhibit 5-2.What was the variable cost per unit for the company's most recent fiscal year?

Regression analysis is one of the most accurate methods for estimating costs,because its estimates are based on the data set as a whole.

Randle Company ran a regression analysis comparing total units of production and maintenance costs for the past four months.The regression analysis shows an R-squared of 0.76.Which of the following statements best describes this measure?

Exhibit 5-6 Regression analysis for Barton Industries results in the following output. -Refer to Exhibit 5-6.Assume Barton Industries will produce 500 units next month.What are the total estimated production costs for the month?

All of the following are steps of the high-low method except:

Some companies choose to use the scattergraph method to estimate costs because this method considers:

The R-squared measure is used to measure the percent of variance in the dependent variable that is explained by the independent variable.

Examples of variable costs include factory building insurance and wages for hourly workers.

Peyton Products makes paddle boards, and would like to identify the behavior of certain costs with respect to each paddle board produced and sold. Required: Identify each of the following costs as variable (V), fixed (F), or mixed (M). 1. Salary of chief financial officer (CFO). 2. Parts required for production. 3. Straight-line depreciation on factory machinery. 4. Salaries and commissions of salespeople. 5. Lease payments of $30,000 for factory equipment plus 5 cents for each keyboard completed. 6. Company cell phones with flat fee of $80 plus 5 cents per minute. 7. Invoices sent to customers. 8. Salary of production manager. 9. Hourly wages for assembly workers.