Question 1

From a cost behavior perspective, what type of cost is this?
2. If Ai plans to extract 875 tons, is the company being very "cost effective" with respect to Cortez's billing rates? Briefly discuss.
C. 1. Step-fixed.
2. No. Notice that the bill will be $70,000 for A-1's tonnage, and the company could have Cortez haul up to 1,099 tons for the same cost. Ideally, Ai should try to move to the right side of the step to get a better return on its investment.

Accepted Answer

The answer of From a cost behavior perspective, what type...

Question 2

Consider the six costs that follow.
1. Advertising and promotion costs of a do-it-yourself retailer
2. Surgical supplies used in a hospital's operating room
3. Aircraft depreciation charges of an airline
4. Utility charges that include a minimum-use fee, for a small business
5. Annual business licensing fee paid by a daycare center
6. Truck fuel consumed by a road construction company
Required:
A. Classify each of these costs as variable, committed fixed, discretionary fixed, or semivariable.
B. Briefly describe the behavior of a per-unit variable cost as activity changes.
C. What elements are present in a semivariable cost that cause it to behave in a semivariable manner?
D. Generally speaking, does management have more flexibility when dealing with committed fixed costs or discretionary fixed costs?

Accepted Answer

The answer of Consider the six costs that follow.
1. Advertising...

Question 3

Yang Manufacturing, which uses the high-low method, makes a product called Yin. The company incurs three different cost types (A, B, and C) and has a relevant range of operation between 2,500 units and 10,000 units per month. Per-unit costs at two different activity levels for each cost type are presented below. $\begin{array}{lcccc} 
& \text { Type A } & \text { Type B } & \text { Type C } & \text { Total } \
5,000 \text { units } & \$ 4 & \$ 9 & \$ 4 & \$ 17 \
7,500 \text { units } & \$ 4 & \$ 6 & \$ 3 & \$ 13
\end{array}$ The cost formula that expresses the behavior of Yang's total cost is:

Accepted Answer

A)  Y = $0 + $17X. 
B)  Y = $20,000 + $13X. 
C)  Y = $40,000 + $9X. 
D)  Y = $45,000 + $4X. 
E)  Y = $60,000 + $5X.

Question 4

Song, Inc., uses the high-low method to analyze cost behavior. The company observed that at 22,000 machine hours of activity, total maintenance costs averaged $33.40 per hour. When activity jumped to 25,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $30.40.
On the basis of this information, the fixed cost was:

Accepted Answer

A)  $184,800. 
B)  $210,000. 
C)  $550,000. 
D)  $734,800. 
E)  $760,000.

Question 5

Northlake, Inc., uses the high-low method to analyze cost behavior. The company observed that at 20,000 machine hours of activity, total maintenance costs averaged $10.50 per hour. When activity jumped to 24,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $9.75. On the basis of this information, the company's fixed maintenance costs were:

Accepted Answer

A)  $24,000. 
B)  $90,000. 
C)  $210,000. 
D)  $234,000. 
E)  None of the other answers is correct.

Question 6

Song, Inc., uses the high-low method to analyze cost behavior. The company observed that at 22,000 machine hours of activity, total maintenance costs averaged $33.40 per hour. When activity jumped to 25,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $30.40.
On the basis of this information, the variable cost per machine hour was:

Accepted Answer

A)  $8.40. 
B)  $22.00. 
C)  $25.00. 
D)  $30.40. 
E)  $33.40.

Question 7

A review of Parrish Corporation's accounting records found that at a volume of 90,000 units, the variable and fixed cost per unit amounted to $8 and $4, respectively. On the basis of this information, what amount of total cost would Parrish anticipate at a volume of 85,000 units?

Accepted Answer

A)  $1,020,000. 
B)  $1,040,000. 
C)  $1,060,000. 
D)  $1,080,000. 
E)  None of the other answers is correct.

Question 8

DuChien Corporation recently produced and sold 100,000 units. Fixed costs at this level of activity amounted to $50,000; variable costs were $100,000. How much cost would the company anticipate if during the next period it produced and sold 102,000 units?

Accepted Answer

A)  $150,000. 
B)  $151,000. 
C)  $152,000. 
D)  $153,000. 
E)  None of the other answers is correct.

Question 9

Which of the following costs exhibits both decreasing and increasing marginal costs over a specific range of activity?

Accepted Answer

A)  Semivariable cost. 
B)  Curvilinear cost. 
C)  Step-fixed cost. 
D)  Step-variable cost. 
E)  Fixed cost.

Question 10

Which of the following costs changes in direct proportion to a change in the activity level?

Accepted Answer

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

Question 11

Wesley Enterprises has determined that three variables play a key role in determining company revenues. To arrive at an objective forecast of revenues for the next accounting period, Wesley should use:

Accepted Answer

A)  simple regression. 
B)  multiple regression. 
C)  a scatter diagram. 
D)  complex regression. 
E)  the high-low method.

Question 12

When graphed, a typical step-fixed cost appears as:

Accepted Answer

A)  a horizontal line. 
B)  a vertical line. 
C)  a series of staggered horizontal lines. 
D)  a diagonal line that slopes downward to the right. 
E)  a diagonal line that slopes upward to the right.

Question 13

The following data relate to the Lisle Company for May and August of the current year: $\begin{array}{lrr} 
& \text { May } & \text { August } \
\text { Maintenance hours } & 25,000 & 29,000 \
\text { Maintenance cost } & \$ 1,175,000 & \$ 1,247,000
\end{array}$ May and August were the lowest and highest activity levels, and Lisle uses the high-low method to analyze cost behavior. If maintenance hours are estimated to be 26,000 hours in October, which of the following statements is true?

Accepted Answer

A)  Total maintenance costs will be $1,175,000. 
B)  Total maintenance costs will be $1,182,000. 
C)  Total maintenance costs will be $1,193,000. 
D)  Total maintenance costs will be $1,221,000. 
E)  Total maintenance costs will be $1,247,000.

Question 14

Chesley Corporation, which uses least-squares regression analysis, has derived the following regression equation for estimates of manufacturing overhead: Y = 495,000 + 5.65X. Which of the following statements is true if the primary cost driver is machine hours?

Accepted Answer

A)  Total manufacturing overhead is represented by the variable "X." 
B)  The company anticipates $495,000 of fixed manufacturing overhead. 
C)  "X" is commonly known as the dependent variable. 
D)  "X" represents the number of machine hours. 
E)  The company anticipates $495,000 of fixed manufacturing overhead and "X" represents the number of machine hours.

Question 15

Mismatched time periods is not an issue in the collection of data for cost estimation.

Accepted Answer

A) True 
 B)False

Question 16

Ai Corporation extracts ore for eight different companies in Colorado. The firm anticipates variable costs of $65 per ton along with annual fixed overhead of $840,000, which is incurred evenly throughout the year. These costs exclude the following semivariable costs, which are expected to total the amounts shown for the high and low points of ore extraction activity:
March (850 tons): $39,900
August (1,300 tons): $46,200
A-1 uses the high-low method to analyze cost behavior.
Required:
A. Calculate the semivariable cost for an upcoming month when 875 tons will be extracted.
B. Calculate the total cost for that same month.
C. Ai uses Cortez Trucking to haul extracted ore. Cortez's monthly charges are as follows:

Accepted Answer

The answer of Ai Corporation extracts ore for eight different...

Question 17

Which of the following is not an issue in the collection of data for cost estimation?

Accepted Answer

A)  Outliers. 
B)  Missing data. 
C)  Mismatched time periods. 
D)  Inflation. 
E)  All of the other answers are issues in data collection.

Question 18

Which of the following would not typically be classified as a discretionary fixed cost?

Accepted Answer

A)  Equipment depreciation. 
B)  Employee development (education) programs. 
C)  Advertising. 
D)  Outlays for research and development. 
E)  Charitable contributions.

Question 19

The nonstatistical method of cost estimation that calls for the creation of a scatter diagram is the:

Accepted Answer

A)  least-squares regression method. 
B)  high-low method. 
C)  visual-fit method. 
D)  account analysis method. 
E)  multiple regression method.

Question 20

Hot'lanta, Inc., which uses the high-low method to analyze cost behavior, has determined that machine hours best explain the company's utilities cost. The company's relevant range of activity varies from a low of 600 machine hours to a high of 1,100 machine hours, with the following data being available for the first six months of the year: $\begin{array}{lrr}\text { Month }&\text { Utilities }&\text { Machine Hours }\
\text { January } & \$ 8,700 & 800 \
\text { February } & 8,360 & 720 \
\text { March } & 8,950 & 810 \
\text { April } & 9,360 & 920 \
\text { May } & 9,625 & 950 \
\text { June } & 9,150 & 900
\end{array}$ The fixed utilities cost per month is:

Accepted Answer

A)  $3,764. 
B)  $4,400. 
C)  $4,760. 
D)  $5,100. 
E)  None of the other answers is correct.

Exam 6: Activity Analysis, Cost Behavior, and Cost Estimation