Activity Cost Analysis

MODULE 3
ACTIVITY COST AND COST ANALYSIS
THEORIES:
1. Cost behavior analysis is a study of how a firm's costs
A. relate to competitors' costs.
B. relate to general price level changes.
C. respond to changes in activity levels within the company.
D. respond to changes in the gross national product. Bobadilla
2. The term relevant range! as used in cost accounting means the range over which
A. costs may fluctuate C. production may vary
B. cost relationships are valid D. relevant costs are incurred Bobadilla
". #ost operating decisions by management focus on a narrow range of activity which is called
the$
A. relevant range of production. C. optimal level of production. Bobadilla
B. strategic level of production. D. tactical operating level of production.
%. An item or event that has a cause&effect relationship with the incurrence of a variable cost is
called a
A. mi'ed cost. C. direct cost.
B. predictor. D. cost driver. Bobadilla
(. )f a predetermined overhead rate is not employed and the volume of production is increased
over the level planned* the cost per unit would be e'pected to
A. Decrease for fi'ed costs and remain unchanged for variable costs.
B. +emain unchanged for fi'ed costs and increase for variable costs.
C. Decrease for fi'ed costs and increase for variable costs.
D. )ncrease for fi'ed costs and increase for variable costs. Bobadilla
,. -hich of the following describes the behavior of the variable cost per unit. /ariable cost$
A. /aries in increasing proportion with changes in the activity level.
B. /aries in increasing proportion with changes in the activity level.
C. +emains constant with changes in the activity level.
D. /aries in direct proportion with the activity level. Bobadilla
0. A cost that remains constant on a per unit basis in a given period despite changes in the level
of activity should be considered a1an2$
A. variable cost. C. fi'ed cost.
B. prime cost. D. overhead cost. Bobadilla
3. #alayan Company4s average cost per unit is the same at all levels of volume. -hich of the
following is true.
A. #A5A6A7 must have only variable costs.
B. #A5A6A7 must have only fi'ed costs.
C. #A5A6A7 must have some fi'ed costs and some variable costs.
D. #A5A6A74s cost structure cannot be determined from this information. Bobadilla
8. Depreciation e'pense based on the number of units produced is classified as what type of
cost.
A. 9ut&of&poc:et cost. C. /ariable cost.
B. #arginal cost. D. ;i'ed cost. Bobadilla
1<. -hen production increases* variable manufacturing costs react in which of the following ways.
Bobadilla A. B. C. D.
=nit variable cost decreases remains same remains same increases
Total variable cost decreases )ncreases decreases )ncreases
11. -hen the number of units manufactured increases* the most significant change in unit cost will
be reflected as a1n2
A. increase in the fi'ed element. C. increase in the mi'ed element.
B. decrease in the variable element. D. decrease in the fi'ed element. Bobadilla
12. As volume increases*
A. total fi'ed costs remain constant and per&unit fi'ed costs increase.
B. total fi'ed costs remain constant and per&unit fi'ed costs decrease.
C. total fi'ed costs remain constant and per&unit fi'ed costs remain constant.
D. total fi'ed costs increase and per&unit fi'ed costs increase. Bobadilla
1". -hich of the following best describes a fi'ed cost.
A. )t may change in total when such change is unrelated to changes in production.
B. )t may change in total when such change is related to changes in production.
C. )t is constant per unit of change in production.
51
Activity Cost Analysis
D. )t may change in total when such change depends on production within the relevant
range. Bobadilla
1%. )f activity increases* which of the following statements about cost behavior is true. Bobadilla
A. ;i'ed cost per unit will increase C. ;i'ed cost per unit will decrease
B. /ariable cost per unit will increase D. /ariable cost per unit will decrease
1(. An increase in the activity level within the relevant range results in$
A. an increase in fi'ed cost per unit.
B. a proportionate increase in total fi'ed costs.
C. an unchanged fi'ed cost per unit.
D. a decrease in fi'ed cost per unit. Bobadilla
1,. A cost that remains constant in total but varies on a per&unit basis with changes in activity is
called a1n2
A. e'pired cost. C. variable cost.
B. fi'ed cost. D. mi'ed cost. Bobadilla
10. -hich of the following statements regarding fi'ed costs is incorrect.
A. >'pressing fi'ed costs on a per unit basis usually is the best approach for decision&
ma:ing process.
B. ;i'ed costs e'pressed on a per unit basis will react inversely with changes in activity.
C. Assumptions by accountants regarding the behavior of fi'ed costs rest heavily on the
concept of the relevant range. Bobadilla
D. ;i'ed costs fre?uently represent long&term investments in property* plant* and e?uipment.
13. 5amang Company changed its cost structure by increasing fi'ed costs and decreasing its per&
unit variable costs. The change$
A. )ncreases ris: and increases potential profit.
B. )ncreases ris: and decreases potential profit.
C. Decreases ris: and decreases potential profit.
D. Decreases ris: and increases potential profit. Bobadilla
18. A management4s preference for a very low degree of operating leverage might indicate that$
A. an increase in sales volume is e'pected.
B. a decrease in sales volume is e'pected.
C. the firm is very unprofitable.
D. the firm has very high fi'ed costs. Bobadilla
2<. #anagement is considering replacing its e'isting sales commission compensation plan with a
fi'ed salary plan. )f the change is adopted* the company4s
A. Brea:even point must increase. C. 9perating leverage must increase.
B. #argin of safety must decrease. D. @rofit must increase. Bobadilla
21. The indifference point is the level of volume at which a company
A. earns the same profit under different operating scheme.
B. earns no profit.
C. earns its target profit.
D. any of the above. Bobadilla
22. 9perating leverage is the relative mi' of
A. revenues earned and manufacturing costs
B. fi'ed and variable costs.
C. high&volume and low&volume products.
D. manufacturing costs and period costs. Bobadilla
2". The increased use of automation and less use of the wor: force in companies has caused a
trend towards an increase in
A. both variable and fi'ed costs.
B. fi'ed costs and a decrease in variable costs.
C. variable costs and a decrease in fi'ed costs.
D. variable costs and no change in fi'ed costs. Bobadilla
2%. )f fi'ed costs decrease while variable cost per unit remains constant* the contribution margin
will be
A. =nchanged C. Aigher
B. 5ower D. )ndeterminate Bobadilla
2(. Costs that increase as the volume of activity decreases within the relevant range are
A. Average cost per unit. C. Total fi'ed costs.
B. Average variable cost per unit. D. Total variable costs. Bobadilla
2,. -hich costs will change with an increase in activity within the relevant range.
A. Total fi'ed costs and total variable cost.
B. @er unit fi'ed costs and total variable cost.
C. @er unit variable cost and per unit fi'ed cost.
D. @er unit fi'ed cost and total fi'ed cost. Bobadilla
52
Activity Cost Analysis
20. -hich of the following best describes the relationship between fi'ed costs per unit and
variable costs per unit* as total volume increases.
A. ;i'ed cost per unit stays the same and variable cost per unit stays the same.
B. ;i'ed cost per unit stays the same and variable cost per unit increases.
C. ;i'ed cost per unit increases and variable cost per unit increases.
D. ;i'ed cost per unit decreases and variable cost per unit stays the same. Bobadilla
23. -ithin the relevant range* the difference between variable costs and fi'ed costs is$
A. variable costs per unit fluctuate and fi'ed cost per unit remains constant.
B. variable cost per unit is constant and fi'ed cost per unit fluctuates.
C. both total variable cost and total fi'ed cost are constant.
D. both total variable cost and total fi'ed cost fluctuate. Bobadilla
28. The learning curve in cost estimation is a good e'ample of$
A. non&linear cost behavior. C. simple regression.
B. machine&intensive production. D. a random variable. Bobadilla
"<. Cost estimation is the process of
A. estimating the relationship between costs and the cost drivers that cause those costs.
B. documenting costs in terms of direct and indirect costs.
C. summariBing past costs into fi'ed and variable components.
D. all of the above. Bobadilla
"1. -hich of the following methods is used to estimate costs.
A. Account analysis C. >ngineering method
B. Aigh&low method D. All of the above Bobadilla
"2. ;or analysis purposes* the high&low method usually produces a1n2
A. reasonable estimate. C. overstated estimate.
B. precise estimate. D. understated estimate. Bobadilla
"". The high&low method is criticiBed because it
A. is not a graphical method.
B. is a mathematical method.
C. ignores much of the available data by concentrating on only the e'treme points.
D. does not provide reasonable estimates. Bobadilla
"%. The high&low method may give unsatisfactory results if
A. the data points all fall on a line. C. the points are not representative.
B. volume of activity is heavy. D. volume of activity is light. Bobadilla
"(. The e?uation1s2 re?uired for applying the least s?uares method in the computation of fi'ed and
variable production costs could be e'pressed as
A. 'y C a' D b '
2
C. y C na D b '
B. y C a D b'
2
D. 'y C a' D b '
2
'y C na D b ' y C na D b' Bobadilla
",. -ea:nesses of the high&low method include all of the following e'cept
A. 9nly two observations are used to develop the cost function.
B. The high and low activity levels may not be representative.
C. the method does not detect if the cost behavior is nonlinear.
D. the mathematical calculations are relatively comple'. Bobadilla
"0. -hich of the following methods estimates costs by identifying costs as variable or fi'ed based
on ?ualitative analysis.
A. +egression analysis C. >ngineering method
B. Account analysis D. Aigh&low method Bobadilla
"3. Account analysis as compared to the engineering method
A. relies on past data.
B. relies on present and future data.
C. measures the wor: involved in the activities that go into a product.
D. a and c. Bobadilla
"8. -hich of the following methods may be used to estimate costs by using time&and&motion
studies to appro'imate labor time.
A. +egression analysis C. >ngineering method
B. Account analysis D. Aigh&low method Bobadilla
%<. The cost estimation method that gives the most mathematically precise cost prediction
e?uation is
A. the high&low method C. the scatter&diagram method
B. the contribution margin method D. regression analysis Bobadilla
%1. +egression analysis is better than the high&low method of cost estimation because regression
analysis$
A. is more mathematical. C. fits its data into a mathematical e?uation.
53
Activity Cost Analysis
B. uses all the data points* not Eust two. D. ta:es more time to do. Bobadilla
%2. )n regression analysis* what does the variable FGF stand for in the model 6 C a D bG D e.
A. The amount of the dependent variable* the cost to be estimated.
B. The regression error* which is the distance between the regression line and the data point.
C. The value for the independent variable* the cost driver for the cost to be estimatedH there
may be one or more cost drivers.
D. The unit variable cost* also called the coefficient of the independent variable. Bobadilla
%". Iimple regression is
A. a regression e?uation with more than one independent variable.
B. a regression e?uation with more than one dependent variable.
C. a regression e?uation with more than one independent and dependent variables.
D. a regression that considers all un:nown factors. Bobadilla
%%. +egression shows
A. the proportion of the variation of dependent variable e'plained by dependent variables.
B. the proportion of the variation of independent variable e'plained by the independent
variables.
C. the proportion of the variation of dependent variable e'plained by the independent
variables.
D. none of the above. Bobadilla
%(. )n the method of least s?uares* the deviation is the difference between the
A. predicted and estimated costs. C. predicted and average costs.
B. predicted and actual costs. D. average and actual costs. Bobadilla
%,. A cost&predicting e?uation determined through regression analysis
A. always gives close predictions.
B. will not wor: any better than one obtained using the high&low method.
C. can be used only for costs that vary with sales of production.
D. could be severely affected by outliers. Bobadilla
%0. )n the cost e?uation TC C ; D /G* the G term is$
A. total fi'ed costs. C. unit variable cost.
B. total variable costs. D. activity units. Bobadilla
%3. -hich of the following methods would be best for estimating costs for totally new activities.
A. >ngineering method C. Icattergraph method
B. Account analysis method D. Aigh&5ow method Bobadilla
%8. The engineering method of estimating costs$
A. can be used to estimate costs for totally new activities.
B. can detail each step re?uired to perform an operation.
C. sometimes can be ?uite e'pensive to use.
D. all of the above are true. Bobadilla
(<. The correlation coefficient or +&s?uared 1+22 is interpreted as$
A. the minimum distance between the regression line and a single data point.
B. the measure of the linear relationship between two or more variables.
C. a determination of whether the data point is considered to be an Foutlier.F
D. the proportion of the variation in the dependent variable e'plained by the independent
variable. Bobadilla
(1. The closeness of the relationship between the cost and the activity is called
A. correlation C. spurious
B. regression analysis D. manufacturing overhead Bobadilla
(2. +&s?uared is a measure of
A. the spurious relationship between cost and activity
B. the fi'ed cost component
C. the variable cost per unit of activity Bobadilla
D. how well the regression line accounts for the changes in the dependent variable
(". The principal advantage of the scatter&diagram method over the high&low method of cost
estimation is that the scatter&diagram method
A. includes cost outside the relevant range.
B. considers more than two points.
C. can be used with more types of costs than the high&low method.
D. gives a precise mathematical fit of the points to the line. Bobadilla
(%. The maEor obEective of preparing a scatter&diagram is to
A. develop an e?uation to predict future costs.
B. perform regression analysis on the results.
C. determine the relevant range. Bobadilla
D. find the high and low points to use for the high&low method of estimating costs.
54
Activity Cost Analysis
((. Advantages of the method of least s?uares over the high&low method include all of the
following e'cept
A. a statistical method is used to mathematically derive the cost function
B. only two points are used to develop the cost function
C. the s?uared differences between actual observations and the line 1cost function2 are
minimiBed
D. all the observations have an effect on the cost function Bobadilla
(,. The scatter diagram method of cost estimation
A. is influenced by e'treme observations
B. re?uires the use of Eudgment
C. uses the least&s?uares method
D. is superior to other methods in its ability to distinguish between discretionary and
committed fi'ed costs Bobadilla
@+9B5>#I$
1
. 7ite Corporation has developed the following fle'ible budget formula for annual indirect labor
costs$
Total Cost C @%3<*<<< D @(.<< per machine hour
9perating budgets for the current month are based upon 2<*<<< machine hours of planned
machine time. )ndirect labor costs included in this planning budget are$
A. @ %3*""" C. @(3<*<<<
B. @1<<*<<< D. @1%<*<<< Bobadilla
2
. Aarem Company uses an annual cost formula for overhead of @02*<<< D @1.,< for each direct
labor hour wor:ed. ;or the upcoming month Jarla plans to manufacture 8,*<<< units. >ach
unit re?uires five minutes of direct labor. Aarem Company4s budgeted overhead for the month
is
A. @ 12*3<< C. @ 3%*3<<
B. @ 13*3<< D. @00%*<<< Bobadilla
"
. Total production costs for Kordan* )nc. are budgeted at @2*"<<*<<< and @2*3<<*<<< for (<*<<<
and ,<*<<< units of budgeted output* respectively. Because of the need for additional facilities*
budgeted fi'ed costs for ,<*<<< units are 2( percent more than budgeted fi'ed costs for
(<*<<< units. Aow much is Kordan4s budgeted variable cost per unit of output.
A. @ 0.(< C. @"<.<<
B. @1,.<< D. @,2.(< Bobadilla
%
. Dea:in Company is preparing a fle'ible budget for the coming year and the following
ma'imum capacity estimates for Department 9L are available$
Direct labor hours ,<*<<<
/ariable factory overhead @1(<*<<<
;i'ed factory overhead @2%<*<<<
Assume that Dea:in4s normal capacity is 3<M of ma'imum capacity. -hat would be the total
factory overhead rate* based on direct labors* in a fle'ible budget at normal capacity.
A. @,.<< C. @,.(<
B. @0.(< D. @3.1" Bobadilla
(
. )rma Company manufactures office furniture. During the most productive month of the year*
"*(<< des:s were manufactured at a total cost of @3%*%<<. )n its slowest month* the company
made 1*1<< des:s at a cost of @%,*<<<. =sing the high&low method of cost estimation* total
fi'ed costs in August are$
A. @(,*<<< C. @10*,<<
B. @23*%<< D. @"3*%<< Bobadilla
,
. @alm* )nc. has a total of 2*<<< rooms in its nationwide chain of hotels. 9n the average* 0<
percent of the rooms are occupied each day. The company4s operating cost is @21 per
occupied room per day at this occupancy level* assuming a "<&day month. This @21 figure
contains both variable and fi'ed cost elements. During 9ctober* the occupancy dropped to
only %( percent. A total of @082*<<< in operating costs were incurred during the month.
-hat would be the e'pected operating costs* assuming that the occupancy rate increases to
,< percent during 7ovember.
A. @1*<(,*<<< C. @ 0(,*<<<
B. @ 3%,*<<< D. @ 328*(<< Bobadilla
0
. The controller of Kema Company has re?uested a ?uic: estimate of the manufacturing
supplies that it needs for the month of Kuly when the e'pected production are %0<*<<< units.
Below are the actual data from the prior three months of operations.
@roduction in units #anufacturing supplies
#arch %(<*<<< @02"*<,<
April (%<*<<< 3("*(,<
#ay %3<*<<< 0,,*(,<
55
Activity Cost Analysis
=sing these data and the high&low method* what is the reasonable estimate of the cost of
manufacturing supplies that would be needed for Kuly. 1Assume that this activity is within the
relevant range.2
A. @ 3<(*23% C. @ 0((*18,
B. @1*133*0(, D. @ 0(2*<,< Bobadilla
3
. The following activity and cost data that were provided by Aoist Corporation would help in
estimating its future maintenance costs$
=nits #aintenance Cost
" @%(<
0 @("<
11 @,%<
1( @0<<
=sing the least&s?uares regression method to estimate the cost formula* the e'pected total
cost for an activity level of 1< units would be closest to$
A. @,12.(<. C. @(8(.3%.
B. @(31.32. D. @,<1.(<. Bobadilla
8
. Niven the cost formula 6 C @10*(<< D @%G* at what level of activity will total cost be @%2*(<<.
A. 1<*,2( units. C. ,*2(< units.
B. %*"0( units. D. (*2(< units. Bobadilla
1<
. Balsy Company has provided the following data for maintenance cost$
@rior 6ear Current 6ear
#achine hours 12*(<< 1(*<<<
#aintenance cost @20*<<< @"1*<<<
The best estimate of the cost formula for maintenance would be$
A. @21*,2( per year plus @<.,2( per machine hour.
B. @ 0*<<< per year plus @<.,2( per machine hour.
C. @ 0*<<< per year plus @1.,< per machine hour.
D. @20*<<< per year plus @1.,< per machine hour. Bobadilla
11
. Almond Company wishes to determine the fi'ed portion of its maintenance e'pense 1a semi&
variable e'pense2* as measured against direct labor hours for the first #alayan three months
of the year. The inspection costs are fi'edH however* the adEustments necessitated by errors
found during inspection account for the variable portion of the maintenance costs. )nformation
for the first #alayan ?uarter is as follows$
Direct 5abor Aours #aintenance Costs
Kanuary "%*<<< @,1*<<<
;ebruary "1*<<< (3*(<<
#arch "%*<<< ,1*<<<
-hat is the fi'ed portion of Almond Company4s maintenance e'pense* rounded to the nearest
pesos.
A. @23*""< C. @"0*2<<
B. @"2*,00 D. @%<*3<< Bobadilla
12
. Clone #achinery had the following e'perience regarding power costs$
#onth #achine hours @ower cost
Kan. "<< @,3<
;eb. ,<< 02<
#ar. %<< ,8(
Apr. 2<< ,%<
Assume that management e'pects (<< machine hours in #ay. =sing the high&low method*
calculate Clone's power cost using machine hours as the basis for prediction.
A. @ 0<< C. @ 01<
B. @ 0<( D. @1*"2< Bobadilla
1"
. )n the e?uation 6 C @%*<<< D @"GH 6 is the cost of wor:ers' compensation insurance and G is
direct labor hours. According to this e?uation* a 1<<&hour change in total direct labor hours will
change the cost of wor:ers compensation insurance by
A. @%*<<<. C. @%*"<<.
B. @ "<<. D. none of the above amounts. Bobadilla
1%
. =sing multiple regression* you have identified @12*<<< of unit level costs for "*<<< units*
@1*<<< of product level costs for %< products* and @"*(<< of customer&level costs for ten
customers. The cost of Kob <<2 which used 3<< unit level activities* % product level activities*
and one customer&level activities amounts to
A. @"*,(< C. @"*<(<
B. @"*2(< D. @2*8(< Bobadilla
1(
. )t ta:es a wor:er 1< minutes to assemble a toy. -ith a learning curve of 0<M as production
doubles* the average time 1per unit2 needed to ma:e 3 units would be
A. %.8< minutes C. "."" minutes
B. ".%" minutes D. ".2" minutes Bobadilla
56
Activity Cost Analysis
1,
. The cost to rebuild a race car engine is @1*(<<* and a buyer offers to buy four engines for
@,*<<<. Assuming a cumulative learning curve of 8<M as production doubles* the incremental
cost of the third and fourth items will be
A. @ < C. @2*1,<
B. @ ,<< D. @1*2(< Bobadilla
10
. At a sales level of @"<<*<<<* Kamaica Company's gross margin is @1(*<<< less than its
contribution margin* its net income is @(<*<<<* and its selling and administrative e'penses
total @12<*<<<. At this sales level* its contribution margin would be$
A. @2(<*<<<. C. @10<*<<<.
B. @1((*<<<. D. @13(*<<<. Bobadilla
13
. The Ihepherd Company4s president would li:e to :now the estimated fi'ed and variable
components of a particular cost. Actual data for this cost for four recent periods appear below.
Activity Cost
@eriod 1 2% @10%
@eriod 2 2( 108
@eriod " 2< 1,(
@eriod % 22 1,8
=sing the least&s?uares regression method* what is the cost formula for this cost.
A. 6 C @ <.<< D @0.((G C. 6 C @1<"."3 D @".<<G
B. 6 C @11<.%% D @2.0<G D. 6 C @11"."( D @<.38G Bobadilla
18
. Iams Company. wants to develop a single predetermined overhead rate. The company's
e'pected annual fi'ed overhead is @"%<*<<< and its variable overhead cost per machine hour
is @2. The company's relevant range is from 2<<*<<< to ,<<*<<< machine hours. Iams
Company e'pects to operate at %2(*<<< machine hours for the coming year. The plant's
theoretical capacity is 3(<*<<<. The predetermined overhead rate per machine hour should be
A. @2.%<. C. @2.3<.
B. @2.(0. D. @2.3(. Bobadilla
2<
. The 9verland Company wants to develop a cost estimating e?uation for its monthly cost of
electricity. )t has the following data$
#onth >lectricity Cost Direct 5abor Aours
Kanuary @,*0(< 1*(<<
April 0*(<< 1*0<<
Kuly 3*(<< 2*<<<
9ctober 0*2(< 1*,<<
=sing the high&low method* what is the best e?uation.
A. 6 C @ 0(< D @(.<<G C. 6 C @ 0(< D @".(<G
B. 6 C @1*(<< D @".(<G D. 6 C @1*(<< D @(.<<G Bobadilla
21
. During the month of Kune* Behold Corporation produced 12*<<< units and sold them for @2<
per unit. Total fi'ed costs for the period were @1(%*<<<* and the operating profit was @2,*<<<.
Based on the foregoing information* the variable cost per unit for the month of Kune was
A. @%.(< C. @,.<<
B. @(.<< D. @0.10 Bobadilla
22
. Data to be used in applying the high&low method shows the highest cost of @,8*<<< and the
lowest cost of @(2*<<<. The data shows @1%3*<<< as the highest level of sales and @80*<<<
as the lowest level. -hat is the variable cost per peso sales.
A. @<."". C. @<.(%.
B. @<.%0. D. @".<< Bobadilla
2"
. The following information is available for maintenance costs$
#onth @roduction /olume #aintenance Costs
Kune 1(<*<<< @(<<*<<<
Kuly 2"<*<<< ,2<*<<<
August "3<*<<< 3<<*<<<
Ieptember 12<*<<< %3<*<<<
9ctober 20<*<<< 01<*<<<
=sing the least s?uares* the estimate of the fi'ed portion of maintenance costs 1rounded to
thousand pesos2 is
A. @1"1*<<< C. @""2*<<<
B. @"21*<<< D. @11(*<<< Bobadilla
2%
. Tomas 9campo has Eust been appointed chairperson of the Accountancy Department of AD>B
College. )n reviewing the department4s cost records* Tomas has found the following total cost
associated with #AI @art 2 subEect over the last several terms$
IemesterOTerm 7umber of IubEects 9ffered Total Cost
A62<<%* ;irst Iemester % @1<*<<<
A62<<%* Iecond Iemester , 1%*<<<
A62<<%* Iummer 2 0*<<<
A62<<(* ;irst Iemester ( 1"*<<<
A62<<(* Iecond Iemester " 8*(<<
57
Activity Cost Analysis
Tomas :nows that there are some variable costs* such as amounts paid to student assistants*
associated with the course. Ae would li:e to have variable and fi'ed cost components
separated for planning purposes.
=sing the least&s?uares method* what is the variable cost per section of #AI.
A. @1*0(< C. @1*2<<
B. @1*(<< D. @ 8<< Bobadilla
2(
. At a sales level of @"<<*<<<* Kava Company's gross margin is @1(*<<< less than its
contribution margin* its net income is @(<*<<<* and its selling and administrative e'penses
total @12<*<<<. At this sales level* its contribution margin would be$
A. @2(<*<<<. C. @10<*<<<.
B. @1((*<<<. D. @13(*<<<. Bobadilla
Puestion 7os. 2, and 20 are based on the following information$
I>+A5 Company is a manufacturing entity whose total factory overhead costs fluctuate
considerably from year to year according to increases and decrease in the number of direct labor
hours wor:ed in the plant. Total factory overhead costs at high and low levels of activity for recent
years follow$
5ow Aigh
Direct labor hours (<*<<< 0(*<<<
Total factory overhead costs @1%*2(<*<<< @10*,2(*<<<
The factory overhead costs above consist of indirect materials* rent* and maintenance. The
company has analyBed these costs at the (<*<<<&hour level of activity as follows$
)ndirect materials 1/2 @ (*<<<*<<<
+ent 1;2 ,*<<<*<<<
#aintenance 1#2 "*2(<*<<<
Total factory overhead costs @1%*2(<*<<<
/ C variableH ; C fi'edH # C mi'ed
2,
. Aow much of the @10*,2(*<<< factory overhead cost at the high level of activity consist of
maintenance cost.
A. @%*12(*<<< C. @%*%(<*<<<
B. @%*22<*<<< D. @%*(2(*<<< Bobadilla
20
. -hat total factory overhead costs would you e'pect the company to incur at an operating level
of 0<*<<< direct labor hours.
A. @1,*8(<*<<< C. @1"*<<<*<<<
B. @1"*8(<*<<< D. @1<*8(<*<<< Bobadilla
Puestion 7os. 23 and 28 will be answered using the following data$
The Bora Aotel4s guest&days of occupancy and custodial supplies e'pense over the last seven
months were$
#onth Nuest&Days of 9ccupancy Custodial Iupplies >'pense
#arch %<*<<< @ 0(*<<<
April ,(*<<< 32*(<<
#ay 3<*<<< 1<(*<<<
Kune 1<(*<<< 12<*<<<
Kuly 12<*<<< 1"(*<<<
August 8<*<<< 1<0*(<<
Ieptember 0(*<<< 80*(<<
23
. =sing the high&low method* what is the estimated monthly fi'ed cost for custodial supplies.
A. @,0*(<< C. @%2*(<<
B. @%(*<<< D. @%<*<<< Bobadilla
28
. =sing the high&low method in calculating the cost formula for custodial supplies* what amount
of this e'pense would you e'pect to be incurred at an occupancy level of 11<*<<< guests.
A. @ 82*(<< C. @11<*<<<
B. @ 83*0(< D. @120*(<< Bobadilla
Puestion 7os. "< through "2 are based on the following$
It Kohn Aospital contains %(< beds. The average occupancy rate is 3< percent per month. )n other
words* on average* 3< percent of the hospital4s beds are occupied by patients. At this level of
occupancy* the hospital4s operating costs are @"2 per occupied bed per day* assuming a "<&day
month. This @"2 figure contains both variable and fi'ed cost components.
During the month of Kune* the hospital4s occupancy rate was only ,< percent. A total of @"2,*0<< in
operating cost was incurred during that month.
"<
. =sing the high&low method* the amount of variable cost per occupied bed per cay is
A. @ 0.<< C. @12.<<
B. @ 8.<< D. @1(.<< Bobadilla
58
Activity Cost Analysis
"1
. =sing the variable cost as determined in number ",* the total fi'ed operating costs per month
are$
A. @2%<*<<< C. @28<*<<<
B. @20<*<<< D. @"<<*<<< Bobadilla
"2
. Assuming an occupancy rate of 0( percent in a particular month* what amount of total
operating costs would you e'pect the hospital to incur.
A. @"1<*<<< C. @"%<*30(
B. @"1(*(<< D. @"0(*(<< Bobadilla
Puestion 7os. "" through "( are based on the following$
)n the 9mara #anufacturing Company* at an activity level of 3<*<<< machine hours* total overhead
costs were @22"*<<<. 9f this amount* utilities were @%3*<<< 1all variable2 and depreciation was
@,<*<<< 1all fi'ed2. The balance of the overhead cost consisted of maintenance cost 1mi'ed2. At
1<<*<<< machine hours* maintenance costs were @1"<*<<<.
Assume that all of the activity levels mentioned in this problem are within the relevant range.
""
. The variable cost for maintenance per machine hour is$
A. @1."<. C. @<.0(.
B. @1.%%. D. @1."(. Bobadilla
"%
. The total fi'ed overhead cost for 9mara is$
A. @11(*<<<. C. @ ,<*<<<.
B. @1"<*<<<. D. @ ((*<<<. Bobadilla
"(
. )f 11<*<<< machine hours of activity are proEected for the ne't period* total e'pected overhead
cost would be$
A. @2(,*<<<. C. @"<,*,2(.
B. @2,"*(<<. D. @2%2*(<<. Bobadilla
",
. The following data were compiled from the records of Cabral Company$
#onth =sage Cost
Kan. ,<< @0(<
;eb. ,(< 00(
#ar. %2< ((<
Apr. (<< ,(<
#ay %(< (0<
=sing the high&low method* what is the fi'ed cost element 1to the nearest peso2.
A. @22( C. @%11
B. @1"3 D. @",% Bobadilla
"0
. The following information was ta:en from a computer printout generated with the least s?uares
method for use in estimating overhead costs$
Ilope 8<
)ntercept 11%<<
Correlation coefficient <.,
Activity variable Direct labor hours
The cost formula is
A. 9verhead C @11*%<< Q @8<G C. 9verhead C @11*%<< D @8<G
B. 9verhead C @11*%<< D 1@%( ' .,2 D. 9verhead C @11*%<< ' ., Bobadilla
"3
. The following information pertains to data that have been gathered in the process of estimating
a simple least s?uares regression$
#ean value of the dependent variable "<
#ean value of the independent variable 1<
Coefficient of the independent variable "
7umber of observations 12
-hat is the FaF value for the least s?uares regression model.
A. 2<
B. ,
C. <
D. The intercept term cannot be computed from the information given. Bobadilla
"8
. Trans>' Company operates a fleet of delivery truc:s in 5uBon. The company has determined
that if a truc: is driven 1<(*<<< :ilometers during a year* the average operating cost is @11.%<
per :ilometer. )f a truc: is driven only 0<*<<< :ilometers during a year* the average operating
cost increases to @1".%< per :ilometer. Assuming that in a given year* a truc: were driven
3<*<<< :ilometers* what total cost would you e'pect to be incurred.
A. @1*<12*<<< C. @1*22(*1%"
B. @1*%<0*<<< D. @1*<02*<<< Bobadilla
Puestion 7os. %< through %1 are based on the following$
The Aouse of T+9@I Company is a large retailer of sports e?uipment. An income statement for
the company4s I:i Department for a recent ?uarter is presented as follows$
The Aouse of T+9@I Company
59
Activity Cost Analysis
)ncome Itatement
;or the Puarter >nded #arch "1
Iales @1*(<<*<<<
5ess cost of goods sold 8<<*<<<
Nross margin ,<<*<<<
5ess operating e'penses$
Ielling e'penses @"<<*<<<
Administrative e'penses 1<<*<<< %<<*<<<
7et income @ 2<<*<<<
I:is sell* on the average* for @0*(<<. /ariable selling e'penses are @(<< per pair of s:is sold. The
remaining selling e'penses are fi'ed. The administrative e'penses are 2< percent variable and 3<
percent fi'ed. The company does not manufacture its own s:isH it purchases them from a supplier
for @%*(<< per pair.
%<
. -hat is the variable cost per pair of s:is.
A. @ 8<<*<<< C. @1*<<<*<<<
B. @ 82<*<<< D. @1*<2<*<<< Bobadilla
%1
. Niven the cost formula 6 C @"<*<<< D @(G* total cost at an activity level of 1,*<<< units would
be$
A. @ "<*<<<. C. @ 3<*<<<.
B. @ %,*<<<. D. @11<*<<<. Bobadilla
Puestion 7os. %2 through %( are based on the following$
A local church wants to rent a hall for @"*<<< a day to hold a Bingo fundraiser. >very session of
bingo re?uires a caller for @2<<. There are supplies that are needed that cost @" per person
playing bingo. 9n an average each bingo player spends @2< and 1*<<< people attend each
session. @1<*<<< in priBes are awarded each session.
%2
. Total costs for 1 session can be classified as$
Bobadilla A. B. C. D.
;i'ed Costs @1"*2<< @ "*<<< @1"*2<< @1<*<<<
/ariable Costs @ " @1"*2<< @ "*<<< @ "*2<<
%"
. The church conducts 1 Bingo session per month. 9ver the course of the year* which cost
would not act as a variable cost based on Eust holding one more session.
A. Aall rental. C. Caller salary.
B. Cost of supplies. D. @riBe money. Bobadilla
%%
. )f the church conducts 12 sessions and 1*<<< people attend each session* the average cost
per session is.
A. @ 8*,<<. C. @1(*2<<.
B. @1%*0<<. D. @1,*2<<. Bobadilla
%(
. The church is thin:ing of holding 2 Bingo sessions per day with 1*<<< people attending each
session. )f they hold the 2 sessions* the average cost per session is.
A. @ 8*,<<. C. @1(*2<<.
B. @1%*0<<. D. @1,*2<<. Bobadilla
=se the following )nformation to answer Puestion 7os. %, through (1.
=nits Iold R @,<Oeach
1*<<< 2*<<< "*<<<
Ialary @2<*<<< @"<*<<< @%<*<<<
Cost of Noods Iold 1(*<<< "<*<<< %(*<<<
CostO=nit of Depreciation "<< 1(< 1<<
+ent 2<*<<< 2<*<<< 2<*<<<
%,
. -hich of the above costs behaves as a /ariable Cost.
A. +ent. C. Cost of Noods sold.
B. Ialary. D. Depreciation. Bobadilla
%0
. -hich of the above costs behaves as a #i'ed Cost.
A. +ent. C. Cost of Noods sold.
B. Ialary. D. Depreciation. Bobadilla
%3
. -hich one does not contain any fi'ed cost behavior.
A. +ent. C. Cost of goods sold.
B. Ialary. D. Depreciation. Bobadilla
%8
. )f "*<<< units are sold what is the contribution margin.
A. @ 0(*<<<. C. @1"(*<<<.
B. @1<(*<<<. D. @13<*<<<.
(<
. -hat is total fi'ed cost.
60
Activity Cost Analysis
A. @(<*<<<. C. @,<*1<<.
B. @,<*<<<. D. @8<*<<<.
(1
. Niven the following information* choose the cost and activity that would be used as the high
data point in high&low cost estimation$
Costs Activity 1hours2
@(1*<<< %<*<<<
@(<*<<< %1*<<<
@(3*<<< %2*<<<
@(,*<<< %"*<<<
A. @(3*<<< and %2*<<< hours C. @(,*<<< and %"*<<< hours
B. @(3*<<< and %"*<<< hours D. @(,*<<< and %2*<<< hours
=se the following simple regression results based on the data from the #adrigal Corporation to
answer Puestion 7os. (2 and (".
Dependent variable Q #achine maintenance costs
)ndependent variable Q #achine hours
Computed values
)ntercept @"*(<<
Coefficient on independent variable @ ".(<
Coefficient of correlation <.3(,
+
2
<.0""
(2
. -hat percentage of the variation in maintenance costs is e'plained by the independent
variable.
A. 3(.,M C. %0."M
B. 8(.2M D. 0"."M
("
. -hat is the total maintenance cost for an estimated activity level of 2<*<<< machine hours.
A. @0"*(<< C. @32*"<<
B. @03*%<< D. @3%*0(<
61
1
. Answer$ D
#onthly fi'ed costs %3<*<<< O 12 @ %<*<<<
/ariable 2<*<<< ' ( 1<<*<<<
Total @1%<*<<<
2
. Answer$ B
#onthly budgeted fi'ed cost 102*<<<O122 @ ,*<<<
/ariable cost based on actual units$
7umber of hours allowed
18,*<<< ' (O,<2C 3*<<< hours
/ariable cost$ 3*<<< ' 1.,< 12*3<<
Budgeted overhead cost @13*3<<
3
. Answer$ C
The solution can be made using an e?uation approach$
a C y Q bG
1@2*"<<*<<< Q (<*<<<G21.2( C @2*3<<*<<< Q ,<*<<<G
2*30(*<<< Q ,2*(<<G C 2*3<<*<<< Q ,<*<<<G
2*(<<G C 0(*<<<
G C @"<
4
. Answer$ B
/ariable factory overhead 11(<*<<<O,<*<<<2 @2.(<
;i'ed overhead S2%<*<<<O1,<*<<< ' <.3<2 (.<<
Total rate @0.(<
7ote$ /ariable rate per activity unit is constant. ;i'ed overhead per unit behaves inversely with the activity&unit level.
5
. Answer$ B
/ariable rate C 1T in activity cost2O1T in activity level2
C 1@3%*<<< Q @%,*<<<2O1"*(<< Q 1*1<<2
C @1,.<<
;i'ed cost a C y Q b'
a C @%,*<<< Q 11*1<< ' 1,2
a C @23*%<<
6
. Answer$ B
Days 9ccupancy$
0<M && 2*<<< ' "< days ' <.0 %2*<<<
%(M && 2*<<< ' "< days ' <.%( 20*<<<
/ariable cost per +oom Day$
(42,000 x 21) - 792,000
42,000 - 27,000
@,.<<
;i'ed costs$ 082*<<< Q 120*<<< ' ,2 @,"<*<<<
Cost at ,<M rate$
/ariable$
2*<<< ' "< ' <., ' @, @21,*<<<
;i'ed ,"<*<<<
Total @3%,*<<<
7
. Answer$ D
b C 13(".(,< Q 02"*<,<2 U 1(%<*<<< Q %(<*<<<2
1"<*(<< U 8<*<<< @ 1.%(
a C 3("*(,< Q 1(%<*<<< ' 1.%(2 @ 0<*(,<
6 C 0<*(,< D 1.%(b
C 0<*(,< D 1%0<*<<< ' 1.%(2 @0(2*<,<
8
. Answer$ D
VG C ",
V6 C 2*"2<
VG6 C 22*,<<
VG
2
C %<%
V6 C na D bVG
VG6 C as D bVG
2
2*"2< C %a D ",b
22*,<< C ",a D %<%b
2<*33< C ",a D "2%b
1*02< C 3<b
b C 21.(<
2*"2< C %a D 1", ' 21.(<2
2*"2< C %a D 00%
%a C 1*(%,
a C "3,.(<
6 C "3,.(< D 21.(< G
6 C "3,.(< D 11< ' 21.(<2
6 C ,<1.(<
9
. Answer$ C
%G C %2*(<< Q 10*(<<
%G C 2(*<<<

G C ,*2(<
10
. Answer$ C
b C 1"1*<<< Q 20*<<<2 U 11(*<<< Q 12*(<<2
%*<<< U 2*(<<
b C 1.,
a C "1*<<< & 11(*<<< ' 1.,<2
a C 0*<<<
6 C 0*<<< D 1.,<G
11
. Answer$ B
/ariable +ate C
61,000 - 58,500
3,000
C <.3"""
;i'ed $ ,1*<<< Q 1"%*<<< ' .3"""2C "2*,00
12
. Answer$ A
b C 102< Q ,%<2 U 1,<< & 2<<2
3< U %<< @<.2<
a C 02< Q 1,<< ' .22
02< Q 12< @,<<
Total Cost for month of #ay
6 C ,<< D 1(<< ' <.22 @0<<
13
. Answer$ B
T6 C 1<< ' " @"<<
-ithin a relevant range* the amount of total fi'ed cost remains constant at @%*<<<. The only cost that will change in
total is variable cost because every additional hour will add @" to total costs.
14
. Answer$ A
=nit level costs$ @12<<< U "<<< ' 3<< @"*2<<
@roduct level costs$ @1*<<< U %< ' % 1<<
Customer level costs$ @"*(<< U 1< "(<
Cost of Kob <<2 @"*,(<
-ithin a relevant range* the amount of fi'ed cost remain constant at @%*<<<. The only cost that will charge in total is
variable cost between every additional hour will be accompanied by an increase of @".
15
. Answer$ B
Total number of minutes used after completing 3 units$
11< W .0 W .0 W .02 ".%"
16
. Answer$ C
Cumulative average after completing % units$
1*(<< W .8 W .8 @1*21(
Total costs of % units % ' @1*21( @%*3,<
5ess total costs of first 2 units 1*(<< ' <.8 ' 2 2*0<<
Additional costs @2*1,<
17
. Answer$ D
7et income @ (<*<<<
Add$ selling and admin. >'pense 12<*<<<
Nross #argin 10<*<<<
Add$ e'cess of contribution margin over gross margin 1(*<<<
Contribution #argin @13(*<<<
18
. Answer$ B
VG C 81
V6 C ,30
VG6 C 1(*,,8
VG2 C 2*<3(
,30 C %a D 81b
1(*,,8 C 81a D 2*<3(b
1(*,28.2( C 81a D 2*<0<.2(b
"8.0( C 1%.0(b
b C @2.0<
,30 C %a D 181 G 2.,8(2
,30 C %a D 2%(.2(
%a C %%1.0(
a C @11<.%%
6 C @11<.%% D @2.0<G
19
. Answer$ C
/ariable 9A rate @ 2.<<
;i'ed 9A rate 1"%<*<<< U %2(*<<<2 <.3<
Total 9A rate @ 2.3<
20
. Answer$ B
b C 13*(<< Q ,*0(<2 U 1 2*<<< Q 1*(<<2
C 1*0(< U (<<
b C ".(<
a C 3*(<< Q 12*<<< ' ".(2
a C 1*(<<
y C 1*(<< D ".(<G
21
. Answer$ A
Change in cost Change in sales C /ariable cost per peso sale
1@,8*<<< Q @(2*<<<2 U 1@1%3*<<< Q @80*<<<2
@10*<<< @(1*<<< C @<.""".
22
. Answer$ B
Contribution margin per unit$
1@1(%*<<< D @2,*<<<2 U 12*<<< units @1(.<<
/ariable cost per unit$ @2<.<< Q @1(.<< @ (.<<
23
. Answer$ B
VG C 1*1(<*<<<
V6 C "*11<*<<<
VG6 C 00<*8<< #illion
VG
2
C "<0* 1<< #illion
The least&s?uares method is based on the cost model
6 C a D bG
). Iince all the observations are included* all the values are summed up$
V6 C na D bVG
)). To minimiBe distortion* the first e?uation is made bigger by multiplying it by VG.
VG6 C aVG D bVG2
))). Iolve for values of b and a
>?. 1$ ".11 C .<<<<<( D 1.1(b
>?. 2$ 00<*8<< C 1.1(a D "<0*1<<b
01(*"<< C 1.1(a D 2,%*(<<b
((* ,<< C %2* ,<<b
b C @1."<(1,%
00<*8<< C 1.1(a D 1 "<0*1<< ' 1."12
1.1(a C "0<*<3(
a C @"2<* (2<
24
. Answer$ A
VG C 2<
V6 C ("*(<<
VG6 C 2"1*(<<
VG2 C 8<
("*(<< C (a D 2<b
2"1*(<< C 2< D 8<b
21%*<<< C 2<a D 3<b
10*(<< C 1<b
b C @1*0(<
25
. Answer$ D
7et income@ (<*<<<Add ;i'ed Costs$#anufacturing@ 1(*<<<Ielling and administrative 12<*<<< 1"(*<<<Total
Contribution #argin@13(*<<<
26
. Answer$ A
#aintenance cost at high level$
Total factory overhead @10*,2(*<<<
5ess$ )ndirect materials 1variable2 0(*<<< ' @1<< 1 0*(<<*<<<2
+ent 1fi'ed2 1 ,*<<<*<<<2
Amount of maintenance cost @ %*12(*<<<
27
. Answer$ A
Analysis of maintenance cost
b C 1@%*12(*<<< Q @"*2(<*<<<2 U 10(*<<< Q (<*<<<2
b C 30(*<<< U 2(*<<<
b C @"(
a C @"*2(<*<<< Q 1(<*<<< ' @"(2
a C @1*(<<*<<<
)ndirect materials 0<*<<< ' 1<< @ 0*<<<*<<<
+ent ,*<<<*<<<
#aintenance (<<*<<< D 10<*<<< ' "(2 "*8(<*<<<
Total 9verhead costs @1,*8(<*<<<
28
. Answer$ B
b C 11"(*<<< Q 0(*<<<2 U 112<*<<< Q %<*<<<2 ,<*<<< U 3<*<<< @<.0(
a C @0(*<<< Q 1%<*<<< ' <.0(2 @%(*<<<
29
Answer$ D
6 C @%(*<<< D @<.0(G
6 C @%(*<<< D 111<*<<< ' @<.0(2 @120*(<<
30
. Answer$ A
7umber of bed days based on occupancy rate of$
3<M C %(< ' "< ' <.3 1<*3<<
,<M C %(< ' "< ' <., 3*1<<
b C
(10,800 x 32) - 326,700
10,800 - 8,100
13*8<< U 2*0<< @0
31
. Answer$ B
a C @"2,*0<< Q 13*1<< ' @02 @20<*<<<
32
. Answer$ C
7umber of bed days at 0(M occupancy rate
<.0( ' "< ' %(< C 1<*12(
6 C @20<*<<< D 11<*12( ' @02 @"%<*30(
33
. Answer$ C
b C 1@1"<*<<< Q @11(*<<<2 U 11<<*<<< Q 3<*<<<2
@1(*<<< U 2<*<<< @<.0(
34
. Answer$ A
a C @1"<*<<< Q 11<*<<< ' @<.0(2
a C @((*<<<
Total fi'ed overhead$
#aintenance Cost @ ((*<<<
Depreciation ,<*<<<
Total @11(*<<<
35
. Answer$ B
=tilities 11<*<<< ' @<., @ ,,*<<<
#aintenance @((*<<< D 111<*<<< ' @<.0(2 1"0*(<<
Depreciation ,<*<<<
Total @2,"*(<<
36
. Answer$ B
b C 1@00( & @((<2 U 1,(< & %2<2
@22( U 2"<
bC @<.83
a C @00( & 1,(< ' <.832
C @00( & ,"0
a C @1"3.<<
37
. Answer$ C
Ilope represents the variable rate.
)ntercept represents total fi'ed cost
38
. Answer$ C
6 C 12 ' "<
C @",<
a C @",< Q 112 ' " ' 1<2
C <
39
. Answer$ A
b C
(105,000 x P11.40) - (70,000 x P13.40)
105,000 - 70,000
b C 1@1*180*<<< Q @8"3*<<<2 U "(*<<<
b C @0.%<
a C @8"3*<<< Q 10<*<<< ' @0.%<2
a C @%2<*<<<
6 C @%2<*<<< D @0.%<G
6 C @%2<*<<< D 13<*<<< ' 0.%<2
C @1*<12*<<<
40
. Answer$ D
7umber of units sold C 1*(<<*<<< U 0*(<< 2<<
Costs of goods sold C @2<< ' %*(<< @8<<*<<<
/ariable selling e'penses 2<< ' (<< @1<<*<<<
/ariable administrative e'penses <.2< ' 1<<<<< 2<*<<<
Total @1*<2<*<<<
41
. Answer$ D
The total cost at an activity level of 1,*<<< units is determined as follows$
Total cost C @"<*<<< D 11,*<<< units ' @(.<< per unit2 @11<*<<<
42
. Answer$ C
Total ;i'ed Costs include$
+ental @ "*<<<
Cost of the caller 2<<
@riBe money @1<*<<<
Total @1"*2<<
Total /ariable costs are$
@" per person for the 1*<<< people attending @ "*<<<
43
. Answer$ B
The cost of supplies varies based upon the number of players that attend each session not Eust the number of sessions
44
. Answer$ D
Total costs$ 1@"*<<< D @1"*2<<2 @1,*2<<
)f the number of people attending each session is the same* all of the costs act li:e variable costs and the average cost
per session e?uals the total cost per session.
45
. Answer$ B
)f they hold 2 sessions per day$
Aall +ental @ "*<<<
Caller salary 12 ' @2<<2 %<<
Total priBe money 2<*<<<
Total cost of supplies ,*<<<
Total @28*%<<
Average cost per session @28*%<< U 2 sessions @1%*0<<
The hall +ental is fi'ed per day and not per session. The priBe money and cost of the caller varies per session and the
cost of supplies varies per person attending.
46
. Answer$ C
Cost of Noods sold is @1( per unit. A variable cost is one which is constant per unit.
=nit sales=nit /ariable Cost1*<<<1(*<<< U 1*<<<@1(2*<<<"<*<<< U 2*<<<@1("*<<<%(*<<< U "*<<<@1(
47
. Answer$ B
The salary is a mi'ed cost. 7otice that the cost per unit and in total for each volume level are not the same. There is a
variable cost component of @1< per unit and a fi'ed cost component of @1<*<<<. -ithin a relevant range* unit variable
cost as well as total fi'ed cost are constant.
/ariable cost 1"<*<<< Q 2<*<<<2 U 12*<<< Q 1*<<<2 @ 1<
;i'ed cost 2<*<<< Q 11*<<< ' 1<2 @1<*<<<
48
. Answer$ C
Cost of Noods Iold is a variable cost. +ent and Depreciation are fi'ed costs. Ialary is a mi'ed cost that has some fi'ed
cost behavior.
49
. Answer$ B
Iales @,< X "<<< units @13<*<<<
Total /ariable Cost 0(*<<<
Contribution #argin @1<(*<<<
Total variable cost$
Cost of goods sold @%(*<<<
/ariable salary cost "<*<<<
Total @0(*<<<
50
. Answer$ B
+ent @2<*<<<
Depreciation "<*<<<
;i'ed salary cost 1<*<<<
Total fi'ed costs @,<*<<<
51
. Answer$ C
To analyBe mi'ed cost using high&low method* the analyst always identifies and uses the lowest and the highest levels
of activities. The reason is that the activity presumably causes costs* so the analyst would li:e to use data that reflects
the greatest possible variation in activity.
52
. Answer$ D
The ?uestion does not re?uire a computation. +
2
1goodness of fit2 indicates the percentage of the variation in the
dependent variable 1cost2 that is e'plained by variation in the independent variable 1activity2. The adEusted +
2
varies
from Bero to 1<<M* and the higher the percentage* the better.
53
. Answer$ A
/ariable cost 2<*<<< ' ".( @0<*<<<
;i'ed cost "*(<<
Total cost @0"*(<<