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MANAGEMENTADVISORYSERVICES jjaurojrtcbic

2 Cost Behavior Analysis May 2019

PROBLEMS

A. Cute Company has provided the following data for the first five months of the year:

Machine Lubrication

Hours Cost

January..................

120 P750

February................

160 P800

March....................

200 P870

April......................

150 P790

May.......................

170 P840

1.Using the high-low method of analysis, compute the estimated variable lubrication cost per

machine hour rounded to the nearest centavo

2.Using the high-low method of analysis, the compute estimated monthly fixed component of the

lubrication cost.

3. Using the least-squares regression method of analysis, the estimated variable lubrication cost

per machine hour is closest to?

4. Using the least-squares regression method of analysis, the estimated monthly fixed component

of lubrication cost is closest to:

5. Using the high-low method of analysis, the estimated total lubrication cost for June if the

estimated machine hours is 130 is closest to:

6. Using the least-squares regression method of analysis, the estimated total lubrication cost for

June if the estimated machine hours is 130 is closest to:

7. Using the high-low method of analysis, the estimated total lubrication cost for June if the

estimated machine hours is 0 is closest to:

8. Using the least-squares regression method of analysis, the estimated total lubrication cost for

June if the estimated machine hours is 0 is closest to:

B. The following data are available for CTDI CPA Review School. Ms. Louisita Aristorenas, the

owner/review director wants to find out if class hours indeed drives utility costs. The following data

shows the number of hours spent in CPA review classes from January to October, however, for the

month of May CPD (Continuing Professional Development ) seminars were also conducted in the

review school in addition to the CPA review classes.

Month Class Hours Utility Costs(P) Month Class Hours Utility Costs(P)

Jan 7,260 2,960 Jun 4,900 1,860

Feb 8,850 3,410 Jul 4,600 2,180

Mar 4,800 1,920 Aug 8,900 3,470

Apr 9,000 3,500 Sep 5,900 2,480

May 11,000 3,900 Oct 5,500 2,310

C. Francis Villamin, owner/finance director of CTDI has been trying to manage supplies costs.

He recorded the following monthly data:

(P) Cost(P) (P) Cost(P) (P) Cost(P)

Jan. 53,500 3,420 Apr. 61,500 3,880 Jun. 54,600 3,445

Feb. 55,450 3,645 May 52,000 3,456 Jul. 52,570 3,280

Mar. 57,250 3,622

Required:

1. Using the high-low method, compute the variable and fixed component of the cost.

2. CTDI estimates its revenues for August at P60,000. Compute the projected total

supplies cost for August.

4. Using the regression method from an excel output below, compute the variable and

fixed component of the cost.

SUMMARY OUTPUT

Regression Statistics

Multiple R 0.920883

R Square 0.848026

Adjusted R Square 0.817631

Standard Error 83.84407

Observations 7

Intercept 483.7685 578.6072 0.836091 0.441216 -1003.59 1971.123

Monthly Service Revenues 0.055217 0.010454 5.282077 0.003239 0.028345 0.082088

6. CTDI estimates its revenues for August at P60,000. Compute the projected total supplies cost

for August.

(P) (P)

Sales 80,000 90,000

Cost of Sales 48,000 54,000

Gross Profit 32,000 36,000

Operating

Expenses

Selling 8,500 8,800

Administrative 9,200 9,400

Total

Operating

Expenses 17,700 18,200

Net Income 14,300 17,800

William Guzman, the owner enlist your help to develop a CVP relationship for planning and control.

Required:

1. Using the high-low method, compute the variable and fixed component of the cost of sales,

selling and administrative expenses.

E. Rivera Company has a 25% margin of safety. Its after tax return on sales is 6%, and its

tax rate is 40%.

Required:

2. Compute for fixed cost assuming sales of P120,000.

F. Cristy Co. had a loss of P3 per unit when sales were 40,000 units and a loss of P1.60 per

unit at 50,000 units sales.

Required:

2. Determine fixed costs.

3. Compute for the units breakeven point.

MULTIPLE CHOICE

Total production costs of prior periods for a company are listed below. Assume that the same cost

behavior patterns can be extended linearly over the range of 3,000 to 35,000 units and that the

cost driver for each cost is the number of units produced.

Cost X P23,700 P52,680 P86,490 P178,260

Cost Y 47,280 141,840 252,160 551,600

1. What is the average cost per unit at a production level of 8,000 units for cost X?

a. P5.98

b. P5.85

c. P7.90

d. P4.83

2. Identify the cost curve for the average cost per unit for cost Y.

a. Curve 1.

b. Curve 2.

c. Curve 3.

d. Curve 4.

3. Suarez Corporation is a wholesaler that sells a single product. Management has provided the

following cost data for two levels of monthly sales volume. The company sells the product for

P127.20 per unit.

Cost of sales............................................ P419,000 P502,800

Selling and administrative costs.................. P186,500 P202,200

The best estimate of the total contribution margin when 5,300 units are sold is:

A) P230,020

B) P51,410

C) P146,810

D) P32,330

4. Utility costs at Garcia, Inc. are a mixture of fixed and variable components. Records

indicate that utility costs are an average of P0.40 per hour at an activity level of 9,000

machine hours and P0.25 per hour at an activity level of 18,000 machine hours. Assuming

that this activity is within the relevant range, what is the expected total utility cost if the

company works 13,000 machine hours?

A) P4,225

B) P5,200

C) P4,000

D) P3,250

5. Clerical costs in the billing department of Rhea Company are a mixture of variable and

fixed components. Records indicate that average unit processing costs are P0.50 per

account processed at an activity level of 32,000 accounts. When only 22,000 accounts are

processed, the total cost of processing is P12,500. Assuming that this activity is within the

relevant range, at a budgeted level of 25,000 accounts:

A) processing costs are expected to total P8,750.

B) fixed processing costs are expected to be P10,400.

C) the variable processing costs are expected to be P0.35 per account processed.

D) processing costs are expected to total P14,975.

6. Rene, Inc., used the high-low method to derive its cost formula for electrical power cost.

According to the cost formula, the variable cost per unit of activity is P3 per machine-hour.

Total electrical power cost at the high level of activity was P7,600 and at the low level of

activity was P7,300. If the high level of activity was 1,200 machine hours, then the low

level of activity was:

A) 800 machine hours

B) 900 machine hours

C) 1,000 machine hours

D) 1,100 machine hours

7. The following production and average cost data for a month's operations have been

supplied by a company that produces a single product.

Direct materials............................. P4.00 per unit P4.00 per unit

Direct labor.................................. P3.50 per unit P3.50 per unit

Manufacturing overhead................. P10.00 per unit P6.20 per unit

The total fixed manufacturing cost and variable manufacturing cost per unit are as follows:

A) P3,600; P7.50

B) P3,600; P9.90

C) P7,600; P7.50

D) P7,600; P9.90

8. Enriquez Corporation is a wholesaler that sells a single product. Management has provided

the following cost data for two levels of monthly sales volume. The company sells the

product for P88.70 per unit.

Cost of sales...................................... P273,600 P342,000

Selling and administrative costs............ P56,800 P68,000

The best estimate of the total variable cost per unit is:

A) P68.40

B) P79.60

C) P82.60

D) P82.00

9. A company produces a single product. The following volume and average cost data for two

accounting periods have been provided by management:

Direct materials............................. P2.00 P2.00

Direct labor.................................. P1.50 P1.50

Manufacturing overhead................. P2.50 P1.75

Other overhead............................. P1.00 P0.625

The best estimate for the cost formula for the total cost of producing and selling the

product (where X is the number of units produced and sold in a period) is:

A) P1,000 + P1.125 X

B) P1,000 + P3.50 X

C) P1,500 + P3.50 X

D) P1,500 + P4.00 X

10. The principal advantage of the scatter-diagram method over the high-low method of cost

estimation is that the scatter-diagram method

a. includes costs outside the relevant range.

b. considers more than two points.

c. can be used with more types of costs than the high-low method.

d. gives a precise mathematical fit of the points to the line.

a. derive an equation to predict future costs.

b. perform regression analysis on the results.

c. determine the relevant range.

d. find the high and low points to use for the high-low method of estimating costs.

12. The cost estimation method that gives the most mathematically precise cost prediction

equation is

a. the high-low method.

b. the scatter-diagram method.

c. the contribution margin method.

d. regression analysis.

a. number of units manufactured.

b. number of units sold.

c. level of some activity.

d. selling price of the product.

a. usually direct to a product.

b. the same as a discretionary cost.

c. unavoidable.

d. not essential to manufacturing a product.

15. Fixed costs that cannot be reduced within a short period of time are

a. committed.

b. variable.

c. avoidable.

d. unnecessary.

16. RST's average cost per unit is the same at all levels of volume. Which of the following is

true?

a. RST must have only variable costs.

b. RST must have only fixed costs.

c. RST must have some fixed costs and some variable costs.

d. RST's cost structure cannot be determined from this information.

a. increases in steps as volume increases.

b. contains a fixed component and a variable component.

c. varies with more than one measure of volume.

d. cannot be accurately predicted.

a. cannot be a cost driver.

b. should be eliminated.

c. usually drives only variable costs.

d. cannot usually be observed by managers.

a. always gives close predictions.

b. will not work any better than one obtained using the high-low method.

c. can be used only for costs that vary with sales or production.

d. could be severely affected by outliers.

20. Which of the following do JIT operations try to eliminate?

a. Discretionary fixed costs.

b. Non-value-adding costs.

c. Avoidable costs.

d. Direct costs.

a. variable costs, fixed costs, and overhead costs.

b. materials, direct labor, and overhead.

c. purchases, wages, and manufacturing overhead.

d. wages and salaries, maintenance and repairs, utilities, and depreciation.

22. Fixed costs that managers can change on short notice are

a. value-adding costs.

b. variable costs.

c. unavoidable costs.

d. discretionary costs.

23. A(n) __________ relationship is one that appears to exist even though there is no causal

relationship.

a. Correlation.

b. Outlier.

c. Spurious.

d. Value-added.

a. is not necessary with regression analysis.

b. is the same as identifying cost pools.

c. is an important part of cost management.

d. is useful only with step-variable costs.

a. total fixed costs remain constant and per-unit fixed costs increase.

b. total fixed costs remain constant and per-unit fixed costs decrease.

c. total fixed costs remain constant and per-unit fixed costs remain constant.

d. total fixed costs increase and per-unit fixed costs increase.

a. can never be eliminated.

b. can be eliminated in the short-term and in the long-term.

c. can be eliminated in the long-term, but not in the short-term.

d. can be eliminated in the short-term, but not in the long-term.

a. committed.

b. common.

c. direct.

d. fixed.

a. associated with a specific activity.

b. always variable.

c. usually committed.

d. usually discretionary.

a. are usually unavoidable.

b. are not necessary for successful operations.

c. can be either direct or indirect.

d. should be the first ones cut in a cost-reduction program.

30. Predicting costs at activity levels that are outside the relevant range is called

a. association.

b. correlation.

c. extrapolation.

d. none of the above.

P P

| * * | **

| * * * | ** *

| * * * * | * *

| * * | * *

| |

| |

|__________________ |__________________

activity activity

Cost A Cost B

b. cost B will be easier to predict than cost A.

c. cost A is out-of-control.

d. cost B has no fixed component.

32. The closeness of the relationship between the cost and the activity is called

a. correlation.

b. spurious.

c. regression analysis.

d. manufacturing overhead.

a. the spurious relationship between cost and activity.

b. the fixed cost component.

c. the variable cost per unit of activity.

d. how well the regression line accounts for the changes in the dependent variable.

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