Exam 6: Cost Behaviour: Analysis and Use

Johnson Company has provided the following data for the first five months of the year: -Using the high-low method,the estimated monthly fixed component of lubrication cost is closest to which of the following?

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

Suppose X Company uses ABC for internal decision-making. Required: Explain some of the implications of the ABC system for this firm in using traditional classification of costs as either variable or fixed.

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

Rymore Company would like to classify the following costs according to their cost behaviour: -Which of the following classifications best describes the behaviour of Cost B?

The following data have been provided by a retailer that sells a single product: -What is the best estimate of the company's contribution margin for this year?

What are discretionary fixed costs?

Which of the following assumptions is implicit in the simplified contribution approach income statement?

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 variable cost per unit for Maxwell Company?

ABC Company's total overhead costs at various levels of activity are presented below: Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. At the 50,000-machine-hour level of activity, these costs are presented below: The company wants to break down the maintenance cost into its basic variable and fixed cost elements. Required: a) Estimate the maintenance cost for June. b) Use the high-low method to estimate the cost formula for maintenance cost. c) Estimate the total overhead cost at an activity level of 55,000 machine hours, using the separate estimates you obtained for its components. d) Estimate the total overhead cost at an activity level of 55,000 machine hours, independent of the separate estimates you obtained for its components.

What does the term "relevant range" mean?

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

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

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 total administrative expense next month?

Unified Parcel, Inc. operates a local parcel delivery service. The company keeps detailed records relating to operating costs of trucks, and has found that if a truck is driven 110,000 kilometres per year, the operating cost is 7.5 cents per kilometre. This cost increases to 8.75 cents per kilometre if a truck is driven 60,000 kilometres per year. Required: Estimate the cost formula for truck operating costs using the high-low method.

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

Johnson Company has provided the following data for the first five months of the year: -Using the high-low method,the estimated variable lubrication cost per machine hour is closest to which of the following?

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

The following data have been provided by a retailer that sells a single product: -What is the best estimate of the company's total fixed operating expenses per year?

An income statement for Crandall's Bookstore for the first quarter of the current year is presented below: 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. -What is the cost formula for operating expenses with X equal to the number of books sold?