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Cost Behavior - II

1. The following information was taken from the accounting records of the Belmont
Shoe Company for 2007.

Production in units 250,000


Sales in units 175,000
Sales price per unit $25
Unit Variable costs:
Manufacturing $7
Non Manufacturing 4
Fixed Costs:
Manufacturing $200,000
Non Manufacturing 250,000

There was no beginning work-in process inventory and no beginning finished goods
inventory.

What is the 2007 Cost of Goods sold using variable costing?

a) $1,225,000
b) $1,365,000
c) $1,925,000
d) $2,450,000
e) none of the above

175,000$7.8 = $1,365,000

2. Information taken from Mohawk Paper Companys records for the most recent years
is as follows.

Direct material used $290,000


Direct labor 100,000
Variable manufacturing overhead 50,000
Fixed manufacturing overhead 80,000
Variable selling and administrative costs 40,000
Fixed selling and administrative costs 20,000

a) The inventorial costs for the year using variable costing methods is

a) $440,000
b) $480,000
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c) $490,000
d) $520,000

290,000+100,000+50,000 = $440,000

b) The inventorial costs for the year using absorption costing methods is

a) $440,000
b) $480,000
c) $490,000
d) $520,000

290,000+100,000+50,000+ 80,000 = $520,000

3. Bell Company has provided the following data for maintenance costs.

April May
Machine hours incurred 12,000 16,000
Maintenance cost incurred $24,000 $26,000

Using the high-low method, what is the cost formula for maintenance cost?

a) $2.00 per machine hour


b) $1.625 per machine hour
c) $18,000 plus $0.50 per machine hour
d) $24,000 plus $0.50 per machine hour

4. Indiana Corporation produces a single product that it sells for $9 per unit. During the
first year of operations,
100,000 units were produced and 90,000 units were sold. Manufacturing costs and
selling and administrative
expenses for the year were as follows:

Fixed Costs Variable Costs


Raw material 0 $1.75 per unit produced
Direct labor 0 $1.25 per unit produced
Factory overhead $100,000 0.50 per unit produced
Selling and administrative $70,000 0.60 per unit sold

What was Indiana Corporations operating income for the year using variable costing?
a) $181,000
b) $271,000
c) $281,000
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d) $371,000
e) None of the above

MM = (90,000$9) (90,000$3.5) = $495,000


CM = $495,000 ( 90,000 0.6) = $441,000
OI = $441,000 - $170,000 = $271,000

5. Selected information about Buehler Corporations operations at high and at low Level.
Level of activity
Low High
Number of units produced 25,000 30,000
Total manufacturing costs $575,000 $680,000
Direct material cost per unit $5 $5
Direct labor cost per unit $6 $6
What is the cost formula for manufacturing overhead?

a) $50,000 per period plus $10 per unit


b) $50,000 per period plus $21 per unit
c) $50,000 per period plus $22 per unit
d) $347,000 per period plus $0.10 per unit
e) None of the above

VC per unit = $50,0005,000 = $10 $350,000 = FC + $10300,000


FC = $50,000 TC = $50,000 +$10 number of units

6. Germaines Crushing service provided the following

Monthly Handling Costs Miles travelled


$19,000 20,000
$23,700 28,000
$30,000 40,000

Using the high-low method, how much of Germaines handling cost is made up of
fixed costs?

a) $7,250
b) $8,000
c) $9,000
d) $11,000

$30,000 - $19,000 = $11,000


40,000 - 20,000 = 20,000
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VC per unit = 11,000 20,000 = 0.55


30,000 = FC + 40,000 0.55 FC = $8,000

7. Randazzo Inc. budgeted $1,550 for electricity cost during October using a mixed cost
formula of y = $800 + $0.60
X where X is machine hour. The company planned to produce 5,000 units of product
during that month. Actual
electricity cost for the month was $1,810; actual machine hours were 15,200; and
actual production was
6,050 units. The most useful analysis of electricity cost for the month would indicate
that Randazzo Inc. was

a) $260.0 over budget


b) $157.50 over budget
c) $98.00 over budget
d) $102.50 under budget

8. A manufacturing company that produces a single product has provided the following
data concerning the most
recent month of operations:

Selling Price $104 Variable costs per unit:


Units in the beginning inventory 0 Direct materials $38
Units produced 1,700 Direct labor $32
Units sold 1,400 Variable MOH $6
Units in the ending inventory 300 Variable S & A $4
Fixed Costs
Fixed manufacturing overhead $6,800
Fixed selling and administrative $8,400

What is the net operating income for the month under absorption costing?

a) $18,400
b) ($4,400)
c) $16,600
d) $19,600
9. Alexander Company is estimating its budget expense for cleaning uniforms. The
formula to estimate this monthly
cost is:

Uniform cleaning = $16,560 + $ 0.09 X


Where X = number of direct labor hours
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This estimate includes 42,800 of depreciation.

How much will be included in the pro forma income statement for cleaning uniforms
in May if the firm expects
144,000 direct labor hours in that month?

a) $12,960
b) $26,720
c) $29,520
d) $32,320

P = 16,560 + 0.09144,000 = $29,520


= 29,520 2,800 = 26,720

10. Wild Berry Toppings produces blackberry jelly. The following information pertains to
first year operations.

Sales price per jar $2.00


Production Costs:
Direct material (per jar) $ 0.50
Direct labor (per jar) $0.40
Variable Manufacturing overhead (per jar) $0.10
Annual fixed manufacturing overhead $600,000
Selling and administrative costs:
Variable (per jar) $0.25
Annual fixed costs $150,000

During the year, the firm produced 1,000,000 jars of jelly and sold 700,000. At year
end, there was no work in
process inventory.

a) If the company uses absorption costing, what is cost of goods sold?

a) $700,000
b) $805,000
c) $ 1,120,000
d) $1,600,000

b) If the company uses variable costing what is the total product contribution margin?

a) $280,000
b) $595,000
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c) $700,000
d) $850,000

11. Last year, Ben Companys operating income under absorption costing was $4,400
lower than its operating income
under variable costing. The company sold 8,000 units during the year, and its variable
costs were $8 per unit, of
which $3 was variable selling expense. Fixed manufacturing overhead was $1 per unit
in
beginning inventory under absorption costing. How many units did the company
produce during the year?

a) 3,600 units
b) 7,120 units
c) 7,450 units
d) 12,400 units

12. Wang Company provides the following information for their first year of operations.

Sales 5,000 units @ $10


Selling and administrative Costs:
Fixed $ 1,000
Variable $1 per unit
Variable production costs per unit:
Direct materials $2
Direct labor $2
Variable overhead $1
Fixed factory overhead $7,500
Production 7,500 units

If Wang uses absorption costing, cost of goods sold would be


a) $20,000
b) $ 25,000
c) $ 30,000
d) $ 36,000
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b) If Wang uses variable costing. Operating income would be:


a) $11,500
b) $14,000
c) $ 16,500
d) $ 20,000

13. Wombat Ltd requires sales of $2,000,000 to cover its fixed costs of $900,000 and to
earn net profit of
$400,000.What percentage are variable costs of sales?
a) 20 %
b) 35%
c) 45%
d) 65%

14. Comparative income statements for Boggs Sporting Equipment Company for the two
months are presented
below:

July August
Sales in units 11,000 10,000
Sales Revenue $165,000 $150,000
Less CGS 72,600 66,000
Gross Margin 92,400 84,000
Less: Operating Expenses:
Rent 12,000 12,000
Sales Commissions 13,200 12,000
Maintenance Expenses 13,500 13,000
Clerical Expenses 16,000 15,000
Total operating expenses 54,700 52,000
Operating Income $37,700 $32,000

All of the companys costs are either fixed, variable, or a mixture of the two (that
is,mixed), Assume that the
relevant range includes all of the activity levels mentioned in this problem.
What is the total monthly fixed cost for Boggs Sporting Equipment Company?

a) $ 12,000
b) $ 22,500
c) $ 25,000
d) $ 40,000
e) None of the above

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