Deck 5: Planning Budgeting and Behaviour

Question 1

European International has 3 separate business units in the following countries. Data for each of the business units is given below: $\begin{array}{|l|l|l|l|}\hline&\text { France } & 5 p \mathrm{a} i n & \text { italy }\\\hline \text { Selling price per unit } & £ 35 & £ 38 & £ 42 \\\hline \text { Manufacturing cost } & £ 4,000 \text { per month plus } £ 17 \text { per } & £ 3,500 \text { per month plus } £ 18 \text { per } & £ 5,000 \text { per month plus } £ 20 \text { per } \\& \text { unit } & \text { unit } & \text { unit } \\\hline \text { Administrative } & £ 2,500 \text { per month plus } £ 2.50 & £ 2,900 \text { per month plus } £ 2.90 & £ 3,500 \text { per month plus } £ 3.50 \\\text { expense } & \text { per unit } & \text { per unit } & \text { per unit } \\\hline \text { Sales commissions } & 15 \% \text { of sales } & 16 \% \text { of sales } & 20 \% \text { of sales } \\\hline \text { Advertising expense } & £ 2,000 \text { per month } & £ 3,000 \text { per month } & £ 2,000 \text { per month }\\\hline\end{array}$

-If the business unit in Spain expects to produce and sell 2,000 units next month, the total expected manufacturing cost would be

A)£39,000.
B)£39,500.
C)£40,500.
D)£38,750.

Answer 1

£39,500.

Question 2

European International has 3 separate business units in the following countries. Data for each of the business units is given below: $\begin{array}{|l|l|l|l|}\hline&\text { France } & 5 p \mathrm{a} i n & \text { italy }\\\hline \text { Selling price per unit } & £ 35 & £ 38 & £ 42 \\\hline \text { Manufacturing cost } & £ 4,000 \text { per month plus } £ 17 \text { per } & £ 3,500 \text { per month plus } £ 18 \text { per } & £ 5,000 \text { per month plus } £ 20 \text { per } \\& \text { unit } & \text { unit } & \text { unit } \\\hline \text { Administrative } & £ 2,500 \text { per month plus } £ 2.50 & £ 2,900 \text { per month plus } £ 2.90 & £ 3,500 \text { per month plus } £ 3.50 \\\text { expense } & \text { per unit } & \text { per unit } & \text { per unit } \\\hline \text { Sales commissions } & 15 \% \text { of sales } & 16 \% \text { of sales } & 20 \% \text { of sales } \\\hline \text { Advertising expense } & £ 2,000 \text { per month } & £ 3,000 \text { per month } & £ 2,000 \text { per month }\\\hline\end{array}$

-If the business unit in France plans to produce and sell 4,000 units next month, the expected gross margin would be

A)£41,000.
B)£37,000.
C)£68,000.
D)£57,500.

Answer 2

£68,000.

Question 3

European International has 3 separate business units in the following countries. Data for each of the business units is given below: $\begin{array}{|l|l|l|l|}\hline&\text { France } & 5 p \mathrm{a} i n & \text { italy }\\\hline \text { Selling price per unit } & £ 35 & £ 38 & £ 42 \\\hline \text { Manufacturing cost } & £ 4,000 \text { per month plus } £ 17 \text { per } & £ 3,500 \text { per month plus } £ 18 \text { per } & £ 5,000 \text { per month plus } £ 20 \text { per } \\& \text { unit } & \text { unit } & \text { unit } \\\hline \text { Administrative } & £ 2,500 \text { per month plus } £ 2.50 & £ 2,900 \text { per month plus } £ 2.90 & £ 3,500 \text { per month plus } £ 3.50 \\\text { expense } & \text { per unit } & \text { per unit } & \text { per unit } \\\hline \text { Sales commissions } & 15 \% \text { of sales } & 16 \% \text { of sales } & 20 \% \text { of sales } \\\hline \text { Advertising expense } & £ 2,000 \text { per month } & £ 3,000 \text { per month } & £ 2,000 \text { per month }\\\hline\end{array}$

-
For planning, control, and decision-making purposes

A)fixed costs should be converted to a per unit basis.
B)discretionary fixed costs should be eliminated.
C)variable costs should be ignored.
D)mixed costs should be separated into their variable and fixed components.

Answer 3

mixed costs should be separated into their variable and fixed components.

Question 4

Contribution margin is defined as sales less discretionary fixed costs

Question 5

European International has 3 separate business units in the following countries. Data for each of the business units is given below: $\begin{array}{|l|l|l|l|}\hline&\text { France } & 5 p \mathrm{a} i n & \text { italy }\\\hline \text { Selling price per unit } & £ 35 & £ 38 & £ 42 \\\hline \text { Manufacturing cost } & £ 4,000 \text { per month plus } £ 17 \text { per } & £ 3,500 \text { per month plus } £ 18 \text { per } & £ 5,000 \text { per month plus } £ 20 \text { per } \\& \text { unit } & \text { unit } & \text { unit } \\\hline \text { Administrative } & £ 2,500 \text { per month plus } £ 2.50 & £ 2,900 \text { per month plus } £ 2.90 & £ 3,500 \text { per month plus } £ 3.50 \\\text { expense } & \text { per unit } & \text { per unit } & \text { per unit } \\\hline \text { Sales commissions } & 15 \% \text { of sales } & 16 \% \text { of sales } & 20 \% \text { of sales } \\\hline \text { Advertising expense } & £ 2,000 \text { per month } & £ 3,000 \text { per month } & £ 2,000 \text { per month }\\\hline\end{array}$

-
If the business unit in Spain plans to produce and sell 4,000 units next month, the expected gross margin would be

A)£71,000.
B)£77,000.
C)£78,000.
D)£76,500.

Question 6

European International has 3 separate business units in the following countries. Data for each of the business units is given below: $\begin{array}{|l|l|l|l|}\hline&\text { France } & 5 p \mathrm{a} i n & \text { italy }\\\hline \text { Selling price per unit } & £ 35 & £ 38 & £ 42 \\\hline \text { Manufacturing cost } & £ 4,000 \text { per month plus } £ 17 \text { per } & £ 3,500 \text { per month plus } £ 18 \text { per } & £ 5,000 \text { per month plus } £ 20 \text { per } \\& \text { unit } & \text { unit } & \text { unit } \\\hline \text { Administrative } & £ 2,500 \text { per month plus } £ 2.50 & £ 2,900 \text { per month plus } £ 2.90 & £ 3,500 \text { per month plus } £ 3.50 \\\text { expense } & \text { per unit } & \text { per unit } & \text { per unit } \\\hline \text { Sales commissions } & 15 \% \text { of sales } & 16 \% \text { of sales } & 20 \% \text { of sales } \\\hline \text { Advertising expense } & £ 2,000 \text { per month } & £ 3,000 \text { per month } & £ 2,000 \text { per month }\\\hline\end{array}$

-If the business unit in France expects to produce and sell 5,000 units next month, the expected net operating income would be

A)£51,250.
B)£42,750.
C)£71,000.
D)£62,500.

Question 7

When more than one factor causes variations in the variable element of a mixed cost, multiple regression analysis should be used.

Question 8

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

A)the dependent variable, cost.
B)the independent variable, the level of activity.
C)the total fixed costs.
D)the variable cost per unit of activity.

Question 9

Bee Company is a honey wholesaler. An income statement and other data for the second quarter of the year are given below:


-If 24,000 units are sold during the third quarter and this activity is within the relevant range, Bee Company's expected contribution margin would be

A)£646,800.
B)£762,000.
C)£810,000.
D)£760,080.

Question 10

Bee Company is a honey wholesaler. An income statement and other data for the second quarter of the year are given below:


-Bee Company's contribution margin for the second quarter is

A)£463,200.
B)£540,000.
C)£851,200.
D)£431,200.

Question 11

European International has 3 separate business units in the following countries. Data for each of the business units is given below: $\begin{array}{|l|l|l|l|}\hline&\text { France } & 5 p \mathrm{a} i n & \text { italy }\\\hline \text { Selling price per unit } & £ 35 & £ 38 & £ 42 \\\hline \text { Manufacturing cost } & £ 4,000 \text { per month plus } £ 17 \text { per } & £ 3,500 \text { per month plus } £ 18 \text { per } & £ 5,000 \text { per month plus } £ 20 \text { per } \\& \text { unit } & \text { unit } & \text { unit } \\\hline \text { Administrative } & £ 2,500 \text { per month plus } £ 2.50 & £ 2,900 \text { per month plus } £ 2.90 & £ 3,500 \text { per month plus } £ 3.50 \\\text { expense } & \text { per unit } & \text { per unit } & \text { per unit } \\\hline \text { Sales commissions } & 15 \% \text { of sales } & 16 \% \text { of sales } & 20 \% \text { of sales } \\\hline \text { Advertising expense } & £ 2,000 \text { per month } & £ 3,000 \text { per month } & £ 2,000 \text { per month }\\\hline\end{array}$

-If the business unit in Italy expects to produce and sell 2,000 units next month, the total expected manufacturing cost would be

A)£44,000.
B)£49,000.
C)£45,500.
D)£45,000.

Question 12

European International has 3 separate business units in the following countries. Data for each of the business units is given below: $\begin{array}{|l|l|l|l|}\hline&\text { France } & 5 p \mathrm{a} i n & \text { italy }\\\hline \text { Selling price per unit } & £ 35 & £ 38 & £ 42 \\\hline \text { Manufacturing cost } & £ 4,000 \text { per month plus } £ 17 \text { per } & £ 3,500 \text { per month plus } £ 18 \text { per } & £ 5,000 \text { per month plus } £ 20 \text { per } \\& \text { unit } & \text { unit } & \text { unit } \\\hline \text { Administrative } & £ 2,500 \text { per month plus } £ 2.50 & £ 2,900 \text { per month plus } £ 2.90 & £ 3,500 \text { per month plus } £ 3.50 \\\text { expense } & \text { per unit } & \text { per unit } & \text { per unit } \\\hline \text { Sales commissions } & 15 \% \text { of sales } & 16 \% \text { of sales } & 20 \% \text { of sales } \\\hline \text { Advertising expense } & £ 2,000 \text { per month } & £ 3,000 \text { per month } & £ 2,000 \text { per month }\\\hline\end{array}$

-If the business unit in Spain expects to produce and sell 5,000 units next month, the expected net operating income would be

A)£41,250.
B)£48,700.
C)£45,700.
D)£42,500.

Question 13

European International has 3 separate business units in the following countries. Data for each of the business units is given below: $\begin{array}{|l|l|l|l|}\hline&\text { France } & 5 p \mathrm{a} i n & \text { italy }\\\hline \text { Selling price per unit } & £ 35 & £ 38 & £ 42 \\\hline \text { Manufacturing cost } & £ 4,000 \text { per month plus } £ 17 \text { per } & £ 3,500 \text { per month plus } £ 18 \text { per } & £ 5,000 \text { per month plus } £ 20 \text { per } \\& \text { unit } & \text { unit } & \text { unit } \\\hline \text { Administrative } & £ 2,500 \text { per month plus } £ 2.50 & £ 2,900 \text { per month plus } £ 2.90 & £ 3,500 \text { per month plus } £ 3.50 \\\text { expense } & \text { per unit } & \text { per unit } & \text { per unit } \\\hline \text { Sales commissions } & 15 \% \text { of sales } & 16 \% \text { of sales } & 20 \% \text { of sales } \\\hline \text { Advertising expense } & £ 2,000 \text { per month } & £ 3,000 \text { per month } & £ 2,000 \text { per month }\\\hline\end{array}$

-
If the business unit in Spain plans to produce sell 3,000 units next month, the expected contribution margin would be

A)£33,060.
B)£34,250.
C)£29,750.
D)£96,500.

Question 14

European International has 3 separate business units in the following countries. Data for each of the business units is given below: $\begin{array}{|l|l|l|l|}\hline&\text { France } & 5 p \mathrm{a} i n & \text { italy }\\\hline \text { Selling price per unit } & £ 35 & £ 38 & £ 42 \\\hline \text { Manufacturing cost } & £ 4,000 \text { per month plus } £ 17 \text { per } & £ 3,500 \text { per month plus } £ 18 \text { per } & £ 5,000 \text { per month plus } £ 20 \text { per } \\& \text { unit } & \text { unit } & \text { unit } \\\hline \text { Administrative } & £ 2,500 \text { per month plus } £ 2.50 & £ 2,900 \text { per month plus } £ 2.90 & £ 3,500 \text { per month plus } £ 3.50 \\\text { expense } & \text { per unit } & \text { per unit } & \text { per unit } \\\hline \text { Sales commissions } & 15 \% \text { of sales } & 16 \% \text { of sales } & 20 \% \text { of sales } \\\hline \text { Advertising expense } & £ 2,000 \text { per month } & £ 3,000 \text { per month } & £ 2,000 \text { per month }\\\hline\end{array}$

-If the business unit in France expects to produce and sell 2,000 units next month, the total expected manufacturing cost would be

A)£34,000.
B)£39,000.
C)£45,500.
D)£38,000.

Question 15

Bee Company is a honey wholesaler. An income statement and other data for the second quarter of the year are given below:


-Bee Company's net operating income for the second quarter using the contribution approach is

A)£156,200.
B)£685,000.
C)£431,200.
D)£265,000.

Question 16

European International has 3 separate business units in the following countries. Data for each of the business units is given below: $\begin{array}{|l|l|l|l|}\hline&\text { France } & 5 p \mathrm{a} i n & \text { italy }\\\hline \text { Selling price per unit } & £ 35 & £ 38 & £ 42 \\\hline \text { Manufacturing cost } & £ 4,000 \text { per month plus } £ 17 \text { per } & £ 3,500 \text { per month plus } £ 18 \text { per } & £ 5,000 \text { per month plus } £ 20 \text { per } \\& \text { unit } & \text { unit } & \text { unit } \\\hline \text { Administrative } & £ 2,500 \text { per month plus } £ 2.50 & £ 2,900 \text { per month plus } £ 2.90 & £ 3,500 \text { per month plus } £ 3.50 \\\text { expense } & \text { per unit } & \text { per unit } & \text { per unit } \\\hline \text { Sales commissions } & 15 \% \text { of sales } & 16 \% \text { of sales } & 20 \% \text { of sales } \\\hline \text { Advertising expense } & £ 2,000 \text { per month } & £ 3,000 \text { per month } & £ 2,000 \text { per month }\\\hline\end{array}$

-
If the business unit in Italy plans to produce sell 3,000 units next month, the expected contribution margin would be

A)£34,750.
B)£30,300.
C)£26,500.
D)£56,250.

Question 17

The term 'relevant range' refers to the levels of activity within which the assumptions relative to cost behavior are valid.

Question 18

European International has 3 separate business units in the following countries. Data for each of the business units is given below: $\begin{array}{|l|l|l|l|}\hline&\text { France } & 5 p \mathrm{a} i n & \text { italy }\\\hline \text { Selling price per unit } & £ 35 & £ 38 & £ 42 \\\hline \text { Manufacturing cost } & £ 4,000 \text { per month plus } £ 17 \text { per } & £ 3,500 \text { per month plus } £ 18 \text { per } & £ 5,000 \text { per month plus } £ 20 \text { per } \\& \text { unit } & \text { unit } & \text { unit } \\\hline \text { Administrative } & £ 2,500 \text { per month plus } £ 2.50 & £ 2,900 \text { per month plus } £ 2.90 & £ 3,500 \text { per month plus } £ 3.50 \\\text { expense } & \text { per unit } & \text { per unit } & \text { per unit } \\\hline \text { Sales commissions } & 15 \% \text { of sales } & 16 \% \text { of sales } & 20 \% \text { of sales } \\\hline \text { Advertising expense } & £ 2,000 \text { per month } & £ 3,000 \text { per month } & £ 2,000 \text { per month }\\\hline\end{array}$

-If the business unit in Italy expects to produce and sell 5,000 units next month, the expected net operating income would be

A)£41,250.
B)£42,750.
C)£42,000.
D)£40,000.

Question 19

When the activity level is expected to decline within the relevant range, what effects would be anticipated with respect to each of the following?

A)Fixed cost per unit - INCREASE; Variable cost per unit - NO CHANGE
B)Fixed cost per unit - INCREASE; Variable cost per unit - INCREASE
C)Fixed cost per unit - NO CHANGE; Variable cost per unit - NO CHANGE
D)Fixed cost per unit - NO CHANGE; Variable cost per unit - INCREASE

Question 20

Bee Company is a honey wholesaler. An income statement and other data for the second quarter of the year are given below:


-Bee Company's cost formula for total operating expenses, with 'X' equal to the number of units sold would be

A)Y = £123,200 + £4.80X.
B)Y = £123,200 + £6.80X.
C)Y = £275,000 + £4.80X.
D)Y = £166,200 + £6.80X.

Question 21

Marger, Inc., provided the following data for two recent months: $\begin{array}{lrr}&\text { April }&\text {May }\\ \text { Sales in Units.} &3,200&4,500 \\ \text { Cost: } &\\ \text { Cost T} &5,600&5,600 \\ \text {Cost U } &4,480&6,300\\ \text { Cost 'W } & 3,950&5,250\\\end{array}$


-Which of the following classifications best describes the behavior of Cost W?

A)Variable
B)Fixed
C)Mixed
D)None of the above

Question 22

The planning horizon for a discretionary fixed cost usually encompasses many years.

Question 23

The Blaine Company is a highly automated manufacturer. At an activity level of 6,000 machine setups, total overhead costs equal £240,000. Of this amount, depreciation totals £80,000 (all fixed) and lubrication totals £72,000 (all variable). The remaining £88,000 of the total overhead cost consists of utility cost (mixed). At an activity level of 9,000 setups, utility cost totals £112,000.
Assume that the relevant range includes all of the activity levels mentioned in this problem.

-The variable cost per setup for utilities is most likely closest to

A)£ 8.00 per setup.
B)£12.44 per setup.
C)£ 4.00 per setup.
D)£14.66 per setup.

Question 24

Within a relevant range, the amount of variable cost per unit

A)differs at each activity level.
B)remains constant at each activity level.
C)increases as activity increases.
D)decreases as activity increases.

Question 25

Carr Company reports the following data for the first six months of the year: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ MachineElectrica
$\begin{array}{lrr} \text { Month } & \text { Hours } & \text { Cost } \\ \text { January. } &400&£40\\ \text {February } &300&£ 30\\ \text {March } &400& £ 50 \\ \text { April } &300 &£ 40 \\ \text { May} &200&£30\\\text {June } &200 &£ 20\end{array}$


-
Using the least-squares regression method, the estimated monthly fixed component of the electrical cost is closest to

A)£5.
B)£20.
C)£6.
D)£10.

Question 26

The concept of the relevant range does not apply when dealing with step variable costs

Question 27

An example of a committed fixed cost would be

A)taxes on real estate.
B)management development programs.
C)public relations.
D)advertising programs.

Question 28

If the business unit in Italy plans to produce and sell 4,000 units next month, the expected gross margin would be

A)£81,000.
B)£83,000.
C)£68,750.
D)£87,000.

Question 29

The Blaine Company is a highly automated manufacturer. At an activity level of 6,000 machine setups, total overhead costs equal £240,000. Of this amount, depreciation totals £80,000 (all fixed) and lubrication totals £72,000 (all variable). The remaining £88,000 of the total overhead cost consists of utility cost (mixed). At an activity level of 9,000 setups, utility cost totals £112,000.
Assume that the relevant range includes all of the activity levels mentioned in this problem.

-
The total fixed overhead costs for Blaine Company are most likely closest to

A)£112,000.
B)£120,000.
C)£ 40,000.
D)£ 80,000.

Question 30

The following data pertains to activity and maintenance costs for two recent years: $\begin{array}{lrr}& \text { Year } 2& \text { Year } 1 \\ \text {Activity level in units } &12,000&8,000\\ \text {Maintenance cost } &£ 15,000 &£ 12,000\\\end{array}$

Using the high-low method, the cost formula for maintenance would be:

A)£1.50 per unit.
B)£1.25 per unit.
C)£3,000 plus £1.50 per unit.
D)£6,000 plus £0.75 per unit.

Question 31

Factory overhead is an example of a

A)mixed cost.
B)fixed cost.
C)variable cost.
D)irrelevant cost.

Question 32

One difference between a step variable cost and a fixed cost is the width of the step

Question 33

Carr Company reports the following data for the first six months of the year: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ MachineElectrica
$\begin{array}{lrr} \text { Month } & \text { Hours } & \text { Cost } \\ \text { January. } &400&£40\\ \text {February } &300&£ 30\\ \text {March } &400& £ 50 \\ \text { April } &300 &£ 40 \\ \text { May} &200&£30\\\text {June } &200 &£ 20\end{array}$


-Using the least-squares regression method, the estimated variable electrical cost per machine hour is closest to

A)£0.91.
B)£0.10.
C)£0.20.
D)£0.25.

Question 34

On an income statement prepared by the traditional approach, costs are organised and presented according to function.

Question 35

The Blaine Company is a highly automated manufacturer. At an activity level of 6,000 machine setups, total overhead costs equal £240,000. Of this amount, depreciation totals £80,000 (all fixed) and lubrication totals £72,000 (all variable). The remaining £88,000 of the total overhead cost consists of utility cost (mixed). At an activity level of 9,000 setups, utility cost totals £112,000.
Assume that the relevant range includes all of the activity levels mentioned in this problem.

-If 7,800 setups are projected for the next period, total expected overhead cost would be closest to

A)£156,000.
B)£236,000.
C)£214,400.
D)£276,000.

Question 36

Marger, Inc., provided the following data for two recent months: $\begin{array}{lrr}&\text { April }&\text {May }\\ \text { Sales in Units.} &3,200&4,500 \\ \text { Cost: } &\\ \text { Cost T} &5,600&5,600 \\ \text {Cost U } &4,480&6,300\\ \text { Cost 'W } & 3,950&5,250\\\end{array}$


-
Which of the following classifications best describes the behavior of Cost U

A)Variable
B)Fixed
C)Mixed
D)None of the above

Question 37

Which of the following costs, if expressed on a per unit basis, would be expected to vary inversely with the level of production and sales?

A)Sales commissions.
B)Fixed manufacturing overhead.
C)Variable manufacturing overhead.
D)Direct materials.

Question 38

Marger, Inc., provided the following data for two recent months: $\begin{array}{lrr}&\text { April }&\text {May }\\ \text { Sales in Units.} &3,200&4,500 \\ \text { Cost: } &\\ \text { Cost T} &5,600&5,600 \\ \text {Cost U } &4,480&6,300\\ \text { Cost 'W } & 3,950&5,250\\\end{array}$


-Which of the following classifications best describes the behavior of Cost T?

A)Variable
B)Fixed
C)Mixed
D)None of the above

Question 39

The relative proportion of variable, fixed, and mixed costs in a firm is known as the firm's

A)contribution margin.
B)cost structure.
C)product mix.
D)relevant range.

Question 40

Total production costs for Gallop, Inc. are budgeted at £230,000 for 50,000 units of budgeted output and at £280,000 for 60,000 units of budgeted output. Because of the need for additional facilities, budgeted fixed costs for 60,000 units are 25% more than budgeted fixed costs for 50,000 units. How much is Gallop's budgeted variable cost per unit of output

A)£1.60.
B)£1.67.
C)£3.00.
D)£5.00.

Question 41

Discretionary fixed costs

A)have a planning horizon that covers many years.
B)may be reduced for short periods of time with minimal damage to the long-run goals of the organisation.
C)cannot be reduced for even short periods of time without resulting in significant damage to the long-run goals of the organization.
D)are most effectively controlled through the effective utilization of facilities and organization.

Question 42

The R2 (i.e., R-squared) is a measure of the goodness-of-fit in least-squares regression, True or

Question 43

A merchandising company typically will have a high proportion of which type of cost in its cost structure

A)Variable.
B)Fixed.
C)Semivariable.
D)Step-variable.

Question 44

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

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 45

Account analysis is a method for analysing cost behavior in which each account under consideration is classified as either variable or fixed based upon the analyst's prior knowledge of how the cost in the account behaves.

Question 46

Rible Company has observed that at an activity level of 8,000 units the cost for maintenance is £15,000, and at 10,000 units the cost for maintenance is £16,500. Using the high-low method, the cost formula for maintenance is

A)£15,000 plus £0.15 per unit.
B)£9,000 plus £0.75 per unit.
C)£1.65 per unit.
D)£1.875 per unit.

Question 47

The cost of goods sold in a merchandising firm typically would be classified as a

A)fixed cost.
B)variable cost.
C)step-variable cost.
D)mixed cost.

Question 48

If the business unit in France plans to produce sell 3,000 units next month, the expected contribution margin would be

A)£30,750.
B)£74,250.
C)£26,750.
D)£96,500.

Question 49

Which of the following types of firms likely would have a high proportion of variable costs in its cost structure?

A)Public utility
B)Airline.
C)Fast food outlet.
D)Architectural firm.

Question 50

Compton Company is a wholesale distributor of educational CD-ROMs. The company's records indicate the following: $\begin{array}{lrr}&\text { This Year}&\text { Last Year }\\ \text { Units Sold } &250,000&200,000\\ \text { Sales Revenue } & £ 1,250,000 &£ 1,000,000\\ \text { Less: Cost of Goods Sold } &\underline{875,000} &\underline{ 700,000} \\ \text {Gross Margin } &375,000 & 300,000 \\ \text {Less: Operating Expenses } &\underline{222,000} &\underline{210,000}\\ \text {Net Operating Income } &£ 153,000& £ 90,000\\\end{array}$



-Using the high-low method of analysis, what are the company's estimated total fixed operating expenses per year?

A)£60,000
B)£174,000
C)£150,000
D)£162,000

Question 51

Compton Company is a wholesale distributor of educational CD-ROMs. The company's records indicate the following: $\begin{array}{lrr}&\text { This Year}&\text { Last Year }\\ \text { Units Sold } &250,000&200,000\\ \text { Sales Revenue } & £ 1,250,000 &£ 1,000,000\\ \text { Less: Cost of Goods Sold } &\underline{875,000} &\underline{ 700,000} \\ \text {Gross Margin } &375,000 & 300,000 \\ \text {Less: Operating Expenses } &\underline{222,000} &\underline{210,000}\\ \text {Net Operating Income } &£ 153,000& £ 90,000\\\end{array}$



-What is the company's contribution margin for this year?

A)£315,000
B)(£667,500)
C)£375,000
D)£213,000

Question 52

A variable cost remains constant in total amount, but varies per unit of activity

Question 53

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

Question 54

Committed fixed costs are those that relate to the investment in facilities, equipment and the basic organisational structure of a company, True or

Question 55

Compton Company is a wholesale distributor of educational CD-ROMs. The company's records indicate the following: $\begin{array}{lrr}&\text { This Year}&\text { Last Year }\\ \text { Units Sold } &250,000&200,000\\ \text { Sales Revenue } & £ 1,250,000 &£ 1,000,000\\ \text { Less: Cost of Goods Sold } &\underline{875,000} &\underline{ 700,000} \\ \text {Gross Margin } &375,000 & 300,000 \\ \text {Less: Operating Expenses } &\underline{222,000} &\underline{210,000}\\ \text {Net Operating Income } &£ 153,000& £ 90,000\\\end{array}$



-
Using the high-low method of analysis, what are the company's estimated variable operating expenses per unit

A)£0.24
B)£4.17
C)£0.88
D)£0.96

Question 56

The contribution approach to the income statement classifies costs by function rather than by behavior

Question 57

If the level of activity increases within the relevant range

A)variable cost per unit and total fixed costs also increase.
B)fixed cost per unit and total variable cost also increases.
C)total cost will increase and fixed cost per unit will decrease.
D)variable cost per unit and total cost also increases.

Question 58

Stott Company requires one dockhand for every 500 packages loaded daily. The wages for these dockhands would be classified as

A)variable.
B)mixed.
C)step-variable.
D)curvilinear.

Question 59

Fixed cost remains constant if expressed on a unit basis

Question 60

The contribution format is widely used for preparing external financial statements

Question 61

In practice, how practical is it to split costs into fixed and variable ones?

Question 62

An example of a discretionary fixed cost would be

A)taxes on the factory.
B)depreciation on manufacturing equipment.
C)insurance.
D)research and development.

Question 63

When the level of activity increases within the relevant range, how does each of the following change

A)Average cost per unit INCREASES; Total variable cost INCREASES; Fixed cost per unit INCREASES
B)Average cost per unit INCREASES; Total variable cost - NO CHANGE; Fixed cost per unit INCREASES
C)Average cost per unit DECREASES; Total variable cost - NO CHANGE; Fixed cost per unit DECREASES
D)Average cost per unit DECREASES; Total variable cost INCREASES; Fixed cost per unit DECREASES

Question 64

Explain the reasoning for splitting cost into fixed and variable. Explain the different ways in which this is important.

Question 65

Paine Company wishes to determine the fixed portion of its electrical costs (a mixed cost). Management believes that the variable portion of the electrical costs is driven by machine-hours. Information for the previous three months follows: $\begin{array}{lcc}&\text { Machine-hours }&\text {Electrical cost}\\ \text {January } &33,000 &£ 600 \\ \text { February } &31,000& £585\\ \text { March} &34,000& £610\end{array}$

Using the high-low method, the fixed portion of the company's electrical costs would be estimated to be closest to:

A)£283.
B)£327.
C)£375.
D)£408.

Question 66

3: Explain and differentiate between fixed, variable, semi-variable and semi-fixed costs.

Question 67

Differentiate between cost analysis from an accounting point of view and an engineering approach.

Question 68

Is labour a fixed or variable cost? Explain.

Question 69

How does the distinction between fixed and variable costs vary between a service and a manufacturing operation?

Question 70

Explain the differences between Committed and Discretionary costs. Why is it important to differentiate?