Deck 3: Systems Design: Activity-Based Costing

Question 1

A cost that increases or decreases only in response to more than a unit change in the activity level is known as a step-variable cost.

Answer 1

True

Question 2

Modern technology is causing shifts away from variable costs toward more fixed costs in many industries.

Answer 2

True

Question 3

Discretionary fixed costs usually arise from annual decisions by management to spend in certain fixed cost areas.

Answer 3

True

Question 4

Significant reductions in committed fixed costs can usually be made on a temporary basis without seriously impairing the long-term goals of a firm.

Question 5

An advantage of the least-squares regression method is that it provides statistical evidence as to the reliability of the cost estimates generated.

Question 6

Contribution margin is the difference between total variable expenses and total fixed expenses.

Question 7

In order for a cost to be variable it must vary with either units produced or units sold.

Question 8

A mixed cost contains both variable and fixed cost elements.

Question 9

If the contribution margin is $50,000 and the total of fixed expenses is $40,000,then net income is $10,000.

Question 10

Advantages of the high-low method are that it is easy to understand and apply.

Question 11

The high-low method is generally less accurate than the least-squares regression method for analyzing the behaviour of mixed costs.

Question 12

The planning horizons for committed fixed costs and discretionary fixed costs are generally the same.

Question 13

A cost formula may not be valid outside the relevant range of activity.

Question 14

The scattergraph method yields cost estimates that are the most precise possible.

Question 15

Indirect costs,such as manufacturing overhead,are always fixed costs.

Question 16

The concept of the relevant range does not apply to fixed costs.

Question 17

In a scattergraph,the line fitted to the plotted points is known as a regression line.

Question 18

If the contribution margin is $70,000 and the total of variable expenses is $50,000,then total sales is $120,000.

Question 19

The contribution margin approach to the income statement classifies costs by behaviour rather than by function.

Question 20

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

Question 21

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

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

Question 22

Within the relevant range of activity,variable cost per unit will:

A) increase in proportion with the level of activity.
B) remain constant.
C) vary inversely with the level of activity.
D) change in some other way.

Question 23

Contribution margin is the excess of revenues over:

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

Question 24

An example of a committed fixed cost is:

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

Question 25

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

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

Question 26

A cost driver is:

A) the largest single category of cost in a company.
B) a fixed cost that cannot be avoided.
C) a factor that causes variations in a cost.
D) an indirect cost that is essential to the business.

Question 27

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

Question 28

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

Question 29

The following data pertains to activity and costs for two months: Assuming that these activity levels are within the relevant range,the mixed costs for July were?

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

Question 30

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

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

Question 31

The following data pertain to activity and costs for two recent months: Assuming that these activity levels are within the relevant range,the mixed costs for November were?

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

Question 32

An increase in the activity level within the relevant range results in:

A) an increase in fixed cost per unit.
B) a proportionate increase in total fixed costs.
C) an unchanged fixed cost per unit.
D) a decrease in fixed cost per unit.

Question 33

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) $1,740.
C) $2,000.
D) $2,250.

Question 34

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

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

Question 35

An example of a discretionary fixed cost is:

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

Question 36

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

Question 37

The contribution margin approach to the income statement:

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

Question 38

Discretionary fixed costs:

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

Question 39

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) $9,750.
C) $9,972.
D) $10,125.

Question 40

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

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

Question 41

Reddy Company has the following cost formulas for overhead: Based on these cost formulas,the total overhead cost at 600 machine hours is expected to be?

A) $4,500.
B) $5,200.
C) $5,340.
D) $5,600.

Question 42

The controller of JoyCo has requested a quick estimate of the manufacturing supplies needed for the month of July when production is expected to be 470,000 units.Below are actual data from the prior three months of operations. Using these data and the high-low method,what is the best estimate of the cost of manufacturing supplies that would be needed for July? (Assume that this activity is within the relevant range. )

A) $752,060.
B) $755,196.
C) $805,284.
D) $1,188,756.

Question 43

The contribution margin for August is?

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

Question 44

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

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

Question 45

Buckeye Company has provided the following data for maintenance cost: The best estimate of the cost formula for maintenance is?

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

Question 46

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

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

Question 47

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

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

Question 48

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

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

Question 49

Which of the following classifications best describes the behaviour of Cost B?

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

Question 50

The following data pertains to activity and utility costs for two recent years: Using the high-low method,the cost formula for utilities is?

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

Question 51

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

Question 52

Which of the operating expenses of the company is variable?

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

Question 53

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

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

Question 54

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

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

Question 55

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

Question 56

Selected information about Buehler Corporation's operations at high and at low levels of activity follows: Using the high-low method,what is the cost formula for manufacturing overhead?

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

Question 57

The expected gross margin next month is?

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

Question 58

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

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

Question 59

The following data pertains to activity and utility costs for two recent years: Using the high-low method,the cost formula for utilities is?

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

Question 60

Bell Company has provided the following data for maintenance costs: Using the high-low method,the cost formula for maintenance cost is?

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

Question 61

The best estimate of the total fixed cost per period for Maxwell Company is?

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

Question 62

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

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

Question 63

The expected net income next month is?

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

Question 64

The best estimate of the variable cost per unit for Maxwell Company is?

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

Question 65

The variable cost for maintenance per machine hour is?

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

Question 66

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

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

Question 67

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

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

Question 68

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

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

Question 69

The total fixed overhead cost for O'Donnell is?

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

Question 70

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

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

Question 71

The best estimate of the company's total fixed operating expense per year is?

A) $72,000.
B) $188,000.
C) $200,000.
D) $212,000.

Question 72

If 110,000 machine hours of activity are projected for next period,total expected overhead cost would be?

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

Question 73

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

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

Question 74

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

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

Question 75

If total variable costs are $748,000,what is the company's contribution margin for this year?

A) $120,000.
B) $158,000.
C) $252,000.
D) $300,000.

Question 76

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

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

Question 77

The expected total administrative expense next month is?

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

Question 78

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

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

Question 79

The expected contribution margin next month is?

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

Question 80

The best estimate of the total expected costs at the 19,000 unit level of activity for Maxwell Company is?

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