Cost Behavior Complete Test Bank Chapter 6

Managerial Accounting, 6e (Braun et al.)

Chapter 6 Cost Behavior

6.1 Describe key characteristics and graphs of various cost behaviors

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

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

2) In a manufacturing company, fixed costs remain the same at many different production levels within the relevant range.

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

3) Unit variable costs do not change as total production increases.

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

4) Mixed costs are purely fixed.

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

5) Fixed costs per unit decrease as production levels increase.

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

6) Advertising would be considered a discretionary fixed cost.

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

7) The fixed cost per unit does not always remain the same.

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

8) The line on a graph representing total fixed costs will be a horizontal line.

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

9) Total variable costs change in direct proportion to changes in volume.

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

10) The variable cost per unit of activity increases as activity increases.

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

11) When graphing total fixed costs, the fixed cost per unit is the slope of the fixed cost line.

Diff: 1

LO: 6-1

EOC: S6-2

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

12) When graphing total fixed costs, the cost line always begins at the origin.

Diff: 1

LO: 6-1

EOC: S6-2

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

13) The graph of total variable cost will be a horizontal line over all activity levels within the relevant range.

Diff: 1

LO: 6-1

EOC: S6-2

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

14) The fixed cost per unit of activity varies with changes in volume.

Diff: 1

LO: 6-1

EOC: S6-2

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

15) When graphing total variable costs, the cost line begins at the origin.

Diff: 1

LO: 6-1

EOC: S6-2

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

16) Total mixed costs increase as volume increases because of the variable cost component.

Diff: 1

LO: 6-1

EOC: S6-2

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

17) Mixed costs per unit decrease as volume increases because of the variable cost component.

Diff: 1

LO: 6-1

EOC: S6-2

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

18) Total mixed cost graphs slope upward but do not begin at the origin.

Diff: 1

LO: 6-1

EOC: S6-2

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

19) Total mixed cost graphs intersect the y-axis at the level of fixed costs.

Diff: 1

LO: 6-1

EOC: S6-2

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

20) Fixed costs that are the result of previous management decisions that current managers have no control over in the short run are called ________ fixed costs.

A) discretionary

B) committed

C) standard

D) past

Diff: 1

LO: 6-1

EOC: S6-2

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

21) A(n) ________ cost is a cost whose total amount changes in direct proportion to a change in volume.

A) variable

B) fixed

C) mixed

D) irrelevant

Diff: 1

LO: 6-1

EOC: S6-2

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

22) Which of the following costs is an example of a fixed cost?

A) Sales commissions

B) Salary of plant manager

C) Direct materials

D) Delivery costs

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

23) With respect to variable costs per unit, which of the following statements is true?

A) They will decrease as production increases within the relevant range.

B) They will increase as production decreases within the relevant range.

C) They will decrease as production decreases within the relevant range.

D) They will remain the same as production levels change within the relevant range.

Diff: 2

LO: 6-1

EOC: E6-20A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

24) With respect to total variable costs, which of the following statements is true?

A) They will remain the same as production levels change within the relevant range.

B) They will decrease as production decreases within the relevant range.

C) They will decrease as production increases within the relevant range.

D) They will increase as production decreases within the relevant range.

Diff: 2

LO: 6-1

EOC: E6-20A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

25) With respect to total fixed costs, which of the following statements is true?

A) They will remain the same as production levels change within the relevant range.

B) They will increase as production decreases within the relevant range.

C) They will decrease as production increases within the relevant range.

D) They will decrease as production decreases within the relevant range.

Diff: 2

LO: 6-1

EOC: E6-20A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

26) Within the relevant range, which of the following statements is true with respect to fixed costs per unit?

A) They will increase as production increases.

B) They will decrease as production decreases.

C) They will remain the same as production levels change.

D) They will increase as production decreases.

Diff: 2

LO: 6-1

EOC: E6-20A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

27) Which of the following is a characteristic of a variable cost?

A) Variable costs are fixed in total.

B) Variable costs fluctuate in total with production and sales.

C) Variable costs per unit varies with production and sales.

D) All of the above may be characteristic of a variable cost.

Diff: 2

LO: 6-1

EOC: E6-20A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

28) Which of the following is a fixed cost?

A) Direct materials cost

B) Direct labor cost

C) Straight-line depreciation expense

D) Sales commission expense

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

29) Variable costs are described by which of the following statements?

A) They vary per unit of output.

B) They are fixed in total.

C) They are fixed per unit and vary in total.

D) They decrease per unit as production volume increases.

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

30) Renting a scooter and paying $30 per day plus $.20 per mile driven is an example of what type of cost?

A) Mixed cost

B) Fixed cost

C) Conversion cost

D) Variable cost

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

31) For most businesses, annual straight-line depreciation expense on the company's building is what type of cost?

A) Variable

B) Mixed

C) Fixed

D) Step

Diff: 1

LO: 6-1

EOC: E6-19A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

32)

Cost A is a ________ cost.

A) fixed

B) variable

C) mixed

D) sunk

Diff: 2

LO: 6-1

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

33)

Cost B is a ________ cost.

A) fixed

B) variable

C) mixed

D) sunk

Diff: 2

LO: 6-1

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

34)

Cost C is a ________ cost.

A) fixed

B) variable

C) mixed

D) sunk

Diff: 2

LO: 6-1

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

35)

Total variable costs at 52,000 units would be

A) $140,000.

B) $182,000.

C) $236,000.

D) unknown.

Diff: 2

LO: 6-1

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

36)

Total fixed costs at 50,000 units would be

A) $25,000.

B) $188,000.

C) $147,000.

D) unknown.

Diff: 2

LO: 6-1

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

37)

Total mixed costs at 53,000 units would be

A) $185,500.

B) $232,500.

C) $22,000.

D) unknown.

Diff: 2

LO: 6-1

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

38) Total fixed costs for Wesson Incorporated are $260,000. Total costs, including both fixed and variable, are $400,000 if 159,000 units are produced. The variable cost per unit is

A) $4.15/unit.

B) $0.88/unit.

C) $2.52/unit.

D) $1.64/unit.

Diff: 2

LO: 6-1

EOC: E6-21A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

39) Total fixed costs for Martin Manufacturing are $854,000. Total costs, including both fixed and variable, are $3,000,000 if 180,000 units are produced. The variable cost per unit is

A) $16.67/unit.

B) $4.74/unit.

C) $21.41/unit.

D) $11.92/unit.

Diff: 2

LO: 6-1

EOC: E6-21A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

40) Total fixed costs for Global Enterprises are $600,000. Total costs, including both fixed and variable, are $900,000 if 150,000 units are produced. The fixed cost per unit at 200,000 units would be

A) $3.00/unit.

B) $6.00/unit.

C) $4.50/unit.

D) $1.50/unit.

Diff: 2

LO: 6-1

EOC: E6-21A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

41) Total fixed costs for Richmond Manufacturing are $784,000. Total costs, including both fixed and variable, are $1,030,000 if 160,000 units are produced. The fixed cost per unit at 208,500 units would be closest to

A) $1.18/unit.

B) $4.94/unit.

C) $3.76/unit.

D) $4.90/unit.

Diff: 2

LO: 6-1

EOC: E6-21A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

42) Total fixed costs for Paper Flowers Inc. are $160,000. Total costs, including both fixed and variable, are $900,000 if 160,000 units are produced. The total variable costs at a level of 260,000 units would be ________. (Round any intermediary calculations to the nearest cent.)

A) $455,385

B) $260,000

C) $1,462,500

D) $1,203,800

Diff: 3

LO: 6-1

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

43) Total fixed costs for Pinky & Brain Incorporated are $88,000. Total costs, including both fixed and variable, are $195,000 if 272,000 units are produced. The total variable costs at a level of 278,000 units would be ________. (Round intermediate calculations to the nearest cent and the final answer to the nearest dollar.)

A) $108,420

B) $199,301

C) $89,941

D) $289,243

Diff: 3

LO: 6-1

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

44) If 150,000 units are produced, total costs are $363,000. Total fixed costs for Techno Inc. are $175,000. The variable cost per unit is

A) $3.59/unit.

B) $1.17/unit.

C) $2.42/unit.

D) $1.25/unit.

Diff: 2

LO: 6-1

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

45) Total fixed costs for Blue Dog Company are $62,000. Total costs, both fixed and variable are $200,000 if 120,000 units are produced. The fixed cost per unit at 120,000 units would be

A) $1.15/unit.

B) $0.52/unit.

C) $1.67/unit.

D) $2.18/unit.

Diff: 2

LO: 6-1

EOC: E6-21A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

46) Total costs for Stubble Company at 130,000 units are $319,000, while total fixed costs are $195,000. The total variable costs at a level of 290,000 units would be ________. (Round intermediate calculations to the nearest cent and the final answer to the nearest dollar.)

A) $275,500

B) $711,615

C) $143,000

D) $435,000

Diff: 3

LO: 6-1

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

47) Selected financial data for Stack LLC follows for a production level of 120,000 units:

a. Calculate the variable cost per unit.

b. If Stack LLC makes 75,000 units, calculate the fixed cost per unit.

c. If Stack LLC makes 160,000 units, calculate the total variable costs.

d. If Stack LLC makes 180,000 units, calculate the total costs.

Diff: 3

LO: 6-1

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

6.2 Use cost equations to express and predict costs

1) Relevant range is the range of activity (volume) over which total fixed costs and variable costs per unit can be assumed to remain the same.

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

2) In the equation y = vx + f, the x represents the fixed costs.

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

3) In the equation y = vx + f, the f represents the volume of activity.

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

4) Cost behavior can be mathematically expressed using equations.

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

5) At any given volume, average fixed costs must equal average variable costs.

Diff: 2

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

6) Total variable costs can be expressed as y = vx, where y = total mixed cost, v = mixed cost per unit of activity, and x = volume of activity.

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

7) Total fixed costs can be expressed as y = vx, where y = total variable cost, v = variable cost per unit of activity, and x = volume of activity.

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

8) Total mixed costs can be expressed as y = vx, where y = total variable cost, v = variable cost per unit of activity, and x = volume of activity.

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

9) If production increases by 25%, how will total fixed costs likely react?

A) Increase by 12.5%

B) Increase by 25%

C) Decrease by 25%

D) Will not change

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

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

A) Increase by 15%

B) Decrease by 30%

C) Increase by 30%

D) Will not change

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

11) Which of the following would be considered a discretionary fixed cost?

A) Property taxes and insurance

B) Advertising

C) Employees wages

D) Depreciation

Diff: 1

LO: 6-2

EOC: E6-21A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

12) All of the following are discretionary fixed costs except

A) property taxes.

B) advertising.

C) research and development.

D) employee development.

Diff: 1

LO: 6-2

EOC: E6-21A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

13) Which of the following would be considered a committed fixed cost?

A) Depreciation

B) Research and Development

C) Office holiday party

D) Advertising

Diff: 1

LO: 6-2

EOC: E6-21A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

14) Which of the following would not be considered a committed fixed cost?

A) Depreciation

B) Property taxes

C) CEO wages

D) Advertising

Diff: 1

LO: 6-2

EOC: E6-21A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

15) Management has little or no control over

A) discretionary fixed costs.

B) committed fixed costs.

C) all fixed costs.

D) all of the above

Diff: 1

LO: 6-2

EOC: E6-21A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

16) Which of the following cost behaviors cannot be accurately represented by a single straight line?

A) Variable costs

B) Mixed costs

C) Fixed costs

D) Step costs

Diff: 1

LO: 6-2

EOC: E6-21A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

17) Managers should consider which of the following when predicting costs at different volumes?

A) The relevant range of the cost

B) The type of cost behavior

C) Both of the above should be considered.

D) Neither of the above should be considered.

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

18) Which of the following represents the total mixed cost equation?

A) y = vx - f

B) y = fx + v

C) y = f

D) y = vx + f

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

19) Which of the following represents the equation for total fixed costs?

A) y = f

B) y = vx + f

C) y = vx - f.

D) y = vx

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

20) Which of the following represents the equation for total variable costs?

A) y = vx + f

B) y = vx

C) y = vx - f

D) y = v

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

21) The representation for fixed cost per unit of activity is

A) vx divided by v.

B) vx divided by y.

C) y divided by x.

D) f divided by x.

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

22) If a company's overhead cost equation is y = $8.80x + $120,020. The "x" is

A) the cost driver in units.

B) total fixed costs.

C) total overhead costs.

D) the variable costs.

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

23) Which type of cost behavior is indicated by the following graph?

A) Fixed

B) Step

C) Mixed

D) Variable

Diff: 1

LO: 6-2

EOC: S6-2

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

24) Which type of cost behavior is indicated by the following graphs?

A) Step

B) Fixed

C) Curvilinear

D) Variable

Diff: 1

LO: 6-2

EOC: S6-2

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

25) What term represents the total variable cost component in the equation: y = vx + f?

A) f

B) v

C) vx

D) y

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

26) What term represents the total cost in the equation: y = vx + f?

A) f

B) v

C) vx

D) y

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

27) What term represents the variable cost per unit of activity in the equation: y = vx + f? (Assume x represents the volume of activity.)

A) v

B) f

C) y

D) vx

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

28) What term represents the volume of activity in the equation: y = vx + f? (Assume v represents the variable cost per unit of activity.)

A) v

B) x

C) y

D) vx

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

29) What term represents the fixed cost component in the equation: y = vx + f?

A) y

B) v

C) f

D) vx

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

30) In the equation y = $7.20x + $790, "y" represents

A) total fixed costs.

B) total costs.

C) variable costs/unit.

D) none of the above

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

31) In the equation y = $7.20x + $790, "x" represents

A) number of units produced.

B) total fixed costs.

C) total costs.

D) total variable costs.

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

32) In the equation y = $7.20x + $250,250,

A) $250,250 are the total variable costs.

B) $250,250 are the total costs.

C) $250,250 are the total fixed costs.

D) $250,250 are the total overhead costs.

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

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

A) total costs.

B) total fixed costs.

C) variable costs/unit.

D) none of the above.

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

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

A) number of units produced.

B) total fixed costs.

C) total costs.

D) none of the above

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

35) In the equation y = $11.75x + $550,

A) $550 are the total step costs.

B) $550 are the total overhead costs.

C) $550 are the total variable costs.

D) $550 are the total fixed costs.

Diff: 1

LO: 6-2

EOC: S6-4

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

36) International Calling offers a calling plan that charges $7.00 per month plus $0.06 per minute of call time. Under this plan, what is your monthly cost if you talk for a total of 300 minutes?

A) $18.00

B) $25.00

C) $11.00

D) $7.00

Diff: 2

LO: 6-2

EOC: S6-4

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

37) Conferencing Connections has a special plan offer this month. There is a $4.00 per month charge each month and calls anywhere in the United States are $0.03 per minute. What would the monthly cost be if you typically talk for 650 minutes per month?

A) $4.00

B) $15.50

C) $19.50

D) $23.50

Diff: 2

LO: 6-2

EOC: S6-4

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

38) Surfside Incorporated produces surfboard wax. Total manufacturing costs are $350,000 when 100,000 toys are produced. Of this amount, total variable costs are $130,000. What are the total production costs when 75,000 containers are produced? (Assume the same relevant range for both production levels. Round any intermediary calculations to the nearest cent.)

A) $97,500

B) $317,500

C) $447,500

D) $262,500

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

39) Doggie Pals produces 90,000 dog collars each month that give off a fresh scent to keep your dog smelling clean between baths. Total manufacturing costs are $240,000. Of this amount, $130,000 are variable costs. What are the total production costs when 175,000 collars are produced? (Assume both production levels are in the same relevant range.) (Round intermediate calculations to the nearest cent and the final answer to the nearest dollar.)

A) $492,000

B) $142,000

C) $362,000

D) $252,000

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

40) Best Birdies produces ornate birdcages. The company's average cost per unit is $18 when it produces 2,200 birdcages. If $5,800 of the total costs are fixed, what is the variable cost of producing each birdcage?

A) $2.64

B) $6.83

C) $18.00

D) $15.36

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

41) Best Birdies produces ornate birdcages. The company's average cost per unit is $22 when it produces 2,200 birdcages. If $6,000 of the costs are fixed, and the plant manager uses the cost equation to predict total costs, his forecast for 3,100 birdcages will be ________. (Round intermediate calculations to the nearest cent and the final answer to the nearest dollar.)

A) $65,737

B) $68,200

C) $48,400

D) $19,800

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

42) The Wrightsville Rakes Company produces various types of yard rakes. It has calculated the average cost per unit of a production level of 7,800 rakes to be $14. Given this information, what would be the total cost of producing 7,800 yard rakes?

A) $7,814

B) $109,200

C) $14

D) $1,092

Diff: 1

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

43) The Wrightsville Rakes Company produces various types of yard rakes. It has calculated the average cost per unit of a production level of 7,900 rakes to be $11. If $22,500 of the total costs are fixed, what is the variable cost of producing each rake?

A) $11.00

B) $2.86

C) $8.15

D) $2.85

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

44) The Wrightsville Rakes Company produces various types of yard rakes. It has calculated the average cost per unit of a production level of 7,800 rakes to be $10. If $22,800 of the costs are fixed, and the plant manager uses the cost equation to predict total costs, her forecast for 8,600 rakes will be ________. (Round any intermediary calculations to the nearest cent.)

A) $8,000

B) $78,000

C) $86,000

D) $83,688

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

45) The Bradford Company has total fixed costs of $450,000. It also has $230,000 in total variable costs. These costs exist at a production level of 130,000 units. The variable cost per unit is

A) $1.77.

B) $5.23.

C) $3.46.

D) $1.39.

Diff: 1

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

46) The Bradford Company has total fixed costs of $420,000. It also has $250,000 in total variable costs. These costs exist at a production level of 110,000 units. The fixed cost per unit is

A) $2.27.

B) $6.09.

C) $1.24.

D) $3.82.

Diff: 1

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

47) Boise Company has total fixed costs of $590,000. Total fixed and variable costs are $622,500 at a production level of 205,000 units. The fixed cost per unit at a production level of 310,000 units is

A) $2.88.

B) $1.90.

C) $2.01.

D) $3.04.

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

48) Walker Company has a relevant range of 150,000 units to 400,000 units. The company has total fixed costs of $525,000. Total fixed and variable costs are $612,500 at a production level of 175,000 units. The variable cost per unit at 300,000 units is

A) the same as at 175,000 units.

B) greater than at 175,000 units.

C) less than at 175,000 units.

D) dependent upon fixed costs per unit.

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

49) Walker Company has a relevant range of 150,000 units to 400,000 units. The company has total fixed costs of $526,000. Total fixed and variable costs are $622,500 at a production level of 176,000 units. The variable cost per unit at 340,000 units is

A) $2.99.

B) $0.28.

C) $0.55.

D) $3.54.

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

50) Future Enterprises is trying to predict the cost associated with producing its telescopes. At a production level of 5,000 telescopes, Future Enterprises' average cost per telescope is $55. What is the total cost of producing 5,000 telescopes?

A) $275,000

B) $5,055

C) $55

D) $110

Diff: 1

LO: 6-2

EOC: E6-21A

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

51) Future Enterprises is trying to predict the cost associated with producing its telescopes. At a production level of 5500 telescopes, Future Enterprises' average cost per telescope is $54. If $18,000 of the total costs are fixed, what is the variable cost of producing each telescope?

A) $3.27

B) $50.73

C) $333.33

D) $54.00

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

52) Future Enterprises is trying to predict the cost associated with producing its telescopes. At a production level of 5,400 telescopes, Future Enterprises' average cost per telescope is $57. If $19,000 of the costs are fixed, and the plant manager uses the cost equation to predict total costs, her forecast for 6,000 telescopes will be ________. (Round any intermediary calculations to the nearest cent.)

A) $57,000

B) $307,800

C) $342,000

D) $339,880

Diff: 1

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

53) The following data pertain to costs at Upside Company:

The variable cost per unit is

A) $3.17.

B) $13.33.

C) $16.50.

D) $10.17.

Diff: 1

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

54) The following data pertain to costs at Flipside Company:

The fixed cost per unit is

A) $3.08.

B) $12.00.

C) $15.08.

D) $8.92.

Diff: 1

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

55) At Curbside Incorporated, total fixed and variable costs are $420,000 at a production level of 120,000 units. The company has total fixed costs of $225,000. The fixed cost per unit at a production level of 170,000 units is

A) $3.50.

B) $1.88.

C) $1.87.

D) $1.32.

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

56) At Curbside Incorporated, total fixed and variable costs are $420,000 at a production level of 150,000 units. The company has total fixed costs of $245,000. The variable cost per unit at 170,000 units is

A) $1.17.

B) $1.63.

C) $2.80.

D) $1.03.

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

57) Answer the following questions:

a. What is the total cost equation?

b. If a company has fixed costs of $1,000 and variable costs of $4 per unit, what is the cost equation?

c. How would a company use the cost equation?

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

58) The controller for Phil's Drones has gathered the following cost and activity level information:

a. What is the total cost of producing 1,000 drones?

b. What is the variable cost of producing each drones?

c. Suppose the controller uses the average cost to predict total costs. What total cost would the controller calculate for 2,500 drones?

d. If the controller uses the cost equation to predict total costs, what total cost would the controller calculate for 2,500 drones?

e. Is there a difference between the forecasted total cost using average cost versus the cost equation? If there is a difference, what creates the difference? If there is no difference, when would there be a difference?

Diff: 2

LO: 6-2

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

6.3 Use account analysis and scatter plots to analyze cost behavior

1) When performing account analysis, managers decide how to classify each account as a variable, fixed or mixed cost.

Diff: 1

LO: 6-3

EOC: S6-5

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

2) Rent on a factory building would likely be classified as a fixed cost.

Diff: 1

LO: 6-3

EOC: S6-5

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

3) If the data points in a scatter plot fall in a fairly straight line, it means that there is a fairly strong relationship between cost and volume.

Diff: 1

LO: 6-3

EOC: E6-26A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

4) If there is little or no relationship between the cost and the volume, the data points on a scatterplot will appear almost as a straight line.

Diff: 1

LO: 6-3

EOC: E6-26A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

5) A scatterplot helps managers visualize the relationship between historical costs and volume.

Diff: 1

LO: 6-3

EOC: E6-26A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

6) A scatterplot will help managers identify potential outliers.

Diff: 1

LO: 6-3

EOC: E6-26A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

7) If a scatterplot reveals a fairly weak relationship between cost and volume, the cost equation based on that data would not be very useful for predicting future costs.

Diff: 1

LO: 6-3

EOC: E6-26A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

8) If a scatterplot reveals a fairly weak relationship between cost and volume, the manager should select a different activity for modeling cost behavior.

Diff: 1

LO: 6-3

EOC: E6-26A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

9) Outliers are data points that fall in the same general pattern as the other data points.

Diff: 1

LO: 6-3

EOC: E6-26A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

10) Outliers are abnormal data points.

Diff: 1

LO: 6-3

EOC: E6-26A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

11) If a manager sees a potential outlier in the data, he or she should first determine whether the data is correct.

Diff: 1

LO: 6-3

EOC: E6-26A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

12) Which is true about a scatterplot?

A) If there is a strong relationship between cost and volume, the points will fall in a linear pattern.

B) If there is a strong relationship between cost and volume, the points will fall in a scattered pattern.

C) Cost and volume have no effect on the pattern of the points on a scatterplot.

D) A strong relationship between production and inventory is shown by a linear pattern.

Diff: 1

LO: 6-3

EOC: E6-25A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

13) Using account analysis, what type of cost is the rental of a space at $6,000 per month?

A) Mixed

B) Fixed

C) Step

D) Variable

Diff: 1

LO: 6-3

EOC: E6-25A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

14) Using account analysis, what type of cost are utilities if you are charged $45 for the first 400 kilowatt hours, $100 for 401-600 kilowatt hours, and $165 + or - for 601-900 kilowatt hours?

A) Fixed

B) Mixed

C) Variable

D) Step

Diff: 1

LO: 6-3

EOC: E6-25A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

15) Using account analysis, what type of cost is the local phone service which charges a flat fee for unlimited local calls?

A) Step

B) Mixed

C) Fixed

D) Variable

Diff: 1

LO: 6-3

EOC: E6-25A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

16) 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?

A) Fixed

B) Mixed

C) Variable

D) Step

Diff: 1

LO: 6-3

EOC: E6-25A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

17) Using account analysis, what type of cost is Satellite TV when the charge is $45.00 per month plus $5.99 for pay-per-view movies?

A) Mixed

B) Fixed

C) Step

D) Variable

Diff: 1

LO: 6-3

EOC: E6-25A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

18) Using account analysis, what type of cost is an electric bill that charges a flat monthly fee plus a charge for each kilowatt hour of electricity used?

A) Fixed

B) Mixed

C) Step

D) Variable

Diff: 1

LO: 6-3

EOC: E6-25A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

19) Using account analysis, what type of cost is the fee the airline company charges for your bags assuming a typical policy is $25 if the bag weighs between 0 and 50 lbs.; $75 if the bag weighs between 50 and 75 lbs. and $125 if the bag weighs between 75 and 100 lbs?

A) Fixed

B) Mixed

C) Step

D) Variable

Diff: 1

LO: 6-3

EOC: E6-25A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

20) Using account analysis, what type of cost is the monthly cost of a storage locker used for holding old records?

A) Fixed

B) Mixed

C) Variable

D) Step

Diff: 1

LO: 6-3

EOC: E6-25A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

21) Using account analysis, what type of cost is a community activity pass that costs $80 plus $15.00 per event?

A) Fixed

B) Step

C) Mixed

D) Variable

Diff: 1

LO: 6-3

EOC: E6-25A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

22) Manufacturing overhead (consisting of costs like factory rent, factory utilities, factory maintenance, and other similar costs) is usually what type of cost?

A) Variable

B) Fixed

C) Step

D) Mixed

Diff: 2

LO: 6-3

EOC: S6-5

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

23) Which method are managers using when they use their judgment to classify costs as variable, fixed, or mixed?

A) High-low method

B) Account analysis

C) Regression analysis

D) Low-high method

Diff: 1

LO: 6-3

EOC: S6-6

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

24) Which method are managers using when they plot all the data points to see if there is a linear relationship among the data?

A) Scatterplot

B) Account analysis

C) Regression analysis

D) Low-high method

Diff: 1

LO: 6-3

EOC: S6-6

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

25) When preparing a scatterplot, how should the data be graphed?

A) Volume data on the y-axis

B) Cost data on the x-axis

C) Cost data on the y-axis

D) Volume data on the z-axis

Diff: 1

LO: 6-3

EOC: E6-26A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

26) What are scatterplots useful for?

A) Determining the overall strength of the relationship between historical cost and volume

B) Identifying potential outliers

C) Both of the above

D) Neither of the above

Diff: 1

LO: 6-3

EOC: E6-26A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

27) Describe the scatterplot method. Discuss the advantages and disadvantages of using the scatterplot method.

Diff: 2

LO: 6-3

EOC: E6-26A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

6.4 Use the high-low method to analyze cost behavior

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

Diff: 1

LO: 6-4

EOC: S6-9

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

2) When using the high-low method, fixed costs and variable costs appear in the same cost equation.

Diff: 1

LO: 6-4

EOC: S6-9

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

3) The high-low method uses only two of the historical data points to estimate a cost equation.

Diff: 1

LO: 6-4

EOC: S6-9

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

4) When using the high-low method, the "high" point should be chosen as the data point with the highest cost, not the highest volume.

Diff: 1

LO: 6-4

EOC: S6-8

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

5) When using the high-low method, the "low" point should be chosen as the data point with the lowest volume, not the lowest cost.

Diff: 1

LO: 6-4

EOC: S6-8

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

6) The high-low method basically fits a line through the highest and lowest ________ points.

A) fixed cost

B) variable cost

C) volume

D) total cost

Diff: 1

LO: 6-4

EOC: S4-9

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

7) The data points with the ________ should be selected for use in calculating the variable cost per unit and the total fixed costs when using the high-low method.

A) highest cost and the lowest cost

B) highest volume and the lowest volume

C) highest volume and the lowest cost

D) highest cost and the lowest volume

Diff: 1

LO: 6-4

EOC: S6-8

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

8) Which step is performed first when using the high-low method?

A) Find the vertical intercept

B) Write the cost equation

C) Predict total cost

D) Find the slope

Diff: 1

LO: 6-4

EOC: S6-8

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

9) The high-low method is theoretically better than regression analysis because the high-low method uses more data points than regression analysis.

Diff: 1

LO: 6-4

EOC: S6-5

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

10) When using the high-low method, what is the correct order of the following three steps?

i. Write the cost equation.

ii. Find the vertical intercept.

iii. Find the slope.

A) i, ii, iii

B) ii, iii, i

C) iii, ii, i

D) iii, i, ii

Diff: 1

LO: 6-4

EOC: S6-8

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

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

A) rise over run.

B) run over rise.

C) change in volume over change in cost.

D) vertical intercept.

Diff: 2

LO: 6-4

EOC: E6-27A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

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

A) The "high" month

B) Either the "high" or the "low" month

C) The "low" month

D) Any month in the data set

Diff: 1

LO: 6-4

EOC: E6-27A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

13) Beechtree Corporation sells chewing gum and during January they ran production machines for 29,000 hours total and incurred $11,500 in maintenance costs. During July they ran production machines for 16,000 hours total and incurred $6,700 in maintenance costs.

Based on this data, what is the variable maintenance cost per machine hour?

A) $0.58 per machine hour

B) $0.37 per machine hour

C) $0.42 per machine hour

D) $2.23 per machine hour

Diff: 1

LO: 6-4

EOC: E6-27A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

14) Beechtree Corporation sells chewing gum and during January they ran production machines for 27,000 hours total and incurred $9,500 in maintenance costs. During July they ran production machines for 11,000 hours total and incurred $6,400 in maintenance costs.

Based on this data, what are the fixed costs? (Round intermediary calculations to the nearest cent. Use the "high" data month to calculate your final answer. Use of the "low" month with result in an approximation of the cost.)

A) $6,400

B) $4,370

C) $9,500

D) $23,120

Diff: 2

LO: 6-4

EOC: E6-27A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

15) Beechtree Corporation sells chewing gum and during January they ran production machines for 20,000 hours total and incurred $10,000 in maintenance costs. During July they ran production machines for 16,000 hours total and incurred $8,800 in maintenance costs.

Based on this data, what is the cost formula for maintenance costs? (Round intermediary calculations to the nearest cent.)

A) y = $0.30 X + $4,000

B) y = $5.00 X + $29,600

C) y = $0.88 X + $10,000

D) Cannot determine from the information given.

Diff: 2

LO: 6-4

EOC: E6-27A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

16) Beechtree Corporation sells chewing gum and during January they ran production machines for 27,000 hours total and incurred $10,000 in maintenance costs. During July they ran production machines for 14,000 hours total and incurred $8,400 in maintenance costs.

Based on this data, what will total maintenance costs be if the machines are run for 16,500 hours? (Round intermediary calculations to the nearest cent.)

A) $6,760

B) $76,960

C) $19,211.2

D) Cannot determine from the information given

Diff: 3

LO: 6-4

EOC: E6-27A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

17) Family Fun Time, Inc. makes board games. The following data pertains to the last six months:

Based on this data, what is the value of "v" in the equation y = vx + f? (Round intermediary calculations to the nearest cent.)

A) $3.50

B) $5.30

C) $0.29

D) $0.18

Diff: 1

LO: 6-4

EOC: E6-27A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

18) Family Fun Time, Inc. makes board games. The following data pertains to the last six months:

Based on this data, what is the value of "f" in the equation y = vx + f? (Round intermediary calculations to the nearest cent.)

A) $29,790.00

B) $151,500

C) $157,500

D) $28,490

Diff: 2

LO: 6-4

EOC: E6-27A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

19) Family Fun Time, Inc. makes board games. The following data pertains to the last six months:

Based on this data, what is the linear cost equation? (Round intermediary calculations to the nearest cent.)

A) y = $5.40X + $33,100.00

B) y = $0.26X + $152,500

C) y = $3.91X + $71,670

D) Cannot be determined from information given.

Diff: 2

LO: 6-4

EOC: E6-27A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

20) Family Fun Time, Inc. makes board games. The following data pertains to the last six months:

Based on this data, what would the estimated manufacturing overhead be at a level of 44,000 direct labor hours? (Round intermediary calculations to the nearest cent.)

A) $233,960

B) $165,500

C) $220,320

D) Cannot be determined from information given.

Diff: 3

LO: 6-4

EOC: E6-27A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

21) Robert was reviewing the water bill for his carwash business and determined that the highest bill, $5,200, occurred in July when 2,200 cars were washed and the lowest bill, $3,100, occurred in February when 1,500 cars were washed. What was the variable cost per carwash?

A) $3.00

B) $2.36

C) $1.41

D) $2.07

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

22) Robert was reviewing the water bill for his carwash business and determined that the highest bill, $7,000, occurred in July when 4,000 cars were washed and the lowest bill, $4,000, occurred in February when 1,000 cars were washed. What was the fixed portion of the water bill?

A) $6,000

B) $1,000

C) $4,000

D) $3,000

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

23) Flavored Ice is a snow cone stand near the local park. To plan for the future, Flavored Ice wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served.

The variable cost per snow cone using the high-low method is

A) $1.19.

B) $0.84.

C) $0.89.

D) $0.91.

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

24) Flavored Ice is a snow cone stand near the local park. To plan for the future, Flavored Ice wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served.

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

A) $4,000.

B) $14,000.

C) $1,000.

D) $8,000.

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

25) Flavored Ice is a snow cone stand near the local park. To plan for the future, Flavored Ice wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served.

Using the high-low method, the monthly operating costs if the company sells 10,000 snow cones in a month are

A) $9,500.

B) $7,500.

C) $18,000.

D) $2,000.

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

26) Jones Ice Cream Stand is operated by Mr. Jones and experiences different sales patterns throughout the year. To plan for the future, Mr. Jones wants to determine its cost behavior patterns. He has the following information available about the ice cream stand's operating costs and the number of soft serve cones served.

The variable cost per ice cream cone using the high-low method is

A) $0.34.

B) $2.90.

C) $0.63.

D) $1.18.

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

27) Jones Ice Cream Stand is operated by Mr. Jones and experiences different sales patterns throughout the year. To plan for the future, Mr. Jones wants to determine its cost behavior patterns. He has the following information available about the ice cream stand's operating costs and the number of soft serve cones served.

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

A) $1000.

B) $4800.

C) $2000.

D) $800.

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

28) Jones Ice Cream Stand is operated by Mr. Jones and experiences different sales patterns throughout the year. To plan for the future, Mr. Jones wants to determine its cost behavior patterns. He has the following information available about the ice cream stand's operating costs and the number of soft serve cones served.

Using the high-low method, the monthly operating costs if Mr. Jones sells 1,460 ice cream cones in a month are ________. (Round any intermediary calculations to the nearest cent.)

A) $100

B) $2,701

C) $1,414

D) $1,314

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

29) Deliveries Are Us 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 company's operating costs so it has a better idea of how distance affects these costs. The Company has the following data available.

The variable cost per mile using the high-low method is

A) $1.30.

B) $0.69.

C) $1.44.

D) $1.60.

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

30) Deliveries Are Us 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 company's operating costs so it has a better idea of how distance affects these costs. The Company has the following data available.

Using the high-low method, the fixed costs in a month are ________. (Round any intermediary calculations to the nearest cent.)

A) $4,000

B) $16,000

C) $46,000

D) $9,000

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

31) Deliveries Are Us 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 company's operating costs so it has a better idea of how distance affects these costs. The Company has the following data available.

Using the high-low method, the monthly operating costs if the Company drives 25,000 miles in a month will be ________. (Round any intermediary calculations to the nearest cent.)

A) $39,500

B) $14,500

C) $27,000

D) $19,750

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

32) The manager at Mounds of 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 processed was highest in July, when the total monthly overhead costs totaled $28,000 for 33,000 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 $24,000 for 25,000 yards of mulch processed. What was the variable cost per yard?

A) $0.50

B) $2.00

C) $0.85

D) $0.96

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

33) The manager at Mounds 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 $30,000 for 34,000 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 $23,000 for 26,000 yards of mulch processed. What is the fixed portion of the monthly overhead expenses? (Round intermediary calculations to the nearest cent. Use the "high" data month to calculate your final answer. Use of the "low" month with result in an approximation of the cost.)

A) $4000

B) $80

C) $29,920

D) $23,000

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

34) Joe, Jeff and Jerry Frank own Frank Brothers Farm, a seed company specializing in seed corn. At their weekly meeting they tried to calculate the portion of the farm's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of bushels of seed corn that has been sold reached its peak in May, when the total monthly overhead costs totaled $251,000 for 95,000 bushels of seed corn sold. The lowest number of bushels sold in the last twelve months occurred in December, when total overhead costs were $71,000 for 4500 bushels sold. What was the variable cost per yard?

A) $0.50

B) $1.99

C) $15.78

D) $2.64

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

35) Joe, Jeff and Jerry Frank own Frank Brothers Farm, a seed company specializing in seed corn. At their weekly meeting they tried to calculate the portion of the farm's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of bushels of seed corn that has been sold reached its peak in May, when the total monthly overhead costs totaled $260,000 for 90,000 bushels of seed corn sold. The lowest number of bushels sold in the last twelve months occurred in December, when total overhead costs were $60,000 for 10,000 bushels sold. What is the fixed portion of the monthly overhead expenses?

A) $35,000

B) $235,000

C) $225,000

D) $60,000

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

36) To follow is information about the units produced and total manufacturing costs for Varied Resources Inc. for the past six months.

Using the high-low method, what is the variable cost per unit?

A) $1.66

B) $1.09

C) $0.49

D) $2.05

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

37) To follow is information about the units produced and total manufacturing costs for Varied Resources Inc. for the past six months.

Using the high-low method, what is the monthly fixed manufacturing cost? (Round any intermediary calculations to the nearest cent.)

A) $4,000

B) $15,200

C) $2,000

D) $4,600

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

38) To follow is information about the units produced and total manufacturing costs for Varied Resources Inc. for the past six months.

Using the high-low method, what will the total monthly manufacturing costs be if the company produces 9,200 units? (Round intermediary calculations to the nearest cent. Use the "high" data month to calculate your final answer. Use of the "low" month with result in an approximation of the cost.)

A) $9,704

B) $8,464

C) $15,824

D) $1,240

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

39) Maintenance costs at Oceanside Hotel over the past six months are listed in the following table.

Using the high-low method, what would the variable maintenance cost per machine hour be?

A) $1.19

B) $0.84

C) $0.88

D) $0.89

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

40) Maintenance costs at Oceanside Hotel over the past six months are listed in the following table.

Using the high-low method, what would the monthly fixed maintenance cost be? (Round any intermediary calculations to the nearest cent.)

A) $1,500

B) $3,000

C) $13,500

D) $27,000

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

41) Maintenance costs at Oceanside Hotel over the past six months are listed in the following table.

Using the high-low method, what would the total maintenance costs be if 17,900 machine hours were used? (Round any intermediary calculations to the nearest cent.)

A) $14,925

B) $13,425

C) $31,425

D) $1,575

Diff: 2

LO: 6-4

EOC: S6-7

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

42) River Services has a customer website to take orders, answer customer questions, and address customer complaints. The costs associated with this customer website over the past six months are listed below:

Management at River Services believes that the customer website costs are a mixed cost and would like to use the high-low method to estimate their future costs using the number of website hits in any given month as the cost driver.

Required:

1. Using the high-low method, estimate the variable cost per website hit and the monthly fixed costs associated with the customer website.

2. Use the results you computed in Requirement 1 to write the cost equation in order to estimate the customer website expenses for the company.

3. If River Services expects 9,500 website hits for July, what are the anticipated customer website costs for July?

Diff: 3

LO: 6-4

EOC: E6-27A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

43) The following is information about the units produced and the total manufacturing costs for Tori's Towel Company for the past six months.

Tori's Towel Company uses the high-low method to estimate its costs. Answer the following questions:

a. What is the variable cost per unit?

b. What is the monthly fixed manufacturing cost?

c. Write the cost equation that could be used to predict Tori's Towel Company's total manufacturing costs.

d. What will the total monthly manufacturing costs be if the company produces 28,000 units?

Diff: 3

LO: 6-4

EOC: S6-6

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

44) The managerial accountant at Big Truck Manufacturing reported that the organization contains an automated production line to manufacture and produce its products for consumers to enjoy in the marketplace. The managerial accountant reported that the company uses the high-low method to estimate the costs in the new budget. The managerial accountant reported the following information:

a. Compute the slope of the mixed cost, or the variable cost per unit of activity.

b. Compute the vertical intercept, or the fixed cost component of the mixed cost.

c. What is the mixed cost equation?

Diff: 2

LO: 6-4

EOC: E6-23A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

45) The managerial accountant at Sunny Manufacturing needs to determine how many costs are fixed costs and how many costs are variable costs in the organization. The managerial accountant reported the following information:

Sunny Manufacturing

Cost Report

January - June 20XX

Use the high-low method to determine the cost equation and use machine hours as the base for a cost driver in the analysis.

Diff: 3

LO: 6-4

EOC: E6-23A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

6.5 Use regression analysis to analyze cost behavior

1) Regression analysis uses only two of the historical data points to estimate a cost equation.

Diff: 1

LO: 6-5

EOC: S6-9

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

2) Regression analysis is found by using only the two data points of the highest and lowest volume.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

3) The intercept-coefficient in regression analysis yields the fixed cost portion of the total costs.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

4) The X Variable 1 Coefficient in regression analysis yields the variable cost per unit of activity.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

5) An R-square statistic of 0 indicates a perfect level of correlation between costs and the cost driver.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

6) The cost equation determined using the high-low method should be the same as the cost equation determined using regression analysis.

Diff: 2

LO: 6-5

EOC: S6-13

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

7) The line determined by regression analysis is sometimes referred to as the "line of worst fit."

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

8) The R-squared statistic determined by regression analysis is sometimes referred to as the "goodness-of-fit" statistic.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

9) The cost equation determined by regression analysis is usually more accurate than the line determined by the high-low method.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

10) In a regression output, the "intercept coefficient" represents the fixed cost component of a mixed cost equation.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

11) In a regression output, the "X variable 1 coefficient" represents the variable cost component of a mixed cost equation.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

12) A "perfect" straight line would render an R-square value of 1.00.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

13) If the data points were randomly scattered, the R-square value would be closer to 0 than 1.

Diff: 2

LO: 6-5

EOC: S6-13

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

14) An R-square value over .80 generally indicates that the cost equation is not very reliable for predicting costs at other volumes within the relevant range.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

15) An R-square value of 0.00 indicates a perfect relationship between the volume of activity and the cost being analyzed.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

16) Regression analysis uses all data points, not just the highest and lowest volume data points.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

17) The output from regression analysis generated in Excel gives us all of the following information except

A) intercept coefficient.

B) highest and lowest data points × variable 1 coefficient.

C) R-square.

D) x variable 1 coefficient.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

18) On a regression analysis output generated with Excel, a regression equation's variable cost per unit is represented by the

A) x variable 1 coefficient.

B) intercept coefficient.

C) R-square.

D) residual.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

19) On a regression analysis output generated with Excel, a regression equation's fixed cost component is represented by the

A) x variable 1 coefficient.

B) intercept coefficient.

C) R-square.

D) residual.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

20) On a regression analysis output generated with Excel, a regression equation's "goodness of fit" is represented by the

A) intercept coefficient.

B) x variable 1 coefficient.

C) residual.

D) R-square.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

21) On a regression analysis output generated with Excel, the slope of a mixed cost line is represented by the

A) x variable 1 coefficient.

B) intercept coefficient.

C) R-square.

D) residual.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

22) When predicting costs at other volumes using a cost equation derived from either the high-low method or regression analysis, managers should consider

A) outliers.

B) general inflation.

C) seasonality.

D) all of the above.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

23) Your client's company wants to determine the relationship between its monthly operating costs and a potential cost driver. The output of regression analysis showed the following information:

Intercept Coefficient = 89,500

X Variable 1 Coefficient = 62.50

R-square = 0.9855

What is the company's monthly cost equation?

A) y = $98.55x + $89,500

B) y = $62.50x + $89,500

C) y = $89,500x + $62.98

D) y = $89,500x + $98.55

Diff: 2

LO: 6-5

EOC: E6-30A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

24) Your boss wants you to analyze the relationship between the company's monthly operating costs and the current cost driver she has chosen. You run a regression analysis and receive the following information:

Intercept Coefficient = 653,434

X Variable 1 Coefficient = 5.76

R-square = 0.3784

What is your company's monthly cost equation?

A) y = $653,434x + $5.76

B) y = $0.38x + $653,434

C) y = $5.76x + $653,434

D) y = $0.38x + $576

Diff: 2

LO: 6-5

EOC: E6-30A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

25) Bowling Corporation wants to know how closely its current cost driver is correlated with its monthly operating costs. The managerial accountant runs a regression analysis using a statistical software program and produces the following data:

Intercept Coefficient = 12,200,567

X Variable 1 Coefficient = 95.65

R-square = 0.8574

What is the Bowling Corporation's monthly cost equation?

A) y = $95.65x + $8,574

B) y = $95.65x + $12,200,567

C) y = $12,200,567x + $8,574

D) y = $0.8574x + $12,200,567

Diff: 2

LO: 6-5

EOC: E6-30A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

26) Your client's company wants to determine the relationship between its monthly operating costs and a potential cost driver. The output of regression analysis showed the following information:

Intercept Coefficient = 75,828

X Variable 1 Coefficient = 52.61

R-square = 0.9756

Should your client use this information to predict monthly operating costs?

A) No, because R-square is so high.

B) Yes, because R-square is so high.

C) Yes, because regression analysis can always be relied upon.

D) There is not enough information to make this prediction.

Diff: 2

LO: 6-5

EOC: E6-30A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

27) If a regression analysis shows an R factor of 0.15, it is safe to assume

A) a strong positive relationship between cost and volume.

B) a strong negative relationship between cost and volume.

C) a perfect positive relationship between cost and volume.

D) a very weak relationship between cost and volume.

Diff: 1

LO: 6-5

EOC: E6-30A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

28) If a regression analysis shows an R factor of .89 exists, it is safe to assume

A) a strong negative relationship between cost and volume.

B) a strong positive relationship between cost and volume.

C) no relationship between cost and volume.

D) a perfect positive relationship between cost and volume.

Diff: 1

LO: 6-5

EOC: E6-30A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

29) Big Time Corporation wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is the variable cost per machine hour (rounded to the nearest cent)?

A) $67.59

B) $2,945.95

C) $0.99

D) $0.72

Diff: 2

LO: 6-5

EOC: E6-30A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

30) Big Time Corporation wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is the fixed cost (round to nearest cent)?

A) $67.59

B) $0.99

C) $2,945.95

D) $0.72

Diff: 2

LO: 6-5

EOC: E6-30A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

31) Big Time Corporation wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is closest to the total cost if the firm uses 4,200 machine hours?

A) $5,964.03

B) $3,018.08

C) $2,945.95

D) $12,372,975.38

Diff: 2

LO: 6-5

EOC: E6-30A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

32) Big Time Corporation wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is the cost equation based upon the results of the regression analysis?

A) y = $072x

B) y = $0.72x + $2,945.95

C) y = $2,945.95x + $0.72

D) y = $2,945.95 + $0.72

Diff: 2

LO: 6-5

EOC: E6-30A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

33) Big Time Corporation wanted to determine the relationship between its monthly operating costs and a potential cost driver, machine hours. The output of a regression analysis showed the following information (note: only a portion of the regression analysis results is presented here):

What is closest to the total cost if the firm uses 6,000 machine hours?

A) $7,257.49

B) $6,538.90

C) $14,729,732.60

D) $1,365.59

Diff: 3

LO: 6-5

EOC: E6-30A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

34) What are three methods used to estimate cost behavior? What are the advantages and disadvantages of each method?

Diff: 1

LO: 6-5

EOC: E6-30A

AACSB: Reflective thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

35) Sidecar Company would like to estimate its total manufacturing costs using regression analysis but is unsure whether machine hours or units produced would be a better predictor of total manufacturing costs.

Output from regression analysis using machine hours as the volume (cost driver) follows. Note: the results are excerpts, so not all of the regression analysis results are presented.

Output from a regression analysis using units produced as the volume (cost driver) follows. Again, the results are excerpts, so not all of the regression analysis results are presented.

Required:

a. What is the cost equation if machine hours is used as the volume (cost driver)?

b. Predict total manufacturing costs using machine hours as the volume (cost driver) if Sidecar Company uses 18,000 hours.

c. What is the cost equation if units produced is used as the volume (cost driver)?

d. Predict total manufacturing costs using units produced as the volume (cost driver) if Sidecar Company produces 65,000 units.

e. Which volume (cost driver) is a better predictor of total manufacturing costs? Why?

Diff: 3

LO: 6-5

EOC: E6-30A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

36) Primrose 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 Primrose 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 Primrose Corporation uses 12,000 hours.

e. Which method (high-low or regression analysis) is a better predictor of total manufacturing overhead costs? Why?

Diff: 3

LO: 6-5

EOC: E6-30A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

37) Match the term on the right with the appropriate definition provided on the right.

Diff: 1

LO: 6-5

EOC: E6-21A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

38) The managerial accountant at the Bookcase Factory prefers regression analysis to the high-low method because it is a more accurate method. The managerial accountant uses regression output and analyzes the following data to predict future costs:

y =$250x + $625

where,

y = total monthly utility cost

x = number of guests

What is the intercept coefficient, or the vertical intercept of the fixed cost line, in the equation listed above?

A) y

B) $250x

C) $625

D) $250x + $625

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

39) The managerial accountant at Organic Beverage Factory used spreadsheet software to run a regression analysis scenario and compile the following monthly cost data:

Organic Beverage Factory

Which of the following is the correct cost equation showing the correlation of monthly costs, based on the results of the regression analysis compiled by the managerial accountant?

A) y = $4,286,652 + $28.21

B) y = 0.6521x + $4,286,652

C) y = $0.6521 + $28.21x

D) y = $28.21x + $4,286,652

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

40) The managerial accountant at Organic Beverage Factory used spreadsheet software to run a regression analysis scenario and compile the following monthly cost data:

Organic Beverage Factory

Which of the following is the correct estimated cost at a level of 8,000 units, based on the results of the regression analysis compiled by the managerial accountant?

A) $4,286,652

B) $4,291,869

C) $225,680

D) $4,512,332

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

41) The managerial accountant at Organic Beverage Factory used spreadsheet software to run a regression analysis scenario and compile the following monthly cost data:

Organic Beverage Factory

Based on the results of the regression analysis compiled by the managerial accountant, what does the R-square indicate?

A) Management should use the cost equation with caution.

B) Management can always rely upon cost equations prepared using linear regression analysis.

C) Management can rely on the cost equation because the R-square is above 50%

D) Management ignores the R-square in regression analysis.

Diff: 1

LO: 6-5

EOC: S6-13

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

42) Steeplechase Building Specialties manufactures metal stud to accommodate commercial framing contractors in the United States. The managerial accountant reported to the operations manager that there is an order to manufacture 2,300 bundles of metal stud during the month. The managerial accountant reported the following information:

Determine the cost equation for the managerial accountant and predict the operating costs at a volume of 2,300 bundles of metal stud at Steeplechase Building Specialties.

A) $322,220

B) $220

C) $360

D) $506,140

Diff: 2

LO: 6-5

EOC: E6-29A

AACSB: Analytical thinking

Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost.

6.6 Describe variable costing and prepare a contribution margin income statement

1) A contribution margin income statement allows managers to see which costs will change with changes in volume and which costs will remain fixed.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

2) For retailers and service companies without inventory, operating income is different if a traditional income statement or a contribution margin income statement is prepared.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

3) Sales revenue less variable expenses equals contribution margin.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

4) When preparing a traditional income statement, fixed costs are subtracted from gross profit to arrive at operating income.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

5) The traditional income statement is considered by most companies to be a better management tool than the contribution margin income statement.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

6) Traditional income statements provide managers with little cost behavior information.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

7) The cost of goods sold is a variable cost for merchandise company but contains a mixture of variable and fixed production costs for manufacturers.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

8) Traditional income statements do not distinguish fixed operating costs from variable operating costs.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

9) U.S. GAAP requires companies to use absorption costing for external reporting purposes.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

10) Contribution margin income statements organize costs by behavior.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

11) When a merchandiser prepares a contribution margin income statement, Cost of Goods Sold is always a variable cost.

Diff: 1

LO: 6-6

EOC: S6-15

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

12) When a company produces more units than it sells, absorption costing operating income will be higher than variable costing operating income.

Diff: 2

LO: 6-6

EOC: S6-15

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

13) If the number of units produced equals the number of units sold for a manufacturer, both variable costing and absorption costing income statements will yield the same gross margin.

Diff: 2

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

14) Under absorption costing, fixed manufacturing costs are not expensed until the units are sold.

Diff: 1

LO: 6-6

EOC: S6-15

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

15) Under absorption costing, variable manufacturing costs are treated as period costs.

Diff: 1

LO: 6-6

EOC: S6-15

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

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

Diff: 1

LO: 6-6

EOC: S6-15

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

17) Under absorption costing, all nonmanufacturing costs are treated as period costs.

Diff: 1

LO: 6-6

EOC: S6-15

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

18) Under variable costing, fixed manufacturing overhead is expensed immediately as a period cost.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

19) Under variable costing, fixed manufacturing costs are treated as product costs.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

20) Under variable costing, all nonmanufacturing costs are treated as product costs.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

21) If inventory has grown, operating income will be higher under absorption costing than it is under variable costing.

Diff: 2

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

22) If inventory has declined, operating income will be higher under absorption costing than it is under variable costing.

Diff: 2

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

23) If inventory has not increased or decreased, but has stayed the same, operating income will be the same under variable costing and absorption costing.

Diff: 2

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

24) Managers whose bonuses are based on operating income have more incentive to increase inventory levels when variable costing is used than when absorption costing is used.

Diff: 2

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

25) Variable costing considers fixed manufacturing costs as product costs.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Reflective thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

26) When absorption costing is used and management bonuses are related to operating income, managers are more likely to

A) decrease inventory levels.

B) increase inventory levels.

C) keep inventory levels consistent.

D) steal from the company.

Diff: 2

LO: 6-6

EOC: S6-13

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

27) On a traditional income statement, sales revenue less cost of goods sold equals

A) gross profit.

B) contribution margin.

C) operating income.

D) operating expenses.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

28) For external reporting purposes, U.S. GAAP allows companies to use

A) either the traditional format or the contribution margin format.

B) only the contribution margin format of the income statement.

C) only the traditional format of the income statement.

D) the variable costing format.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

29) On a contribution margin income statement, sales revenue less variable expenses equals

A) operating expenses.

B) gross profit.

C) operating income.

D) contribution margin.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

30) On a traditional income statement, all manufacturing-related costs, whether fixed or variable, are listed

A) above the gross profit line.

B) above the contribution margin line.

C) below the operating income line.

D) above the sales line.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

31) The contribution margin is equal to

A) sales minus cost of goods sold.

B) sales minus operating expenses.

C) sales minus fixed expenses.

D) sales minus variable expenses.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

32) The contribution margin income statement presents ________ above the contribution margin line.

A) only variable expenses relating to selling and administrative activities

B) only fixed expenses relating to selling and administrative activities

C) all fixed expenses

D) all variable expenses

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

33) The contribution margin income statement presents ________ below the contribution margin line.

A) only variable expenses relating to selling and administrative activities

B) only fixed expenses relating to selling and administrative activities

C) all fixed expenses

D) all variable expenses

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

34) All fixed costs are listed ________ on a contribution margin income statement.

A) below the contribution margin line

B) above the gross profit line

C) above the contribution margin line

D) below the gross profit line

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

35) All variable costs are listed ________ on a contribution margin income statement.

A) above the gross profit line

B) above the contribution margin line

C) below the contribution margin line

D) below the gross profit line

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

36) When the number of units produced is less than the number of units sold, how does operating income under variable costing differ from operating income under absorption costing?

A) It is lower than operating income under absorption costing.

B) It is higher than operating income under absorption costing.

C) It is the same as operating income under absorption costing.

D) It depends upon the amount of decline.

Diff: 2

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

37) Which of the following statements is true concerning income if production exceeds units sold?

A) A higher operating income will result under a variable costing income statement.

B) A lower operating income will result under an absorption costing income statement.

C) A higher operating income will result under an absorption costing income statement.

D) The same operating income will result under both a variable costing and absorption costing income statement.

Diff: 3

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

38) How is operating income affected if the number of units sold exceeds the number of units produced?

A) Operating income would be higher under a variable costing income statement.

B) Operating income would be lower under a variable costing income statement.

C) Operating income would be higher under an absorption costing income statement.

D) Operating income would be the same under both a variable costing and absorption costing income statement.

Diff: 3

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

39) Which type of costing system is the only acceptable costing system for external financial reporting?

A) Prime costing

B) Out-of-pocket costing

C) Variable costing

D) Absorption costing

Diff: 1

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

40) Which type of costing system can only be used for internal financial reporting because it is unacceptable by GAAP?

A) Prime costing

B) Out-of-pocket costing

C) Variable costing

D) Absorption costing

Diff: 1

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

41) Net income reported under absorption costing will exceed net income reported under variable costing for a given period if

A) production equals sales for that period.

B) sales exceed production for that period.

C) production exceeds sales for that period.

D) variable overhead exceeds fixed overhead for that period.

Diff: 2

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

42) The income statement is organized by ________ under absorption costing.

A) period costs only

B) fixed costs only

C) variable costs only

D) product and period costs

Diff: 1

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

43) What will happen to the contribution margin if fixed costs related to a product increase while variable costs and sales price remain constant?

A) Will increase

B) Will not change

C) Will decrease

D) Cannot determine from the information provided

Diff: 2

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

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

A) Absorption costing expenses all costs, whether fixed or variable.

B) Absorption costing "inventories" all direct manufacturing costs.

C) Absorption costing "inventories" all fixed manufacturing costs.

D) Absorption costing "inventories" all fixed manufacturing and period costs.

Diff: 2

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

45) Absorption costing is required to be used for

A) federal income tax reports.

B) external financial reports, but not income taxes.

C) neither external financial reports nor income tax reports.

D) both external financial reports and income tax reports.

Diff: 2

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

46) The use of either absorption or variable costing will make little difference in companies

A) using just-in-time inventory methods.

B) with large inventories.

C) with high fixed costs.

D) with high variable costs.

Diff: 2

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

47) Which of the following does not appear on an income statement prepared using variable costing?

A) Fixed production costs

B) Contribution margin

C) Gross margin

D) Variable production costs

Diff: 1

LO: 6-6

EOC: E6-36A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

48) Power on the Go buys portable generators for $480 and sells them for $730. The company pays a sales commission of 5% of sales revenue to the sales staff. The company pays $2000 a month rent for the store, and also pays $2000 a month to staff in addition to the commissions. The company sold 400 generators in June. If the company prepares a contribution margin income statement for the month of June, what would be the contribution margin?

A) $100,000

B) $206,600

C) $85,400

D) $292,000

Diff: 2

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

49) Power on the Go buys portable generators for $500 and sells them for $750. The company pays a sales commission of 5% of sales revenue to the sales staff. The company pays $3000 a month rent for the store, and also pays $1700 a month to staff in addition to the commissions. The company sold 200 generators in June. If the company prepares a traditional income statement for the month of June, what would be the gross profit?

A) $45,300

B) $150,000

C) $100,000

D) $50,000

Diff: 2

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

50) Power on the Go buys portable generators for $480 and sells them for $770. The company pays a sales commission of 5% of sales revenue to the sales staff. The company pays $5000 a month rent for the store, and also pays $2100 a month to staff in addition to the commissions. The company sold 500 generators in June. If the company prepares a traditional income statement for the month of June, what would be the operating income?

A) $118,650

B) $145,000

C) $171,350

D) $385,000

Diff: 3

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

51) Power on the Go buys portable generators for $470 and sells them for $730 . The company pays a sales commission of 5% of sales revenue to the sales staff. The company pays $6000 a month rent for the store, and also pays $1800 a month to staff in addition to the commissions. The company sold 300 generators in June. If the company prepares a contribution margin income statement for the month of June, what would be the operating income?

A) $151,950

B) $74,850

C) $219,000

D) $59,250

Diff: 3

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

52) It costs Homer's Manufacturing $0.95 to produce baseballs and Homer sells them for $8.00 apiece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $13,000 a month rent for his factory and store, and also pays $79,000 a month to his staff in addition to the commissions. Homer sold 72,500 baseballs in June. If Homer prepares a contribution margin income statement for the month of June, what would be his contribution margin?

A) $482,125

B) $511,125

C) $97,875

D) $580,000

Diff: 2

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

53) It costs Homer's Manufacturing $0.85 to produce baseballs and Homer sells them for $4.00 apiece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $13,000 a month rent for his factory and store, and also pays $79,000 a month to his staff in addition to the commissions. Homer sold 68,500 baseballs in June. If Homer prepares a traditional income statement for the month of June, what would be his gross profit?

A) $123,775

B) $215,775

C) $274,000

D) $58,225

Diff: 2

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

54) It costs Homer's Manufacturing $0.95 to produce baseballs and Homer sells them for $4.00 apiece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $16,000 a month rent for his factory and store, and also pays $75,000 a month to his staff in addition to the commissions. Homer sold 71,500 baseballs in June. If Homer prepares a traditional income statement for the month of June, what would be his operating income?

A) $286,000

B) $203,775

C) $218,075

D) $112,775

Diff: 3

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

55) It costs Homer's Manufacturing $0.45 to produce baseballs and Homer sells them for $4.00 apiece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $13,000 a month rent for his factory and store, and also pays $80,000 a month to his staff in addition to the commissions. Homer sold 71,500 baseballs in June. If Homer prepares a contribution margin income statement for the month of June, what would be his operating income?

A) $226,525

B) $286,000

C) $46,475

D) $146,525

Diff: 3

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

56) Hot Cross Buns Gym Club provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The gym also sells nutrition products. The general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year.

If a contribution margin income statement is prepared for the year, what is the amount of total revenue?

A) $286,000

B) $218,000

C) $326,000

D) $141,000

Diff: 1

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

57) Hot Cross Buns Gym provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The gym also sells nutrition products. The general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year.

If a contribution margin income statement is prepared for the year, what is the contribution margin?

A) $72,500

B) $254,000

C) $289,000

D) $216,500

Diff: 3

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

58) Hot Cross Buns Gym provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The gym also sells nutrition products. The general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year.

If a traditional income statement is prepared for the year, what is gross profit?

A) $289,000

B) $254,000

C) $234,000

D) $285,000

Diff: 3

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

59) Hot Cross Buns Gym provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The gym also sells nutrition products. The general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year.

If a traditional income statement is prepared for the year, what is operating income?

A) $169,500

B) $283,000

C) $205,500

D) $243,000

Diff: 2

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

60) Hot Cross Buns Gym provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The gym also sells nutrition products. The general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year.

If a contribution margin income statement is prepared for the year, what is operating income?

A) $216,000

B) $289,000

C) $181,000

D) $254,000

Diff: 2

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

61) Tardis Corporation has total sales revenues of $930,000. If its total fixed costs are $182,000 and its total variable costs are $267,000, then the total contribution margin is

A) total revenue minus total fixed costs.

B) total revenue minus total variable costs.

C) total variable costs minus total fixed costs.

D) equal to operating income.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

62) Shrout Inc. has total sales revenues of $430,000. If its total fixed costs are $70,000 and its total variable costs are $150,000, the contribution margin is

A) $360,000.

B) $280,000.

C) $580,000.

D) $210,000.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

63) Lupin Company has a contribution margin per unit of $49. If 7000 more items are sold, and fixed expenses remain the same, the net change in operating income will be

A) $343,000.

B) -$343,000.

C) $7049.

D) $7000.

Diff: 1

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

64) Stanley's Bicycles store buys bicycles on average for $610 and sells them on average for $780. He pays a sales commission of 15% of sales revenue to his sales staff. Stanley pays $1400 a month rent for his store, and also pays $4000 a month to his staff in addition to the commissions. Stanley sold 130 bicycles in June. If Stanley prepares a contribution margin income statement for the month of June, what would be his contribution margin?

A) $6890

B) $101,400

C) $86,190

D) $15,210

Diff: 2

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

65) Stanley's Bicycles store buys bicycles on average for $620 and sells them on average for $770. He pays a sales commission of 15% of sales revenue to his sales staff. Stanley pays $1800 a month rent for his store, and also pays $7000 a month to his staff in addition to the commissions. Stanley sold 140 bicycles in June. If Stanley prepares a traditional income statement for the month of June, what would be his gross profit?

A) $12,200

B) $21,000

C) $86,800

D) $107,800

Diff: 2

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

66) Stanley's Bicycles store buys bicycles on average for $610 and sells them on average for $800. He pays a sales commission of 15% of sales revenue to his sales staff. Stanley pays $1700 a month rent for his store, and also pays $7000 a month to his staff in addition to the commissions. Stanley sold 140 bicycles in June. If Stanley prepares a traditional income statement for the month of June, what would be his operating income?

A) $112,000

B) $52,100

C) $1100

D) $26,600

Diff: 3

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

67) Stanley's Bicycles store buys bicycles on average for $610 and sells them on average for $770. He pays a sales commission of 15% of sales revenue to his sales staff. Stanley pays $1400 a month rent for his store, and also pays $3000 a month to his staff in addition to the commissions. Stanley sold 120 bicycles in June. If Stanley prepares a contribution margin income statement for the month of June, what would be his operating income?

A) $6860

B) $92,400

C) $87,060

D) $940

Diff: 3

LO: 6-6

EOC: E6-37A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

68) Lily's Pastries produces cupcakes, which sell for $5.40 each. During the current month, Lily produced, but only sold 2300 cupcakes. The variable cost per cupcake was $3.50 and the sales commission per cupcake was $0.90. Total fixed manufacturing costs were $1700 and total fixed marketing and administrative costs were $1100. What is the product cost per cupcake under absorption costing?

A) $4.03

B) $5.93

C) $5.40

D) $3.50

Diff: 2

LO: 6-6

EOC: S6-15

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

69) During the current period, 18,759 units were produced, and 16,759 units were sold. Fixed manufacturing costs incurred amounted to $93,795. An absorption costing income statement would report fixed manufacturing costs as which of the following?

A) Costs of $83,795 as a deduction from gross profit to obtain operating income

B) Overhead of $93,795 as a deduction from sales revenue to obtain gross profit

C) Overhead of $83,795 as a deduction from sales revenue to obtain gross profit

D) Costs of $93,795 as a deduction from sales revenue to obtain contribution margin

Diff: 3

LO: 6-6

EOC: S6-15

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

70) Watkins Company manufactures widgets. The following data is related to sales and production of the widgets for last year.

Using variable costing, what is the contribution margin for last year?

A) $13,000

B) $63,000

C) $130,000

D) $57,000

Diff: 3

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

71) Watkins Company manufactures widgets. The following data is related to sales and production of the widgets for last year.

Using variable costing, what is the operating income for last year?

A) $153,000

B) $55,700

C) $92,700

D) $129,700

Diff: 3

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

72) Watkins Company manufactures widgets. The following data is related to sales and production of the widgets for last year.

Using absorption costing, what is gross profit for last month? (Round any intermediary calculations to the nearest whole dollar.)

A) $248,600

B) $154,000

C) $84,700

D) $59,400

Diff: 3

LO: 6-6

EOC: S6-15

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

73) Watkins Company manufactures widgets. The following data is related to sales and production of the widgets for last year.

Using absorption costing, what is operating income for last year? (Round any intermediary calculations to the nearest whole dollar.)

A) $75,000

B) $90,000

C) $82,000

D) $130,000

Diff: 3

LO: 6-6

EOC: S6-15

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

74) The Hoops Corporation manufactures and sells hula hoops. The following data is related to sales and production of the hula hoops for last year.

Using variable costing, what is the contribution margin for last year?

A) $1,577,000

B) $353,400

C) $283,100

D) $1,223,600

Diff: 2

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

75) The Hoops Corporation manufactures and sells hula hoops. The following data is related to sales and production of the hula hoops for last year.

Using variable costing, what is the operating income for last year?

A) $1,539,000

B) $141,200

C) $459,200

D) $300,200

Diff: 3

LO: 6-6

EOC: S6-14

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

76) The Hoops Corporation manufactures and sells hula hoops. The following data is related to sales and production of the hula hoops for last year.

Using absorption costing, what is gross profit for last month? (Round any intermediary calculations to the nearest cent.)

A) $955,500

B) $1,564,500

C) $1,260,000

D) $304,500

Diff: 3

LO: 6-6

EOC: S6-15

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

77) The Hoops Corporation manufactures and sells hula hoops. The following data is related to sales and production of the hula hoops for last year.

Using absorption costing, what is operating income for last year? (Round any intermediary calculations to the nearest cent.)

A) $201,000

B) $121,000

C) $1,245,000

D) $943,500

Diff: 3

LO: 6-6

EOC: S6-15

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

78) Personal Creations sells personalized gift baskets, on average, for $125; each gift basket costs, on average, $60. The company pays salaries each month of $1,300 and the store rent is $1,000 per month. The company also pays sales commissions of 5% of the sales price. In May, 140 gift baskets were sold.

Required:

a. Prepare a traditional income statement for the month of May.

b. Prepare a contribution margin income statement for the month of May.

Diff: 3

LO: 6-6

EOC: E6-22A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

79) 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?

Diff: 2

LO: 6-6

EOC: S6-15

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

80) The following data is related to sales and production of the Sweep Corporation for last year.

Required:

a. Prepare an income statement for last year using absorption costing.

b. Calculate the value of the ending inventory using absorption costing.

c. Prepare an income statement for last year using variable costing.

d. Calculate the value of the ending inventory using variable costing.

Diff: 3

LO: 6-6

EOC: E6-38A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

81) Beachscapes Company has the following selected data for the past year:

There were no units in beginning inventory.

Required:

a. Prepare an income statement for last year using absorption costing.

b. Calculate the value of the ending inventory using absorption costing.

c. Prepare an income statement for last year using variable costing.

d. Calculate the value of the ending inventory using variable costing.

Diff: 3

LO: 6-6

EOC: E6-38A

AACSB: Analytical thinking

Learning Outcome: Define and distinguish among variable, fixed and mixed costs.

6.7 Analyze cost behavior and make predictions using data analytic tools

1) A regression analysis that includes only one x-variable is called complex linear regression.

Diff: 1

LO: 6-7

AACSB: Reflective thinking

2) A regression analysis that includes only one x-variable is called simple linear regression.

Diff: 1

LO: 6-7

AACSB: Reflective thinking

3) The x-variable is also called the predictor variable since it predicts the outcome of "y".

Diff: 1

LO: 6-7

AACSB: Reflective thinking

4) The y-variable is known as the independent variable in regression analysis.

Diff: 1

LO: 6-7

AACSB: Reflective thinking

5) Multiple regression analysis contains more than one dependent variable.

Diff: 2

LO: 6-7

AACSB: Reflective thinking

6) Managers should only add additional variables for multiple regression analysis if the adjusted r-squared value rises as each additional variable is added.

Diff: 1

LO: 6-7

AACSB: Reflective thinking

7) The x-variable is known by all of the following names except

A) independent variable.

B) dependent variable.

C) explanatory variable.

D) predictor variable.

Diff: 1

LO: 6-7

AACSB: Reflective thinking

8) The y-variable is referred to as the

A) independent variable.

B) dependent variable.

C) explanatory variable.

D) predictor variable.

Diff: 1

LO: 6-7

AACSB: Reflective thinking

9) A regression analysis that includes only one x-variable is called

A) predictor regression.

B) outcome variable regression.

C) simple linear regression.

D) r-squared analysis.

Diff: 1

LO: 6-7

AACSB: Reflective thinking

10) When an analysis contains more than one independent variable to predict a dependent variable, it is called

A) simple linear regression.

B) predictive regression.

C) adjusted r-squared analysis.

D) multiple regression.

Diff: 1

LO: 6-7

AACSB: Reflective thinking

11) Bliss Corporation runs a simple linear regression that yields a r-squared value of 0.85362. The company adds another independent variable for a multiple regression and the adjusted r-squared is 0.89455. The company should

A) remove the additional variable because the adjusted r-squared value goes up.

B) use the analysis with the additional variable because it improved the model.

C) add as many variables as they want because more variables are always better in regression analysis.

D) never add more than one variable because the regression analysis can only be run with one independent variable.

Diff: 2

LO: 6-7

AACSB: Analytical thinking

12) Leven Corporation runs a simple linear regression that yields a r-squared value of 0.92463. The company adds another independent variable for a multiple regression and the adjusted r-squared is 0.90455. The company should

A) remove the additional variable because the adjusted r-squared value goes down.

B) use the analysis with the additional variable because it improved the model.

C) add as many variables as they want because more variables are always better in regression analysis.

D) never add more than one variable because the regression analysis can only be run with one independent variable.

Diff: 2

LO: 6-7

AACSB: Analytical thinking

13) List the steps to create a scatterplot with regression line, equation, and R-squared.

Diff: 2

LO: 6-7

AACSB: Reflective thinking

14) Describe how to obtain regression output for simple linear and multiple regression.

Diff: 2

LO: 6-7

AACSB: Reflective thinking