Quantity Price Cost Accounting A Managerial Emphasis 7th Canadian By Charles – Test Bank

Quantity Price Cost Accounting A Managerial Emphasis 7th Canadian By Charles – Test Bank

Cost Accounting, Cdn. Ed., 7e (Horngren)

Chapter 10 Analysis of Cost Behaviour

10.1 Use standard mathematical notation to specify a cost function that can be graphed as a straight line.

1) A linear cost function is a function in which the graph of total costs versus a single cost driver forms a straight line, within the relevant range.

Answer: TRUE

Diff: 1 Type: TF

Skill: Remember

Objective: LO 10-1

2) When estimating linear cost functions, it is assumed that variations in total cost of a cost object cannot be explained by variations in a single cost driver.

Answer: FALSE

Explanation: Variations in the level of a single activity (the cost driver) explain the variations in the related total costs.

Diff: 2 Type: TF

Skill: Remember

Objective: LO 10-1

3) A mixed cost has a fixed element.

Answer: TRUE

Diff: 1 Type: TF

Skill: Remember

Objective: LO 10-1

4) Correctly identifying the cost driver and separating fixed from variable costs are important inputs for many management decisions.

Answer: TRUE

Diff: 2 Type: TF

Skill: Understand

Objective: LO 10-1

5) When estimating a cost function, cost behavior can be approximated by a linear cost function within the relevant range.

Answer: TRUE

Diff: 1 Type: TF

Skill: Remember

Objective: LO 10-1

6) Which of the following is an equation of a variable cost function?

1. A) Y = ax + bx
2. B) Y = a + bx
3. C) Y = b
4. D) Y = a
5. E) Y = bx

Answer: E

Diff: 2 Type: MC

Skill: Remember

Objective: LO 10-1

7) Which of the following describes the intercept in a linear cost function?

1. A) the component of fixed costs that, within the relevant range, does not vary with changes in the level of the cost driver
2. B) the component of fixed costs that, within the relevant range, does vary with changes in the level of the cost driver
3. C) the component of variable costs that, within the relevant range, does not vary with changes in the level of the cost driver
4. D) the component of variable costs that, within the relevant range, does vary with changes in the level of the cost driver
5. E) the sum of the components of both fixed and variable costs that, within the relevant range, do not vary with changes in the level of the cost driver

Answer: A

Diff: 2 Type: MC

Skill: Understand

Objective: LO 10-1

8) For April, the month just ended, the cost components to make tapes were $2 per tape plus fixed costs of $10,000. One thousand tapes were produced. For May the cost to make tapes will be $2.20 per tape plus fixed costs of $10,000. Fifteen hundred tapes are expected to be produced. What are the estimates for the intercept and slope coefficient for May, respectively?

2. A) $2.00 and $10,000.00
3. B) $2.20 and $10,000.00
4. C) $10,000.00 and $2.00
5. D) $10,000.00 and $2.20
6. E) $22,000 and $10,000

Answer: D

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-1

9) The cost function y = 1,000 + 5X

1. A) has a slope coefficient of 1,000.
2. B) is curvilinear because of the 5X.
3. C) is a straight line.
4. D) represents a fixed cost.
5. E) is missing the slope coefficient.

Answer: C

Diff: 2 Type: MC

Skill: Understand

Objective: LO 10-1

10) Which of the following statements related to assumptions about estimating linear cost functions is TRUE?

1. A) Variations in a single cost driver explain variations in total costs.
2. B) A cost object is anything for which a separate measurement of costs is desired.
3. C) A linear function approximates cost behaviour at all ranges of production.
4. D) Correlation refers to the relationship between fixed and variable costs.
5. E) The graph of total costs does not form a straight line within the relevant range because of variable costs.

Answer: A

Diff: 2 Type: MC

Skill: Understand

Objective: LO 10-1

11) Brandt Cheque Encoders employs 30 individuals. Ten employees are paid $10 per hour for 173 hours a month and the rest are salaried employees paid $6,000 a month. How would total costs of personnel be classified?

1. A) variable and fixed
2. B) a fixed cost within a relevant range
3. C) a variable cost within a relevant range
4. D) a mixed cost
5. E) a fixed cost

Answer: D

Diff: 2 Type: MC

Skill: Understand

Objective: LO 10-1

12) For February, the cost components of a picture frame include $0.25 for the glass, $.65 for the wooden frame, and $0.80 for assembly. The assembly desk and tools cost $400. 1,000 frames are expected to be produced in the coming year. What cost function best represents these costs?

1. A) y = 1.70 + 400X
2. B) y = 400 + 1.70X
3. C) y = 2.10 + 1,000X
4. D) y = .90 + 400X
5. E) y = 400 + 0.90X

Answer: B

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-1

13) The cost components of a heater include $35 for the compressor, $12 for the sheet molded compound frame, and $80 per unit for assembly. The factory machines and tools fixed cost is $55,000. The company expects to produce 1,500 heaters in the coming year. What cost function best represents these costs?

1. A) y = 1,500 + 127X
2. B) y = 1,500 + 55,000X
3. C) y = 55,000 + 1,500X
4. D) y = 55,000 + 127X
5. E) y = 55,080 + 47X

Answer: D

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-1

14) Compute the estimated costs for each of the following equations assuming the following costs for July:

Fixed manufacturing cost $80,000

Variable cost per machine-hour 6

Number of hours used 2,000

In addition, state whether each is for a variable, fixed, or mixed cost.

1. Total estimated costs = intercept
2. Total estimated costs = constant
3. Total estimated costs = constant + (slope × cost driver)
4. Total estimated costs = slope coefficient × cost driver

In addition, state whether each is for a variable, fixed, or mixed cost.

Answer:

1. fixed, $80,000
2. fixed, $80,000
3. mixed, $80,000 + ($6 × 2,000) = $92,000
4. variable, $6 × 2,000 = $12,000

Diff: 2 Type: ES

Skill: Apply

Objective: LO 10-1

15) Compute the estimated costs for each of the following equations, assuming the following costs for July:

Fixed manufacturing cost $40,000

Variable cost per machine-hour 6

Number of hours used 1,000

In addition, state whether each is for a variable, fixed, or mixed cost.

1. Total estimated costs = intercept
2. Total estimated costs = constant
3. Total estimated costs = constant + (slope × cost driver)
4. Total estimated costs = slope coefficient × cost driver

Answer:

1. fixed, $40,000
2. fixed, $40,000
3. mixed, $40,000 + ($6 × 1,000) = $46,000
4. variable, $6 × 1,000 = $6,000

Diff: 2 Type: ES

Skill: Apply

Objective: LO 10-1

16) Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver.

1. Direct manufacturing labour is $20 per hour.
2. Direct materials cost $8.00 per cubic metre.
3. Utilities have a minimum charge of $2,000 plus a charge of $0.05 per kilowatt hour.
4. Factory supplies average $10 per day plus $1.00 for each machine-hour per day.
5. Total manufacturing amortization includes $5,000 for straight-line plant amortization plus machinery amortization of $100 for each day operated.

Answer:

1. y = $20X
2. y = $8X
3. y = $2,000 + $0.05X
4. y = $10 + $1X
5. y = $5,000 + $100X

Diff: 2 Type: ES

Skill: Apply

Objective: LO 10-1

17) Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver.

1. Direct manufacturing labour is $10 per hour.
2. Direct materials cost $9.20 per cubic yard.
3. Utilities have a minimum charge of $1,000, plus a charge of $0.05 per kilowatt-hour.
4. Machine operating costs include $200,000 of machine depreciation per year, plus $75 of utility costs for each day the machinery is in operation.

Answer:

1. y = $10X
2. y = $9.20X
3. y = $1,000 + $0.05X
4. y = $200,000 + $75X

Diff: 2 Type: ES

Skill: Apply

Objective: LO 10-1

18) Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver.

1. Direct materials cost is $1.50 per kilogram.
2. Direct labor cost is $33.50 per hour.
3. Auto rental has a fixed fee of $150.00 per day plus $1.00 per kilometre driven.
4. Machine operating costs include $700 of maintenance per month, and $10.00 of coolant usage costs for each day the machinery is in operation.

Answer:

1. y = $1.50X
2. y = $33.50X
3. y = $150 + $1.00X
4. y = $700 + $10X

Diff: 2 Type: ES

Skill: Apply

Objective: LO 10-1

19) Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver.

1. Direct materials cost is $.75 per kilogram.
2. Direct labour cost is $16.75 per hour.
3. Auto rental has a fixed fee of $75.00 per day plus $.50 per kilometre driven.
4. Machine operating costs include $350 of maintenance per month, and $5.00 of coolant usage costs for each day the machinery is in operation.

Answer:

1. y = $.75X
2. y = $16.75X
3. y = $75 + $0.50X
4. y = $350 + $5X

Diff: 2 Type: ES

Skill: Apply

Objective: LO 10-1

20) Describe the two assumptions upon which managers often estimate cost functions.

Answer: Managers often estimate cost functions based on two assumptions:

1. Variations in the level of a single activity (the cost driver) explain the variations in the related total costs.
2. Cost behaviour is approximated by a linear cost function within the relevant range. A relevant range is the range of the activity in which there is a relationship between total cost and the level of activity. For a linear cost function represented graphically, total cost versus the level of a single activity related to that cost is a straight line within the relevant range.

Diff: 2 Type: ES

Skill: Remember

Objective: LO 10-1

10.2 Explain the importance of causality in estimating cost functions.

1) A cause-and-effect relationship, relative to cost drivers and resulting costs, may develop because of physical relationships, contractual relationships, or implicit relationships.

Answer: TRUE

Diff: 2 Type: TF

Skill: Understand

Objective: LO 10-2

2) The selection of the best measure of benefit will depend upon the corresponding change in the cost pool.

Answer: TRUE

Diff: 1 Type: TF

Skill: Remember

Objective: LO 10-2

3) There is a homogeneous relationship between the individual cost items in the dependent variable pool and the cost driver when each activity whose costs are included in the dependent variable has the same cost driver.

Answer: TRUE

Diff: 2 Type: TF

Skill: Understand

Objective: LO 10-2

4) Managers should use past data to create a cost function and then use the exact information provided by that cost function to create the budgetary forecast for the next year.

Answer: FALSE

Explanation: Managers are interested in estimating past cost-behavior functions because the estimates can help them make more accurate cost predictions, or forecasts, about future costs. But better management decisions, cost predictions, and estimation of cost functions can be achieved only if managers correctly identify the factors that affect costs.

Diff: 2 Type: TF

Skill: Understand

Objective: LO 10-2

5) Which of the following statements regarding a linear cost function is TRUE?

1. A) When there are only fixed costs, total material costs increase as the number of units produced increases.
2. B) The slope coefficient of a mixed cost line intersects the vertical axis at zero.
3. C) The relationship between the cost driver and the fixed cost is represented by the cost-benefit relationship.
4. D) It is easier to identify a single measure of benefit in a more heterogeneous cost pool.
5. E) A linear cost function for manufacturing overhead can be graphed when their is a cause-and-effect relationship between the level of activity and the costs related to that level of activity.

Answer: E

Diff: 2 Type: MC

Skill: Understand

Objective: LO 10-2

6) Which of the following does NOT represent a cause-and-effect relationship?

1. A) Material costs increase as the number of units produced increases.
2. B) A company is charged 40 cents for each brochure printed and mailed.
3. C) Utility costs increase at the same time that insurance costs increase.
4. D) It makes sense that if a complex product has a large number of parts it will take longer to assemble than a simple product with fewer parts.
5. E) The amount of direct labour used.

Answer: C

Diff: 3 Type: MC

Skill: Understand

Objective: LO 10-2

7) Understanding the drivers of costs is crucially important for managing costs. Provide two causes that create a cause-and-effect relationship between a cost driver and a cost.

Answer: Any two of:

1. A physical relationship between the level of activity and costs.
2. A contractual arrangement.
3. Knowledge of operations. For example, when number of parts is used as the activity measure of ordering costs, a product with many parts will incur higher ordering costs than a product with few parts.

Diff: 2 Type: ES

Skill: Remember

Objective: LO 10-2

10.3 Understand the various methods of cost estimation.

1) The account analysis method estimates cost functions by classifying various cost accounts as variable, fixed, or mixed with respect to the identified level of activity.

Answer: TRUE

Diff: 1 Type: TF

Skill: Remember

Objective: LO 10-3

2) All of the following are approaches to cost estimation EXCEPT

1. A) the account analysis method.
2. B) the conference method.
3. C) the flexible cost analysis method.
4. D) the industrial engineering method.
5. E) quantitative analysis.

Answer: C

Diff: 1 Type: MC

Skill: Remember

Objective: LO 10-3

3) Which of the following statements about the cost estimation methods is FALSE?

1. A) With the conference method, the accuracy of the cost estimates largely depends on the accuracy and details of the inputs.
2. B) The methods require more historical data than most quantitative analysis.
3. C) The methods are not mutually exclusive.
4. D) There are four methods generally used for cost estimation.
5. E) Many organizations use a combination of the approaches.

Answer: B

Diff: 2 Type: MC

Skill: Remember

Objective: LO 10-3

4) The industrial-engineering method is

1. A) for analyzing relationships between inputs and outputs in physical terms.
2. B) for significant costs which cannot be easily traced.
3. C) used only for governmental contracts which are cost plus based.
4. D) used with qualitative rather than quantitative information.
5. E) used with both qualitative and quantitative information.

Answer: A

Diff: 1 Type: MC

Skill: Remember

Objective: LO 10-3

5) The collection of information on costs and their drivers, gathered through observations and interviews, from departments within an organization is known as the

1. A) account analysis method.
2. B) conference method.
3. C) industrial-engineering method.
4. D) quantitative analysis method.
5. E) departmental analysis method.

Answer: B

Diff: 1 Type: MC

Skill: Remember

Objective: LO 10-3

6) Which cost estimation method typically uses qualitative analysis rather than quantitative analysis?

1. A) the account analysis method
2. B) the conference method
3. C) the industrial-engineering method
4. D) the quantitative analysis method
5. E) the departmental analysis method

Answer: A

Diff: 2 Type: MC

Skill: Remember

Objective: LO 10-3

7) Which cost estimation method would be described as a formal method to fit linear cost functions to past data observations?

1. A) the account analysis method
2. B) the conference method
3. C) the industrial-engineering method
4. D) the quantitative analysis method
5. E) the departmental analysis method

Answer: D

Diff: 1 Type: MC

Skill: Remember

Objective: LO 10-3

Answer the following question(s) using the information below.

Penny’s TV and Appliance Store is a small company that has the following information pertaining to current year operations.

Sales (2,000 televisions)

$900,000

Cost of goods sold

400,000

Store manager’s salary per year

70,000

Operating costs per year

157,000

Advertising and promotion per year

15,000

Commissions (4% of sales)

36,000

8) What was the Penny’s TV variable cost per unit sold?

1. A) $18
2. B) $235
3. C) $339
4. D) $200
5. E) $218

Answer: E

Explanation: E) ($400,000 + $36,000)/2,000 = $218 per unit

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-3

9) What were total fixed costs at Penny’s TV for the current year?

1. A) $242,000
2. B) $436,000
3. C) $678,000
4. D) $227,000
5. E) $278,000

Answer: A

Explanation: A) $70,000 + $157,000 + $15,000 = $242,000

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-3

10) What are the estimated total costs if Penny’s expects to sell 3,000 units next year?

1. A) $896,000
2. B) $678,000
3. C) $1,259,000
4. D) $269,000
5. E) $542,000

Answer: A

Explanation: A) $896,000 = $70,000 + $157,000 + $15,000 + [($400,000 + $36,000)/2,000] × 3,000

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-3

11) Which cost estimation method is being used by Penny’s TV and Appliance Store?

1. A) the industrial engineering method
2. B) the conference method
3. C) the high-low method
4. D) the quantitative analysis method
5. E) the account analysis method

Answer: E

Diff: 2 Type: MC

Skill: Understand

Objective: LO 10-3

Use the information below to answer the following question(s).

Raymaster is a small computer software company which uses the account analysis method and has hired you to perform some management advisory services. The company sold 2,500 high quality payroll programs last year.

Cost of goods sold

$600,000

Store manager’s salary

80,000

Secretary’s salary

40,000

Operating costs (Store)

120,000

Sales Personnel 4 employees

Salary

$29,000 each

Commissions of 15% of sales

?

Advertising and promotion per year

20,000

Sales

1,200,000

12) What is the variable cost per unit sold?

1. A) $180,000
2. B) $320
3. C) $312
4. D) $240
5. E) $72

Answer: C

Explanation: C) ($600,000/2,500 units) = $240

($1,200,000 × .15 = $180,000/2,500 units = 72

$312

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-3

13) What is the total cost per unit sold?

240. A) $240.00
241. B) $288.00
242. C) $358.40
243. D) $362.40
244. E) $462.40

Answer: E

Explanation: E) y = a + bx

y = [$80,000 + $40,000 + $120,000 + $29,000(4) + $20,000] + ($312 × 2,500) = $1,156,000

cost per unit = $1,156,000/2,500 = $462.40

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-3

14) What would be their estimated cost per unit if Raymaster expects to sell 2,000 units next year?

1. A) $300
2. B) $312
3. C) $370
4. D) $498
5. E) $500

Answer: E

Explanation: E) y = $376,000 + (312 × 2,000 units) = $1,000,000

cost per unit = $1,000,000/2,000 = $500 per unit

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-3

15) What is the predicted indirect manufacturing labour cost if 160 machine-hours are budgeted and 170 are actually worked, assuming the estimated cost function is y = $81.04 + 5.32x?

985. A) $985.44
986. B) $932.24
987. C) $904.40
988. D) $851.20
989. E) $81.04

Answer: B

Explanation: B) y = $81.04 + ($5.32 × 160) = $932.24

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-3

Answer the following question(s) using the information below:

At the Todd Company, the cost of the personnel department has always been charged to the various departments based upon the number of employees. Recently, opinions gathered from the department managers indicated that the number of new hires might also be a predictor of personnel costs to be assigned. Total personnel costs are $320,000.

Department Department Department

Cost DriverABC

Number of employees 30 270 100

Number of new hires 8 12 5

16) If the number of employees is considered the cost driver, what amount of personnel costs will be allocated to Department A?

1. A) $24,000
2. B) $10,667
3. C) $102,400
4. D) $40,000
5. E) $50,000

Answer: A

Explanation: A) [30/(30 + 270 + 100)] × $320,000 = $24,000

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-3

17) If the number of new hires is considered the cost driver, what amount of personnel costs will be allocated to Department A?

1. A) $24,000
2. B) $10,667
3. C) $102,400
4. D) $40,000
5. E) $50,000

Answer: C

Explanation: C) [8/(8 + 12 + 5)] × $320,000 = $102,400

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-3

18) The cost of the personnel department at the Miller Company has always been charged to the production departments based upon number of employees. Recently, opinions gathered from the department managers indicated that the number of new hires might also be a predictor of personnel costs to be assigned. Total personnel department costs are $120,000.

Department Department Department

Cost DriverABC

Number of employees 300 250 50

The number of new hires 15 25 10

Required:

Using the above data, prepare a report that contrasts the different amounts of personnel department cost that would be allocated to each of the production departments if the cost driver used is:

1. number of employees.
2. the number of new hires.
3. Which cost estimation method is being used by Miller Company?

Answer: Department Department Department

Cost DriverABC

1. Number of employees 300/600 250/600 50/600

$60,000 $50,000 $10,000

1. The number of new hires 15/50 25/50 10/50

$36,000 $60,000 $24,000

1. Miller Company is using the conference method for cost estimation.

Diff: 2 Type: ES

Skill: Apply

Objective: LO 10-3

19) At the Christopher Company, the cost of the library and information centre has always been charged to the various departments based upon the number of employees. Recently, opinions gathered from the department managers indicated that the number of engineers might also be a predictor of personnel costs to be assigned. Total library and information costs are $150,000.

Department Department Department

Cost DriverABC

Number of employees 125 500 125

Number of engineers 0 75 25

Required:

Using the above data, prepare a report that contrasts the different amounts of the library and information centre cost that would be allocated to each of the departments if the cost driver used is:

1. number of employees.
2. the number of engineers.
3. Which cost estimation method is being used by Christopher Company?

Answer: Department Department Department

Cost DriverABC

1. Number of employees 125/750 500/750 125/750

$25,000 $100,000 $25,000

1. The number of new hires 0/100 75/100 25/100

$ 0 $112,500 $37,500

1. Miller Company is using the conference method for cost estimation.

Diff: 2 Type: ES

Skill: Apply

Objective: LO 10-3

20) Miller’s Good Value Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2016 operations.

Sales (5,000 microwave ovens)

$1,350,000

Cost of goods sold

540,000

Store manager’s salary per year

75,000

Operating costs per year

225,000

Advertising and promotion per year

25,000

Commissions (4% of sales)

67,500

Required:

Determine the operating costs using the account analysis method if Miller’s expects to sell 6,500 units next year.

Answer: $1,114,750 = ($75,000 + $225,000 + 25,000) + [[($540,000 + $67,500)/5000] × 6,500]

Diff: 2 Type: ES

Skill: Apply

Objective: LO 10-3

21) Munir Hassan, controller, gathered data on overhead costs and direct labour-hours over the past 12 months. List and discuss the different approaches Munir can use to estimate a cost function for overhead costs using direct labour-hours as the cost driver.

Answer: The four approaches to cost estimation are:

1. Industrial engineering method
2. Conference method
3. Account analysis method
4. Quantitative analysis of current or past cost relationships

The industrial engineering method, also called the work-measurement method, estimates cost functions by analyzing the relationship between inputs and outputs in physical terms.

The conference method estimates cost functions on the basis of analysis and opinions about costs and their drivers gathered from various departments of an organization (purchasing, process engineering, manufacturing, employee relations, etc.).

The account analysis method estimates cost functions by classifying cost accounts in the ledger as variable, fixed, or mixed with respect to the identified cost driver.

Quantitative analysis of cost relationships are formal methods, such as the high-low method or regression, to fit linear cost functions to past data observations.

Diff: 2 Type: ES

Skill: Understand

Objective: LO 10-3

10.4 Outline the steps in estimating a cost function.

1) There is poor goodness of fit if the predicted values do not match actual cost observation.

Answer: TRUE

Diff: 1 Type: TF

Skill: Remember

Objective: LO 10-4

2) Cross-sectional data pertain to the same entity over successive past periods.

Answer: FALSE

Explanation: Time-series data pertain to the same entity (organization, plant, activity, and so on) over successive past periods.

Diff: 1 Type: TF

Skill: Remember

Objective: LO 10-4

3) The advantage of the high-low method when compared to regression analysis is that it considers multiple data points.

Answer: FALSE

Explanation: The disadvantage of the high-low method is that it ignores information from all but two observations when estimating the cost function.

Diff: 1 Type: TF

Skill: Remember

Objective: LO 10-4

4) For cost estimation purposes data must be collected using both time-series data and cross-sectional data.

Answer: FALSE

Diff: 2 Type: TF

Skill: Remember

Objective: LO 10-4

5) Time-series data analysis includes

1. A) using a variety of time periods to measure the independent variable.
2. B) using the highest and lowest observation.
3. C) observing different entities during the same time period.
4. D) comparing information in different cost pools.
5. E) analyzing cost drivers at different levels of production.

Answer: A

Diff: 1 Type: MC

Skill: Remember

Objective: LO 10-4

6) Cross-sectional data analysis includes

1. A) using a variety of time periods to measure the dependent variable.
2. B) using the highest and lowest observation.
3. C) analyzing different cost drivers.
4. D) comparing information in different cost pools.
5. E) observing different entities during the same time period.

Answer: E

Diff: 2 Type: MC

Skill: Remember

Objective: LO 10-4

Use the information below to answer the following question(s).

Presented below is the production data for the last six months of the year for the mixed costs incurred by Wagner Company.

Month

Cost

Units

July

$24,450

8,200

August

20,120

6,400

September

32,400

10,600

October

44,200

15,000

November

29,000

9,600

December

36,680

13,200

7) Using the high-low method, the cost function would be stated as

2. A) y = $2,200 + $2.80x.
3. B) y = $17,816 + $0.36x.
4. C) y = $536 + $3.06x.
5. D) y = $24,450 + $0.33x.
6. E) y = $39,250 + $0.33x.

Answer: A

Explanation: A) b = ($44,200 – $20,120)/(15,000 – 6,400) = $2.80

$44,200 = a + $2.80 (15,000)

$2,200 = a

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-4

8) The total cost at an operating level of 10,000 units would be

136. A) $31,136.
137. B) $30,200.
138. C) $21,416.
139. D) $42,550.
140. E) $46,625.

Answer: B

Explanation: B) y = $2,200 + $2.80x

y = $2,200 + $2.80(10,000)

y = $30,200

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-4

Use the information below to answer the following question(s).

The Skip Corporation has assembled the following data pertaining to certain costs which cannot be easily identified as either fixed or variable. Skip Corporation has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.

Cost

Hours

$20,000

7,000

12,200

4,000

17,000

5,200

15,640

4,900

18,200

6,000

22,080

7,800

21,200

7,480

18,600

6,760

9) The cost function would be stated as

1. A) y = $13,386 + $0.46x.
2. B) y = $10,680 + $0.38x.
3. C) y = $5,056 + $2.16x.
4. D) y = $1,800 + $2.16x.
5. E) y = $1,800 + $2.60x.

Answer: E

Explanation: E) b = ($22,080 – $12,200)/(7,800 – 4,000) = $2.60

$22,080 = a + $2.60 (7,800)

$1,800 = a

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-4

10) The total cost at an operating level of 2,850 hours would be

210. A) $19,210.
211. B) $11,763.
212. C) $14,697.
213. D) $11,212.
214. E) $9,210.

Answer: E

Explanation: E) y = $1,800 + $2.60x

y = $1,800 + $2.60(2,850)

y = $9,210

Diff: 2 Type: MC

Skill: Apply

Objective: LO 10-4

Use the information below to answer the following question(s).

The Monroe Company uses the high-low method to estimate the cost function. The information for the current year is provided below.

Machine

Hours

Labour

Costs

Highest observation of cost driver

240

$4,000

Lowest observation of cost driver

110

2,960