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Exam 6: Cost Behaviour: Analysis and Use

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Question 1

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

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Question 2

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The Central Valley Company is a merchandising firm that sells a single product.The company's revenues and expenses for the last three months are presented below: Required: a. Determine which expenses are mixed and, by use of the high-low method, separate each mixed expense into its variable and fixed components. State the cost formula for each mixed expense. b. Compute the company's total contribution margin for May.

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a. The cost of goods sold for this company is a variable cost and is $56 per unit. The Shipping Expense and the Salaries and Commissions Expense are mixed. All other expenses are constant for each of the months shown and are therefore fixed 11ed326d_528f_c01f_9f7c_6de22ffb09bd_TB2483_11 11ed326d_5d94_f2b0_9f7c_690985565280_TB2483_11

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Wilson Company's activity for the first six months of the current year is as follows: -Using the high-low method,what is the variable cost per machine hour?

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

Porter Company has provided the following data for the second quarter of the most recent year: Assume that direct labour is a variable cost and that there was no beginning or ending inventories. -What was the total contribution margin of Porter Company for the second quarter?

Which of the following statements about the methods for estimating a cost formula is incorrect?

Wilson Company's activity for the first six months of the current year is as follows: -Using the high-low method,what is the fixed portion of the electrical cost each month?

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

What is a cost driver?

Which of the following is generally true for the cost of goods sold amount that a merchandising company would report on its income statement?

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 amortization was $60,000 (all fixed) . The balance of the overhead costs 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,what would be total expected overhead cost?

The following is Allison Corporation's contribution format income statement for December 2008: The company had no beginning or ending inventories. The company produced and sold 10,000 units in December 2008. Required: Assuming no change in either the cost structure or the average selling price, complete the following contribution format income statement for a month Allison Corporation reports no before-tax profit or loss:

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

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

The 4 x 4 Shop is a large retailer of equipment for pickup trucks.An income statement for the company's Bed Liner Department for the most recent quarter is presented below: The liners sell, on average, for $350 each. The department's variable selling expenses are $35 per liner sold. The remaining selling expenses are fixed. The administrative expenses are 25% variable and 75% fixed. The company purchases its liners from a supplier at a cost of $125 per liner. Required: Prepare an income statement for the quarter, using the contribution approach.

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: Assume that all activity mentioned in this problem is within the relevant range. -What is the expected operating income next month?

Which of the following is an example of a committed fixed cost?

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

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?

The contribution approach to constructing and income statement emphasizes the functions of production,administration and sales.