Question 1

The fact that the high-low method uses only two data points is a major defect of the method.

Accepted Answer

A) True 
 B)False

Question 2

Tempcon, Inc. sells and installs furnaces for $3,000 per furnace. The following cost formula relates to last year's operations at Tempcon:
Y = $125,000 + $1,800X
If Tempcon sold and installed 500 furnaces last year, what was its total contribution margin last year?

Accepted Answer

A)  $475,000 
B)  $900,000 
C)  $1,025,000 
D)  $600,000 
A)  $475,000 
B)  $900,000 
C)  $1,025,000 
D)  $600,000

Question 3

At an activity level of 4,500 machine-hours in a month, Novosel Corporation's total variable maintenance and repair cost is $394,830 and its total fixed maintenance and repair cost is $105,570. What would be the total maintenance and repair cost, both fixed and variable, at an activity level of 4,600 units in a month? Assume that this level of activity is within the relevant range.

Accepted Answer

A)  $511,520 
B)  $505,960 
C)  $509,174 
D)  $500,400 
A)  $511,520 
B)  $505,960 
C)  $509,174 
D)  $500,400

Question 4

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

Accepted Answer

A)  insurance on the headquarters building. 
B)  power to run production equipment. 
C)  supervisory salaries. 
D)  depreciation of factory facilities. 
A)  insurance on the headquarters building. 
B)  power to run production equipment. 
C)  supervisory salaries. 
D)  depreciation of factory facilities.

Question 5

A disadvantage of the high-low method of cost analysis is that:

Accepted Answer

A)  it cannot be used when there are a very large number of observations. 
B)  it is too time consuming to apply. 
C)  it uses two extreme data points, which may not be representative of normal conditions. 
D)  it relies totally on the judgment of the person performing the cost analysis. 
A)  it cannot be used when there are a very large number of observations. 
B)  it is too time consuming to apply. 
C)  it uses two extreme data points, which may not be representative of normal conditions. 
D)  it relies totally on the judgment of the person performing the cost analysis.

Question 6

A clothing manufacturer incurred the following factory maintenance costs: 2,100 units produced with maintenance cost of $61,500, and 750 units produced with maintenance cost of $41,250. How much of the maintenance cost is made up of fixed cost? (Use the high-low method.)

Accepted Answer

A)  $11,181 
B)  $20,125 
C)  $30,000 
D)  $50,319 
A)  $11,181 
B)  $20,125 
C)  $30,000 
D)  $50,319

Question 7

Electrical costs at one of Noyd Corporation's factories are listed below:   Management believes that electrical cost is a mixed cost that depends on machine-hours.
-Using the high-low method, the estimate of the variable component of electrical cost per machine-hour is closest to:

Accepted Answer

A)  $0.11 
B)  $8.92 
C)  $94.27 
D)  $8.56 
A)  $0.11 
B)  $8.92 
C)  $94.27 
D)  $8.56

Question 8

An example of a discretionary fixed cost is:

Accepted Answer

A)  insurance. 
B)  taxes on real estate. 
C)  management training. 
D)  depreciation of buildings and equipment. 
A)  insurance. 
B)  taxes on real estate. 
C)  management training. 
D)  depreciation of buildings and equipment.

Question 9

The following production and average cost data for two levels of monthly production volume have been supplied by a company that produces a single product:  
-The best estimate of the total variable manufacturing cost per unit is:

Accepted Answer

A)  $116.40 
B)  $137.20 
C)  $20.80 
D)  $76.70 
A)  $116.40 
B)  $137.20 
C)  $20.80 
D)  $76.70

Question 10

A cost that is obtained in large chunks and that increases or decreases only in response to fairly wide changes in the activity level is known as a step-variable cost.

Accepted Answer

A) True 
 B)False

Question 11

Within the relevant range, the variable cost per unit:

Accepted Answer

A)  remains constant as activity changes. 
B)  increases as activity increases. 
C)  decreases as activity increases. 
D)  can increase or decrease as the activity changes. 
A)  remains constant as activity changes. 
B)  increases as activity increases. 
C)  decreases as activity increases. 
D)  can increase or decrease as the activity changes.

Question 12

Grundmann Inc. reports that at an activity level of 6,500 machine-hours in a month, its total variable inspection cost is $487,110 and its total fixed inspection cost is $326,040.
-What would be the total variable inspection cost at an activity level of 6,600 machine-hours in a month? Assume that this level of activity is within the relevant range.

Accepted Answer

A)  $494,604 
B)  $331,056 
C)  $487,110 
D)  $813,150 
A)  $494,604 
B)  $331,056 
C)  $487,110 
D)  $813,150

Question 13

Pfalzgraf Corporation, a manufacturing company, has provided the following financial data for January:   The company had no beginning or ending inventories.
-The gross margin for January was:

Accepted Answer

A)  $14,000 
B)  $151,000 
C)  $91,000 
D)  $163,000 
A)  $14,000 
B)  $151,000 
C)  $91,000 
D)  $163,000

Question 14

Unified Parcel, Inc., operates a local parcel delivery service. The company keeps detailed records relating to operating costs of trucks, and has found that if a truck is driven 110,000 miles per year the operating cost is 7.5 cents per mile. This cost increases to 8.75 cents per mile if a truck is driven 60,000 miles per year.
Required:
Estimate the cost formula for truck operating costs using the high-low method.

Accepted Answer

Total cost at high level of activity: 11

Question 15

Reddy Company has the following cost formulas for overhead:  
Based on these cost formulas, the total overhead cost at 600 machine hours is expected to be:

Accepted Answer

A)  $4,500 
B)  $5,200 
C)  $5,620 
D)  $5,340 
A)  $4,500 
B)  $5,200 
C)  $5,620 
D)  $5,340

Question 16

The management of Harlow Corporation, a manufacturing company, would like your help in contrasting the traditional and contribution approaches to the income statement. The company has provided the following financial data for January:   The company had no beginning or ending inventories.
-The contribution margin for January was:

Accepted Answer

A)  $172,000 
B)  $42,000 
C)  $166,000 
D)  $110,000 
A)  $172,000 
B)  $42,000 
C)  $166,000 
D)  $110,000

Question 17

Porter Company has provided the following data for the second quarter of the most recent year:   Assume that direct labor is a variable cost and that there were no beginning or ending inventories.
-The total contribution margin of Porter Company for the second quarter was:

Accepted Answer

A)  $37,250 
B)  $87,000 
C)  $176,000 
D)  $211,000 
A)  $37,250 
B)  $87,000 
C)  $176,000 
D)  $211,000

Question 18

At an activity level of 6,000 units the cost for maintenance is $7,200 and at 10,000 units the cost for maintenance is $11,600. Using the high-low method, the cost formula for maintenance is:

Accepted Answer

A)  $1.20 per unit 
B)  $1.16 per unit 
C)  $1,200 plus $1.10 per unit 
D)  $600 plus $1.10 per unit 
A)  $1.20 per unit 
B)  $1.16 per unit 
C)  $1,200 plus $1.10 per unit 
D)  $600 plus $1.10 per unit

Question 19

A cost formula may not be valid outside the relevant range of activity.

Accepted Answer

A) True 
 B)False

Question 20

The management of Harper Corporation, a manufacturing company, has provided the following financial data for December:  
The contribution margin for December was:

Accepted Answer

A)  $204,000 
B)  $64,000 
C)  $340,000 
D)  $319,000 
A)  $204,000 
B)  $64,000 
C)  $340,000 
D)  $319,000

Exam 5: Cost Behavior Analysis and Use

The fact that the high-low method uses only two data points is a major defect of the method.

Tempcon, Inc. sells and installs furnaces for $3,000 per furnace. The following cost formula relates to last year's operations at Tempcon: Y = $125,000 + $1,800X If Tempcon sold and installed 500 furnaces last year, what was its total contribution margin last year?

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

A disadvantage of the high-low method of cost analysis is that:

A clothing manufacturer incurred the following factory maintenance costs: 2,100 units produced with maintenance cost of $61,500, and 750 units produced with maintenance cost of $41,250. How much of the maintenance cost is made up of fixed cost? (Use the high-low method.)

Electrical costs at one of Noyd Corporation's factories are listed below: Management believes that electrical cost is a mixed cost that depends on machine-hours. -Using the high-low method, the estimate of the variable component of electrical cost per machine-hour is closest to:

An example of a discretionary fixed cost is:

The following production and average cost data for two levels of monthly production volume have been supplied by a company that produces a single product: -The best estimate of the total variable manufacturing cost per unit is:

A cost that is obtained in large chunks and that increases or decreases only in response to fairly wide changes in the activity level is known as a step-variable cost.

Within the relevant range, the variable cost per unit:

Pfalzgraf Corporation, a manufacturing company, has provided the following financial data for January: The company had no beginning or ending inventories. -The gross margin for January was:

Reddy Company has the following cost formulas for overhead: Based on these cost formulas, the total overhead cost at 600 machine hours is expected to be:

Porter Company has provided the following data for the second quarter of the most recent year: Assume that direct labor is a variable cost and that there were no beginning or ending inventories. -The total contribution margin of Porter Company for the second quarter was:

At an activity level of 6,000 units the cost for maintenance is $7,200 and at 10,000 units the cost for maintenance is $11,600. Using the high-low method, the cost formula for maintenance is:

A cost formula may not be valid outside the relevant range of activity.

The management of Harper Corporation, a manufacturing company, has provided the following financial data for December: The contribution margin for December was:

Managerial Accounting and the Business Environment

Managerial Accounting and Cost Concepts

Systems Design: Job-Order Costing

Systems Design: Process Costing

Cost-Volume-Profit Relationship

Variable Costing: a Tool for Management

Activity Based Costing: a Tool to Aid Decision-Making

Profit Planning

Flexible Budgets and Performance Analysis

Standard Costs and Operating Performance Measures

Segment Reporting, Decentralization, and the Balanced Scorecard

Relevant Costs for Decision Making

Capital Budgeting Decisions

How Well Am I Doing Statement of Cash Flows

How Well Am I Doing Financial Statement Analysis

Pricing Products and Services

Profitability Analysis

Further Classification of Labor Costs

Cost of Quality

the Predetermined Overhead Rate and Capacity

Fifo Method

Service Department Allocations

Least-Squares Regression Computations

Abc Action Analysis

Using a Modified Form of Activity-Based Costing to

Predetermined Overhead Rates and Overhead Analysis

Journal Entries to Record Variances

Transfer Pricing

Service Department Charges

The Concept of Present Value

Income Taxes in Capital Budgeting Decisions

The Direct Method of Determining the Net Cash Provided by

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