Braun3 06 Tif

Managerial Accounting, 3e (Braun/Tietz)Chapter 6 Cost Behavior

1) Total fixed costs do not change in response to changes in the volume of production.Answer: TRUEDiff: 1LO: 6-1EOC: E6-19AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

2) In a manufacturing company, fixed costs remain the same at many different production levels within the relevant range.Answer: TRUEDiff: 1LO: 6-1EOC: E6-19AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

3) Unit variable costs do not change as total production increases.Answer: TRUEDiff: 1LO: 6-1EOC: E6-19AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

4) Mixed costs are purely fixed.Answer: FALSEDiff: 1LO: 6-1EOC: E6-19AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

5) Fixed costs per unit decrease as production levels increase.Answer: TRUEDiff: 2LO: 6-1EOC: E6-19AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

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6) An expense such as advertising could be considered a discretionary fixed cost.Answer: TRUEDiff: 2LO: 6-1EOC: E6-19AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

7) The fixed cost per unit does not always remain the same.Answer: TRUEDiff: 2LO: 6-1EOC: E6-19AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

8) The line on a graph representing total fixed costs will be a horizontal line.Answer: TRUEDiff: 1LO: 6-1EOC: E6-19AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

9) Total variable costs change in direct proportion to changes in volume. Answer: TRUEDiff: 2LO: 6-1EOC: E6-19AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

10) The variable cost per unit of activity increases as activity increases. Answer: FALSEDiff: 2LO: 6-1EOC: E6-19AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

11) When graphing total fixed costs, the fixed cost per unit is the slope of the fixed cost line. Answer: FALSEDiff: 2LO: 6-1EOC: S6-2AACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

12) When graphing total fixed costs, the cost line always begins at the origin. Answer: FALSEDiff: 2LO: 6-1EOC: S6-2AACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs


13) The graph of total variable cost will be a horizontal line over all activity levels within the relevant range. Answer: FALSEDiff: 2LO: 6-1EOC: S6-2AACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

14) The fixed cost per unit of activity varies with changes in volume. Answer: TRUEDiff: 2LO: 6-1EOC: S6-2AACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

15) When graphing total variable costs, the cost line begins at the origin.Answer: TRUEDiff: 2LO: 6-1EOC: S6-2AACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

16) Total mixed costs increase as volume increases because of the variable cost component. Answer: TRUEDiff: 2LO: 6-1EOC: S6-2AACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

17) Mixed costs per unit decrease as volume increases because of the variable cost component. Answer: FALSEDiff: 2LO: 6-1EOC: S6-2AACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

18) Total mixed cost graphs slope upward but do not begin at the origin. Answer: TRUEDiff: 2LO: 6-1EOC: S6-2AACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

19) Total mixed cost graphs intersect the y-axis at the level of fixed costs. Answer: TRUEDiff: 2LO: 6-1EOC: S6-2AACSB: Reflective Thinking


Learning Outcome: Define and distinguish among variable, fixed and mixed costs

20) Fixed costs that are the result of previous management decisions that current managers have no control over in the short run are called ________ fixed costs.A) discretionary B) committed C) standard D) past Answer: BDiff: 1LO: 6-1EOC: S6-2AACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

21) A(n) ________ cost is a cost whose total amount changes in direct proportion to a change in volume.A) variableB) fixed C) mixed D) irrelevant Answer: ADiff: 1LO: 6-1EOC: S6-2AACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs


22) Which of the following costs is an example of a fixed cost?A) Sales commissions B) Salary of plant managerC) Direct materials D) Delivery costsAnswer: BDiff: 1LO: 6-1EOC: E6-19AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

23) With respect to variable costs per unit, which of the following statements is true?A) They will decrease as production increases within the relevant range.B) They will increase as production decreases within the relevant range.C) They will decrease as production decreases within the relevant range.D) They will remain the same as production levels change within the relevant range.Answer: DDiff: 2LO: 6-1EOC: E6-20AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

24) With respect to total variable costs, which of the following statements is true?A) They will remain the same as production levels change within the relevant range.B) They will decrease as production decreases within the relevant range.C) They will decrease as production increases within the relevant range.D) They will increase as production decreases within the relevant range.Answer: BDiff: 2LO: 6-1EOC: E6-20AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

25) With respect to total fixed costs, which of the following statements is true?A) They will remain the same as production levels change within the relevant range.B) They will increase as production decreases within the relevant range.C) They will decrease as production increases within the relevant range.D) They will decrease as production decreases within the relevant range.Answer: ADiff: 2LO: 6-1EOC: E6-20AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

26) Within the relevant range, which of the following statements is true with respect to fixed costs per unit?A) They will increase as production increases.B) They will decrease as production decreases.C) They will remain the same as production levels change.D) They will increase as production decreases.Answer: DDiff: 2


LO: 6-1EOC: E6-20AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

27) Which of the following is a characteristic of a variable cost?A) Variable costs are fixed in total.B) Variable costs fluctuate in total with production and sales.C) Variable costs do not change in total over any range.D) All of the above may be characteristic of a variable cost.Answer: BDiff: 2LO: 6-1EOC: E6-20AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

28) Which of the following is a fixed cost?A) Direct materials costB) Direct labor costC) Straight-line depreciation expenseD) Sales commissions expenseAnswer: CDiff: 1LO: 6-1EOC: E6-19AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

29) Variable costs are described by which of the following statements?A) They vary per unit of output. B) They are fixed in total.C) They are fixed per unit and vary in total.D) They decrease per unit as production volume increases.Answer: CDiff: 1LO: 6-1EOC: E6-19AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

30) Renting a scooter and paying $30 per day plus $.20 per mile driven is an example of what type of cost?A) Mixed costB) Fixed costC) Conversion cost D) Variable costAnswer: ADiff: 1LO: 6-1EOC: E6-19AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

31) For most businesses, annual straight line depreciation expense on the company's building is what type of cost?


A) VariableB) MixedC) FixedD) StepAnswer: CDiff: 1LO: 6-1EOC: E6-19AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

32) Total fixed costs for Taylor Incorporated are $240,000. Total costs, including both fixed and variable, are $500,000 if 125,000 units are produced. The variable cost per unit isA) $5.92/unit.B) $2.08/unit.C) $4.00/unit.D) $1.92/unit.Answer: BExplanation: B) Cost equation y = vx + f $500,000 = 125,000x + 240,000260,000 = 125,000x$2.08 = xDiff: 2LO: 6-1EOC: E6-22AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs


33) Total fixed costs for Randolph Manufacturing are $754,000. Total costs, including both fixed and variable, are $1,000,000 if 150,000 units are produced. The variable cost per unit isA) $6.67/unit.B) $5.03/unit.C) $11.69/unit.D) $1.64/unit.Answer: DExplanation: D) Cost equation y = vx + f $1,000,000 = 150,000x + 754,000246,000 = 150,000x$1.64 = xDiff: 2LO: 6-1EOC: E6-22AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

34) Total fixed costs for Diamond Enterprises are $800,000. Total costs, including both fixed and variable, are $890,000 if 120,000 units are produced. The fixed cost per unit at 200,000 units would beA) $4.00/unit.B) $7.42/unit.C) $4.45/unit.D) $0.45/unit.Answer: AExplanation: A) Fixed Cost / units produced = Fixed Cost per unit$800,000 / 200,000 = $ 4.00Diff: 2LO: 6-1EOC: E6-22AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

35) Total fixed costs for Randolph Manufacturing are $752,450. Total costs, including both fixed and variable, are $1,000,000 if 150,000 units are produced. The fixed cost per unit at 186,250 units would be closest toA) $1.31/unit.B) $5.31/unit.C) $4.00/unit.D) $5.03/unit.Answer: CExplanation: C) 754,000 / 186,250 = $ 4.00Diff: 2LO: 6-1EOC: E6-22AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs


36) Total fixed costs for Green Planes Inc. are $120,000. Total costs, including both fixed and variable, are $600,000 if 150,000 units are produced. The total variable costs at a level of 220,000 units would beA) $409,091.B) $176,000.C) $880,000.D) $704,000.Answer: DExplanation: D) Cost Equationy = vx + f$600,000 = 150,000x + $120,000X = 3.20Then $3.20 × 220,000 = $ 704,000Diff: 3LO: 6-1EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

37) Total fixed costs for Toys and Trinkets Incorporated are $88,000. Total costs, including both fixed and variable, are $155,000 if 268,000 units are produced. The total variable costs at a level of 275,000 units would beA) $68,750.B) $159,049.C) $90,299.D) $151,055.Answer: AExplanation: A) Cost Equationy = vx + f$155,000 = 268,000x + $88,000X = 0.25Then $0.25 × 275,000 = $ 68,750Diff: 3LO: 6-1EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs


38) If 120,000 units are produced, total costs are $343,000. Total fixed costs for Blue Peace Inc. are $175,000. The variable cost per unit isA) $4.32/unit.B) $1.46/unit.C) $2.86/unit.D) $1.40/unit.Answer: DExplanation: D) Cost Equation y = vx + f$343,000 = 120,000x + $175,000X = 1.40Diff: 2LO: 6-1EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

39) Total fixed costs for Purple Figs Company are $52,000. Total costs, both fixed and variable are $160,000 if 80,000 units are produced. The fixed cost per unit at 80,000 units would beA) $1.35/unit.B) $0.65/unit.C) $2.00/unit.D) $2.65/unit.Answer: BExplanation: B) $ 52,000/ 80,000 = $.65Diff: 2LO: 6-1EOC: E6-22AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

40) Total costs for Locke & Company at 120,000 units are $289,000, while total fixed costs are $145,000. The total variable costs at a level of 250,000 units would beA) $300,000.B) $602,083.C) $138,720.D) $302,083.Answer: AExplanation: A) Cost Equation y = vx + f$289,000 = 120,000x + $145,000X = 1.20Then $1.20 × 250,000 = $ 300,000Diff: 3LO: 6-1EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs


41) Selected financial data for Spark Enterprises follows for a production level of 120,000 units:

Total fixed costs $ 300,000Total costs (fixed and variable) $ 450,000

a. Calculate the variable cost per unit.b. If Flash Corporation makes 75,000 units, calculate the fixed cost per unit.c. If Flash Corporation makes 160,000 units, calculate the total variable costs.d. If Flash Corporation makes 280,000 units, calculate the total costs.Answer:


Diff: 3LO: 6-1EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

42) Relevant range is the range of activity (volume) over which total fixed costs and variable costs per unit can be assumed to remain the same. Answer: TRUEDiff: 2LO: 6-2EOC: S6-6AACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

43) In the equation y = vx + f, the x represents the fixed costs.Answer: FALSEDiff: 2LO: 6-2EOC: S6-6AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

44) In the equation y = vx + f, the f represents the volume of activity. Answer: FALSEDiff: 1LO: 6-2EOC: S6-6AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

45) Cost behavior can be mathematically expressed using equations.Answer: TRUEDiff: 1


LO: 6-2EOC: S6-6AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

46) The equation for a straight line is y = fx + v, where y is the total cost, f is the fixed cost per unit, x is the volume of activity, and v is the variable cost per unit.Answer: FALSEDiff: 1LO: 6-2EOC: S6-6AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

47) At any given volume, average fixed costs must equal average variable costs. Answer: FALSEDiff: 2LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

48) The "averaging method" is a method that may be used to separate mixed costs into fixed and variable components. Answer: FALSEDiff: 2LO: 6-2EOC: E6-5AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

49) Total variable costs can be expressed as y = vx, where y = total mixed cost, v = mixed cost per unit of activity, and x = volume of activity. Answer: FALSEDiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

50) Total fixed costs can be expressed as y = vx, where y = total variable cost, v = variable cost per unit of activity, and x = volume of activity.Answer: FALSEDiff: 1LO: 6-2EOC: S6-4


AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

51) Total mixed costs can be expressed as y = vx, where y = total variable cost, v = variable cost per unit of activity, and x = volume of activity. Answer: FALSEDiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

52) Total mixed costs can be expressed as a combination of the fixed and sunk cost equations. Answer: FALSEDiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

53) Managers often approximate curvilinear costs and step costs as fixed costs. Answer: FALSEDiff: 2LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


54) If production increases by 25%, how will total fixed costs likely react?A) Increase by 12.5%B) Increase by 25%C) Decrease by 25%D) Remain the sameAnswer: DDiff: 1LO: 6-2EOC: S6-4AACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

55) If production increases by 30%, how will total variable costs likely react?A) Increase by 15%B) Decrease by 30%C) Increase by 30%D) Remain the sameAnswer: CDiff: 1LO: 6-2EOC: S6-4AACSB: Analytical ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

56) Which of the following would be considered a discretionary fixed cost?A) Property taxes and insuranceB) AdvertisingC) Employees wagesD) DepreciationAnswer: BDiff: 2LO: 6-2EOC: E6-22AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

57) Which of the following would be considered a committed fixed cost?A) DepreciationB) Research and DevelopmentC) Office holiday partyD) Advertising Answer: ADiff: 1LO: 6-2EOC: E6-22AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

58) Management has little or no control overA) discretionary fixed costs.B) committed fixed costs.C) all fixed costs.D) all of the above.Answer: BDiff: 1LO: 6-2


EOC: E6-22AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

59) Which of the following cost behaviors cannot be accurately represented by a single straight line?A) Variable costsB) Mixed costsC) Fixed costsD) Step costsAnswer: DDiff: 1LO: 6-2EOC: E6-22AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

60) Managers should consider which of the following when predicting costs at different volumes?A) The relevant range of the costB) The type of cost behaviorC) Both of the above should be considered. D) Neither of the above should be considered.Answer: CDiff: 2LO: 6-2EOC: E6-22AAACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

61) An equation of a line for total costs isA) y = vx - f.B) y = fx + v.C) y = f.D) none of the above.Answer: DDiff: 1LO: 6-2EOC: S6-4AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

62) An equation of a line for total mixed costs isA) y = vx + f.B) y = vx - f. C) f = vx - y.D) f = vx + y.Answer: ADiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs


portions of a mixed cost

63) The equation for total fixed costs isA) y = f.B) y = vx + f.C) y = vx - f. D) none of the above.Answer: ADiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

64) The representation for total variable costs isA) vx + f. B) vx.C) vx - f.D) y = vx + f.Answer: BDiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


65) The representation for fixed cost per unit of activity isA) vx divided by v.B) vx divided by y.C) y divided by x.D) f divided by x.Answer: DDiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

66) If a company's overhead cost equation is y = $8.80x + $120,020. The "x" isA) the cost driver in units.B) total fixed costs.C) total overhead costs. D) the variable costs.Answer: ADiff: 21LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


67) Which type of cost behavior is indicated by the following graph?

A) FixedB) StepC) MixedD) VariableAnswer: BDiff: 1LO: 6-2EOC: S6-3AACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

68) Which type of cost behavior is indicated by the following graphs?

A) StepB) FixedC) CurvilinearD) VariableAnswer: CDiff: 2LO: 6-2EOC: S6-3AACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs


69) What term represents the total variable cost component in the equation: y = vx + f?A) fB) vC) vxD) yAnswer: CDiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

70) What term represents the total cost in the equation: y = vx + f?A) fB) vC) vxD) yAnswer: DDiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

71) What term represents the variable cost per unit of activity in the equation: y = vx + f? (Assume x represents the volume of activity.)A) vB) fC) yD) vxAnswer: ADiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


72) What variable represents the volume of activity in the equation: y = vx + f? (Assume v represents the variable cost per unit of activity.)A) vB) xC) yD) vxAnswer: BDiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

73) What term represents the fixed cost component in the equation: y = vx + f?A) yB) vC) fD) vxAnswer: CDiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

74) Total mixed cost is represented by which of the following equations?A) y = vx B) y = vx + fC) y = fD) y = v + fAnswer: BDiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


75) In the equation y = $7.20x + $790, "y" representsA) total fixed costs.B) total costs.C) variable costs/unit. D) none of the above.Answer: BDiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

76) In the equation y = $7.20x + $790, "x" representsA) number of units produced.B) total fixed costs. C) total costs.D) none of the above.Answer: ADiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

77) In the equation y = $7.20x + $790,A) $250,250 are the total variable costs.B) $250,250 are the total costs. C) $250,250 are the total fixed costs.D) $250,250 are the total overhead costs.Answer: CDiff: 2LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


78) In the equation y = $11.75x + $550, "y" representsA) total costs. B) total fixed costs.C) variable costs/unit.D) none of the above.Answer: ADiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

79) In the equation y = $11.75x + $550, "x" representsA) number of units produced. B) total fixed costs.C) total costs.D) none of the above.Answer: ADiff: 1LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

80) In the equation y = $11.75x + $550,A) $550 are the total step costs.B) $550 are the total overhead costs.C) $550 are the total variable costs.D) $550 are the total fixed costs.Answer: DDiff: 2LO: 6-2EOC: S6-4AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


81) DirectCall offers a calling plan that charges $5.00 per month plus $0.02 per minute of call time. Under this plan, what is your monthly cost if you talk for a total of 200 minutes?A) $4.00B) $9.00C) $(1.00)D) $5.00Answer: BExplanation: B) Cost Equation Y = vx + fy = ($ .02 × 200) + $ 5.00y = $ 9.00Diff: 2LO: 6-2EOC: S6-4AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

82) GreatCalls has a special plan offer this month. There is a $3.00 per month charge each month and calls anywhere in the United States are $0.04 per minute. What would the monthly cost be if you typically talk for 450 minutes per month?A) $ 5.00B) $ 15.00C) $ 18.00D) $ 21.00Answer: DExplanation: D) Cost Equation Y = vx + fy = ($ .04 × 450) + $ 3.00y = $ 21.00Diff: 2LO: 6-2EOC: S6-4AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


83) Maryland Incorporated produces toys. Total manufacturing costs are $350,000 when 50,000 toys are produced. Of this amount, total variable costs are $100,000. What are the total production costs when 75,000 toys are produced? (Assume the same relevant range for both production levels.)A) $150,000B) $400,000C) $500,000D) $525,000Answer: BExplanation: B) v = $ 100,000/ 50,000 v = $ 2 thenf = $350,000 - 100,000f = 250,000 finally y = vx + fy = $ 3.00 (75,000) + $ 250,000 y = $ 400,000Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

84) Doggie Pals produces 100,000 dog collars each month that give off a fresh scent to keep your dog smelling clean between baths. Total manufacturing costs are $200,000. Of this amount, $150,000 are variable costs. What are the total production costs when 125,000 collars are produced? (Assume both production levels are in the same relevant range.)A) $387,500B) $250,000C) $237,500D) $187,500Answer: CExplanation: C) v = $ 150,000/ 100,000 v = $ 1.50thenf = $200,000 - 150,000f = $50,000 finally y = vx + fy = $ 1.50 (125,000) + $ 50,000 y = $ 237,500Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

85) Best Birdies produces ornate birdcages. The company's average cost per unit is $18.00 at a production level of 2,200 birdcages. What is the total cost of producing 2,200 birdcages?


A) $39,600B) $18.00C) $2,218D) $122Answer: AExplanation: A) $ 18 × 2,200 = $ 39,600Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

86) Best Birdies produces ornate birdcages. The company's average cost per unit is $18.00 when it produces 2,200 birdcages. If $5,500 of the total costs are fixed, what is the variable cost of producing each birdcage?A) $2.50B) $34,100C) $18.00D) $15.50Answer: DExplanation: D) TOTAL COST = $18 × 2,200 = $ 39,600$ 39,600 = VARIABLE COST PER UNIT(2,200 ) + $ 5,500$ 15.50 = VARIABLE COST PER UNITDiff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


87) Best Birdies produces ornate birdcages. The company's average cost per unit is $18.00 when it produces 2,200 birdcages. If $5,500 of the costs are fixed, and the plant manager uses the average cost per unit to predict total costs, his forecast for 3,000 birdcages will beA) $52,000.B) $39,600.C) $14,400.D) $54,000.Answer: DExplanation: D) y = 3,000 × $ 18.00y = $ 54,000Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost88) Best Birdies produces ornate birdcages. The company's average cost per unit is $18.00 when it produces 2,200 birdcages. If $5,500 of the costs are fixed, and the plant manager uses the cost equation to predict total costs, his forecast for 3,000 birdcages will beA) $52,000.B) $54,000.C) $39,600.D) $14,400.Answer: AExplanation: A) Total Cost = $18 × 2,200 = $ 39,600$ 39,600 = VARIABLE COST PER UNIT (2,000 ) + $ 5,500$ 15.50 = VARIABLE COST PER UNITthenY = $15.50 (3,000) + $ 5,500y = $ 52,000Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


89) The Akron Slugger Company produces various types of wooden baseball bats. It has calculated the average cost per unit of a production level of 7,500 bats to be $10.00. Given this information, what would be the total cost of producing 7,500 baseball bats?A) $7,510B) $75,000C) $10D) $750Answer: BExplanation: B) $ 10 × 7,500 = $ 39,600Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

90) The Akron Slugger Company produces various types of wooden baseball bats. It has calculated the average cost per unit of a production level of 7,500 bats to be $10.00. If $22,500 of the total costs are fixed, what is the variable cost of producing each bat?A) $10.00B) $52,500C) $7.00D) $3.00Answer: CExplanation: C) TOTAL COST = $10 × 7,500 = $ 75,000$ 75,000 = VARIABLE COST PER UNIT (7,500 ) + $ 22,500$ 7.00 = VARIABLE COST PER UNITDiff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


91) The Akron Slugger Company produces various types of wooden baseball bats. It has calculated the average cost per unit of a production level of 7,500 bats to be $10.00. If $22,500 of the costs are fixed, and the plant manager uses the average cost per unit to predict total costs, her forecast for 8,500 bats will beA) $10,000.B) $85,000.C) $82,000.D) $75,000.Answer: BExplanation: B) y = 8,500 × $ 10.00y = $ 85,000Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

92) The Akron Slugger Company produces various types of wooden baseball bats. It has calculated the average cost per unit of a production level of 7,500 bats to be $10.00. If $22,500 of the costs are fixed, and the plant manager uses the cost equation to predict total costs, her forecast for 8,500 bats will beA) $10,000.B) $75,000.C) $85,000.D) $82,000.Answer: DExplanation: D) Total Cost = $10 × 7,500 = $ 75,000$ 75,000 = VARIABLE COST PER UNIT (7,500 ) + $ 22,500$ 7.00 = VARIABLE COST PER UNITthenY = $7.00 (8,500) + $ 5,500y = $ 82,000Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


93) The Maple Company has total fixed costs of $400,000. It also has $200,000 in total variable costs. These costs exist at a production level of 100,000 units. The variable cost per unit isA) $2.00.B) $6.00.C) $4.00.D) $1.50.Answer: AExplanation: A) $ 200,000 / 100,000 = $ 2.00Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

94) The Maple Company has total fixed costs of $400,000. It also has $200,000 in total variable costs. These costs exist at a production level of 100,000 units. The fixed cost per unit isA) $2.00.B) $6.00.C) $1.50.D) $4.00.Answer: DExplanation: D) $ 500,000 / 100,000 = $ 5.00Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

95) Mario Company has total fixed costs of $600,000. Total fixed and variable costs are $612,500 at a production level of 175,000 units. The fixed cost per unit at a production level of 300,000 units isA) $1.75.B) $2.00.C) $2.04.D) $3.50.Answer: BExplanation: B) $ 600,000 / 300,000 = $ 2.00Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


96) George Company has a relevant range of 150,000 units to 400,000 units. The company has total fixed costs of $525,000. Total fixed and variable costs are $612,500 at a production level of 175,000 units. The variable cost per unit at 300,000 units isA) the same as at 175,000 units.B) greater than at 175,000 units.C) less than at 175,000 units.D) dependent upon fixed costs per unit.Answer: ADiff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

97) George Company has a relevant range of 150,000 units to 400,000 units. The company has total fixed costs of $525,000. Total fixed and variable costs are $612,500 at a production level of 175,000 units. The variable cost per unit at 300,000 units isA) $3.00. B) $0.29. C) $0.50.D) $3.50.Answer: CExplanation: C) $612,500 = $525,000 + vx175,000 = vxThen $ 87,500 /175,000 = $.50Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

98) Sea Side Enterprises is trying to predict the cost associated with producing its anchors. At a production level of 5,000 anchors, Sea Side Enterprises' average cost per anchor is $52.00. What is the total cost of producing 5,000 anchors? A) $260,000.B) $5,052.C) $52.00.D) $96.Answer: AExplanation: A) $52 × 5,000 = $260,000Diff: 2LO: 6-2EOC: E6-22AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

99) Sea Side Enterprises is trying to predict the cost associated with producing its anchors. At a production level of 5,000 anchors, Sea Side Enterprises' average cost per anchor is $52.00. If $15,000 of the total costs are fixed, what is the variable cost of producing each anchor?


A) $3.00B) $49.00C) $245.00D) $52.00Answer: BExplanation: B) TOTAL COST = $52 × 5,000 = $260,000Variable cost = $260,000 - 15,000 = $245,000$245,000 divided by 5,000 = $49.00Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

100) Sea Side Enterprises is trying to predict the cost associated with producing its anchors. At a production level of 5,000 anchors, Sea Side Enterprises average cost per anchor is $52.00. If $15,000 of the costs are fixed, and the plant manager uses the average cost per unit to predict total costs, her forecast for 6,000 anchors will beA) $260,000.B) $312,000.C) $309,000.D) $52,000.Answer: BExplanation: B) $52 × 6,000 = $312,000Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


101) Sea Side Enterprises is trying to predict the cost associated with producing its anchors. At a production level of 5,000 anchors, Sea Side Enterprises average cost per anchor is $52.00. If $15,000 of the costs are fixed, and the plant manager uses the cost equation to predict total costs, her forecast for 6,000 anchors will beA) $52,000.B) $260,000.C) $312,000.D) $309,000.Answer: DExplanation: D) TOTAL COST = $52 × 5,000 = $260,000Variable cost = $260,000 - 15,000 = $245,000$245,000 divided by 5,000 = $49.00THENy = $49 (6,000) + $15,000y = $309,000Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

102) The following data pertain to costs at Summit Company:

Total fixed costs $300,000Total variable costs $ 75,000Production level 20,000 units

The variable cost per unit isA) $ 3.75.B) $15.00.C) $18.75.D) $11.25.Answer: AExplanation: A) vx = $ 75,000 divided by 20,000 = $ 3.75Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


103) The following data pertain to costs at Summit Company:

Total fixed costs $300,000Total variable costs $ 75,000Production level 20,000 units

The fixed cost per unit isA) $3.75.B) $15.00.C) $18.75.D) $11.25.Answer: BExplanation: B) $ 300,000 / 20,000 = $ 15.00Diff: 21LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

104) At Dwight Incorporated, total fixed and variable costs are $400,000 at a production level of 100,000 units. The company has total fixed costs of $225,000. The fixed cost per unit at a production level of 150,000 units isA) $4.00.B) $2.25.C) $2.67.D) $1.50.Answer: DExplanation: D) $ 225,000 / 150,000 = $ 1.50Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


105) At Dwight Incorporated, total fixed and variable costs are $400,000 at a production level of 100,000 units. The company has total fixed costs of $225,000. The variable cost per unit at 150,000 units isA) $1.75.B) $2.25.C) $4.00.D) $1.17.Answer: AExplanation: A) vx = $ 400,000 - 225,000vx = @ 175,000then$ 175,000 / 100,000 = $ 1.75Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

106) Answer the following questions:a. What is a cost equation?b. If a company has fixed costs of $1,000 and variable costs of $4 per unit, what is their cost equation?c. What would a company use a cost equation for?Answer: a. A cost equation takes the form of y = vx + f, where:y = total costsv = variable cost per unitx = activity levelf = fixed costsA cost equation is the mathematical model for how costs behave (over a relevant range).

b. Y = $4x + $1,000c. A company would use a cost equation to predict costs at various activity levels.Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


107) The controller for Andy's Bicycles has gathered the following cost and activity level information:

Average total cost per unit $ 225.00 Production level used to calculate average cost 1,000 Total fixed costs $ 80,000

a. What is the total cost of producing 1,000 racing bicycles?b. What is the variable cost of producing each racing bicycle?c. Suppose the controller uses the average cost to predict total costs. What total cost would the controller calculate for 2,500 racing bicycles?d. If the controller uses the cost equation to predict total costs, what total cost would the controller calculate for 2,500 racing bicycles?e. Is there a difference between the forecasted total cost using average cost versus the cost equation? If there is a difference, what creates the difference? If there is no difference, when would there be a difference?Answer: Part a.Production level used to calculate average cost 1,000 Average total cost per unit $ 225.00Total costs $ 225,000

Part b.Production level used to calculate average cost 1,000Average cost per unit $ 225.00Total costs $ 225,000

Total costs $ 225,000Total fixed cost $ (80,000)Total variable cost $ 145,000Divide by Divide byProduction level used to calculate average cost 1,000Variable cost per unit $ 145.00

Part c.Average cost per unit $ 225.00Predicted volume levelTotal cost when using average cost to predict


Part d. 1,000Production level used to calculate average costAverage cost per unit $ 225.00Total costs $ 225,000

Total costs $ 225,000Total fixed cost $ (80,000)Total variable cost $ 145,000Divide by Divide byProduction level used to calculate average cost 1,000Variable cost per unit $ 145.00

Variable cost per unit (v) $ 145.00Predicted volume level (x) 2,500Total variable cost $ 362,500Total fixed cost (f) $ 80,000Total cost at forecasted production $ 442,500

Part e.

There is a difference between the cost prediction using average cost and the cost prediction using the cost equation. The difference is the fixed costs. Average costing spreads the fixed costs over a specified number of units. When making a prediction at a level different from that initial level, either more fixed costs will be estimated or less fixed costs; either way, the fixed costs with average costing appear to change in total, which they do not.Diff: 2LO: 6-2EOC: E6-22AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

108) The high-low method is theoretically better than regression analysis because the high-low method uses more data points than regression analysis.Answer: FALSEDiff: 1LO: 6-3EOC: S6-7AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


109) When performing account analysis, managers decide how to classify each account as a variable, fixed or mixed cost.Answer: TRUEDiff: 1LO: 6-3EOC: S6-7AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

110) Rent on a factory building would likely be classified as a fixed cost.Answer: TRUEDiff: 1LO: 6-3EOC: S6-7AACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs

111) If the data points in a scatter plot fall in a fairly straight line, it means that there is a fairly strong relationship between cost and volume. Answer: TRUEDiff: 2LO: 6-3EOC: E6-27AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

112) If there is little or no relationship between the cost and the volume, the data points on a scatter plot will appear almost as a straight line.Answer: FALSEDiff: 1LO: 6-3EOC: E6-27AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

113) A scatter plot helps managers visualize the relationship between historical costs and volume. Answer: TRUEDiff: 1LO: 6-3EOC: E6-27AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


114) A scatter plot will help managers identify potential outliers.Answer: TRUEDiff: 1LO: 6-3EOC: E6-27AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

115) If a scatter plot reveals a fairly weak relationship between cost and volume, the cost equation based on that data would not be very useful for predicting future costs. Answer: TRUEDiff: 2LO: 6-3EOC: E6-27AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

116) If a scatter plot reveals a fairly weak relationship between cost and volume, the manager should select a different activity for modeling cost behavior.Answer: TRUEDiff: 2LO: 6-3EOC: E6-27AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

117) Outliers are data points that fall in the same general pattern as the other data points. Answer: FALSEDiff: 1LO: 6-3EOC: E6-27AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

118) Outliers are abnormal data points. Answer: TRUEDiff: 1LO: 6-3EOC: E6-27AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


119) If a manager sees a potential outlier in the data, he or she should first determine whether the data is correct. Answer: TRUEDiff: 1LO: 6-3EOC: E6-27AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

120) Which is true about a scatter plot?A) If there is a strong relationship between cost and volume, the points will fall in a linear pattern.B) If there is a strong relationship between cost and volume, the points will fall in a scattered pattern.C) Cost and volume have no effect on the pattern of the points on a scatter plot.D) A strong relationship between production and inventory is shown by a linear pattern.Answer: ADiff: 1LO: 6-3EOC: E6-26AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

121) Using account analysis, what type of cost is the rental of a space at $6,000 per month?A) MixedB) FixedC) StepD) VariableAnswer: BDiff: 1LO: 6-3EOC: E6-26AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


122) Using account analysis, what type of cost are utilities if you are charged $45 for the first 400 kilowatt hours, $100 for 401-600 kilowatt hours, and $165 + or - for 601-900 kilowatt hours?A) FixedB) MixedC) VariableD) StepAnswer: DDiff: 1LO: 6-3EOC: E6-26AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

123) Using account analysis, what type of cost is the local phone service which charges a flat fee for unlimited local calls?A) StepB) MixedC) FixedD) VariableAnswer: CDiff: 1LO: 6-3EOC: E6-26AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

124) Using account analysis, what type of cost is the price of gasoline when your car gets 30 miles per gallon and each gallon costs $3.65?A) FixedB) MixedC) VariableD) Step Answer: CDiff: 1LO: 6-3EOC: E6-26AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


125) Using account analysis, what type of cost is Satellite TV when the charge is $45.00 per month plus $5.99 for pay-per-view movies?A) MixedB) FixedC) StepD) VariableAnswer: ADiff: 1LO: 6-3EOC: E6-26AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

126) Using account analysis, what type of cost is an electric bill that charges a flat monthly fee plus a charge for each kilowatt hour of electricity used?A) FixedB) MixedC) StepD) VariableAnswer: BDiff: 1LO: 6-3EOC: E6-26AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

127) Using account analysis, what type of cost is the fee the airline company charges for your bags? A typical policy is $25 if the bag weighs between 0 and 50 lbs; $75 if the bag weighs between 50 and 75 lbs and $125 if the bag weighs between 75 and 100 lbs.A) FixedB) MixedC) StepD) VariableAnswer: CDiff: 1LO: 6-3EOC: E6-26AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


128) Using account analysis, what type of cost is the monthly cost of a storage locker used for holding old records?A) FixedB) MixedC) VariableD) StepAnswer: ADiff: 1LO: 6-3EOC: E6-26AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

129) Using account analysis, what type of cost is a community activity pass that costs $80 plus $15.00 per event?A) FixedB) StepC) MixedD) VariableAnswer: CDiff: 1LO: 6-3EOC: E6-26AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

130) Manufacturing overhead (consisting of costs like factory rent, factory utilities, factory maintenance, and other similar costs) is usually what type of cost?A) VariableB) FixedC) StepD) MixedAnswer: DDiff: 2LO: 6-3EOC: S6-7AACSB: Reflective ThinkingLearning Outcome: Define and distinguish among variable, fixed and mixed costs


131) Which method are managers using when they use their judgment to classify costs as variable, fixed, or mixed?A) High-low methodB) Account analysisC) Regression analysisD) Low-high methodAnswer: BDiff: 1LO: 6-3EOC: S6-8AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

132) When preparing a scatter plot, how should the data be graphed?A) Volume data on the y-axisB) Cost data on the x-axisC) Cost data on the y-axisD) Volume data on the z-axisAnswer: CDiff: 1LO: 6-3EOC: E6-27AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

133) What are scatter plots useful for?A) Determining the overall strength of the relationship between historical cost and volumeB) Identifying potential outliersC) Both of the aboveD) Neither of the aboveAnswer: CDiff: 1LO: 6-3EOC: E6-27AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


134) Describe the scattergraph method. Discuss the advantages and disadvantages of using the scattergraph method.Answer: The scattergraph method involves plotting cost/activity data with the activity on the x-axis (horizontal) and the related cost on the y-axis (vertical) for a period of time. Once the data is plotted, a line is drawn through the data points in which half of the data points are above the line and half are below the line. The equation for that line is calculated; the slope of that line is the variable cost per activity-unit and the y-intercept represents the fixed costs.Diff: 2LO: 6-3EOC: E6-27AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

135) When using the high-low method, the slope of the mixed cost line is fixed cost per unit.Answer: FALSEDiff: 1LO: 6-4EOC: S6-11AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

136) When using the high-low method, fixed costs and variable costs appear in the same cost equation.Answer: TRUEDiff: 1LO: 6-4EOC: S6-11AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

137) The high-low method uses only two of the historical data points for estimating a cost equation.Answer: TRUEDiff: 1LO: 6-4EOC: S6-11AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


138) When using the high-low method, the "high" point should be chosen as the data point with the highest cost (not the highest volume). Answer: FALSEDiff: 1LO: 6-4EOC: S6-10AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

139) When using the high-low method, the "low" point should be chosen as the data point with the lowest volume (not the lowest cost).Answer: TRUEDiff: 1LO: 6-4EOC: S6-10AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

140) Regression analysis uses only two of the historical data points for estimating a cost equation. Answer: FALSEDiff: 1LO: 6-4EOC: S6-11AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

141) The high-low method basically fits a line through the highest and lowest ________ points.A) fixed cost B) variable cost C) volumeD) none of the aboveAnswer: CDiff: 1LO: 6-4EOC: S4-9AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


142) The data points with the ________ should be selected for use in calculating the variable cost per unit and the total fixed costs when using the high-low method.A) highest cost and the lowest costB) highest volume and the lowest volumeC) highest volume and the lowest costD) highest cost and the lowest volumeAnswer: BDiff: 1LO: 6-4EOC: S6-10AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

143) Which step is performed first when using the high-low method?A) Find the vertical interceptB) Write the cost equationC) Predict total costD) Find the slopeAnswer: DDiff: 1LO: 6-4EOC: S6-10AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

144) When using the high-low method, what is the correct order of the following three steps?

i. write the cost equationii. find the vertical interceptiii. find the slopeA) i, ii, iiiB) ii, iii, iC) iii, ii, iD) iii, i, iiAnswer: CDiff: 2LO: 6-4EOC: S6-10AACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


145) When using the high-low method, the variable cost per unit can be found asA) rise over run.B) run over rise.C) change in volume over change in cost.D) vertical intercept.Answer: ADiff: 2LO: 6-4EOC: E6-28AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

146) What data point can be used to solve for the fixed cost component when using the high-low method?A) The "high" monthB) Either the "high" or the "low" monthC) The "low" monthD) Any month in the data setAnswer: BDiff: 2LO: 6-4EOC: E6-28AAACSB: Reflective ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

147) The tennis club where you play tennis charges $50.00 per month and $10.00 per hour of court time. If your current bill is $100.00, how many hours did you use?A) 5 hoursB) 10 hoursC) 8 hoursD) 2 hoursAnswer: AExplanation: A) $100 = $ 10.00(x) + $50.005 hours = xDiff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


148) Pablo was reviewing the water bill for his carwash business and determined that the highest bill, $5,000, occurred in July when 2,200 cars were washed and the lowest bill, $3,200, occurred in February when 1,400 cars were washed. What was the variable cost per carwash?A) $2.25B) $2.27C) $0.44D) $2.29Answer: AExplanation: A) Highest cost $ 5,000 Highest activity 2,200 Lowest cost $ 3,200 Lowest activity 1,400Difference $ 1,800 800

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $1,800/800 = $ 2.25Diff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

149) Pablo was reviewing the water bill for his carwash business and determined that the highest bill, $5,000, occurred in July when 2,200 cars were washed and the lowest bill, $3,200, occurred in February when 1,400 cars were washed. What was the fixed portion of the water bill?A) $3,600B) $3,150C) $4,100D) $50Answer: DExplanation: D) Highest cost $ 5,000 Highest activity 2,200 Lowest cost $ 3,200 Lowest activity 1,400Difference $ 1,800 800

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $1,800/800 = $ 2.25

Put the numbers into the Cost Equation: $5,000 = $ 2.25 (2,200) + f $50 = fDiff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


150) Tasty Treats is a snow cone stand near the local park. To plan for the future, Tasty Treats wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served.

Month Number of snow cones Total operating costsJanuary 6,400 $5,980February 7,000 $6,400March 6,200 $5,840April 6,900 $6,330May 7,600 $6,820June 7,250 $6,575

The variable cost per snow cone using the high-low method isA) $1.43.B) $0.70.C) $0.90.D) $0.94.Answer: BExplanation: B) Highest cost $ 6,820 Highest activity 7,600 Lowest cost $ 5,840 Lowest activity 6,200Difference $ 980 1,400

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $980/1,400 = $ .70Diff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


151) Tasty Treats is a snow cone stand near the local park. To plan for the future, Tasty Treats wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served.


Using the high-low method, the fixed costs for a month areA) $ 980.B) $12,660.C) $ 1,500.D) $ 5,320.Answer: CExplanation: C) Highest cost $ 6,820 Highest activity 7,600 Lowest cost $ 5,840 Lowest activity 6,200Difference $ 980 1,400

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $980/1,400 = $ .70

Put the numbers into the Cost Equation: $6,820 = $ .70 (7,600) + f $ 1,500 = fDiff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


152) Tasty Treats is a snow cone stand near the local park. To plan for the future, it wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served.


Using the high-low method, the monthly operating costs—if Sunny sells 8,000 snow cones in a month—areA) $7,100.B) $5,600.C) $10,920.D) $1,500.Answer: AExplanation: A) Highest cost $ 6,820 Highest activity 7,600 Lowest cost $ 5,840 Lowest activity 6,200Difference $ 980 1,400


Put the numbers into the Cost Equation: $6,820 = $ .70 (7,600) + f$ 1,500 = f

Finish the equation: y = $ .70 (8,000) + 1,500y = $ 7,100Diff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


153) Jones Ice Cream Stand is operated by Mr. Jones and experiences different sales patterns throughout the year. To plan for the future, Mr. Jones wants to determine its cost behavior patterns. He has the following information available about the ice cream stand's operating costs and the number of soft serve cones served.

Month Number of ice cream cones Total operating costsApril 800 $950 May 825 $975 June 1,125 $1,000 July 2,000 $1,250 August 1,500 $1,875 September 900 $1,500

The variable cost per ice cream cone using the high-low method isA) $0.25.B) $4.00.C) $0.63.D) $1.19.Answer: AExplanation: A) Highest cost $ 1,250 Highest activity 2,000 Lowest cost $ 950 Lowest activity 800Difference $ 300 1,200

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $300/1,200 = $ .25Diff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost




Using the high-low method, the fixed costs for a month areA) $ 300.B) $2,200.C) $ 500.D) $ 750.Answer: DExplanation: D) Highest cost $ 1,250 Highest activity 2,000 Lowest cost $ 950 Lowest activity 800Difference $ 300 1,200


Put the numbers into the Cost Equation: $1,250 = $ .25 (2000) + f$750 = fDiff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost




Using the high-low method, the monthly operating costs—if Mr. Jones sells 1,436 ice cream cones in a month—areA) $750.B) $859.C) $1,109.D) $359.Answer: CExplanation: C) Highest cost $ 1,250 Highest activity 2,000 Lowest cost $ 950 Lowest activity 800Difference $ 300 1,200


Put the numbers into the Cost Equation: $1,250 = $ .25 (2000) + f$750 = f

Finish the equation: y = $ .25 (1,436) + 750y = $ 1,109Diff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


156) Johnson Trucking Company wants to determine a fuel surcharge to add to its customers' bills based on the number of miles driven to each area. It wants to separate the fixed and variable portion of the truck's operating costs so it has a better idea of how distance affects these costs. Johnson Trucking Company has the following data available.

Month Miles driven Total operating costsJanuary 16,200 $22,650February 17,00 $23,250March 18,200 $24,150April 16,500 $22,875May 17,400 $23,550June 15,400 $22,050

The variable cost per mile using the high-low method isA) $1.33.B) $0.75.C) $1.43.D) $1.00.Answer: BExplanation: B) Highest cost $ 24,150 Highest activity 18,200 Lowest cost $ 22,050 Lowest activity 15,400Difference $ 2,100 2,800

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 2,100/ 2,800 = $ .75Diff: 3LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost




Using the high-low method, the fixed costs in a month areA) $ 2,100.B) $13,650.C) $46,200.D) $10,500.Answer: DExplanation: D) Highest cost $ 24,150 Highest activity 18,200 Lowest cost $ 22,050 Lowest activity 15,400Difference $ 2,100 2,800

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 2,100/ 2,800 = $ .75

Put the numbers into the Cost Equation: $24,150 = $0.75 (18,200) + f$ 10,500 = fDiff: 3LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost




Using the high-low method, the monthly operating costs if Johnson Trucking Company drives 20,000 miles in a month will beA) $28,650.B) $10,500.C) $25,500.D) $15,000.Answer: CExplanation: C) Highest cost $ 24,150 Highest activity 18,200 Lowest cost $ 22,050 Lowest activity 15,400Difference $ 2,100 2,800


Put the numbers into the Cost Equation: $24,150 = $0.75 (18,200) + f$ 10,500 = fFinally y = $ 0.75 (20,000) + $ 10,500y = $ 25,500Diff: 3LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


159) The manager at Wheeling Mulch has been trying to calculate the portion of the company's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of yards of mulch processed was highest in July, when the total monthly overhead costs totaled $28,000 for 32,000 yards of mulch processed. The lowest number of yards of mulch processed in the last twelve months occurred in October, when total overhead costs were $26,000 for 28,000 yards of mulch processed. What was the variable cost per yard?A) $0.50B) $2.00C) $0.88D) $0.93Answer: AExplanation: A) Highest cost $28,000 Highest activity 32,000 Lowest cost $26,000 Lowest activity 28,000Difference $ 2,000 4,000

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 2,000/ 4,000 = $ .50Diff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


160) The manager at Wheeling Mulch has been trying to calculate the portion of the company's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of yards of mulch processed was highest in July, when the total monthly overhead costs totaled $28,000 for 32,000 yards of mulch processed. The lowest number of yards of mulch processed in the last twelve months occurred in October, when total overhead costs were $26,000 for 28,000 yards of mulch processed. What is the fixed portion of the monthly overhead expenses?A) $0B) $12,000C) $16,000D) $26,000Answer: BExplanation: B) Highest cost $ 28,000 Highest activity 32,000 Lowest cost $26,000 Lowest activity 28,000Difference $ 2,000 4,000


Put the numbers into the Cost Equation: $28,000 = $.50 (32,000) + f$ 12,000 = fDiff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


161) Joe, Jeff and Jerry Frank own Frank Brothers Farm, a seed company specializing in seed corn. At their weekly meeting they tried to calculate the portion of the farm's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of bushels of seed corn that has been sold reached its peak in May, when the total monthly overhead costs totaled $250,000 for 95,000 bushels of seed corn sold. The lowest number of bushels sold in the last twelve months occurred in December, when total overhead costs were $75,000 for 7,500 bushels sold. What was the variable cost per yard?A) $0.50B) $2.00C) $10.00D) $2.63Answer: BExplanation: B) Highest cost $250,000 Highest activity 95,000 Lowest cost $75,000 Lowest activity 7,500Difference $175,000 87,500

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 175,000/ 87,500 = $2.00Diff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


162) Joe, Jeff and Jerry Frank own Frank Brothers Farm, a seed company specializing in seed corn. At their weekly meeting they tried to calculate the portion of the farm's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of bushels of seed corn that has been sold reached its peak in May, when the total monthly overhead costs totaled $250,000 for 95,000 bushels of seed corn sold. The lowest number of bushels sold in the last twelve months occurred in December, when total overhead costs were $75,000 for 7,500 bushels sold. What is the fixed portion of the monthly overhead expenses?A) $60,000B) $242,500C) $190,000D) $75,000Answer: AExplanation: A) Highest cost $250,000 Highest activity 95,000 Lowest cost $75,000 Lowest activity 7,500Difference $ 175,000 87,500

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 175,000/ 87,500 = $2.00

Put the numbers into the Cost Equation: $250,000 = $2.00 (95,000) + f$ 60,000 = fDiff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


163) To follow is information about the units produced and total manufacturing costs for Pine Enterprises for the past six months.

Month Number of units produced Total manufacturing costsJanuary 7,800 $8,150 February 7,500 $8,000 March 6,600 $7,550 April 6,800 $7,650 May 4,500 $6,500 June 7,000 $7,750

Using the high-low method, what is the variable cost per unit?A) $1.44B) $1.04C) $0.50D) $2.00Answer: CExplanation: C) Highest cost $ 8,150 Highest activity 7,800 Lowest cost $ 6,500 Lowest activity 4,500Difference $ 1,650 3,300

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 1650/3,300 = $ .50Diff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost




Using the high-low method, what is the monthly fixed manufacturing cost?A) $3,900B) $14,650C) $1,650D) $4,250Answer: DExplanation: D) Highest cost $ 8,150 Highest activity 7,800 Lowest cost $ 6,500 Lowest activity 4,500Difference $ 1,650 3,300

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 1,650/3,300 = $ .50

Put the numbers into the Cost Equation: $8,150 = $.50 (7,800) + f$ 4,250 = fDiff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost




Using the high-low method, what will the total monthly manufacturing costs be if the company produces 9,000 units?A) $8,750B) $4,500C) $8,400D) $4,250Answer: AExplanation: A) Highest cost $ 8,150 Highest activity 7,800 Lowest cost $ 6,500 Lowest activity 4,500Difference $ 1,650 3,300

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $ 1,650/3,300 = $ .50

Put the numbers into the Cost Equation: $8,150 = $.50 (7,800) + f$ 4,250 = f

Finally y = $ .50 (9,000) + $ 4,250y = $ 8,750Diff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


166) Maintenance costs at Wilmington Manufacturing over the past six months are listed in the following table.

MonthMaintenance

costMachine

hoursJanuary $13,600 15,500 February $14,720 16,900 March $12,560 14,200 April $14,480 16,600 May $14,880 17,100 June $13,200 15,000

Using the high-low method, what would the variable maintenance cost per machine hour be?A) $1.25B) $0.80C) $0.87D) $0.88Answer: BExplanation: B) Cost associated with highest activity$ 14,880 Highest activity17,100 Cost associated with lowest activity$ 12,560 Lowest activity14,200

Difference $ 2,320 2,900

NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit. $2,320/2,900 = $ .80Diff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost



MonthMaintenance

costMachine


Using the high-low method, what would the monthly fixed maintenance cost be?A) $ 1,200B) $ 2,320C) $13,680D) $27,440Answer: AExplanation: A) High cost $ 14,880

Low costChange in cost $ 2,320

High activity 17,100

Low activityChange in activity 2,900

Change in cost $ 1,320Divide by Divide by

Change in activityVariable cost per unit $ 0.80

Now, using high point data:Total variable cost at high point:High activity $ 17,100

Variable cost per unitTotal variable cost at high point $ 13,680

Total cost at high point $ 14,880Less total variable cost at high

point

Fixed costDiff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost



MonthMaintenance

costMachine


Using the high-low method, what would the total maintenance costs be if 17,500 machine hours were used?A) $15,200B) $14,000C) $27,680D) $ 1,200Answer: A


Explanation: A) High cost $ 14,880

Low costChange in cost $ 2,320

High activity 17,100

Low activityChange in activity 2,900

Change in cost $ 2,320Divide by Divide by

Change in activityVariable cost per unit $ 0.80

Now, using high point data:Total variable cost at high point:High activity $ 17,100

Variable cost per unitTotal variable cost at high point $ 13,680

Total cost at high point $ 14,880

Less total variable cost at high pointFixed cost $ 1,200

Total cost at new volume:Anticipated machine hours 17,500

Variable cost per unitTotal variable cost at new volume $ 14,000

Fixed costMonthly operating cost at new

volumeDiff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


169) McCartney Services has a customer website to take orders, answer customer questions, and address customer complaints. The costs associated with this customer website over the past six months are listed below:

Month

Customer website

costsNumber of

website hitsJanuary $8,960 11,600February $8,762 11,270March $9,032 11,720April $8,942 11,570May $8,420 10,700June $8,492 10,820

Management at McCartney Services believes that the customer website costs are a mixed cost and would like to use the high-low method to estimate their future costs using the number of website hits in any given month as the cost driver.

Required:1. Using the high-low method, estimate the variable cost per website hit and the monthly fixed costs associated with the customer website.2. Write the cost equation for estimating the customer website expenses for McCartney Services using the results from Requirement 1.3. If McCartney Services expects 9,500 website hits for July, what are their anticipated customer website costs for July?Answer: part a.High cost $ 9,032 Low cost $ (8,420)Change in cost $ 612

High activity 11,720 Low activity (10,700)Change in activity 1,020

Change in cost $ 612 Divide by Divide byChange in activity 1,020 Variable cost per unit $ 0.60


part b.High cost $ 9,032 Low cost $ (8,420)Change in cost $ 612


Change in cost $ 612Divide by Divide byChange in activity 1,020Variable cost per unit $ 0.60

Now, using high point data:Total variable cost at high point:High activity $ 11,720 Variable cost per unit $ 0.60 Total variable cost at high point $ 7,032

Total cost at high point $ 9,032Less total variable cost at high point $ (7,032)Fixed cost $ 2,000


part c.High cost $ 9,032 Low cost $ (8,420)Change in cost $ 612


Change in cost $ 612Divide by Divide byChange in activity 1,020Variable cost per unit $ 0.60

Now, using high point data:Total variable cost at high point:High activity $ 11,720 Variable cost per unit $ 0.60 Total variable cost at high point $ 7,032

Total cost at high point $ 9,032 Less total variable cost at high point $ (7,032)Fixed cost $ 2,000

Total cost at new volume:Anticipated number of calls 9,500Variable cost per call $ 0.60Total variable cost at new volume $ 5,700Fixed cost $ 2,000Mothly operating cost at new volume $ 7,700

Diff: 2LO: 6-4EOC: E6-28AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


170) The following is information about the units produced and the total manufacturing costs for Rose's Rug Company for the past six months.


Rose's Rug Company uses the high-low method to estimate its costs. Answer the following questions:a. What is the variable cost per unit?b. What is the monthly fixed manufacturing cost?c. Write the cost equation that could be used to predict Rose's Rug Company's total manufacturing costs.d. What will the total monthly manufacturing costs be if the company produces 28,000 units?

Answer: part a.

High cost $ 66,000 Low cost $ (55,000)Change in cost $ 11,000


Change in cost $ 11,000 Divide by Divide by

Change in activity 5,500 Variable cost per unit $ 2.00


part b.High cost $ 66,000

Low cost $ (55,000)Change in cost $ 11,000




Now, using high point data:Total variable cost at high point:

High activity 31,000 Variable cost per unit $ 2,00 Total variable cost at high point $ 62,000



part c.

y = $4,000 + $2.00x

part d.High cost $ 66,000

Low cost $ (55,000)Change in cost $ 11,000




Now, using high point data:Total variable cost at high point:

High activity 31,000Variable cost per unit $ 2.00 Total variable cost at high point $ 62,000


Total cost at new volume:Anticipated production volume 28,000Variable cost per unit $ 2.00Total variable cost at new volume $ 56,000 Fixed cost $ 4,000 Monthly operating cost at new volume $ 60,000

Diff: 2LO: 6-4EOC: S6-9AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


171) Regression analysis is found by using only the two data points of the highest and lowest volume.Answer: FALSEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

172) The intercept-coefficient in regression analysis yields the fixed cost portion of the total costs.Answer: TRUEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

173) The X Variable 1 Coefficient in regression analysis yields the variable cost per unit of activity.Answer: TRUEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

174) An R-square statistic of 0 indicates a perfect level of correlation between costs and the cost driver.Answer: FALSEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

175) The cost equation determined using the high-low method should be the same as the cost equation determined using regression analysis.Answer: FALSEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


176) The line determined by regression analysis is sometimes referred to as the "line of worst fit."Answer: FALSEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

177) The R-squared statistic determined by regression analysis is sometimes referred to as the "goodness-of-fit" statistic.Answer: TRUEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

178) The cost equation determined by regression analysis is usually more accurate than the line determined by the high-low method. Answer: TRUEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

179) In a regression output, the "intercept coefficient" represents the fixed cost component of a mixed cost equation.Answer: TRUEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

180) In a regression output, the "X variable 1 coefficient" represents the variable cost component of a mixed cost equation.Answer: TRUEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

181) A "perfect" straight line would render an R-square value of 1.00.


Answer: TRUEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

182) If the data points were randomly scattered, the R-square value would be closer to 0 than 1. Answer: TRUEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

183) An R-square value over .80 generally indicates that the cost equation is not very reliable for predicting costs at other volumes within the relevant range.Answer: FALSEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

184) Regression analysis can be used in ABC implementations to help managers select the primary cost driver for an activity cost pool.Answer: TRUEDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

185) An R-square value of 0.00 indicates a perfect relationship between the volume of activity and the cost being analyzed. Answer: FALSEDiff: 21LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

186) Regression analysis uses all data points, not just the highest and lowest volume data points.Answer: TRUE


Diff: 1LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

187) The output from regression analysis generated in Excel gives us all of the following information exceptA) intercept coefficient.B) highest and lowest data points × variable 1 coefficient.C) R-square.D) x variable 1 coefficient.Answer: BDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

188) On a regression analysis output generated with Excel, a regression equation's variable cost per unit is represented by the ________.A) x variable 1 coefficientB) intercept coefficientC) R-squareD) residualAnswer: ADiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


189) On a regression analysis output generated with Excel, a regression equation's fixed cost component is represented by the ________.A) x variable 1 coefficientB) intercept coefficientC) R-squareD) residualAnswer: BDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

190) On a regression analysis output generated with Excel, a regression equation's "goodness of fit" is represented by the ________.A) intercept coefficientB) x variable 1 coefficientC) residualD) R-squareAnswer: DDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

191) On a regression analysis output generated with Excel, the slope of a mixed cost line is represented by the ________.A) x variable 1 coefficientB) intercept coefficientC) R-squareD) residualAnswer: ADiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


192) When predicting costs at other volumes using a cost equation derived from either the high-low method or regression analysis, managers should considerA) outliers.B) general inflation.C) seasonality.D) all of the above.Answer: DDiff: 2LO: 6-5EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

193) Your client's company wants to determine the relationship between its monthly operating costs and a potential cost driver. The output of regression analysis showed the following information:

Intercept Coefficient = 89,500X Variable 1 Coefficient = 62.50R-square = 0.9855

What is the company's monthly cost equation?A) y = $98.55x + $89,500B) y = $62.50x + $89,500C) y = $89,500x + $62.98D) y = $89,500x + $98.55Answer: BDiff: 3LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


194) Your boss wants you to analyze the relationship between the company's monthly operating costs and the current cost driver she has chosen. You run a regression analysis and receive the following information:


What is your company's monthly cost equation?A) y = $653,434x + $5.76B) y = $0.38x + $653,434C) y = $5.76x + $653,434D) y = $0.38x + $576Answer: CDiff: 3LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

195) Regis Corporation wants to know how closely its current cost driver is correlated with its monthly operating costs. The managerial accountant runs a regression analysis using a statistical software program and produces the following data:

Intercept Coefficient = 12,200,567X Variable 1 Coefficient = 95.65R-square = 0.8574

What is the Regis Corporation's monthly cost equation?A) y = $95.65x + $8,574B) y = $95.65x + $12,200,567C) y = $12,200,567x + $8,574D) y = $0.8574x + $12,200,567Answer: BDiff: 3LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


196) Your client's company wants to determine the relationship between its monthly operating costs and a potential cost driver. The output of regression analysis showed the following information:


Should your client use this information to predict monthly operating costs?A) No, because R-square is so high.B) Yes, because R-square is so high.C) Yes, because regression analysis can be relied upon.D) There is not enough information to make this prediction.Answer: BDiff: 3LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

197) If a regression analysis shows an R factor of 0.15, it is safe to assumeA) a strong positive relationship between cost and volume.B) a strong negative relationship between cost and volume.C) a perfect positive relationship between cost and volume.D) a very weak relationship between cost and volume.Answer: DDiff: 2LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost

198) If a regression analysis shows an R factor of .89 exists, it is safe to assumeA) a strong negative relationship between cost and volume. B) a strong positive relationship between cost and volume.C) no relationship between cost and volume.D) a perfect positive relationship between cost and volume.Answer: BDiff: 2LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


199) Wallace Incorporated wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is the variable cost per machine hour (rounded to the nearest cent)?A) $67.59B) $2,945.95C) $0.99D) $0.72Answer: DDiff: 3LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


200) Wallace Incorporated wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is the fixed cost (round to nearest cent)?A) $67.59B) $0.99C) $2,945.95D) $0.72Answer: CDiff: 3LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


201) Wallace Industries wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is closest to the total cost if the firm uses 4,200 machine hours?A) $5,964.03B) $3,018.08C) $2,945.95D) $12,372,975.38Answer: AExplanation: A) y = $ .718590832 (4,200) + $ 3,018.08Y = $ 5,964.03 Diff: 3LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


202) Wallace Industries wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is the cost equation based upon the results of the regression analysis?A) y = $072xB) y = $0.72x + $2,945.95C) y = $2,945.95x + $0.72D) y = $2,945.95 + $0.72Answer: BDiff: 2LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


203) Checak Incorporated wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is closest to the total cost if the firm uses 6,000 machine hours?A) $7,257.49B) $6,538.90C) $14,729,732.60D) $1,365.59Answer: AExplanation: A) y = $ 71,859 (6,000) + $ 2,945.95y = $ 7,257.49Diff: 3LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


204) What are three methods used to estimate cost behavior? What are the advantages and disadvantages of each method?Answer: Method Advantages Disadvantages

1. ScattergraphQuick; visual representation of behavior; easy to identify outliers Subjective

2. High-low ObjectiveOnly uses two data points

3. Regression analysis Uses all data points Complicated to use well

Diff: 3LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


205) Scranton Printer Company would like to estimate its total manufacturing costs using regression analysis but is unsure whether machine hours or units produced would be a better predictor of total manufacturing costs.

Output from regression analysis using machine hours as the volume (cost driver) follows. Note: the results are excerpts so not all of the regression analysis results are presented.

Output from a regression analysis using units produced as the volume (cost driver) follows. Again, the results are excerpts so not all of the regression analysis results are presented.


Required:a. What is the cost equation if machine hours is used as the volume (cost driver)?

b. Predict total manufacturing costs using machine hours as the volume (cost driver) if Scranton Paper Company uses 18,000 hours.

c. What is the cost equation if units produced is used as the volume (cost driver)?

d. Predict total manufacturing costs using units produced as the volume (cost driver) if Scranton Paper Company produces 65,000 units.

e. Which volume (cost driver) is a better predictor of total manufacturing costs? Why?Answer: a. y = $314,842.08 + $8.96x

b. Variable cost per machine hour $ 8.96 Machine hours used 18,000 Total variable cost $ 161,330Fixed cost $ 314,842 Total predicted cost $ 476,172

c. y = $234,383.11 + $5.08x

d. Variable cost per unit $ 5.0845Units produced 65,000Total variable cost $ 330,493Fixed cost $ 234,383Total predicted cost $ 564,876

e. Using units produced as the cost driver appears to be the better choice in this case, because the R-square for the units produced model is .99 versus the R-square for the machine hours model of .95.Diff: 3LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


206) Paula Corporation is trying to predict its manufacturing overhead costs for the upcoming year; they are debating the use of the high-low method versus the use of regression analysis. They have gathered information about their manufacturing overhead costs in each of the past six months. A table containing their cost data and the associated machine hours in each month (the cost driver) follows.

MonthManufacturing overhead costs

Number of machine hours

April $ 17,000 14,250May $ 14,500 12,010June $ 13,250 10,280July $ 15,000 11,910August $ 13,500 11,080September $ 14,500 11,670

The company performed a regression analysis using the above data and had the following results. (Note: the results are excerpts so not all of the regression analysis results are presented.)

Required:a. What is the cost equation if the high-low method is used to estimate costs?b. Using the high-low method, predict total manufacturing overhead costs if Paula Corporation uses 12,000 hours.c. What is the cost equation if regression analysis is used to estimate costs (use the results from the regression analysis provided)?d. Using the results from the regression analysis provided, predict total manufacturing overhead costs if Paula Corporation uses 12,000 hours.e. Which method (high-low or regression analysis) is a better predictor of total manufacturing overhead costs? Why?


Answer: a.

y = $0.94x + $3,540


b.

c. y = $0.99x + $2,929.07

d.

e. The regression analysis will generally be a better predictor of total costs than the high-low method because the regression analysis considers all data points when arriving at the cost estimates while the high-low method uses only the highest activity point and the lowest activity point.Diff: 3LO: 6-5EOC: E6-31AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costsportions of a mixed cost


207) Match the term on the right with the appropriate definition provided on the right.

Definition Term

1

A statistical procedure for determining the line that best fits the data by using all of the historical data points, not just the high and low data points Outliers

2 Costs that change, but not in direct proportion to changes in volume Fixed costs

3 A cost behavior that is not linear (not a straight line)

Contribution Margin

4

Costing concept where all manufacturing-related costs, whether fixed or variable, are "absorbed" into the cost of the product Variable costs

5 Costs that do not change in total despite wide changes in volume Cost behavior

6

A cost behavior that is fixed over a small range of activity and then jumps to a different fixed level with moderate changes in volume Absorption Costing

7 Sales revenue minus variable expenses Curvilinear costs

8

Abnormal data points; data points that do not fall in the same general pattern as the other data points Mixed costs

9

A method for determining cost behavior that is based on a manager's judgment in classifying each account as to its cost behavior Cost equation

10 Describes how costs change as volume changes

Regression analysis

11 A mathematical equation for a straight line that expresses how a cost behaves Account analysis

12 Costs that change in total in direct proportion to changes in volume Step costs


Answer: Definition Term

1

A statistical procedure for determining the line that best fits the data by using all of the historical data points, not just the high and low data points

Regression analysis

2 Costs that change, but not in direct proportion to changes in volume Mixed costs

3 A cost behavior that is not linear (not a straight line) Curvilinear costs

4

Costing concept where all manufacturing-related costs, whether fixed or variable, are "absorbed" into the cost of the product Absorption Costing

5 Costs that do not change in total despite wide changes in volume Fixed costs

6

A cost behavior that is fixed over a small range of activity and then jumps to a different fixed level with moderate changes in volume Step costs

7 Sales revenue minus variable expensesContribution Margin

8

Abnormal data points; data points that do not fall in the same general pattern as the other data points Outliers

9

A method for determining cost behavior that is based on a manager's judgment in classifying each account as to its cost behavior Account analysis

10 Describes how costs change as volume changes Cost behavior

11 A mathematical equation for a straight line that expresses how a cost behaves Cost equation

12 Costs that change in total in direct proportion to changes in volume Variable costs

Diff: 1LO: 6-5EOC: E6-21AAACSB: Analytical ThinkingLearning Outcome: Discuss standard costing and variance analysis. Discuss and calculate direct material, direct labor and overhead variances.

208) A contribution margin income statement allows managers to see which costs will change with changes in volume and which costs will remain fixed.Answer: TRUEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


209) For retailers and service companies without inventory, operating income is different if a traditional income statement or a contribution margin income statement is prepared.Answer: FALSEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

210) Sales revenue less variable expenses equals contribution margin.Answer: TRUEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

211) When preparing a traditional income statement, fixed costs are subtracted from gross profit to arrive at operating income.Answer: FALSEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

212) The traditional income statement is considered by most companies to be a better management tool than the contribution margin income statement.Answer: FALSEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

213) Traditional income statements provide managers with little cost behavior information. Answer: TRUEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

214) The cost of goods sold is a variable cost for merchandise company, but contains a mixture of variable and fixed production costs for manufacturers. Answer: TRUE


Diff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

215) Traditional income statements do not distinguish fixed operating costs from variable operating costs. Answer: TRUEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

216) U.S. GAAP requires companies to use absorption costing for external reporting purposes.Answer: TRUEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

217) Contribution margin income statements organize costs by behavior.Answer: TRUEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

218) When a merchandiser prepares a contribution margin income statement, Cost of Goods Sold is always a variable cost.Answer: FALSEDiff: 2LO: 6-6EOC: S6-17AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


219) When a company produces more units than it sells, absorption costing operating income will be higher than variable costing operating income.Answer: TRUEDiff: 2LO: 6-6EOC: S6-17AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

220) If the number of units produced equals the number of units sold for a manufacturer, both variable costing and absorption costing income statements will yield the same gross margin.Answer: FALSEDiff: 2LO: 6-6EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

221) Under absorption costing, fixed manufacturing costs are not expensed until the units are sold.Answer: TRUEDiff: 2LO: 6-6EOC: S6-17AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

222) Under absorption costing, variable manufacturing costs are treated as period costs. Answer: FALSEDiff: 2LO: 6-6EOC: S6-17AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

223) Under absorption costing, fixed manufacturing costs are treated as period costs. Answer: FALSEDiff: 2LO: 6-6EOC: S6-17AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


224) Under absorption costing, all nonmanufacturing costs are treated as period costs. Answer: TRUEDiff: 2LO: 6-6EOC: S6-17AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

225) Under variable costing, fixed manufacturing overhead is expensed immediately as a period cost. Answer: TRUEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

226) Under variable costing, fixed manufacturing costs are treated as inventoriable product costs. Answer: FALSEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

227) Under variable costing, all nonmanufacturing costs are treated as inventoriable product costs. Answer: FALSEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

228) If inventory has grown, operating income will be higher under absorption costing than it is under variable costing. Answer: TRUEDiff: 2LO: 6-6EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


229) If inventory has declined, operating income will be higher under absorption costing than it is under variable costing. Answer: FALSEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

230) If inventory has not increased or decreased, but has stayed the same, operating income will be the same under variable costing and absorption costing. Answer: TRUEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

231) Managers whose bonuses are based on operating income have more incentive to increase inventory levels when variable costing is used than when absorption costing is used.Answer: FALSEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

232) Variable costing considers fixed manufacturing costs as inventoriable product costs.Answer: FALSEDiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


233) When absorption costing is used and management bonuses are related to operating income, managers are more likely toA) decrease inventory levels.B) increase inventory levels.C) keep inventory levels consistent.D) steal from the company.Answer: BDiff: 1LO: 6-6EOC: S6-15AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

234) On a traditional income statement, sales revenue less cost of goods sold equalsA) gross profit.B) contribution margin.C) operating income.D) operating expenses.Answer: ADiff: 1LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

235) For external reporting purposes, U.S. GAAP allows companies to use ________.A) either the traditional format or the contribution margin formatB) only the contribution margin format of the income statementC) only the traditional format of the income statementD) the variable costing formatAnswer: CDiff: 1LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


236) On a contribution margin income statement, sales revenue less variable expenses equalsA) operating expenses.B) gross profit.C) operating income.D) contribution margin.Answer: DDiff: 1LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

237) On a traditional income statement, all manufacturing-related costs, whether fixed or variable, are listedA) above the gross profit line.B) above the contribution margin line.C) below the operating income line.D) above the sales line.Answer: ADiff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

238) The contribution margin is equal toA) sales minus cost of goods sold.B) sales minus operating expenses.C) sales minus fixed expenses.D) sales minus variable expenses.Answer: DDiff: 1LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


239) The contribution margin income statement presents ________ above the contribution margin line. A) only variable expenses relating to selling and administrative activitiesB) only fixed expenses relating to selling and administrative activitiesC) all fixed expensesD) all variable expensesAnswer: DDiff: 1LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

240) The contribution margin income statement presents ________ below the contribution margin line. A) only variable expenses relating to selling and administrative activitiesB) only fixed expenses relating to selling and administrative activitiesC) all fixed expensesD) all variable expensesAnswer: CDiff: 1LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

241) All fixed costs are listed ________ on a contribution margin income statement.A) below the contribution margin lineB) above the gross profit lineC) above the contribution margin line D) below the gross profit lineAnswer: ADiff: 1LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


242) All variable costs are listed ________ on a contribution margin income statement.A) above the gross profit lineB) above the contribution margin lineC) below the contribution margin lineD) below the gross profit lineAnswer: BDiff: 1LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

243) When the number of units produced is less than the number of units sold, how does operating income under variable costing differ from operating income under absorption costing?A) It is lower than operating income under absorption costing.B) It is higher than operating income under absorption costing.C) It is the same as operating income under absorption costing.D) It depends upon the amount of decline.Answer: BDiff: 2LO: 6-7EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

244) Which of the following statements is true concerning income if production exceeds units sold?A) A higher operating income will result under a variable costing income statement.B) A lower operating income will result under an absorption costing income statement.C) A higher operating income will result under an absorption costing income statement.D) The same operating income will result under both a variable costing and absorption costing income statement.Answer: CDiff: 3LO: 6-7EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


245) How is operating income affected if the number of units sold exceeds the number of units produced?A) Operating income would be higher under a variable costing income statement.B) Operating income would be lower under a variable costing income statement.C) Operating income would be higher under an absorption costing income statement. D) Operating income would be the same under both a variable costing and absorption costing income statement.Answer: ADiff: 3LO: 6-7EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

246) Which type of costing system is the only acceptable costing system for external financial reporting?A) Prime costingB) Out-of-pocket costingC) Variable costingD) Absorption costingAnswer: DDiff: 1LO: 6-7EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

247) A basic tenet of variable costing is that fixed manufacturing overhead costs be currently expensed. What is the rationale behind this?A) Fixed manufacturing overhead costs are generally immaterial in amount. B) Fixed manufacturing overhead costs occur regardless of level of production.C) Allocation of fixed manufacturing costs are arbitrary at best.D) Fixed manufacturing costs change as production changes.Answer: BDiff: 2LO: 6-7EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


248) Net income reported under absorption costing will exceed net income reported under variable costing for a given period ifA) production equals sales for that period.B) sales exceed production for that period.C) production exceeds sales for that period.D) variable overhead exceeds fixed overhead for that period.Answer: CDiff: 2LO: 6-7EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

249) The income statement is organized by ________ under absorption costing.A) period costs onlyB) fixed costs onlyC) variable costs only D) product and period costsAnswer: DDiff: 2LO: 6-7EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

250) What will happen to the contribution margin if fixed costs related to a product increase while variable costs and sales price remain constant? A) Will increaseB) Will not changeC) Will decreaseD) Will stay the sameAnswer: CDiff: 2LO: 6-7EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


251) What factor related to manufacturing costs causes the difference between operating income computed using absorption costing and operating income computed using variable costing?A) Absorption costing expenses all costs, whether fixed or variable.B) Absorption costing "inventories" all direct manufacturing costs.C) Absorption costing "inventories" all fixed manufacturing costs.D) Absorption costing "inventories" all fixed manufacturing and period costs.Answer: CDiff: 2LO: 6-7EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

252) By increasing ________, a manager can increase operating income under absorption costing.A) variable costsB) fixed costsC) productionD) leased assetsAnswer: CDiff: 2LO: 6-7EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

253) Absorption costing is required to be used forA) federal income tax reports.B) external financial reports, but not income taxes.C) neither external financial reports nor income tax reports.D) both external financial reports and income tax reports.Answer: DDiff: 2LO: 6-7EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


254) The use of either absorption or variable costing will make little difference in companiesA) using just-in-time inventory methods.B) with large inventories.C) with high fixed costs.D) with high variable costs.Answer: ADiff: 2LO: 6-7EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

255) Which of the following does not appear on an income statement prepared using variable costing?A) Fixed production costs B) Contribution marginC) Gross marginD) Variable production costsAnswer: CDiff: 2LO: 6-7EOC: E6-41AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

256) Schrute Farm Sales buys portable generators for $450 and sells them for $720. He pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays $2,000 a month rent for his store, and also pays $1,700 a month to his staff in addition to the commissions. Mr. Schrute sold 200 generators in June. If Mr. Schrute prepares a contribution margin income statement for the month of June, what would be his contribution margin?A) $241,200B) $ 97,200C) $46,800D) $144,000Answer: CExplanation: C) Sales $ 720 × 200 = $ 144,000Less: Variable costs $ 450 × 200 = $ 90,000

Commission $144,000 × 5% = $ 7,200 Contribution Margin $ 46,800Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


257) Schrute Farm Sales buys portable generators for $450 and sells them for $720. He pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays $2,000 a month rent for his store, and also pays $1,700 a month to his staff in addition to the commissions. Mr. Schrute sold 200 generators in June. If Mr. Schrute prepares a traditional income statement for the month of June, what would be his gross profit?A) $234,000B) $144,000C) $90,000D) $54,000Answer: DExplanation: D) Sales $ 720 × 200 = $ 144,000Less: Cost of Goods Sold $ 450 × 200 = $ 90,000

Gross Profit $ 54,000Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

258) Schrute Farm Sales buys portable generators for $450 and sells them for $720. He pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays $2,000 a month rent for his store, and also pays $1,700 a month to his staff in addition to the commissions. Mr. Schrute sold 200 generators in June. If Mr. Schrute prepares a traditional income statement for the month of June, whatwould be his operating income?A) $ 43,100B) $ 54,00C) $ 64,900D) $144,000Answer: AExplanation: A) Sales $ 720 × 200 = $ 144,000Less: Cost of Goods Sold $ 450 × 200 = $ 90,000Gross Profit $ 54,000

Commission $144,000 × 5% = $ 7,200Rent $ 2,000Salaries $ 1,700Operating Income $ 43,100Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


259) Schrute Farm Sales buys portable generators for $450 and sells them for $720. He pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays $2,000 a month rent for his store, and also pays $1,700 a month to his staff in addition to the commissions. Mr. Schrute sold 200 generators in June. If Mr. Schrute prepares a contribution margin income statement for the month of June, what would be his operating income?A) $ 97,200B) $ 50,,500C) $144,000D) $ 43,100Answer: DExplanation: D) Sales $ 720 × 200 = $ 144,000Less: Variable costs $ 450 × 200 = $ 90,000Commission $144,000 × 5% = $ 7,200Contribution Margin $ 46,800Rent $ 2,000Salaries $ 1,700Operating Income $ 43,100Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

260) It costs Homer's Manufacturing $0.75 to produce baseballs and Homer sells them for $4.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $12,000 a month rent for his factory and store, and also pays $75,000 a month to his staff in addition to the commissions. Homer sold 67,500 baseballs in June. If Homer prepares a contribution margin income statement for the month of June, what would be his contribution margin?A) $205,875B) $334,125C) $64,125D) $270,000Answer: AExplanation: A) Sales $ 4 × 67,500 = $ 270,000Less: Variable costs $ 0.75 × 67,500 = $ 50,625

Commission $275,000 × 5% = $ 13,500Contribution Margin $ 205,875Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


261) It costs Homer's Manufacturing $0.75 to produce baseballs and Homer sells them for $4.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $12,000 a month rent for his factory and store, and also pays $75,000 a month to his staff in addition to the commissions. Homer sold 67,500 baseballs in June. If Homer prepares a traditional income statement for the month of June, what would be his gross profit?A) $320,625B) $219,375C) $270,000D) $50,625Answer: BExplanation: B) Sales $ 4 × 67,500 = $ 270,000Less: Cost of Goods Sold $ 0.75 × 67,500 = $ 50,625

Gross Profit $ 219,375Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

262) It costs Homer's Manufacturing $0.75 to produce baseballs and Homer sells them for $4.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $12,000 a month rent for his factory and store, and also pays $75,000 a month to his staff in addition to the commissions. Homer sold 67,500 baseballs in June. If Homer prepares a traditional income statement for the month of June, what would be his operating income?A) $ 270,000B) $ 319,875C) $ 219,375D) $118,875Answer: DExplanation: D) Sales $ 4 × 67,500 = $ 270,000Less: Cost of Goods Sold $ 0.75 × 67,500 = $ 50,625Gross Profit $ 219,375

Commission $275,000 × 5% = $ 13,500Rent $ 12,000Salaries $ 75,000Operating Income $ 118,875Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


263) It costs Homer's Manufacturing $0.75 to produce baseballs and Homer sells them for $4.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $12,000 a month rent for his factory and store, and also pays $75,000 a month to his staff in addition to the commissions. Homer sold 67,500 baseballs in June. If Homer prepares a contribution margin income statement for the month of June, what would be his operating income?A) $292,875B) $270,000C) $64,125D) $118,875Answer: DExplanation: D) Sales $ 4 × 67,500 = $ 270,000Less: Variable costs $ 0.75 × 67,500 = $ 50,625Commission $270,000 × 5% = $ 13,500Contribution Margin $ 205,875Rent $ 12,000Salaries $ 75,000Operating Income $ 118,875Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


264) Jean's Fitness Club provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The Fitness Club also sells nutrition products. Jean's general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year.

Account Amount Account Amount

Membership revenue $ 140,000 Personal trainer wages expense ?

Personal training revenue $ 75,000 Space rental expense $ 11,000

Product sales $ 65,000 Straight line depreciation expense $ 6,000

Cost of product sold $ 35,000 Rental insurance expense $ 3,000 Front desk staff wages expense $ 12,000

If a contribution margin income statement is prepared for the year, what is the amount of total revenue?A) $280,000B) $215,000C) $315,000D) $140,000Answer: AExplanation: A) Membership $ 140,000Personal Training 75,000Product Sales 65,000Total Revenue 280,000Diff: 1LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


265) Jeans's Fitness Club provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The Fitness Club also sells nutrition products. Jeans's general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year.


Membership revenue $ 140,000 Personal trainer wages expense ?

Personal training revenue $ 75,000 Space rental expense $ 11,000

Product sales $ 65,000 Straight line depreciation expense $ 6,000

Cost of product sold $ 35,000 Rental insurance expense $ 3,000 Front desk staff wages expense $ 12,000

If a contribution margin income statement is prepared for the year, what is the contribution margin? A) $ 72,500B) $352,500C) $280,000D) $207,500Answer: DExplanation: D) Membership $ 140,000Personal Training 75,000Product Sales 65,000Total Revenue 280,000LESS:Variable expense 35,000Personal Trainer commissions $60,000 × 50% 37,500Contribution Margin $ 207,500Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.




Membership revenue $140,000 Personal trainer wages expense ?

Personal training revenue $75,000 Space rental expense $11,000

Product sales $65,000 Straight line depreciation expense $6,000

Cost of product sold $35,000 Rental insurance expense $3,000 Front desk staff wages expense $12,000

If a traditional income statement is prepared for the year, what is Gross Profit?A) $280,000B) $245,000C) $315,000D) $207,500Answer: BExplanation: B) Membership $ 140,000Personal Training 75,000Product Sales 65,000Total Revenue 280,000Cost of Goods Sold 35,000Gross Profit $ 245,000Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.








If a traditional income statement is prepared for the year, what is operating income?A) $175,500B) $280,000C) $207,500D) $245,500Answer: AExplanation: A) Membership $ 140,000Personal Training 75,000Product Sales 65,000Total Revenue 280,000Cost of Goods Sold 35,000Gross Profit $ 245,000Less: Wage expense 12,000Personal Trainer wage 37,500Space rental 11,000Depreciation 6,000Insurance 3,000Operating Income 175,500Diff: 2LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.








If a contribution margin income statement is prepared for the year, what is operating income?A) $207,500B) $280,000C) $175,500D) $384,500Answer: CExplanation: C) Membership $ 140,000Personal Training 75,000Product Sales 65,000Total Revenue 280,000LESS: Variable expense 35,000Personal Trainer commissions $75,000 × 50% 37,500Contribution Margin $ 207,500Less: Wage expense 12,000Space rental 11,000Depreciation 6,000Insurance 3,000Operating Income 175,500Diff: 2LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


269) Sugartown Corporation has total sales revenues of $930,000. If its total fixed costs are $182,000 and its total variable costs are $267,000, then the total contribution margin isA) total revenue minus total fixed costs.B) total revenue minus total variable costs.C) total variable costs minus total fixed costs. D) equal to operating income.Answer: BDiff: 1LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

270) Green Corporation has total sales revenues of $400,000. If its total fixed costs are $70,000 and its total variable costs are $150,000, the contribution margin isA) $330,000.B) $250,000.C) $550,000.D) $220,000.Answer: BExplanation: B) Sales $ 400,000Less: Variable expense $ 150,000Contribution Margin 250,000Diff: 1LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

271) Frost Company has a contribution margin per unit of $49. If 7,000 more items are sold, and fixed expenses remain the same, the net change in operating income will beA) $343,000.B) $(343,000). C) $143.D) $7,000.Answer: AExplanation: A) $ 49 × 7,000 = $ 343,000Diff: 2LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


272) Stanley's Bicycles store buys bicycles on average for $600 and sells them on average for $750. He pays a sales commission of 15% of sales revenue to his sales staff. Stanley pays $1,400 a month rent for his store, and also pays $3,000 a month to his staff in addition to the commissions. Stanley sold 120 bicycles in June. If Stanley prepares a contribution margin income statement for the month of June, what would be his contribution margin?A) $4,500B) $90,000C) $85,500D) $175,500Answer: AExplanation: A) Revenue $ 750 × 120 = $ 90,000Less: Variable cost $ 600 × 120 = 72,000Sales Commission $90,000 × 15% = 13,500Contribution Margin 4,500Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

273) Stanley's Bicycles store buys bicycles on average for $600 and sells them on average for $750. He pays a sales commission of 15% of sales revenue to his sales staff. Stanley pays $1,400 a month rent for his store, and also pays $3,000 a month to his staff in addition to the commissions. Stanley sold 120 bicycles in June. If Stanley prepares a traditional income statement for the month of June, what would be his gross profit?A) $162,000B) $18,000C) $72,000D) $90,000Answer: BExplanation: B) Revenue $ 750 × 120 = $ 90,000Less: Cost of Goods Sold $ 600 × 120 = 72,000Gross Profit 18,000Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


274) Stanley's Bicycles store buys bicycles on average for $600 and sells them on average for $750. He pays a sales commission of 15% of sales revenue to his sales staff. Stanley pays $1,400 a month rent for his store, and also pays $3,000 a month to his staff in addition to the commissions. Stanley sold 120 bicycles in June. If Stanley prepares a traditional income statement for the month of June, what would be his operating income?A) $90,000B) $35,900C) $100D) $18,000Answer: CExplanation: C) Revenue $ 750 × 120 = $ 90,000Less: Cost of goods Sold $ 600 × 120 = 72,000Gross Profit 18,000Less: Commissions 13,500Rent 1,400Salaries 3,000Operating Income 100Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


275) Stanley's Bicycles store buys bicycles on average for $600 and sells them on average for $750. He pays a sales commission of 15% of sales revenue to his sales staff. Stanley pays $1,400 a month rent for his store, and also pays $3,000 a month to his staff in addition to the commissions. Stanley sold 120 bicycles in June. If Stanley prepares a contribution margin income statement for the month of June, what would be his operating income? A) $8,900B) $90,000C) $85,500D) $100Answer: DExplanation: D) Revenue $ 750 × 120 = $ 90,000Less: Variable cost $ 600 × 120 = 72,000Sales Commission $90,000 × 15% = 13,500Contribution Margin 4,500Rent 1,400Salaries 3,000Operating Income 100Diff: 3LO: 6-6EOC: E6-42AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

276) Lily's Pastries produces cupcakes, which sell for $5 each. During the current month, Lily produced 2,800 cupcakes, but only sold 2,700 cupcakes. The variable cost per cupcake was $3 and the sales commission per cupcake was $0.50. Total fixed manufacturing costs were $1,400 and total fixed marketing and administrative costs were $1,200. What is the product cost per cupcake under absorption costing?A) $3.50B) $5.50C) $5.00D) $3.00Answer: AExplanation: A) Fixed Manufacturing $ 1,400 divided by production 2,800 = $ .50 per unit fixed cost

Now: Add Variable cost per unit $ 3 + fixed $.50 = $ 3.50 product costDiff: 2LO: 6-6EOC: S6-17AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


277) During the current period, 14,000 units were produced and 12,000 units were sold. Fixed manufacturing costs incurred amounted to $126,000. An absorption costing income statement would report fixed manufacturing costs as which of the following?A) Costs of $108,000 as a deduction from gross profit to obtain operating incomeB) Overhead of $126,000 as a deduction from sales revenue to obtain gross profitC) Overhead of $108,000 as a deduction from sales revenue to obtain gross profit D) Costs of $126,000 as a deduction from sales revenue to obtain contribution margin Answer: CExplanation: C) Fixed cost $ 126,000 divided by production 14,000 = $ 9 fixed cost per unit

NOW Units sold 12,000 × fixed cost $9 = $ 108,000Diff: 3LO: 6-6EOC: S6-17AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.

278) Neon Company manufactures widgets. The following data is related to sales and production of the widgets for last year.

Selling price per unit $ 130.00Variable manufacturing costs per unit $ 62.00Variable selling and administrative expenses per unit $ 5.00Fixed manufacturing overhead (in total) $ 30,000Fixed selling and administrative expenses (in total) $ 8,000Units produced during the year 1,500Units sold during year 1,100

Using variable costing, what is the contribution margin for last year?A) $216,700B) $68,200C) $143,000D) $69,300Answer: DExplanation: D) Sales $130 × 1100 $143,000Less Variable Mfg cost 1100 × $62 68,200Less Variable Selling expense 1100 × $5 = 5,500 Contribution Margin $69,300Diff: 3LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.




Using variable costing, what is the operating income for last year?A) $143,000B) $31,300C) $69,300D) $107,300Answer: BExplanation: B) Sales Revenue 1,100 × 130 = 143,000Variable Manufacturing Costs 1,100 × 130 = (68,200)Variable Selling and Administrative Costs 1,100 × 5 = (5,500)Contribution Margin 69,300Fixed Manufacturing Overhead (30,000)Fixed Selling and Administrative Costs (8,000)Operating Income 31,300Diff: 3LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.




Using absorption costing, what is gross profit for last month?A) $233,200B) $143,000C) $104,800D) $52,800Answer: DExplanation: D) Fixed MOH $ 30,000 divided by units produced 1,500 = $ 20 Fixed MOH

Add Variable manufacturing cost 62= Total Manufacturing cost $ 82

× 1,100 sales= $90,200 Cost of goods sold

So: Sales $130 × 1100 = $ 143,000Less Cost of Goods Sold 90,200Equals Gross Profit $ 52,800





Using absorption costing, what is operating income for last year?A) $ 39,300B) $ 66,300C) $219,700D) $143,000Answer: AExplanation: A) Fixed MOH $ 30,000 divided by units produced 1,500 = $ 20 Fixed MOH

Add Variable manufacturing cost 62= Total Manufacturing cost $ 82


So: Sales $130 × 1,100 = $ 143,000Less Cost of Goods Sold 90,200Equals Gross Profit $ 52,800Less Variable selling 5,500Less fixed selling 8,000Operating Income $ 39,300



282) The HF Corporation manufactures and sells toy gyroscopes. The following data is related to sales and production of the toy gyroscopes for last year.

Selling price per unit $ 8.00Variable manufacturing costs per unit $ 1.83Variable selling and administrative expenses per unit $ 4.45Fixed manufacturing overhead (in total) $ 75,000Fixed selling and administrative expenses (in total) $ 80,000Units produced during the year 500,000Units sold during the year 150,000

Using variable costing, what is the contribution margin for last year?A) $1,200,000B) $274,500C) $258,000D) $2,142,000Answer: CExplanation: C) Sales $8.00 × 150,000 $1,200,000Less Variable Mfg cost 150,000 × $1.83 274,500Less Variable Selling exp. 150,000 × $4.45 = 667,500 Contribution Margin 258,000Diff: 3LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.



Selling price per unit $ 8.00Variable manufacturing costs per unit $ 1.83Variable selling and administrative expenses per unit $ 4.45Fixed manufacturing overhead (in total) $ 75,000 Fixed selling and administrative expenses (in total) $ 80,000Units produced during the year 500,000Units sold during the year 150,000

Using variable costing, what is the operating income for last year?A) $1,200,000B) $103,000C) $413,000D) $258,000Answer: BExplanation: B) Sales $8.00 × 150,000 $1,200,000Less Variable Mfg cost 150,000 × $1.83 274,500Less Variable Selling exp. 150,000 × $4.45 = 667,500 Contribution Margin 258,000

Fixed Manufacturing Overhead 75,000Fixed Selling and Administrative Costs 80,000Operating Income 103,000Diff: 3LO: 6-6EOC: S6-16AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.




Using absorption costing, what is gross profit for last month?A) $903,000B) $1,497,000C) $1,200,000D) $3,703,000Answer: AExplanation: A) Fixed MOH $ 75,000 divided by units produced 500,000 = $0.15 Fixed MOH

Add Variable manufacturing cost 1.83=Total Manufacturing cost 1.98


So: Sales $8 × 150,000 = $ 1,200,000Less Cost of Goods Sold 297,000Equals Gross Profit $ 903,000





Using absorption costing, what is operating income for last year?A) $ 749,500B) $ 155,500C) $1,200,000D) $1,650,500Answer: BExplanation: B) Fixed MOH $ 75,000 divided by units produced 500,000 = $0.15 Fixed MOH

Add Variable manufacturing cost 1.83= Total Manufacturing cost 1.98


So: Sales $8 × 150,000 = $ 1,200,000Less Cost of Goods Sold 297,000Equals Gross Profit $ 903,000Less Variable selling 667,500Less fixed selling 80,000Operating Income $155,500



286) Sally's Gift Baskets sells gift baskets, on average, for $125; each gift basket costs, on average, $60. Debby pays salaries each month of $1,300 and her store rent is $1,000 per month. She also pays sales commissions of 5% of the sales price. In May, 140 gift baskets were sold.

Required:a. Prepare a traditional income statement for the month of May.b. Prepare a contribution margin income statement for the month of May.Answer:

Part a.Unit sale price $ 125

Units sold 140Sales $ 17,500

Unit cost $ 60Units sold 140Cost of goods sold $ 8,400

Unit sale price $ 125Commission % of sales 5%Commission per unit $ 6.25

Commission per unit $ 6.25Units sold 140Total commission $ 875Rent $ 1,000Salaries $ 1,300Operating expenses $ 3,175

Sales $ 17,500Cost of goods sold $ (8,400)Gross profit $ 9,100Operating expenses $ (3,175)Operating income $ 5,925


Part b.Unit sale price $ 125

Units sold 140Sales $ 17,500

Unit sale price $ 125Commission % of sales 5%Commission per unit $ 6.25

Unit cost $ 60Commission per unit $ 6.25Variable cost per unit $ 66.25Units sold 140Total variable costs $ 9,275

Rent $ 1,000Salaries $ 1,300Fixed costs $ 2,300

Sales $ 17,500Total variable costs $ (9,275)Contribution margin $ 8,225Fixed costs $ (2,300)Operating income $ 5,925

Diff: 3LO: 6-6EOC: E6-23AAACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


287) Discuss and compare absorption costing income statements with variable costing income statements. In your discussion, address the following questions: a. What is the main difference between the two methods?b. Under what circumstances will the operating income under each method be the same? c. What situation will cause the absorption costing income to be higher than the variable costing income?d. What situation will cause the absorption costing income to be lower than the variable costing income?e. Why would a company use absorption costing to prepare its income statements?f. Why would a company use variable costing to prepare its income statements? Answer: a. Fixed manufacturing overhead is expensed in its entirety under variable costing, while fixed overhead is added as the part of cost of each unit under absorption costing. If all units are not produced and sold within a period, some of the fixed manufacturing overhead is either deferred to the next period or it is released (expenses) from a prior period.b. If the units produced equals the units sold, the operating income under absorption costing will be equal to the operating income under variable costing.c. Absorption costing operating income will be higher in any period when more units are produced than sold.d. Absorption costing operating income will be lower in a period when more units are sold than produced (when units from beginning inventory are sold).e. Absorption costing is required by GAAP.f. Variable costing is useful for short-term decision-making by managers.Diff: 3LO: 6-6EOC: S6-17AACSB: Analytical ThinkingLearning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost. Define and distinguish among variable, fixed, and mixed costs.


288) The following data is related to sales and production of the Tauro Corporation for last year.

Selling price per unit $ 60.00Variable manufacturing cost per unit $ 25.00Variable selling and administrative expense per unit $ 6.00Fixed manufacturing overhead (in total) $ 50,000Fixed selling and administrative expenses (in total) $ 8,000Units produced during year 10,000Units sold during year 8,000Units in beginning inventory 0Units in ending inventory 2,000

Required:a. Prepare an income statement for last year using absorption costing.b. Calculate the value of the ending inventory using absorption costing.c. Prepare an income statement for last year using variable costing.d. Calculate the value of the ending inventory using variable costing. Answer:


289) Snowy Mountain Company has the following selected data for the past year:

Units sold during year 30,000Units produced during year 45,000Units in ending inventory 15,000Variable manufacturing cost per unit $ 4.50Fixed manufacturing overhead (in total) $ 20,250Selling price per unit $ 12.00Variable selling and administrative expense per unit $ 1.00Fixed selling and administrative expenses (in total) $ 4,000

There were no units in beginning inventory.

Required:a. Prepare an income statement for last year using absorption costing.b. Calculate the value of the ending inventory using absorption costing.c. Prepare an income statement for last year using variable costing.d. Calculate the value of the ending inventory using variable costing.

Answer:


Braun3 06 Tif

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