Exam 5: Planning Budgeting and Behaviour

A merchandising company typically will have a high proportion of which type of cost in its cost structure

Committed fixed costs are those that relate to the investment in facilities, equipment and the basic organisational structure of a company, True or

Marger, Inc., provided the following data for two recent months: April May Sales in Units. 3,200 4,500 Cost: Cost T 5,600 5,600 Cost U 4,480 6,300 Cost 'W 3,950 5,250 -Which of the following classifications best describes the behavior of Cost T?

The term 'relevant range' refers to the levels of activity within which the assumptions relative to cost behavior are valid.

Paine Company wishes to determine the fixed portion of its electrical costs (a mixed cost). Management believes that the variable portion of the electrical costs is driven by machine-hours. Information for the previous three months follows: Machine-hours Electrical cost January 33,000 £600 February 31,000 £585 March 34,000 £610 Using the high-low method, the fixed portion of the company's electrical costs would be estimated to be closest to:

Explain the reasoning for splitting cost into fixed and variable. Explain the different ways in which this is important.

The contribution approach to the income statement classifies costs by function rather than by behavior

An example of a committed fixed cost would be

Carr Company reports the following data for the first six months of the year: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ MachineElectrica Month Hours Cost January. 400 £40 February 300 £30 March 400 £50 April 300 £40 May 200 £30 June 200 £20 - Using the least-squares regression method, the estimated monthly fixed component of the electrical cost is closest to

The Blaine Company is a highly automated manufacturer. At an activity level of 6,000 machine setups, total overhead costs equal £240,000. Of this amount, depreciation totals £80,000 (all fixed) and lubrication totals £72,000 (all variable). The remaining £88,000 of the total overhead cost consists of utility cost (mixed). At an activity level of 9,000 setups, utility cost totals £112,000. Assume that the relevant range includes all of the activity levels mentioned in this problem. -If 7,800 setups are projected for the next period, total expected overhead cost would be closest to

Compton Company is a wholesale distributor of educational CD-ROMs. The company's records indicate the following: This Year Last Year Units Sold 250,000 200,000 Sales Revenue £1,250,000 £1,000,000 Less: Cost of Goods Sold Gross Margin 375,000 300,000 Less: Operating Expenses Net Operating Income £153,000 £90,000 - Using the high-low method of analysis, what are the company's estimated variable operating expenses per unit

Factory overhead is an example of a

Total production costs for Gallop, Inc. are budgeted at £230,000 for 50,000 units of budgeted output and at £280,000 for 60,000 units of budgeted output. Because of the need for additional facilities, budgeted fixed costs for 60,000 units are 25% more than budgeted fixed costs for 50,000 units. How much is Gallop's budgeted variable cost per unit of output

An example of a discretionary fixed cost would be

European International has 3 separate business units in the following countries. Data for each of the business units is given below: France 5pin italy Selling price per unit £35 £38 £42 Manufacturing cost £4,000 per month plus £17 per £3,500 per month plus £18 per £5,000 per month plus £20 per unit unit unit Administrative £2,500 per month plus £2.50 £2,900 per month plus £2.90 £3,500 per month plus £3.50 expense per unit per unit per unit Sales commissions 15\% of sales 16\% of sales 20\% of sales Advertising expense £2,000 per month £3,000 per month £2,000 per month - If the business unit in Spain plans to produce and sell 4,000 units next month, the expected gross margin would be

European International has 3 separate business units in the following countries. Data for each of the business units is given below: France 5pin italy Selling price per unit £35 £38 £42 Manufacturing cost £4,000 per month plus £17 per £3,500 per month plus £18 per £5,000 per month plus £20 per unit unit unit Administrative £2,500 per month plus £2.50 £2,900 per month plus £2.90 £3,500 per month plus £3.50 expense per unit per unit per unit Sales commissions 15\% of sales 16\% of sales 20\% of sales Advertising expense £2,000 per month £3,000 per month £2,000 per month - For planning, control, and decision-making purposes

Is labour a fixed or variable cost? Explain.

The planning horizon for a discretionary fixed cost usually encompasses many years.

Which of the following types of firms likely would have a high proportion of variable costs in its cost structure?

The Blaine Company is a highly automated manufacturer. At an activity level of 6,000 machine setups, total overhead costs equal £240,000. Of this amount, depreciation totals £80,000 (all fixed) and lubrication totals £72,000 (all variable). The remaining £88,000 of the total overhead cost consists of utility cost (mixed). At an activity level of 9,000 setups, utility cost totals £112,000. Assume that the relevant range includes all of the activity levels mentioned in this problem. -The variable cost per setup for utilities is most likely closest to