ACC 202 Ch. 5

Below is the data from a regression analysis performed by Earth Right Spa on its overhead costs and clients for the past year. Use this information to answer the following questions. What will be the total overhead cost if 100 clients are served?

$10,111.84 explanation: The total overhead cost for 100 customers is the fixed cost of $6,825.84 (from Question #1) + ($32.86 per customer served (from Question #2) × 100 customers) = $10,111.84.

Knowledge Check 02 What is the variable cost per unit?

$3.00 explanation: Variable cost per unit = Difference in total cost ÷ Difference in activity = ($97,000 − $85,000) ÷ (9,000 − 5,000) = $3.00 per customer.

Below is the data from a regression analysis performed by Earth Right Spa on its overhead costs and clients for the past year. Use this information to answer the following questions. What is the variable overhead cost per client served?

$32.86 explanation: The variable overhead cost per customer served is the coefficient for Guests (×) of $32.86.

Below is an incomplete contribution margin income statement for Barry's Coffee Cakes. Use this information to answer the following questions. What is the unit contribution margin?

$5.00 explanation: The unit contribution margin is $5.00 ($100,000 ÷ 20,000 units).

Below is the data from a regression analysis performed by Earth Right Spa on its overhead costs and clients for the past year. Use this information to answer the following questions. Identify the fixed overhead cost per month from the data provided.

$6,825.84 explanation: The fixed overhead cost per month is the intercept of $6,825.84.

Knowledge Check 03 What is the total fixed overhead cost?

$70,000 explanation: You can choose either the high or low activity point to determine the fixed cost. Using the low activity point: Total cost of $85,000 = Total fixed cost + (variable cost per unit of $3 (from Question #2) × Low activity of 5,000) = $85,000 − $15,000 = $70,000. Or, Using the high activity point: Total cost of $97,000 = Total fixed cost + (variable cost per unit of $3 (from Question #2) × High activity of 9,000) = $97,000 − $27,000 = $70,000.

Below is an incomplete contribution margin income statement for Barry's Coffee Cakes. Use this information to answer the following questions. If there is no change in fixed costs, what will the net operating income be when 25,000 units are sold?

$95,000 explanation: Net operating income at 25,000 units = (Contribution margin of $5 per unit × 25,000 units) Fixed costs = $125,000 − $30,000 = $95,000.

Knowledge Check 01 What is the total overhead cost in the month with the highest activity?

$97,000 explanation: The month with the highest activity is June, with 9,000 customers, and the overhead cost incurred in that month is $97,000.

For each cost (definition) listed to the type of cost behavior (term):

1.Rent Fixed cost 2.Raw material Variable cost 3.Sales Salary with Commissions Mixed cost 4.Assembler paid hourly Variable cost explanation: Rent is a fixed cost since total rent does not change with the level of activity. Raw material and assembler costs (DL) are variable cost since their cost per unit does not change but their total costs increases or decreases with the change in units produced. Sales salary with commissions is a mixed cost since it contains both a fixed cost (salary) and a variable cost (commissions).

Below is an incomplete contribution margin income statement for Barry's Coffee Cakes. Use this information to answer the following questions. What is the contribution margin ratio?

67% explanation: The unit contribution margin is 67% ($100,000 ÷ 150,000).

In the equation y = a + b(x), y is the:

Dependent variable explanation: In the equation y = a + b(x), y is the dependent variable used to represent the total cost.

In the equation y = a + b(x), x is the:

Independent variable explanation: In the equation y = a + b(x), x is the independent variable and represents the cost driver. x is the activity that causes y (total cost) to change.

Which of the following is true of the linearity assumption?

It assumes that the relationship between total cost and activity can be approximated by a straight line. explanation: The linearity assumption assumes that the relationship between total cost and activity can be approximated by a straight line, as shown in the formula y = a + b(x).

The span at which the cost behaviors are expected to hold true is called:

Relevant range explanation: The relevant range is the activity range over which we expect our cost behaviors to hold true.