Professional Documents
Culture Documents
Chapter 051
Chapter 051
True/False Questions
1. Within the relevant range, a change in activity results in a change in total variable cost
and the per unit fixed cost.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
2. The reluctance of managers to lay off employees when activity declines in the shortrun leads to an increase in the ratio of variable to fixed costs.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Hard
3. A variable cost fluctuates in total as activity changes but remains constant on a per unit
basis over the relevant range.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
4. A cost that is classified as variable with respect to one measure of activity could be
classified as fixed with respect to a different measure of activity.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Hard
5. Fixed costs remain constant in total, but vary inversely with changes in activity when
expressed on a per unit basis.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
6. Committed fixed costs have a short-term planning horizon--usually one year.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
7. The following costs are all examples of committed fixed costs: depreciation on
buildings, advertising, insurance, and management development and training.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
5-5
5-6
5-7
5-8
5-9
5-10
A)
B)
C)
D)
Traditional Contribution
Approach
Approach
Yes
Yes
Yes
No
No
Yes
No
No
5-11
5-12
Average
Cost per
Hour
$0.25
$0.40
5-13
Accounts
High activity level...... 32,000
Low activity level...... 22,000
*Given
Average
Cost per
Account
Processed
$0.50
5-14
Pounds Shipped
22,000
16,000
Shipping
Cost
$22,500
$18,000
5-15
5-16
Average
Cost per
Unit
$6.20
$10.00
Total Manufacturing
Overhead Cost (units
average cost per
unit)
$12,400
$10,000
5-17
Average
Cost per
Unit
$58.30
$100.90
Total Manufacturing
Overhead Cost (units
average cost per
unit)
$233,200
$201,800
5-18
Average
Cost per
Unit
$40.90
$51.00
Total Manufacturing
Overhead Cost
(units average cost
per unit)
$122,700
$102,000
5-19
Average
Cost per
Unit
$95.70
$107.70
Total Manufacturing
Overhead Cost (units
average cost per
unit)
$669,900
$646,200
Direct materials...................................
Direct labor..........................................
Variable manufacturing overhead........
Fixed manufacturing overhead............
Total cost to manufacture 6,300 units
5-20
Per Unit
Cost
$89.40
$11.20
$23.70
Number
of Units
6,300
6,300
6,300
Total Cost
$ 563,220
70,560
149,310
504,000
$1,287,090
Total Manufacturing
Overhead Cost
$127,800
$110,400
5-21
5-22
Total Manufacturing
Overhead Cost
$158,100
$146,600
5-23
Number
of Units
2,300
2,300
2,300
Total Cost
$168,130
42,780
26,450
123,600
$360,960
5-24
5-25
5-26
500
800
$2.00 $2.00
$1.50 $1.50
$2.50 $1.75
$1.00 $0.625
The best estimate for the cost formula for the total cost of producing and selling the
product (where X is the number of units produced and sold in a period) is:
A) $1,000 + $1.125 X
B) $1,000 + $3.50 X
C) $1,500 + $3.50 X
D) $1,500 + $4.00 X
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,3 Level: Hard Source: CIMA, adapted
5-27
5-28
5-29
5-30
5-31
5-32
Cost Formula
$1,500 plus $0.50 per machine-hour
$2,000 plus $0.60 per machine-hour
$1,000
$200 plus $0.10 per machine-hour
$0.30 per machine-hour
Based on these cost formulas, the total overhead cost expected at an activity level of
300 machine hours is:
A) $4,950
B) $5,000
C) $4,700
D) $5,150
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Lubricants
(variable cost = $0.50 300)........
Utilities
(variable cost = $0.60 300)........
Depreciation......................................
Maintenance
(variable cost = $0.10 300)........
Machine setup
(variable cost = $0.30 300)........
Total cost...........................................
Fixed
Cost
Portion
Variable
Cost
Portion
Total Cost
$1,500
$150
$1,650
$2,000
$1,000
$180
2,180
1,000
$200
$30
230
$90
90
$5,150
5-33
Cost Formula
$500
$400 plus $0.20 per machine-hour
$50 plus $0.25 per machine-hour
$0.40 per machine-hour
Based on these cost formulas, the total overhead cost expected for Erg Manufacturing
Company if 200 machine hours are worked is:
A) $620
B) $900
C) $170
D) $1,120
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Fixed
Cost
Portion
$50
Variable
Cost
Portion
$50
$80
$500
$400
$40
Total
Cost
$ 100
80
500
440
$1,120
54. Vicuna Wool Company manufactures and sells sweaters. Last year, Vicuna operated at
100% of capacity and had the following cost formula for total manufacturing costs:
Y = $50,000 + $400X
Assuming no change in cost structure, what would Vicuna's cost formula have been
last year if they only operated at 90% of production capacity?
A) Y = $45,000 + $360X
B) Y = $45,000 + $400X
C) Y = $50,000 + $360X
D) Y = $50,000 + $400X
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
5-34
5-35
5-36
5-37
If Jackson uses the high-low method of analysis, the estimated variable cost of steam
per direct labor hour would be:
A) $4.00
B) $5.42
C) $5.82
D) $6.00
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium Source: CPA, adapted
Solution:
Variable cost = Change in cost Change in activity
= ($19,800 $13,400) (3,650 2,050) = $4.00
5-38
What is Minga's cost formula for total manufacturing cost under the high-low method?
A) Y = $2,000 + $3,700X
B) Y = $3,700 + $2,000X
C) Y = $14,000 + $3,600X
D) Y = $62,000 + $3,200X
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Variable cost = Change in cost Change in activity
= ($668,000 $446,000) (180 120) = $3,700
Fixed cost element = Total cost Variable cost element
= $668,000 ($3,700 180) = $2,000
Therefore, the cost formula for total cost is $2,000 per period plus $3,700 per unit, or
Y = $2,000 + $3,700X.
5-39
420
515
$82,200 $90,275
The best estimate of the cost formula for the company (where X is the number of
client-hours) is:
A) Y = $46,500 + $85 X
B) Y = $42,000 + $95 X
C) Y = $46,500 $85 X
D) Y = $51,500 $95 X
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy Source: CIMA, adapted
Solution:
Variable cost = Change in cost Change in activity
= ($90,275 $82,200) (515 420) = $85
Fixed cost element = Total cost Variable cost element
= $90,275 ($85 515) = $46,500
Therefore, the cost formula for total cost is $46,500 per period plus $85 per clienthour, or Y = $46,500 + $85X.
5-40
Management believes that electrical cost is a mixed cost that depends on machinehours. Using the high-low method to estimate the variable and fixed components of
this cost, these estimates would be closest to:
A) $7.96 per machine-hour; $11,517 per month
B) $11.13 per machine-hour; $40,510 per month
C) $9.61 per machine-hour; $5,533 per month
D) $0.13 per machine-hour; $40,246 per month
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Variable cost = Change in cost Change in activity
= ($40,706 $40,268) (3,667 3,612) = $7.96
Fixed cost element = Total cost Variable cost element
= $40,706 ($7.96 3,667) = $11,517
Therefore, the cost formula for total electrical cost is $11,517 per period plus $7.96
per machine-hour, or Y = $11,517 + $7.96X
5-41
Management believes that maintenance cost is a mixed cost that depends on machinehours. Using the high-low method to estimate the variable and fixed components of
this cost, these estimates would be closest to:
A) $0.10 per machine-hour; $54,382 per month
B) $15.00 per machine-hour; $54,316 per month
C) $9.12 per machine-hour; $21,309 per month
D) $9.53 per machine-hour; $19,801 per month
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Variable cost = Change in cost Change in activity
= ($54,767 $53,843) (3,669 3,572) = $9.53
Fixed cost element = Total cost Variable cost element
= $54,767 ($9.53 3,669) = $19,801
Therefore, the cost formula for total maintenance cost is $19,801 per period plus $9.53
per machine-hour, or Y = $19,801 + $9.53X
5-42
Management believes that supply cost is a mixed cost that depends on client-visits.
Using the high-low method to estimate the variable and fixed components of this cost,
those estimates would be closest to:
A) $1.85 per client-visit; $23,547 per month
B) $1.77 per client-visit; $557 per month
C) $0.55 per client-visit; $16,579 per month
D) $0.57 per client-visit; $16,273 per month
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Variable cost = Change in cost Change in activity
= ($23,742 $23,278) (13,104 12,283) = $0.57
Fixed cost element = Total cost Variable cost element
= $23,742 ($0.57 13,104) = $16,273
Therefore, the cost formula for total maintenance cost is $16,273 per period plus $0.57
per client visit, or Y = $16,273 + $0.57X
5-43
5-44
5-45
$
?
55,000
$20,000
5-46
$450,000
280,000
170,000
140,000
$ 30,000
Since the gross margin is $90,000 less than the contribution margin, the contribution
margin is $170,000 + $90,000, or $260,000.
Sales.................................................................
Variable expenses ($450,000 $260,000)......
Contribution margin........................................
Fixed expenses ($260,000 $30,000).............
Net operating income......................................
$450,000
190,000
260,000
230,000
$ 30,000
5-47
5-48
5-49
$550,000
$104,000
$122,000
$24,000
$102,000
$56,000
$116,000
5-50
$230
$120
12% of sales
$18,000 per month
$32,500 per month
5-51
5-52
$30,000
5,150
7,250
4,100
4,800
4,975
$ 3,725
What is Dinky's cost formula for monthly operating cost using the least-squares
regression method?
A) Y = $478.40 + $176.80X
B) Y = $1,625 + $81.25X
C) Y = $1,655 + $77.50X
D) Y = $8,840 + $176.80X
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 5A LO: 5 Level: Hard
Solution:
The solution using Microsoft Excel functions is:
slope = $77.50 per tree
intercept = $1,655 per month
5-53
Activity
26
29
25
24
Cost
$269
$285
$256
$254
Using the least-squares regression method, what is the cost formula for this cost?
A) Y = $0.00 + $10.23X
B) Y = $97.00 + $6.50X
C) Y = $91.40 + $6.72X
D) Y = $99.10 + $5.11X
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 5A LO: 5 Level: Hard
Solution:
The solution using Microsoft Excel functions is:
slope = $6.50 per activity unit
intercept = $97.00 per period
5-54
Management believes that inspection cost is a mixed cost that depends on the number
of units produced. Using the least-squares regression method, the estimates of the
variable and fixed components of inspection cost would be closest to:
A) $24.08 per unit plus $5,709 per month
B) $67.74 per unit plus $8,858 per month
C) $24.37 per unit plus $5,658 per month
D) $24.01 per unit plus $5,727 per month
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 5A LO: 5 Level: Hard
Solution:
The solution using Microsoft Excel functions is:
slope = $24.08 per unit
intercept = $5,709 per month
5-55
Management believes that repair cost is a mixed cost that depends on the number of
machine-hours. Using the least-squares regression method, the estimates of the
variable and fixed components of repair cost would be closest to:
A) $22.11 per machine-hour plus $98,497 per month
B) $7.37 per machine-hour plus $65,670 per month
C) $8.19 per machine-hour plus $62,015 per month
D) $7.55 per machine-hour plus $64,859 per month
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 5A LO: 5 Level: Hard
Solution:
The solution using Microsoft Excel functions is:
slope = $7.37 per machine-hour
intercept = $65,670 per month
Use the following to answer questions 79-81:
Callaghan Corporation is a wholesaler that sells a single product. Management has provided
the following cost data for two levels of monthly sales volume. The company sells the product
for $138.20 per unit.
Sales volume (units).......................
6,000
7,000
Cost of sales................................... $499,200 $582,400
Selling and administrative costs..... $285,600 $303,800
5-56
5-57
5-58
5-59
July
August
11,000
10,000
$165,000 $150,000
72,600
66,000
92,400
84,000
12,000
13,200
13,500
16,000
54,700
$ 37,700
12,000
12,000
13,000
15,000
52,000
$ 32,000
All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed).
Assume that the relevant range includes all of the activity levels mentioned in this problem.
82. Which of the selling and administrative expenses of the company is variable?
A) Rent
B) Sales Commissions
C) Maintenance Expense
D) Clerical Expense
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
83. The total monthly fixed cost for Boggs Sporting Equipment Company is:
A) $12,000
B) $22,500
C) $25,000
D) $40,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,3 Level: Hard
5-60
5-61
5-62
5-63
Average
Cost per
Unit
$58.10
$113.60
Total Manufacturing
Overhead Cost
(units average cost
per unit)
$290,500
$227,200
5-64
Average
Cost per
Unit
$58.10
$113.60
Total Manufacturing
Overhead Cost
(units average cost
per unit)
$290,500
$227,200
5-65
Average
Cost per
Unit
$58.10
$113.60
Total Manufacturing
Overhead Cost
(units average cost
per unit)
$290,500
$227,200
5-66
$40
5%
$18
$4,000 per month
$4,500 per month plus 15% of sales
Assume that all activity mentioned in this problem is within the relevant range.
88. The expected gross margin next month is:
A) $17,600
B) $11,200
C) $14,400
D) $16,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,4 Level: Medium
Solution:
Sales...........................................................
Cost of goods sold......................................
Gross margin..............................................
$32,000
14,400
$17,600
5-67
$4,500
4,800
$9,300
5-68
$32,000
$14,400
1,600
4,800
20,800
$11,200
$32,000
$14,400
1,600
4,800
4,000
4,500
20,800
11,200
8,500
$ 2,700
5-69
5-70
5-71
5-72
5-73
5-74
101. Using the high-low method of analysis, the estimated variable lubrication cost per
machine hour is closest to:
A) $1.40
B) $1.25
C) $0.67
D) $1.50
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Variable cost = Change in cost Change in activity
= ($870 $750) (200 120) = $1.50
5-75
5-76
5-77
Management believes that electrical cost is a mixed cost that depends on machine-hours.
5-78
5-79
Management believes that inspection cost is a mixed cost that depends on units produced.
109. Using the high-low method, the estimate of the variable component of inspection cost
per unit produced is closest to:
A) $8.14
B) $7.05
C) $0.12
D) $12.89
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Variable cost = Change in cost Change in activity
= ($10,795 $10,176) (853 777) = $8.14
5-80
Management believes that office expense is a mixed cost that depends on the number of
escrows completed. Note: Real estate purchases usually involve the services of an escrow
agent that holds funds and prepares documents to complete the transaction.
5-81
5-82
$350,000
160,000
190,000
5-83
$350,000
$160,000
35,000
15,000
210,000
$140,000
5-84
$800,000
672,000
$128,000
116. The net operating income using the contribution approach for the first quarter is:
A) $240,000
B) $152,000
C) $44,000
D) $128,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Sales.........................................................................
Variable expenses:
Cost of goods sold................................................ $560,000
Administrative (3% $800,000)..........................
24,000
Selling expense ($5.50 16,000*).......................
88,000
Contribution margin................................................
Fixed expenses:
Administrative expense ($98,000 $24,000)......
74,000
Selling expense ($98,000 $88,000)...................
10,000
Net operating income..............................................
* $800,000 $50 average price per unit = 16,000 units sold
$800,000
672,000
128,000
84,000
$ 44,000
5-85
$800,000
672,000
128,000
84,000
$ 44,000
Total variable cost per unit = $672,000 16,000 units = $42 per unit
Total fixed costs = $10,000 + $74,000 = $84,000
Y = $84,000 + $42X
5-86
$270,000
$27,000
28,000
34,000
89,000
$181,000
5-87
$270,000
69,000
$201,000
5-88
$280,000
87,000
$193,000
$280,000
$30,000
27,000
34,000
91,000
$189,000
5-89
5-90
$470,000
167,000
$303,000
$470,000
$81,000
11,000
40,000
132,000
$338,000
Management believes that inspection cost is a mixed cost that depends on units produced.
5-91
5-92
Management believes that maintenance cost is a mixed cost that depends on machine-hours.
126. Using the least-squares regression method, the estimate of the variable component of
maintenance cost per machine-hour is closest to:
A) $9.76
B) $6.00
C) $4.43
D) $4.57
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
Solution:
The solution using Microsoft Excel functions is:
slope = $4.43 per machine-hour
5-93
Management believes that utility cost is a mixed cost that depends on machine-hours.
5-94
5-95
Assume that the overhead costs above consist of utilities, supervisory salaries, and
maintenance. At the 50,000 machine-hour level of activity these costs are:
Utilities (V).................................... $ 54,000
Supervisory salaries (F).................
62,000
Maintenance (M)............................
78,000
Total overhead cost........................ $194,000
V = Variable; F = Fixed; M = Mixed
The company wants to break down the maintenance cost into its basic variable and
fixed cost elements.
Required:
a. Estimate the maintenance cost for June.
b. Use the high-low method to estimate the cost formula for maintenance cost.
c. Estimate the total overhead cost at an activity level of 55,000 machine hours.
5-96
5-97
5-98
5-99
Month 1 Month 2
6,000
8,000
$35,000 $36,000
$16,000 $16,000
$1,500
$2,000
$12,000 $16,000
$6,000
$8,000
$2,000
$2,000
$4,200
$8,400
$37,300 $44,600
$13,000 $13,500
$10,000 $12,200
Required:
Indicate whether each of the costs above is probably a variable, mixed or fixed cost.
Cost A _______________
Cost B _______________
Cost C _______________
Cost D _______________
Cost E _______________
Cost F _______________
Cost G _______________
Cost H _______________
Cost I _______________
Cost J _______________
Ans:
Cost A: Mixed
Cost B: Fixed
Cost C: Variable
Cost D: Variable
Cost E: Variable
Cost F: Fixed
Cost G: Mixed
Cost H: Mixed
Cost I: Mixed
Cost J: Mixed
AACSB: Analytic AICPA BB: Critical Thinking
LO: 1 Level: Easy
5-100
Last year
This year
50,000
70,000
$800,000 $1,120,000
550,000
710,000
250,000
410,000
150,000
190,000
$100,000 $ 220,000
5-101
5-102
$75,000
54,000
$21,000
Therefore, the cost formula for manufacturing overhead is $21,000 per period plus
$3.60 per unit produced, or Y = $21,000 + $3.60X.
AACSB: Analytic AICPA BB: Critical Thinking
LO: 3 Level: Medium
5-103
Management believes that utility cost is a mixed cost that depends on machine-hours.
Required:
Estimate the variable cost per machine-hour and the fixed cost per month using the
high-low method. Show your work!
Ans:
High activity level......
Low activity level......
Machine-Hours
5,087
5,021
Utility Cost
$53,371
$52,824
5-104
Management believes that maintenance cost is a mixed cost that depends on machinehours.
Required:
Estimate the variable cost per machine-hour and the fixed cost per month using the
high-low method. Show your work!
Ans:
Machine-Hours Maintenance Cost
High activity level..............
4,460
$51,113
Low activity level..............
4,391
$50,530
Variable cost = Change in cost Change in activity
= ($51,113 $50,530) (4,460 4,391) = $8.45
Fixed cost element = Total cost Variable cost element
= $50,530 ($8.45 4,391) = $13,426
AACSB: Analytic AICPA BB: Critical Thinking
LO: 3 Level: Easy
5-105
Management believes that inspection cost is a mixed cost that depends on direct laborhours.
Required:
Estimate the variable cost per direct labor-hour and the fixed cost per month using the
high-low method. Show your work!
Ans:
High activity level..............
Low activity level..............
5-106
Cost Formula
$56 per unit
12% of sales
$300,000 per month
$160,000 per month
?
$62,000 per month
The accounting department feels that billing expense is a mixed cost, containing both
fixed and variable cost elements. The billing expenses and sales in units over the last
several months follow:
January...................
February.................
March.....................
April.......................
May........................
June........................
Units Sold
(000)
9
11
14
17
15
12
Billing
Expense
$30,000
$33,000
$36,000
$42,000
$39,000
$35,000
The accounting department now plans to develop a cost formula for billing expense so
that a contribution format income statement can be prepared for management's use.
Required:
a. Using the least-squares method, estimate the cost formula for billing expense.
b. Assume that the company plans to sell 30,000 units during July at a selling price of
$100 per unit. Prepare a budgeted income statement for the month, using the
contribution format.
5-107
$3,000,000
$1,680,000
360,000
43,560
300,000
160,000
16,952
62,000
2,083,560
916,440
538,952
$ 377,488
5-108
$460,000
184,000
276,000
$ 59,000
165,000
224,000
$ 52,000
$460,000
$84,000
12,000
33,000
100,000
47,000
132,000
129,000
331,000
279,000
$ 52,000
5-109
5-110
$430,000
$84,000
16,000
28,000
102,000
44,000
121,000
128,000
302,000
267,000
$ 35,000
5-111
$390,000
$74,000
15,000
52,000
67,000
72,000
86,000
141,000
249,000
225,000
$ 24,000
5-112
5-113
Activity
40
47
45
41
Cost
$637
$693
$675
$646
Required:
Using the least-squares regression method, estimate the cost formula for this cost.
Ans: Using least-squares regression, the cost formula is Y = $324 + $7.82X.
AACSB: Analytic AICPA BB: Critical Thinking
Appendix: 5A LO: 5 Level: Hard
145. Grawburg Inc. maintains a call center to take orders, answer questions, and handle
complaints. The costs of the call center for a number of recent months are listed
below:
April.......................
May........................
June........................
July.........................
August....................
September..............
October...................
November...............
Management believes that the cost of the call center is a mixed cost that depends on
the number of calls taken.
Required:
Estimate the variable cost per call and fixed cost per month using the least-squares
regression method.
5-114
146. The management of Rutledge Corporation would like to better understand the
behavior of the company's warranty costs. Those costs are listed below for a number
of recent months:
March.....................
April.......................
May........................
June........................
July.........................
August....................
September..............
October...................
Management believes that warranty cost is a mixed cost that depends on the number of
product returns.
Required:
Estimate the variable cost per product return and the fixed cost per month using the
least-squares regression method.
Ans:
The solution using Microsoft Excel functions is:
slope = $63.59 per product return
intercept = $1,724 per month
AACSB: Analytic AICPA BB: Critical Thinking
Appendix: 5A LO: 5 Level: Hard
5-115
Management believes that the press setup cost is a mixed cost that depends on the
number of titles printed. (A specific book that is to be printed is called a title.
Typically, thousands of copies will be printed of each title. Specific steps must be
taken to setup the presses for printing each title-for example, changing the printing
plates. The costs of these steps are the press setup costs.)
Required:
Estimate the variable cost per title printed and the fixed cost per month using the leastsquares regression method.
Ans:
The solution using Microsoft Excel functions is:
slope = $88.21 per title printed
intercept = $3,107 per month
AACSB: Analytic AICPA BB: Critical Thinking
Appendix: 5A LO: 5 Level: Hard
5-116