ACTG243 Practice Quiz 5

1. Which of the following is most likely to be a variable cost?

a. Depreciation of factory equipment c. Supervisory salaries
b. Direct labor d. Total production costs
2. The rent on a store, where the landlord charges $1,200 per month plus a percentage
of sales revenue would be classified as a:
a. Mixed cost. c. Variable cost.
b. Stepwise linear cost. d. Fixed cost.
3. Austin Medical Instruments has collected the following production data for the past
four months:
Units produced Total cost
2,000 10,000
5,000 19,000
1,500 8,500
3,000 13,000

If the high-low method is used, what is the estimated cost for producing 7,500 units
in a particular month?
a. $18,000. c. $18,500.
b. $26,500. d. $17,500.
4. Busse Knife Co. introduced a specialty sword this year. Production and sales of this
product for the first four months are as follows:
Month Units produced Units sold
1 1,200 1,300
2 2,000 1,500
3 3,000 3,300
4 5,000 4,600
In which month(s) was absorption costing income higher than variable costing
income?
a. 1, 2, and 3 c. 2 and 4
b. 4 only d. 2 only
5. During the last 20 years of operations, Lum and Young Farms have achieved an
average contribution margin ratio of 35%. This year, sales revenue is estimated to
be $600,000, yielding a profit of $55,000. How much are fixed costs for the farms?
a. $155,000. c. $160,000
b. $204,500. d. $545,000
6. Which of the following relationships regarding the contribution margin income
statement is correct?
a. Contribution margin – fixed costs = profit.
b. Sales revenue + variable costs = contribution margin.
c. Fixed costs – variable costs = contribution margin.
d. Sales revenue – fixed costs = contribution margin.
7. Which of the following would be subtracted from total sales revenue when
calculating contribution margin?
a. Direct material.
b. Office machinery depreciation
c. Factory supervisor’s salary.
d. All of the above.
8. Which of the following increases when activity level increases?
a. Total variable cost. c. Total mixed cost.
b. Total fixed cost. d. Both a and c.
9. The regression method is used with which of the following types of costs?
a. Variable. c. Fixed.
b. Mixed. d. Step-variable.
10. Consider the following information for a local concession stand’s first four
weeks of operation:
Week No. of Drinks served Total Cost
1 1,000 $9,700
2 2,000 12,050
3 1,700 11,000
4 2,500 13,225
Using the high-low method, what is the equation for total operating cost for this
concession stand?
a. Operating cost = $1,750 + ($2.35 x No. of drinks served).
b. Operating cost = $1,000 + ($1.75 x No. of drinks served).
c. Operating cost = $1,940 + ($0.56 x No. of drinks served).
d. Operating cost = $7,350 + ($2.35 x No. of drinks served).
11. The contribution income statement organizes costs according to behavior.
a. True b. False
12. The least-squares regression method computes the regression line that
minimizes the sum of the squared deviations from the plotted points to the line.
a. True b. False
 13. Most companies use the contribution approach in preparing financial
statements for external reporting purposes.
a. True b. False
14. Bombay Co. sells handmade rugs. Its variable cost per rug is $37, and each
rug sells for $65. What are Bombay’s contribution margin per unit and contribution
margin ratio?
a. $37 and 43% c. $28 and 43%
b. $37 and 57% d. $28 and 57%
15. Last year, Ritter Company sold 4,500 bird feeders for $25 each. Total fixed
costs were $35,000 and Ritter’s profit was $20,000. What was its total variable cost
last year?
a. $55,000 c. $35,000
b. $57,500 d. Cannot be determined.

16. Which of the expenses below is a variable cost (as opposed to mixed, fixed,
or step)?
Units produced 0 1,000 1,500 2,000
Expense 1 $1,680 $1,680 $1,680 $1,680
Expense 2 $0 $3,000 $4,500 $6,000
Expense 3 $850 $1,350 $1,600 $1,850
Expense 4 $500 $500 $950 $950
a. Expense 1 c. Expense 3
b. Expense 2 d. Expense 4

Use the following to answer questions 17-18:

The management of Casablanca Manufacturing Corporation believes that machine-hours
is an appropriate measure of activity for overhead cost Shown below are machine-hours
and total overhead costs for the past six months:
Machine Hours Overhead Cost
Jan 150,000 $339,000
Feb 140,000 $328,000
Mar 160,000 $350,000
Apr 130,000 $319,500
May 170,000 $362,500
Jun 200,000 $400,000
Assume that the relevant range includes all of the activity levels mentioned in this
problem.
17. If Casablanca expects to incur 230,000 machine hours next month, what will
the estimated total overhead cost be using the high-low method?
a. $212,700 c. $382,700
b. $434,500 d. $359,750

18. What is Casablanca's independent variable?

a. the year
b. the machine hours
c. the total overhead cost
d. the relevant range

19. Which of the following is a method used to separate mixed costs?

a. Regression analysis c. Visual fit method
b. High-low method d. All of the above

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

Fixed costs per unit Variable costs per unit

a. Increase Increase
b. Increase No change
c. No change No change
d. No change Increase