Deck 6: Cost Behaviour: Analysis and Use

Question 1

Capacity costs committed to only in the shorter term are termed as:

A)discretionary fixed costs.
B)relevant costs.
C)committed fixed costs.
D)flexible resources.

Answer 1

A

Question 2

Reference: 06-11
Porter Company has provided the following data for the second quarter of the most recent year: $$\begin{array} { | l | l | } \hline \text { Sales } & \$ 300,000 \\\hline \text { Fixed manufacturing overhead } & 55,000 \\\hline \text { Direct labour } & 72,500 \\\hline \text { Fixed selling expense } & 46,250 \\\hline \text { Variable manufacturing overhead } & 41,000 \\\hline \text { Variable administrative expense } & 48,000 \\\hline \text { Direct materials } & 51,500 \\\hline \text { Fixed administrative expense } & 44,500 \\\hline \text { Variable selling expense } & 49,750 \\\hline\end{array}$$ Assume that direct labour is a variable cost and that there were no beginning or ending inventories.

-The total contribution margin of Porter Company for the second quarter was

A)$37,250.
B)$176,000.
C)$211,000.
D)$87,000.

Answer 2

$37,250.

Question 3

Discretionary fixed costs:

A)vary directly and proportionately with the level of activity.
B)usually arise from annual decisions by management.
C)have a long-term planning horizon, generally encompassing many years.
D)are made up of plant, equipment, and basic organizational costs.

Answer 3

B

Question 4

Reference: 06-06
Johnson Company has provided the following data for the first five months of the year: $$\begin{array} { | l | l | l | } \hline & \text { Machine Hours } & \text { Lubrication Cost } \\\hline \text { January } & 120 & \$ 750 \\\hline \text { February } & 160 & \$ 810 \\\hline \text { March } & 200 & \$ 870 \\\hline \text { April } & 150 & \$ 795 \\\hline \text { May } & 170 & \$ 825 \\\hline\end{array}$$

-Using the high-low method of analysis, the estimated monthly fixed component of lubrication cost is closest to?

A)$585.
B)$565.
C)$560.
D)$570.

Question 5

Which of the following is not a variable cost of producing sweatshirts

A)Electricity cost of $0.25 per kilowatt/hour to run sewing machines in factory.
B)Cost of thread.
C)Janitorial cost of $2,000 per month.
D)Wages of production workers.

Question 6

Reference: 06-13
A comparative income statement for Jimbob Co., a merchandising company, for the three months ended June is presented below.
Jimbob Co.
Comparative Income Statement
For the Second Quarter $$\begin{array} { | l | c | c | c | } \hline & \text { April } & \text { May } & \text { June } \\\hline \text { Sales in units } & 4,500 & 5,250 & 6,000 \\\hline \text { Sales revenue } & \$ 630,000 & \$ 735,000 & \$ 840,000 \\\hline \text { Less cost of goods sold } & 252,000 & 294,000 & 336,000 \\\hline \text { Gross Margin } & 378,000 & 441,000 & 504,000 \\\hline \text { Less operating expenses: } & & & \\\hline \text { Shipping expense } & 56,000 & 63,500 & 71,000 \\\hline \text { Advertising expense } & 70,000 & 70,000 & 70,000 \\\hline \text { Salaries and commissions } & 143,000 & 161,750 & 180,500 \\\hline \text { Insurance expense } & 9,000 & 9,000 & 9,000 \\\hline \text { Depreciation expense } & 42,000 & 42,000 & 42,000 \\\hline \text { Total operating expenses } & \frac { 320,000 } { } & 346,250 & 372,500 \\\hline \text { Net income } & \frac { \$ 8,000 } { } & \underline { \$ 84,750 } & \$ 131,500 \\\hline\end{array}$$

-What is the company's contribution margin for the quarter?

A)$1,653,750.
B)$1,028,965.
C)$771,750.
D)$1,910,965.

Question 7

An example of a cost that is variable with respect to the number of units produced is:

A)depreciation of factory facilities.
B)power to run production equipment.
C)supervisory salaries.
D)insurance on the headquarters building.

Question 8

Reference: 06-10
The following data have been provided by a retail company that sells a single product. $$\begin{array} { | l | l | l | } \hline & \text { This Year } & \text { Last Year } \\\hline \text { Units sold } & 200,000 & 150,000 \\\hline \text { Sales revenue } & \$ 1,000,000 & \$ 750,000 \\\hline \text { Less cost of goods sold } & 700,000 & 525,000 \\\hline \text { Gross margin } & 300,000 & 225,000 \\\hline \text { Less operating expenses } & 222,000 & 210,000 \\\hline \text { Net income } & \$ 78,000 & \$ 15,000 \\\hline\end{array}$$

-What is the best estimate of the company's total fixed operating expenses per year

A)$0.
B)$174,000.
C)$44,000.
D)$80,000.

Question 9

Which of the following best describes the behaviour of variable cost per unit

A)Variable cost per unit varies in decreasing proportion with the changes in the activity level.
B)Variable cost per unit remains constant with changes in the activity level.
C)Variable cost per unit varies in direct proportion with the activity level.
D)Variable cost per unit varies in increasing proportion with changes in the activity level.

Question 10

Contribution margin is the excess of revenues over:

A)all variable costs.
B)manufacturing cost.
C)all direct costs.
D)cost of goods sold.

Question 11

In describing the cost formula equation Y = a + bX, which of the following statements i? correct:

A)"X" is the dependent variable.
B)as "X" increases "Y" decreases.
C)"a" is the fixed component.
D)"b" is the fixed component.

Question 12

Reference: 06-05
Maxwell Company has a total expense per unit of $2.00 at the 16,000 unit level of activity and total expense per unit of $1.95 at the 21,000 unit level of activity.
The best estimate of the total fixed cost per period for Maxwell Company is

A)$40,950.
B)$29,190.
C)$3,360.
D)$32,000.

Question 13

Reference: 06-10
The following data have been provided by a retail company that sells a single product. $$\begin{array} { | l | l | l | } \hline & \text { This Year } & \text { Last Year } \\\hline \text { Units sold } & 200,000 & 150,000 \\\hline \text { Sales revenue } & \$ 1,000,000 & \$ 750,000 \\\hline \text { Less cost of goods sold } & 700,000 & 525,000 \\\hline \text { Gross margin } & 300,000 & 225,000 \\\hline \text { Less operating expenses } & 222,000 & 210,000 \\\hline \text { Net income } & \$ 78,000 & \$ 15,000 \\\hline\end{array}$$

-What is the best estimate of the company's variable operating expenses per unit

A)$4.17 per unit.
B)$0.24 per unit.
C)$0.90 per unit.
D)$0.71 per unit.

Question 14

Reference: 06-06
Johnson Company has provided the following data for the first five months of the year: $$\begin{array} { | l | l | l | } \hline & \text { Machine Hours } & \text { Lubrication Cost } \\\hline \text { January } & 120 & \$ 750 \\\hline \text { February } & 160 & \$ 810 \\\hline \text { March } & 200 & \$ 870 \\\hline \text { April } & 150 & \$ 795 \\\hline \text { May } & 170 & \$ 825 \\\hline\end{array}$$

-Using the high-low method of analysis, the estimated variable lubrication cost pe? machine hour is closest to?

A)$1.25.
B)$1.50.
C)$1.40.
D)$0.67.

Question 15

A business sells a product with variable costs per unit of $30. per period. The selling price per unit is $100. Assuming 1,000 units are sold in a period, what is the contribution margin for the period?

A)$60,000.
B)$30,000.
C)$70,000.
D)$100,000.

Question 16

Reference: 06-11
Porter Company has provided the following data for the second quarter of the most recent year: $$\begin{array} { | l | l | } \hline \text { Sales } & \$ 300,000 \\\hline \text { Fixed manufacturing overhead } & 55,000 \\\hline \text { Direct labour } & 72,500 \\\hline \text { Fixed selling expense } & 46,250 \\\hline \text { Variable manufacturing overhead } & 41,000 \\\hline \text { Variable administrative expense } & 48,000 \\\hline \text { Direct materials } & 51,500 \\\hline \text { Fixed administrative expense } & 44,500 \\\hline \text { Variable selling expense } & 49,750 \\\hline\end{array}$$ Assume that direct labour is a variable cost and that there were no beginning or ending inventories.

-The gross margin (loss)for Porter Company for the second quarter was

A)$135,000.
B)$131,500.
C)$(12,500).
D)$80,000.

Question 17

Reference: 06-04
In the O'Donnell Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were
$223,000. Of this amount, utilities were $48,000 (all variable) and depreciation was $60,000 (all fixed). The balance of the overhead cost consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were $130,000.
Assume that all of the activity levels mentioned in this problem are within the relevant range.
If 110,000 machine hours of activity are projected for next period, total expected overhead cost would be?

A)$256,000.
B)$306,625.
C)$242,500.
D)$263,500.

Question 18

An example of a committed fixed cost is:

A)a training program for salespersons.
B)new product research and development.
C)property taxes on the factory building.
D)executive travel expenses.

Question 19

Reference: 06-05
Maxwell Company has a total expense per unit of $2.00 at the 16,000 unit level of activity and total expense per unit of $1.95 at the 21,000 unit level of activity.
The best estimate of the variable cost per unit for Maxwell Company is

A)$1.79.
B)$1.95.
C)$2.00.
D)$0.56.

Question 20

Reference: 06-01
Rymore Company would like to classify the following costs according to their cost behaviour: $$\begin{array} { | l | l | l | } \hline & \text { July } & \text { August } \\\hline \text { Sales in units } & 1,500 & 1,600 \\\hline & & \\\hline \text { Cost A } & \$ 35,000 & \$ 36,000 \\\hline \text { Cost B } & 16,000 & 16,000 \\\hline \text { Cost C } & 67,500 & 72,000 \\\hline\end{array}$$

-Which of the following classifications best describes the behaviour of Cost A

A)Mixed.
B)Variable.
C)Direct.
D)Fixed.

Question 21

Selected information about Buehler Corporation's operations at high and at low levels of activity follows: $$\begin{array} { | l | l | l | } \hline & { \text { Level of Activity } } \\\hline & \text { Low } & \text { High } \\\hline \text { Number of units produced } & 25,000 & 30,000 \\ \hline \text { Total manufacturing costs } & \$ 575,000 & \$ 680,000 \\\hline \text { Direct material cost per unit } & \$ 5 & \$ 5 \\\hline \text { Direct labour cost per unit } & \$ 6 & \$ 6 \\\hline\end{array}$$ Using the high-low method, what is the cost formula for manufacturing overhead?

A)$50,000 per period plus $22 per unit.
B)$50,000 per period plus $21 perD unit.
C)$50,000 per period plus $10 per unit.
D)$347,000 per period plus $0.10 per unit.

Question 22

Which of the following statements is true

A)Total variable cost change in direct proportion to changes in the amount of the activity.
B)In the short run, all cost are variable.
C)In the long run, all costs are fixed.
D)Mixed costs are step costs.

Question 23

Reference: 06-02
Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below: $\begin{array}{|l|l|l|}\hline & \text { July } & \text { August } \\\hline \text { Sales in Units } & 11,000 & 10,000 \\\hline & & \\\hline \text { Sales Revenue } & \$ 165,000 & \$ 150,000 \\\hline \text { Less Cost of Goods Sold } & 72,600 & 66,000 \\\hline \text { Gross Margin } & 92,400 & 84,000 \\\hline \text { Less Operating Expenses: } & & \\\hline \text { Rent } & 12,000 & 12,000 \\\hline \text { Sales Commissions } & 13,200 & 12,000 \\\hline \text { Maintenance Expenses } & 13,500 & 13,000 \\\hline \text { Clerical Expense } & 16,000 & 15,000 \\\hline \text { Total Operating Expenses } & 54,700 & 52,000 \\\hline \text { Net income } & \$ 37,700 & \$ 32,000 \\\hline\end{array}$ All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). The company is a merchandising company. Assume that the relevant range includes all of the activity levels mentioned in this problem.

-The contribution margin for August is?

A)$57,000.
B)$62,700.
C)$80,400.
D)$72,000.

Question 24

The term "relevant range" means the range within which:

A)a particular cost formula is valid.
B)production may vary.
C)relevant costs are incurred.
D)costs may fluctuate.

Question 25

Reference: 06-13
A comparative income statement for Jimbob Co., a merchandising company, for the three months ended June is presented below.
Jimbob Co.
Comparative Income Statement
For the Second Quarter $$\begin{array} { | l | r | r | l | } \hline & \text { April } & \text { May } & \text { June } \\\hline \text { Sales in units } & 4,500 & 5,250 & 6,000 \\\hline \text { Sales revenue } & \$ 630,000 & \$ 735,000 & \$ 840,000 \\\hline \text { Less cost of goods sold } & 252,000 & 294,000 & 336,000 \\\hline \text { Gross Margin } & 378,000 & 441,000 & 504,000 \\\hline \text { Less operating expenses: } & & & \\\hline \text { Shipping expense } & 56,000 & 63,500 & 71,000 \\\hline \text { Advertising expense } & 70,000 & 70,000 & 70,000 \\\hline \text { Salaries and commissions } & 143,000 & 161,750 & 180,500 \\\hline \text { Insurance expense } & 9,000 & 9,000 & 9,000 \\\hline \text { Depreciation expense } & 42,000 & 42,000 & 42,000 \\\hline \text { Total operating expenses } & { 320,000 } & 346,250 & 372,500 \\\hline \text { Net income } & \underline { \$ 88,000 } & \underline { \$ 94,750 } & \$ 131,500 \\\hline\end{array}$$

-What is the best estimate of the company's variable operating expenses per unit

A)$44.22 per unit.
B)$65.95 per unit.
C)$35.00 per unit.
D)$71.11 per unit.

Question 26

Maintenance costs for a movie theatre totalled $85,000 for the month of April during which there were 150,000 paid admissions. For the month of May, total maintenance costs were $101,750 with 183,500 paid admissions. The company's accountant is budgeting for the month of June with projected sales of 195,000 paid admissions. What amount should she budget for June maintenance costs?

A)$108,127.
B)$110,500.
C)$111,750.
D)$107,500.

Question 27

Which costs will change with a decrease in activity within the relevant range

A)Unit fixed costs and total variable cost.
B)Unit variable cost and unit fixed cost.
C)Unit fixed cost and total fixed cost.
D)Total fixed costs and total variable cost.

Question 28

An example of a discretionary fixed cost is:

A)insurance.
B)management development programs.
C)taxes on real estate.
D)depreciation of buildings and equipment.

Question 29

Given the cost formula Y = $12,000 + $6X, total cost at an activity level of 8,000 units would be?

A)$60,000.
B)$20,000.
C)$12,000.
D)$48,000.

Question 30

Of the costs listed below, which would most likely be considered as a discretionary fixed cost?

A)Research costs for new manufacturing products.
B)Depreciation of factory building.
C)Insurance for the factory building.
D)Property taxes for factory.

Question 31

Reference: 06-13
A comparative income statement for Jimbob Co., a merchandising company, for the three months ended June is presented below.
Jimbob Co.
Comparative Income Statement
For the Second Quarter $$\begin{array} { | l | l | l | l | } \hline & \text { April } & \text { May } & \text { June } \\\hline \text { Sales in units } & 4,500 & 5,250 & 6,000 \\\hline \text { Sales revenue } & \$ 630,000 & \$ 735,000 & \$ 840,000 \\\hline \text { Less cost of goods sold } & 252,000 & 294,000 & 336,000 \\\hline \text { Gross Margin } & 378,000 & 441,000 & 504,000 \\\hline \text { Less operating expenses: } & & & \\\hline \text { Shipping expense } & 56,000 & 63,500 & 71,000 \\\hline \text { Advertising expense } & 70,000 & 70,000 & 70,000 \\\hline \text { Salaries and commissions } & 143,000 & 161,750 & 180,500 \\\hline \text { Insurance expense } & 9,000 & 9,000 & 9,000 \\\hline \text { Depreciation expense } & 42,000 & 42,000 & 42,000 \\\hline \text { Total operating expenses } & 320,000 & 346,250 & 372,500 \\\hline \text { Net income } & \$ 58,000 & \$ 94,750 & \$ 131,500 \\\hline\end{array}$$

-What is the best estimate of the company's total fixed operating expenses per month

A)$121,000.
B)$162,500.
C)$42,000.
D)$177,000.

Question 32

Expense A is a fixed cost; expense B is a variable cost. During the current year the activity level has increased, but is still within the relevant range. In terms of cost per unit of activity, we would expect that:

A)expense A has remained unchanged.
B)expense A has decreased.
C)expense B has decreased.
D)expense B has increased.

Question 33

Given the cost formula Y = $15,000 + $5X, total cost at an activity level of 8,000 units would be?

A)$40,000.
B)$55,000.
C)$23,000.
D)$15,000.

Question 34

Bell Company has provided the following data for maintenance costs: $$\begin{array} { | l | l | l | } \hline & \text { April } & \text { May } \\\hline \text { Machine hours incurred } & 12,000 & 16,000 \\\hline \text { Maintenance cost incurred } & \$ 24,000 & \$ 26,000 \\\hline\end{array}$$ Using the high-low method, the cost formula for maintenance cost is?

A)$1.625 per machine hour.
B)$24,000 plus $0.50 per machine hour.
C)$2.00 per machine hour.
D)$18,000 plus $0.50 per machine hour.

Question 35

At an activity level of 10,000 units, variable costs totalled $35,000 and fixed costs totalled $20,800. If 16,000 units are produced and this activity is within the relevant range, then:

A)fixed cost per unit would equal $5.58.
B)total unit cost would equal $4.80.
C)total costs would equal $55,800.
D)total cost would equal $89,280.

Question 36

Which of the following classifications best describes the behaviour of Cost C

A)Variable.
B)Fixed.
C)Direct.
D)Mixed.

Question 37

Reference: 06-12
An income statement for Crandall's Bookstore for the first quarter of the current year is presented below:
Crandall's Bookstore
Income Statement
For the First Quarter of the Current Year $$\begin{array} { | l | l | l | } \hline \text { Sales } & & \$ 800,000 \\\hline \text { Less cost of goods sold } & & { 560,000 } \\\hline \text { Gross margin } & &{ 240,000 } \\\hline \text { Less operating expenses: } & & \\\hline \text { Selling } & \$ 98,000 & \\\hline \text { Administrative } & 98,000 & \underline { 196,000 } \\\hline \text { Net income } & & \$ 44,000 \\\hline\end{array}$$ On average, a book sells for $50. Variable selling expenses are $5.50 per book, with the remaining selling expenses being fixed. The variable administrative expenses are 3% of sales, with the remainder being fixed.

-The net income using the contribution approach for the first quarter is?

A)$128,000.
B)$152,000.
C)$240,000.
D)$44,000.

Question 38

Actual maintenance costs for a movie theatre for the months of July and August are as follows: $$\begin{array} { | l | l | l | } \hline & \text { July } & \text { August } \\\hline \text { Maintenance hours worked } & \underline { 1,550 } & 1,660 \\\hline & & \\\hline \text { Hourly wages and benefits } & \$ 18,600 & \$ 19,920 \\\hline \text { Cleaning supplies } & 3,100 & 3,320 \\\hline \text { Equipment lease costs } & \underline { 2,000 } & 2,000 \\\hline \text { Total maintenance costs } & \underline { \underline { \$ 23,700 } } & \underline { \underline { \underline { \$ 25,240 } } } \\\hline\end{array}$$ The manager is checking to see that enough maintenance hours are scheduled for the month of September. The total budget for maintenance costs for September is $26,990 and experience has shown that maintenance cost behaviour is quite consistent from month to month. How many hours should be scheduled for September maintenance?

A)1,795 hours.
B)1,775 hours.
C)1,765 hours.
D)1,785 hours.

Question 39

Reference: 06-03
Gasson Company is a merchandising firm. Next month the company expects to sell 800 units. The following data describe the company's revenue and cost structure: $$\begin{array} { | l | l | } \hline \text { Selling price per unit } & \$ 40 \\\hline \text { Sales commission } & 5 \% \\\hline \text { Purchase price (cost) per unit } & \$ 18 \\\hline \text { Advertising expense } & \$ 4,000 \text { per month } \\\hline \text { Administrative expense } & \$ 4,500 \text { per month plus } 15 \% \text { of sales } \\\hline\end{array}$$ Assume that all activity mentioned in this problem is within the relevant range.

-The expected contribution margin next month is?

A)$14,400.
B)$11,200.
C)$16,000.
D)$17,600.

Question 40

Reference: 06-02
Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below: $\begin{array}{|l|l|l|}\hline & \text { July } & \text { August } \\\hline \text { Sales in Units } & 11,000 & 10,000 \\\hline & & \\\hline \text { Sales Revenue } & \$ 165,000 & \$ 150,000 \\\hline \text { Less Cost of Goods Sold } & 72,600 & 66,000 \\\hline \text { Gross Margin } & 92,400 & 84,000 \\\hline \text { Less Operating Expenses: } & & \\\hline \text { Rent } & 12,000 & 12,000 \\\hline \text { Sales Commissions } & 13,200 & 12,000 \\\hline \text { Maintenance Expenses } & 13,500 & 13,000 \\\hline \text { Clerical Expense } & 16,000 & 15,000 \\\hline \text { Total Operating Expenses } & 54,700 & 52,000 \\\hline \text { Net income } & \underline{\$ 37,700} & \$ 32,000 \\\hline\end{array}$ All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). The company is a merchandising company. Assume that the relevant range includes all of the activity levels mentioned in this problem.

-If sales are projected to be 8,000 units in September, total expected operating expenses would be?

A)$46,600.
B)$44,750.
C)$41,600.
D)$49,300.

Question 41

Buckeye Company has provided the following data for maintenance cost: $$\begin{array} { | l | l | l | } \hline & \text { Prior Year } & \text { Current Year } \\\hline \text { Machine hours } & 12,500 & 15,000 \\\hline \text { Maintenance cost } & \$ 27,000 & \$ 31,000 \\\hline\end{array}$$ The best estimate of the cost formula for maintenance is?

A)$27,000 per year plus $1.60 per machine hour.
B)$21,625 per year plus $0.625 per machine hour.
C)$7,000 per year plus $0.625 per machine hour.
D)$7,000 per year plus $1.60 per machine hour.

Question 42

Reference: 06-03
Gasson Company is a merchandising firm. Next month the company expects to sell 800 units. The following data describe the company's revenue and cost structure: $$\begin{array} { | l | l | } \hline \text { Selling price per unit } & \$ 40 \\\hline \text { Sales commission } & 5 \% \\\hline \text { Purchase price (cost) per unit } & \$ 18 \\\hline \text { Advertising expense } & \$ 4,000 \text { per month } \\\hline \text { Administrative expense } & \$ 4,500 \text { per month plus } 15 \% \text { of sales } \\\hline\end{array}$$ Assume that all activity mentioned in this problem is within the relevant range.

-The expected net income next month is?

A)$5,100.
B)$11,200.
C)$2,700.
D)$7,500.

Question 43

An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine-hour at an activity level of 10,000 machine-hours and $0.25 per machine-hour at an activity level of 8,000 machine-hours. Assuming that this activity is within the relevant range, what is the total expected maintenance cost if the activity level is 8,700 machine-hours?

A)$400.
B)$2,250.
C)$1,740.
D)$2,000.

Question 44

Reference: 06-05
Maxwell Company has a total expense per unit of $2.00 at the 16,000 unit level of activity and total expense per unit of $1.95 at the 21,000 unit level of activity.
The best estimate of the total expected costs at the 19,000 unit level of activity for Maxwell Company is?

A)$38,000.
B)$37,370.
C)$37,050.
D)$39,830.

Question 45

Reference: 06-08
Wilson Company's activity for the first six months of the current year is as follows: $$\begin{array} { | l | l | l | } \hline \text { Month } & \text { Machine Hours } & \text { Electrical Cost } \\\hline \text { January } & 2,000 & \$ 1,600 \\\hline \text { February } & 3,000 & \$ 2,200 \\\hline \text { March } & 2,400 & \$ 1,840 \\\hline \text { April } & 1,900 & \$ 1,540 \\\hline \text { May } & 1,800 & \$ 1,480 \\\hline \text { June } & 2,100 & \$ 1,660 \\\hline\end{array}$$

-Using the high-low method, the variable cost per machine hour would be

A)$0.60.
B)$0.68.
C)$0.64.
D)$0.40.

Question 46

Reference: 06-13
A comparative income statement for Jimbob Co., a merchandising company, for the three months ended June is presented below.
Jimbob Co.
Comparative Income Statement
For the Second Quarter $\begin{array}{|l|r|r|r|}\hline & \text { April } & \text { May } & \text { June } \\\hline \text { Sales in units } & 4,500 & 5,250 & 6,000 \\\hline \text { Sales revenue } & \$ 630,000 & \$ 735,000 & \$ 840,000 \\\hline \text { Less cost of goods sold } & 252,000 & 294,000 & 336,000 \\\hline \text { Gross Margin } & 378,000 & 441,000 & 504,000 \\\hline \text { Less operating expenses: } & & & \\\hline \text { Shipping expense } & 56,000 & 63,500 & 71,000 \\\hline \text { Advertising expense } & 70,000 & 70,000 & 70,000 \\\hline \text { Salaries and commissions } & 143,000 & 161,750 & 180,500 \\\hline \text { Insurance expense } & 9,000 & 9,000 & 9,000 \\\hline \text { Depreciation expense } & {42,000} & 42,000 & 42,000 \\\hline \text { Total operating expenses } &{320,000} & {346,250}&372,500 \\\hline \text { Net income } & \underline{\$ 58,000} & \underline{\$ 94,750} & {\$ 131,500} \\\hline\end{array}$

-What is the company's net income for the quarter?

A)$1,197,000.
B)$284,250.
C)$1,323,000.
D)$835,500.

Question 47

The contribution margin approach to the income statement:

A)can be used only by manufacturing companies.
B)shows a contribution margin rather than a net income figure at the bottom of the statement.
C)organizes costs on a functional basis.
D)is useful to managers in planning and decision making.

Question 48

Reference: 06-12
An income statement for Crandall's Bookstore for the first quarter of the current year is presented below:
Crandall's Bookstore
Income Statement
For the First Quarter of the Current Year $$\begin{array} { | l | l | l | } \hline \text { Sales } & & \$ 800,000 \\\hline \text { Less cost of goods sold } & & 560,000 \\\hline \text { Gross margin } & & 240,000 \\\hline \text { Less operating expenses: } & & \\\hline \text { Selling } & \$ 98,000 & \\\hline \text { Administrative } & 98,000 & \underline { 196,000 } \\\hline \text { Net income } & & \$ 44,000 \\\hline\end{array}$$ On average, a book sells for $50. Variable selling expenses are $5.50 per book, with the remaining selling expenses being fixed. The variable administrative expenses are 3% of sales, with the remainder being fixed.

-The cost formula for operating expenses with "X" equal to the number of books sold is

A)Y = $98,000 + $7.00X.
B)Y = $98,000 + $8.50X.
C)Y = $84,000 + $7.00X.
D)Y = $84,000 + $8.50X.

Question 49

A cost that has both the characteristics of fixed cost and variable cost is known as a

A)sunk cost.
B)discretionary cost.
C)mixed cost.
D)variable fixed cost.

Question 50

Shipping expense is $9,000 for 8,000 pounds shipped and $11,250 for 11,000 pounds shipped. Assuming that this activity is within the relevant range, if the company ships
9,000 pounds, its expected shipping expense is closest to?

A)$8,583.
B)$10,125.
C)$9,750.
D)$9,972.

Question 51

At an activity level of 6,000 units the cost for maintenance is $7,200 and at 10,000 units the cost for maintenance is $11,600. Using the high-low method, the cost formula for maintenance is?

A)$1,200 plus $1.10 per unit.
B)$600 plus $1.10 per unit.
C)$1.16 per unit.
D)$1.20 per unit.

Question 52

The difference between sales revenues and the total of variable costs is:

A)net profit.
B)the contribution margin.
C)gross operating profit.
D)the breakeven point.

Question 53

Which of the statements is correct about using the scattergraph method in analyzing costs?

A)The resulting information will consistently be more accurate than that from other methods.
B)The resulting information is precise, regardless of who performs the analysis.
C)The unusual non-recurring cost behaviours are likely to be apparent.
D)The regression line intersects all plotted cost points.

Question 54

Reference: 06-12
An income statement for Crandall's Bookstore for the first quarter of the current year is presented below:
Crandall's Bookstore
Income Statement
For the First Quarter of the Current Year $$\begin{array} { | l | l | l | } \hline \text { Sales } & & \$ 800,000 \\\hline \text { Less cost of goods sold } & & 560,000 \\\hline \text { Gross margin } & & 240,000 \\\hline \text { Less operating expenses: } & & \\\hline \text { Selling } & \$ 98,000 & \\\hline \text { Administrative } & 98,000 & \underline { 196,000 } \\\hline \text { Net income } & & \$ 44,000 \\\hline\end{array}$$ On average, a book sells for $50. Variable selling expenses are $5.50 per book, with the remaining selling expenses being fixed. The variable administrative expenses are 3% of sales, with the remainder being fixed.

-The contribution margin for Crandall's Bookstore for the first quarter is

A)$688,000.
B)$240,000.
C)$152,000.
D)$128,000.

Question 55

The following data pertains to activity and utility costs for two recent years: $$\begin{array} { | l | l | l | } \hline & \text { Year 2 } & \text { Year 1 } \\\hline \text { Activity level in units } & 12,000 & 8,000 \\\hline \text { Utilities cost } & \$ 15,000 & \$ 12,000 \\\hline\end{array}$$ Using the high-low method, the cost formula for utilities is?

A)$1.25 per unit.
B)$6,000 plus $0.75 per unit.
C)$8,000 plus $0.50 per unit.
D)$1.50 per unit.

Question 56

The following data pertain to activity and costs for two recent months: $$\begin{array} { | l | l | l | } \hline & \text { October } & \text { November } \\\hline \text { Activity level in units } & 5,000 & 10,000 \\\hline & & \\\hline \text { Variable costs } & \$ 10,000 & ? \\\hline \text { Fixed costs } & 30,000 & ? \\\hline \text { Mixed costs } & 20,000 & ? \\\hline \text { Total costs } & \underline { \$ 60,000 } & \$ 75,000 \\\hline\end{array}$$ Assuming that these activity levels are within the relevant range, the mixed costs for November were?

A)$25,000.
B)$30,000.
C)$20,000.
D)$40,000.

Question 57

Reference: 06-04
In the O'Donnell Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were
$223,000. Of this amount, utilities were $48,000 (all variable) and depreciation was $60,000 (all fixed). The balance of the overhead cost consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were $130,000.
Assume that all of the activity levels mentioned in this problem are within the relevant range.
The total fixed overhead cost for O'Donnell is?

A)$60,000.
B)$130,000.
C)$55,000.
D)$115,000.

Question 58

Which of the following is a fixed cost of producing sweatshirts

A)Salary of the factory supervisor.
B)Cost of cotton and polyester cloth used in shirts.
C)Lubricants cost for sewing machines.
D)Wages of production workers.

Question 59

Reference: 06-02
Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below: $$\begin{array} { | l | l | l | } \hline & \text { July } & \text { August } \\\hline \text { Sales in Units } & 11,000 & 10,000 \\\hline & & \\\hline \text { Sales Revenue } & \$ 165,000 & \$ 150,000 \\\hline \text { Less Cost of Goods Sold } & 72,600 & 66,000 \\\hline \text { Gross Margin } & 92,400 & 84,000 \\\hline \text { Less Operating Expenses: } & & \\\hline \text { Rent } & 12,000 & 12,000 \\\hline \text { Sales Commissions } & 13,200 & 12,000 \\\hline \text { Maintenance Expenses } & 13,500 & 13,000 \\\hline \text { Clerical Expense } & 16,000 & 15,000 \\\hline \text { Total Operating Expenses } & 54,700 & 52,000 \\\hline \text { Net income } & \$ 37,700 & \$ 32,000 \\\hline\end{array}$$ All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). The company is a merchandising company. Assume that the relevant range includes all of the activity levels mentioned in this problem.

-The total monthly fixed cost for Boggs Sports Equipment Company is?

A)$12,000.
B)$25,000.
C)$40,000.
D)$22,500.

Question 60

The linear equation Y = a + bX is often used to express cost formulas.

A)the a term represents variable cost in total.
B)the X term represents total cost.
C)the b term represents variable cost per unit of activity.
D)the Y term represents total fixed cost.

Question 61

Reference: 06-08
Wilson Company's activity for the first six months of the current year is as follows: $$\begin{array} { | l | l | l | } \hline & \text { June } & \text { July } \\\hline \text { Activity level in units } & 10,000 & 20,000 \\\hline & & \\\hline \text { Variable costs } & \$ 20,000 & \$ ? \\\hline \text { Fixed costs } & 15,000 & ? \\\hline \text { Mixed costs } & 10,000 & ? \\\hline \text { Total costs } & \$ 45,000 & \$ 70,000 \\\hline\end{array}$$

-Using the high-low method, the fixed portion of the electrical cost each month would be

A)$190.
B)$760.
C)$400.
D)$280.

Question 62

Reference: 06-02
Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below: $$\begin{array} { | l | l | l | } \hline & \text { July } & \text { August } \\\hline \text { Sales in Units } & 11,000 & 10,000 \\\hline & & \\\hline \text { Sales Revenue } & \$ 165,000 & \$ 150,000 \\\hline \text { Less Cost of Goods Sold } & 72,600 & 66,000 \\\hline \text { Gross Margin } & 92,400 & 84,000 \\\hline \text { Less Operating Expenses: } & & \\\hline \text { Rent } & 12,000 & 12,000 \\\hline \text { Sales Commissions } & 13,200 & 12,000 \\\hline \text { Maintenance Expenses } & 13,500 & 13,000 \\\hline \text { Clerical Expense } & 16,000 & 15,000 \\\hline \text { Total Operating Expenses } & 54,700 & 52,000 \\\hline \text { Net income } & \$ 37,700 & \$ 32,000 \\\hline\end{array}$$ All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). The company is a merchandising company. Assume that the relevant range includes all of the activity levels mentioned in this problem.

-Which of the operating expenses of the company is variable

A)Clerical Expense.
B)Maintenance Expense.
C)Rent.
D)Sales Commissions.

Question 63

Average maintenance costs are $1.50 per machine-hour at an activity level of 8,000 machine-hours and $1.20 per machine-hour at an activity level of 13,000 machine-hours. Assuming that this activity is within the relevant range, total expected maintenance cost for a budgeted activity level of 10,000 machine-hours would be closest to?

A)$15,000.
B)$16,128.
C)$13,440.
D)$11,433.

Question 64

Reference: 06-09
Prater Company has provided the following data: $$\begin{array} { | l | l | l | } \hline & \text { This Year } & \text { Last Year } \\\hline \text { Units sold } & 300,000 & 250,000 \\\hline \text { Sales revenue } & \$ 1,300,000 & \$ 1,050,000 \\\hline \text { Less cost of goods sold } & 910,000 & 735,000 \\\hline \text { Gross margin } & 390,000 & 315,000 \\\hline \text { Less operating expenses } & 272,000 & 260,000 \\\hline \text { Net income } & \$ 118,000 & \$ 55,000 \\\hline\end{array}$$

-The best estimate of the company's variable operating expense per unit is

A)$4.17.
B)$0.91.
C)$0.96.
D)$0.24.

Question 65

Reference: 06-07
Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the last five months of operations. $$\begin{array} { | l | l | l | } \hline & \text { Machine Hours } & \text { Electrical Cost } \\\hline \text { August } & 1,000 & \$ 1,550 \\\hline \text { September } & 900 & 1,510 \\\hline \text { October } & 1,500 & 1,750 \\\hline \text { November } & 2,000 & 1,950 \\\hline \text { December } & 1,300 & 1,670 \\\hline\end{array}$$

-Using the high-low method of analysis, the estimated variable cost per machine hour for electricity is closest to?

A)$0.98.
B)$1.68.
C)$0.40.
D)$2.50.

Question 66

Anaconda Mining Company shipped 9,000 tons of copper concentrate for $450,000 in March and 11,000 tons for $549,000 in April. Shipping costs for 12,000 tons to be shipped in May would be expected to be?

A)$594,000.
B)$548,780.
C)$549,020.
D)$598,500.

Question 67

Which of the following statements is most correct about step-variable costs

A)The step-variable costs vary in direct proportion to changes in the level of activity.
B)The step-variable costs remain constant through the same relevant range of activity as related fixed costs.
C)The step-variable costs are excluded from consideration in budgeting.
D)Between certain levels of activity, the step-variable costs have the same behaviour as fixed costs.

Question 68

Why is it important to separate mixed costs into fixed and variable portions

A)Mixed costs perform like variable costs.
B)The accuracy of budgets may be reduced if mixed costs are fully allocated to either the fixed or variable cost pools.
C)Mixed costs need to be removed from consideration in budgeting.
D)Mixed costs perform like fixed costs.

Question 69

Given the cost formula Y = $17,500 + $4X, at what level of activity will total cost be $42,500?

A)10,625 units.
B)6,250 units.
C)4,375 units.
D)5,250 units.

Question 70

Reference 06-14
Macklemore Corporation has identified the following costs at different activity levels: $$\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Activity (units } \\\text { sold) }\end{array} & \text { Cost A } & \text { Cost B } & \text { Cost C } \\\hline 10 & \$ 40 & \$ 100 & \$ 30 \\\hline 20 & \$ 80 & \$ 100 & \$ 40 \\\hline 30 & \$ 120 & \$ 100 & \$ 50 \\\hline 40 & \$ 160 & \$ 100 & \$ 60 \\\hline 50 & \$ 200 & \$ 100 & \$ 70 \\\hline\end{array}$$

-Cost A is best described as?

A)step-variable
B)mixed
C)fixed
D)variable

Question 71

The following data pertains to activity and costs for two months: $$\begin{array} { | l | l | l | } \hline & \text { June } & \text { July } \\\hline \text { Activity level in units } & 10,000 & 20,000 \\\hline & & \\\hline \text { Variable costs } & \$ 20,000 & \$ ? \\\hline \text { Fixed costs } & 15,000 & ? \\\hline \text { Mixed costs } & 10,000 & ? \\\hline \text { Total costs } & \$ 45,000 & \$ 70,000 \\\hline\end{array}$$ Assuming that these activity levels are within the relevant range, the mixed costs for July were?

A)$40,000.
B)$10,000.
C)$35,000.
D)$15,000.

Question 72

Reference: 06-03
Gasson Company is a merchandising firm. Next month the company expects to sell 800 units. The following data describe the company's revenue and cost structure: $$\begin{array} { | l | l | } \hline \text { Selling price per unit } & \$ 40 \\\hline \text { Sales commission } & 5 \% \\\hline \text { Purchase price (cost) per unit } & \$ 18 \\\hline \text { Advertising expense } & \$ 4,000 \text { per month } \\\hline \text { Administrative expense } & \$ 4,500 \text { per month plus } 15 \% \text { of sales } \\\hline\end{array}$$ Assume that all activity mentioned in this problem is within the relevant range.

-The expected gross margin next month is?

A)$11,200.
B)$17,600.
C)$14,400.
D)$16,000.

Question 73

Cost C is best described as?

A)fixed
B)variable
C)mixed
D)step-variable

Question 74

In preparing contribution margin income statements when will the total cost of goods sold be included as a variable cost?

A)When the business is a manufacturer.
B)It is always included for all businesses selling products.
C)When the business is a merchandising company.
D)The total cost of goods sold is never included in variable cost.

Question 75

The following data pertains to activity and utility costs for two recent years: $$\begin{array} { | l | l | l | } \hline & \text { Year 2 } & \text { Year I } \\\hline \text { Activity level in units } & 10,000 & 6,000 \\\hline \text { Utilities cost observed } & \$ 12,000 & \$ 9,000 \\\hline\end{array}$$ Using the high-low method, the cost formula for utilities is?

A)$4,500 plus $0.75 per unit.
B)$3,000 plus $3.00 per unit.
C)$1.20 per unit.
D)$1.50 per unit.

Question 76

Reference: 06-03
Gasson Company is a merchandising firm. Next month the company expects to sell 800 units. The following data describe the company's revenue and cost structure: $$\begin{array} { | l | l | } \hline \text { Selling price per unit } & \$ 40 \\\hline \text { Sales commission } & 5 \% \\\hline \text { Purchase price (cost) per unit } & \$ 18 \\\hline \text { Advertising expense } & \$ 4,000 \text { per month } \\\hline \text { Administrative expense } & \$ 4,500 \text { per month plus } 15 \% \text { of sales } \\\hline\end{array}$$ Assume that all activity mentioned in this problem is within the relevant range.

-The expected total administrative expense next month is?

A)$14,900.
B)$13,300.
C)$9,300.
D)$4,800.

Question 77

Cost B is best described as?

A)fixed
B)mixed
C)step-variable
D)variable

Question 78

At a sales level of $300,000, James Company's gross margin is $15,000 less than its contribution margin, its net income is $50,000, and its selling and administrative expenses total $120,000. At this sales level, its contribution margin would be?

A)$185,000.
B)$155,000.
C)$250,000.
D)$170,000.

Question 79

Reference: 06-04
In the O'Donnell Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were
$223,000. Of this amount, utilities were $48,000 (all variable) and depreciation was $60,000 (all fixed). The balance of the overhead cost consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were $130,000.
Assume that all of the activity levels mentioned in this problem are within the relevant range.
The variable cost for maintenance per machine hour is?

A)$1.35.
B)$1.30.
C)$0.75.
D)$1.44.

Question 80

Reference: 06-07
Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the last five months of operations. $$\begin{array} { | l | l | l | } \hline & \text { Machine Hours } & \text { Electrical Cost } \\\hline \text { August } & 1,000 & \$ 1,550 \\\hline \text { September } & 900 & 1,510 \\\hline \text { October } & 1,500 & 1,750 \\\hline \text { November } & 2,000 & 1,950 \\\hline \text { December } & 1,300 & 1,670 \\\hline\end{array}$$

-Using the high-low method of analysis, the estimated fixed cost per month for electricity is closest to?

A)$1,290.00.
B)$1,150.00.
C)$1,306.50.
D)$870.00.