Question 1

Tempcon, Inc. sells and installs furnaces for $3,000 per furnace. The following cost formula relates to last year's operations at Tempcon:
Y = $125,000 + $1,800X
If Tempcon sold and installed 500 furnaces last year, what was its total contribution margin last year?

Accepted Answer

Based on the given volume and average cost data, the variable cost per unit is calculated as $8.50 per unit and the total fixed cost is calculated as $3,000.

For the second question, the contribution margin can be calculated as follows:
Contribution margin = Sales - Variable costs
Given that Tempcon sells and installs 500 furnaces at a price of $3,000 per furnace, its sales revenue will be $1,500,000. The variable costs can be calculated by substituting the sales volume into the cost formula:
Variable costs = $1,800X = $1,800(500) = $900,000
Therefore, the contribution margin is:
Contribution margin = $1,500,000 - $900,000 = $600,000

Hence, the answer is D.

Question 2

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.)

Accepted Answer

The answer of The controller of JoyCo has requested a...

Question 3

The following information was collected for one of the costs at Demetra Manufacturing Corporation over the past two years: 
Assuming that there has been no change in the cost structure over the last two years and this activity is within the relevant range, this cost at Demetra would best be described as a:

Accepted Answer

The answer of The following information was collected for one...

Question 4

Iacopi Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $172.50 per unit. 
The best estimate of the total contribution margin when 4,300 units are sold is:

Accepted Answer

The answer of Iacopi Corporation is a wholesaler that sells...

Question 5

Eddins Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. 
The best estimate of the total variable manufacturing cost per unit is:

Accepted Answer

The answer of Eddins Corporation has provided the following production...

Question 6

Anderton Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. 
The best estimate of the total monthly fixed manufacturing cost is:

Accepted Answer

The answer of Anderton Corporation has provided the following production...

Question 7

The cost of goods sold in a merchandising company typically would be classified as a:

Accepted Answer

Cost of goods sold is directly related to the level of sales or revenue, making it a variable cost. As sales increase, the cost of goods sold also increases proportionally.

Question 8

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?

Accepted Answer

The answer of An analysis of past maintenance costs indicates...

Question 9

Carbert Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. 
The best estimate of the total cost to manufacture 4,300 units is closest to:

Accepted Answer

The answer of Carbert Corporation has provided the following production...

Question 10

Contribution margin is the excess of revenues over:

Accepted Answer

Contribution margin is calculated as the difference between revenues and all variable costs. This is because variable costs vary with changes in production or sales volume, whereas fixed costs remain constant regardless of the level of production or sales. Contribution margin is useful in calculating the break-even point and determining the profitability of different products or services.

Question 11

_________________ is a method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors.

Accepted Answer

The least-square regression method is the best choice for separating a mixed cost because it uses statistical analysis to fit a regression line that minimizes the sum of the squared errors, resulting in a more accurate separation of fixed and variable costs. The other options listed (quick and dirty method, scattergraph method, high-low method) do not involve as much statistical analysis and may result in less accurate cost separation.

Question 12

Bakken Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. 
The best estimate of the total variable manufacturing cost per unit is:

Accepted Answer

The answer of Bakken Corporation has provided the following production...

Question 13

The contribution approach to the income statement:

Accepted Answer

The contribution approach to the income statement is useful to managers in planning and decision making because it separates fixed and variable costs, allowing managers to see how changes in sales volume affect profitability.

Question 14

A cost driver is:

Accepted Answer

A cost driver is a factor that causes variations in a cost. It is not the largest category of cost in a company (A), a fixed cost (B), or an indirect cost essential to the business (D).

Question 15

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:

Accepted Answer

The shipping expense can be calculated using the high-low method to determine the variable cost per pound and fixed cost. The variable cost per pound is ($11,250 - $9,000) / (11,000 - 8,000) = $0.75. The fixed cost is $9,000 - (8,000 * $0.75) = $3,000. For 9,000 pounds, the expense is (9,000 * $0.75) + $3,000 = $9,750.

Question 16

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:

Accepted Answer

The answer of The following data pertain to activity and...

Question 17

Faram Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. 
The best estimate of the total cost to manufacture 2,300 units is closest to:

Accepted Answer

The answer of Faram Corporation has provided the following production...

Question 18

The _______________ approach to the income statement organizes costs by function.

Accepted Answer

The traditional approach to the income statement organizes costs by function, such as cost of goods sold, selling expenses, and general and administrative expenses. The contribution approach, on the other hand, distinguishes between fixed and variable costs to determine contribution margin, while the comparable approach compares the financial performance of a business to other businesses in the same industry.

Question 19

A disadvantage of the high-low method of cost analysis is that:

Accepted Answer

The high-low method only uses the highest and lowest data points, which may not be representative of normal conditions. This can lead to inaccurate cost estimates, especially if there is significant variability in the data.

Question 20

Dabbs Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. 
The best estimate of the total monthly fixed manufacturing cost is:

Accepted Answer

The total cost at the lower production level of 50,000 units is $411,000 and the variable cost per unit is ($1,430,000 - $411,000)/90,000 units = $11.98 per unit. Therefore, the total cost equation is Total Cost = $274,000 + ($11.98 × number of units). The fixed manufacturing cost component is $274,000.

Quiz 5: Cost Behavior Analysis and Use

Tempcon, Inc. sells and installs furnaces for $3,000 per furnace. The following cost formula relates to last year's operations at Tempcon: Y = $125,000 + $1,800X If Tempcon sold and installed 500 furnaces last year, what was its total contribution margin last year?

Iacopi Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $172.50 per unit. The best estimate of the total contribution margin when 4,300 units are sold is:

Eddins Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total variable manufacturing cost per unit is:

Anderton Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total monthly fixed manufacturing cost is:

The cost of goods sold in a merchandising company typically would be classified as a:

Carbert Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total cost to manufacture 4,300 units is closest to:

Contribution margin is the excess of revenues over:

_________________ is a method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors.

Bakken Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total variable manufacturing cost per unit is:

The contribution approach to the income statement:

A cost driver is:

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:

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:

Faram Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total cost to manufacture 2,300 units is closest to:

The _______________ approach to the income statement organizes costs by function.

A disadvantage of the high-low method of cost analysis is that:

Dabbs Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total monthly fixed manufacturing cost is: