Exam 3: Cost Behaviour

Which of the following is the best example of a discretionary fixed cost?

Computing fixed costs per unit may result in misleading information.

Hamilton and Hamilton Attorneys at Law recently opened up a law practice. Their goal is to generate a monthly net income of $10,000. They have initially set their billing rate at $150 per hour. Their billable hours in the first month of operations (January) were 150 and in the second month of operations (February), 175 billable hours. The costs incurred at these levels for January and February are given below. 150 billable hours 175 billable hours Salaries: Mr. Hamilton $10,000 $10,000 Ms. Hamilton 10,000 10,000 Legal Secretary 4,000 4,000 Depreciation (Furniture) 500 500 Supplies 450 525 Rent 1,000 1,000 Utilities 412 449.50 Required: A. Classify each cost as fixed, variable, or mixed using billable hours as the driver. B. Use the high-low method to separate mixed costs into their fixed and variable components. C. Calculate the net income/loss for January and February. D. If they expect to average 200 billable hours each month, what do they need to set as a billing rate per hour to achieve their goal of generating $10,000 of monthly net income? Show your calculations.

Sudbury Company operates a chain of trendy nail salons. The company's chief executive officer is interested in accumulating some information on the manufacturing overhead costs incurred by the company. You have been asked to analyze the following six months' worth of data.Manufacturing overhead No. of Month cost Appointments July $60,160 867 August 56,500 624 September 58,900 689 October 63,500 974 November 59,325 730 December 62,400 901 A regression analysis produced the following coefficients. Intercept 42,900 X Variable 1 20.46 Required: A. Using the results of regression, construct a cost formula for the total manufacturing overhead cost. B. The CEO would like to limit total manufacturing overhead cost in future months to 20% of total revenues. Will that be possible if total revenues are expected to average $300,000 per month and total appointments per month are expected to average 1,000? Show all of your calculations.

Using the least squares (regression) method, the term intercept refers to the fixed cost.

The slope of a mixed cost line is equal to the variable cost per unit element of the cost.

Select the appropriate classification of each of the costs listed below.Each classification may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Machine lubricant

Inuvik Company manufactures drill presses. Based on past experience, Inuvik has found that its total manufacturing overhead cost can be represented by the following formula: total manufacturing overhead cost = $40,000 + $1.25x, where x = number of machine hours. Last year, Inuvik incurred 150,000 machine hours. Required: A. What was the total manufacturing overhead cost incurred by Inuvik last year? B. What was the total variable manufacturing overhead cost incurred by Inuvik last year? C. What was the total manufacturing overhead cost per machine hour last year? D. What was the fixed manufacturing overhead cost per machine hour last year? E. If Inuvik incurs 180,000 machine hours next year, what will be the total manufacturing overhead cost per machine hour?

Which of the following is the best example of a discretionary fixed cost?

Fixed costs are costs that vary in total within the relevant range as the level of output increases or decreases.

Refer to Kelowna Company. What is the value of an independent variable used to calculate the cost line when using the high-low method?

Select the appropriate classification of each of the costs listed below.Each classification may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Cost of an existing lease

Refer to Montreal Clothing Store. What does $242 represent?

Select the appropriate classification of each of the costs listed below.Each classification may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Cost of inspections, with respect to number of inspections

Refer to Drumheller Company. Which element is the intercept?

Brandon Company constructed the following cost formula for its monthly janitorial cost. Total monthly janitorial cost = $5,000 + ($.48 × units of output) Required: A. Identify the independent variable. B. Identify the dependent variable. C. Identify the intercept. D. Identify the slope. E. Calculate the total janitorial cost if Brandon produces 10,000 units of output next year.

Refer to Nova Scotia Accounting Firm. What does $210 represent?

Match each following terms with their correct description from the items listed below. -Total cost depends on the level of output

Refer to Toronto Company. What is the variable rate of the electricity cost when using the results of regression?

Select the appropriate classification of each of the costs listed below.Each classification may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Controller's salary