Exam 6: Cost Behavior

Total fixed costs do not change in response to changes in the volume of production.

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?

When preparing a scatter plot, how should the data be graphed?

A basic tenet of variable costing is that fixed manufacturing overhead costs be currently expensed. What is the rationale behind this?

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?

In the equation y = $11.75x + $550, "y" represents

A scatter plot helps managers visualize the relationship between historical costs and volume.

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?

If production increases by 30%, how will total variable costs likely react?

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?

When using the high-low method, the slope of the mixed cost line is fixed cost per unit.

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. 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?

Under absorption costing, fixed manufacturing costs are treated as period costs.

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?

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. Using the high-low method, the fixed costs in a month are

When using the high-low method, the variable cost per unit can be found as

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?

What factor related to manufacturing costs causes the difference between operating income computed using absorption costing and operating income computed using variable costing?

To follow is information about the units produced and total manufacturing costs for Pine Enterprises for the past six months. Using the high-low method, what is the monthly fixed manufacturing cost?

What data point can be used to solve for the fixed cost component when using the high-low method?