Exam 1: Managerial Accounting and Cost Concepts

The high-low method uses cost and activity data from just two periods to establish the formula for a mixed cost.

Management of Childers Corporation is considering whether to purchase a new model 380 machine costing $278, 000 or a new model 230 machine costing $207, 000 to replace a machine that was purchased 3 years ago for $266, 000.The old machine was used to make product R16K until it broke down last week.Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 230 machine.It has less capacity than the new model 380 machine, but its capacity is sufficient to continue making product R16K. Management also considered, but rejected, the alternative of simply dropping product R16K.If that were done, instead of investing $207, 000 in the new machine, the money could be invested in a project that would return a total of $305, 000. In making the decision to buy the model 230 machine rather than the model 380 machine, the sunk cost was:

Conversion cost is the sum of direct labor cost and direct materials cost.

In describing the cost equation, Y = a + bX, "a" is:

Committed fixed costs represent organizational investments with a multi-year planning horizon that can't be significantly reduced even for short periods.

Younger Corporation reports that at an activity level of 8, 700 units, its total variable cost is $653, 109 and its total fixed cost is $658, 416. Required: For the activity level of 8, 800 units, compute: (a)the total variable cost; (b)the total fixed cost; (c)the total cost; (d)the average variable cost per unit; (e)the average fixed cost per unit;and (f)the average total cost per unit.Assume that this activity level is within the relevant range.