Cost Accounting Ch 4(2)

Which one of the following categories of cost is most likely not considered a component of fixed factory overhead? A. Power. B. Property taxes. C. Depreciation. D. Rent.

A. Power.

A company's master budget for the year planned that the company would manufacture and sell 2,000 units for €500,000 in sales, €350,000 in variable expenses, and €45,000 in fixed expenses. If the company only manufactured and sold 1,750 units during the year, how much is the company's flexible budget operating income? A. €91,875 B. €86,250 C. €105,000 D. €42,500

B. €86,250

Question: 18 The sum of the costs necessary to effect a one-unit increase in the activity level is a(n) A. Incremental cost. B. Opportunity cost. C. Differential cost. D. Marginal cost.

D. Marginal cost.

A corporation has the following information for the first quarter of its year: Machine Hours Cleaning Expense January 2,100 $ 900 February 2,600 1,200 March 1,600 800 April 2,000 1,000 Using the high-low method, what is the corporation's fixed cost? A. $640 B. $160 C. $1,040 D. $320

B. $160

A company reported the following cost information for the last fiscal year when it produced 100,000 units. Direct labor $200,000 Direct materials 100,000 Manufacturing overhead 200,000 Selling and administrative expenses 150,000 All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expenses. Using flexible budgeting, what are the total costs associated with producing and selling 110,000 units? A. $450,000 B. $695,000 C. $715,000 D. $650,000

B. $695,000

Management has prepared a graph showing the total costs of operating branch warehouses throughout the country. The cost line crosses the vertical axis at $200,000. The total cost of operating one branch is $350,000. The total cost of operating ten branches is $1,700,000. For purposes of preparing a flexible budget based on the number of branch warehouses in operation, what formula should be used to determine budgeted costs at various levels of activity? A. Y = $200,000 + $170,000X B. Y = $350,000 + $200,000X C. Y = $350,000 + $150,000X D. Y = $200,000 + $150,000X

D. Y = $200,000 + $150,000X

A company recorded the following production costs during the previous two-week period: Week 1 Week 2 Direct labor costs $17,000 Direct labor costs $19,500 Other manufacturing costs 25,000 Other manufacturing costs 28,000 Units produced 5,000 Units produced 6,000 Assuming both weeks fall in the same relevant range, what was the total fixed cost during Week 1? A. $5,500 B. $25,000 C. $26,500 D. $14,500

D. $14,500

Production levels are expected to increase within the relevant range. What are the anticipated effects on the following? Fixed Costs Variable Costs per Unit per Unit A. Decrease No change B. Increase No change C. Increase Increase D. Decrease Decrease

A. Decrease No change

Fact Pattern: A company wants to determine its marketing costs for budgeting purposes. Activity measures and costs incurred for 4 months of the current year are presented in the table below. Advertising is considered to be a discretionary cost. Salespersons are paid monthly salaries plus commissions. The sales force was increased from 20 to 21 individuals during the month of May. March April May June Activity measures: Sales orders 2,000 1,800 2,400 2,300 Units sold 55,000 60,000 70,000 65,000 Dollar sales $1,150,000 $1,200,000 $1,330,000 $1,275,000 Marketing costs: Advertising $ 190,000 $ 200,000 $ 190,000 $ 190,000 Sales salaries 20,000 20,000 21,000 21,000 Commissions 23,000 24,000 26,600 25,500 Shipping costs 93,000 100,000 114,000 107,000 Total costs $ 326,000 $ 344,000 $ 351,600 $ 343,500 Question: 15 Which of the following most appropriately describes the classification and behavior of shipping costs? Classification Behavior A. Mixed cost $16,000 per month plus $1.40 per unit sold B. Mixed cost $58,000 per month plus $23.33 per sales order C. Variable cost $1.66 per unit sold D. Mixed cost $30,000 per month plus $35.00 per sales order

A. Mixed cost $16,000 per month plus $1.40 per unit sold

Fact Pattern: Jackson Co. has the following information for the first 4 months of this year: Machine Cleaning Hours Expense January 2,100 $ 900 February 2,600 1,200 March 1,600 800 April 2,000 1,000 Question: 17 Using the high-low method, what is Jackson's variable cost of cleaning per machine hour? A. $.40 B. $2.50 C. $.48 D. $2.00

A. $.40

A company has the following budget formula for annual electricity expense in its shop: Expense = $7,200 + (Units produced × $0.60) If management expects to produce 20,000 units during February, for the purpose of performance evaluation, what amount of expenses should the company expect to incur in February? A. $12,600 B. $7,200 C. $12,000 D. $19,200

A. $12,600

An entity estimates its total materials handling costs at two production levels as follows: Cost Gallons $160,000 80,000 $132,000 60,000 What is the estimated total cost for handling 75,000 gallons? A. $153,000 B. $146,000 C. $165,000 D. $150,000

A. $153,000

Over the past several years, an entity has experienced the following regarding shipping expenses: Fixed costs $16,000 Average shipment 15 pounds Cost per pound $.50 Shown below are the budget data for the coming year. Number of units shipped 8,000 Number of sales orders 800 Number of shipments 800 Total sales $1,200,000 Total pounds shipped 9,600 Expected shipping costs for the coming year are A. $20,800 B. $16,000 C. $4,800 D. $20,000

A. $20,800

A company produces a product that contains 9 ounces of materials in each unit of finished goods. During the production process, 4% of the materials evaporate. The company pays its suppliers $2 per ounce; the cost to ship the material to the company averages $0.20 per ounce. The standard dollar amount of raw materials contained in one unit of finished goods is A. $20.63 B. $19.80 C. $20.59 D. $18.75

A. $20.63

A company prepares a budget each month for manufacturing costs. Formulas have been developed for all costs within a relevant range of 5,000 to 15,000 units per month. The budget for electricity (a semivariable cost) is $19,800 at 9,000 units per month, and $21,000 at 10,000 units per month. How much should be budgeted for electricity for the coming month if 12,000 units are to be produced? A. $23,400 B. $25,200 C. $22,200 D. $26,400

A. $23,400

Fact Pattern: Jackson Co. has the following information for the first 4 months of this year: Machine Cleaning Hours Expense January 2,100 $ 900 February 2,600 1,200 March 1,600 800 April 2,000 1,000 Question: 40 Jackson's management expects machine hours for the month of May to be 1,400 hours. Given a variable portion of $.40 per machine hour and a fixed portion of $160 per month, what is their expected total cost for the month of May? A. $720 B. $760 C. $650 D. $560

A. $720

A fixed cost that would be considered a direct cost is A. A production supervisor's salary when the cost objective is the Production Department. B. Board of directors' fees when the cost objective is the Marketing Department. C. The rental cost of a warehouse to store inventory when the cost objective is the Purchasing Department. D. A cost accountant's salary when the cost objective is a unit of product.

A. A production supervisor's salary when the cost objective is the Production Department.

A company is determining the cost behavior of several items in order to budget for the upcoming year. Past trends have indicated the following dollars were spent at three different levels of output: Unit Levels 10,000 12,000 15,000 Cost A $25,000 $29,000 $35,000 Cost B 10,000 15,000 15,000 Cost C 15,000 18,000 22,500 In establishing a budget for 14,000 units, the company should treat Costs A, B, and C, respectively, as A. Semivariable, fixed, and variable. B. Semivariable, semivariable, and semivariable. C. Variable, semivariable, and semivariable. D. Variable, fixed, and variable.

A. Semivariable, fixed, and variable.

A company has discovered that the cost of processing customer invoices is strictly variable within the relevant range. Which one of the following statements concerning the cost of processing customer invoices is incorrect? A. The cost per unit for processing customer invoices will decline as the volume of customer invoices increases. B. The cost of processing the 100th customer invoice will be the same as the cost of processing the first customer invoice. C. The total cost of processing customer invoices will increase as the volume of customer invoices increases. D. The average cost per unit for processing a customer invoice will equal the incremental cost of processing one more customer invoice.

A. The cost per unit for processing customer invoices will decline as the volume of customer invoices increases.

A company has found that its total electricity cost has both a fixed component and a variable component within the relevant range. The variable component seems to vary directly with the number of units produced. Which one of the following statements concerning electricity cost is incorrect? A. The total electricity cost per unit of production will increase as production volume increases. B. The fixed electricity cost per unit of production will decline as production volume increases. C. The variable electricity cost per unit of production will remain constant as production volume increases. D. The total electricity cost will increase as production volume increases.

A. The total electricity cost per unit of production will increase as production volume increases.

Fact Pattern: In preparing the annual profit plan for the coming year, Wilkens Company wants to determine the cost behavior pattern of the maintenance costs. Wilkens has decided to use linear regression by employing the equation y = a + bx for maintenance costs. The prior year's data regarding maintenance hours and costs, and the results of the regression analysis, are given below and in the opposite column. Average cost per hour $9.00 a 684.65 b 7.2884 Standard error of a 49.515 Standard error of b .12126 Standard error of the estimate 34.469 r2 .99724 Hours of Maintenance Activity Costs January 480 $ 4,200 February 320 3,000 March 400 3,600 April 300 2,820 May 500 4,350 June 310 2,960 July 320 3,030 August 520 4,470 September 490 4,260 October 470 4,050 November 350 3,300 December 340 3,160 Sum 4,800 $43,200 Average 400 $ 3,600 Question: 33 If Wilkens Company uses the high/low method of analysis, the equation for the relationship between hours of activity and maintenance cost would be A. y = 570 + 7.5x B. y = 3,600 + 400x C. y = 570 + 9.0x D. y = 400 + 9.0x

A. y = 570 + 7.5x

Fact Pattern: A company wants to determine its marketing costs for budgeting purposes. Activity measures and costs incurred for 4 months of the current year are presented in the table below. Advertising is considered to be a discretionary cost. Salespersons are paid monthly salaries plus commissions. The sales force was increased from 20 to 21 individuals during the month of May. March April May June Activity measures: Sales orders 2,000 1,800 2,400 2,300 Units sold 55,000 60,000 70,000 65,000 Dollar sales $1,150,000 $1,200,000 $1,330,000 $1,275,000 Marketing costs: Advertising $ 190,000 $ 200,000 $ 190,000 $ 190,000 Sales salaries 20,000 20,000 21,000 21,000 Commissions 23,000 24,000 26,600 25,500 Shipping costs 93,000 100,000 114,000 107,000 Total costs $ 326,000 $ 344,000 $ 351,600 $ 343,500 Question: 29 In relation to the dollar amount of sales, which of the following cost classifications is appropriate for advertising and sales salaries costs? Advertising Sales Salaries A. Fixed cost Variable cost B. Fixed cost Fixed cost C. Mixed cost Mixed cost D. Variable cost Fixed cost

B. Fixed cost Fixed cost

An entity has the following cost components for 100,000 units of product for the year: Direct materials $200,000 Direct labor 100,000 Manufacturing overhead 200,000 Selling and administrative expense 150,000 All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expenses. The total costs to produce and sell 110,000 units for the year are A. $650,000 B. $695,000 C. $715,000 D. $540,000

B. $695,000

The relevant range refers to the activity levels over which A. Costs fluctuate. B. Cost relationships hold constant. C. Relevant costs are incurred. D. Production varies.

B. Cost relationships hold constant.

Within the relevant range, fixed cost per unit will A. Increase as the activity level increases. B. Decrease as the activity level increases. C. Remain the same as the activity level decreases. D. Decrease as the activity level decreases.

B. Decrease as the activity level increases.

The controller of an online retailer has negotiated a five-year contract with a shipping company to pay the following amounts annually for the delivery of its goods, regardless of the amount: Year 1 €1,000,000 Year 2 1,000,000 Year 3 1,500,000 Year 4 1,500,000 Year 5 2,000,000 What type of costs are these shipping expenditures? A. Variable. B. Fixed. C. Mixed. D. By-product.

B. Fixed.

A company pays each member of its sales staff a salary as well as a commission on each unit sold. For the coming year, the company plans to increase all salaries by 5% and to keep unchanged the commission paid on each unit sold. Because of increased demand, the company expects the volume of sales to increase by 10%. How will the total cost of sales salaries and commissions change for the coming year? A. Increase by 5% or less. B. Increase by more than 5% but less than 10%. C. Increase by 10%. D. Increase by more than 10%.

B. Increase by more than 5% but less than 10%.

Which one of the following is correct regarding a relevant range? A. The relevant range cannot be changed after being established. B. Total fixed costs will not change. C. Total variable costs will not change. D. Actual fixed costs usually fall outside the relevant range.

B. Total fixed costs will not change.

A manufacturing company estimates semi-variable costs by using the high-low method with machine hours as the cost driver. Recent data are shown below. Period Semi-Variable Costs Machine Hours 1 € 100,000 22,000 2 120,000 30,000 3 96,000 23,600 If 29,000 machine hours were budgeted for the next period, estimated semi-variable costs would total A. €117,000 B. €117,500 C. €116,250 D. €121,220

B. €117,500

A management accountant is about to prepare graphs of total variable cost and per-unit variable cost for use in a short-term planning model. Dollars will be depicted on the vertical axis; activity will be shown on the horizontal axis. How will these graphs appear under completion? Total Variable Cost Per-Unit Variable Cost A. Curvilinear, sloping upward to the right. A line that basically parallels the horizontal axis, first decreasing and then increasing. B. Straight line, parallel to the horizontal axis. Straight line, sloping upward to the right. C. Straight line, sloping upward to the right. Straight line, parallel to the horizontal axis. D. Straight line, sloping upward to the right. Straight line, sloping upward to the right.

C. Straight line, sloping upward to the right. Straight line, parallel to the horizontal axis.

A company uses the following formula for annual maintenance costs: Total cost = $6,000 + $0.70 per machine hour The current month's budget is based on planned machine time of 30,000 hours. Monthly maintenance cost included in this budget is A. $20,500 B. $27,000 C. $21,500 D. $21,000

C. $21,500

A corporation wishes to determine the fixed portion of its maintenance expense (a semivariable expense), as measured against direct labor hours, for the first 3 months of the year. The inspection costs are fixed; the adjustments necessitated by errors found during inspection account for the variable portion of the maintenance costs. Information for the first quarter is as follows: Direct Labor Hours Maintenance Expense January 34,000 $610 February 31,000 $585 March 34,000 $610 What is the fixed portion of maintenance expense, rounded to the nearest dollar? A. $258 B. $283 C. $327 D. $541

C. $327

A firm operated four sales offices last year. The firm's costs were $400,000, of which $60,000 were fixed. The firm's total costs are significantly influenced by the number of sales offices it operates. Using last year's costs as the basis for predicting annual costs, what would the budgeted costs be if the firm operated six sales offices? A. $485,000 B. $600,000 C. $570,000 D. $510,000

C. $570,000

The controller of a company has requested a quick estimate of the manufacturing supplies needed for the month of July when production is expected to be 470,000 units to meet the ending inventory requirements and sales of 475,000 units. The company's budget analyst has the following actual data for the last 3 months: Production Manufacturing Month in Units Supplies March 450,000 $723,060 April 540,000 853,560 May 480,000 766,560 Using these data and the high-low method to develop a cost estimating equation, the estimate of needed manufacturing supplies for July would be A. $681,500 B. $652,500 C. $752,060 D. $749,180

C. $752,060

Which of the following is the best example of a variable cost? A. Interest charges. B. The corporate president's salary. C. Cost of raw material. D. Property taxes.

C. Cost of raw material.

The least exact method for separating fixed and variable costs is A. The least squares method. B. Computer simulation. C. The high-low method. D. Matrix algebra.

C. The high-low method.

An assembly plant accumulates its variable and fixed manufacturing overhead costs in a single cost pool, which is then applied to work in process using a single application base. The assembly plant management wants to estimate the magnitude of the total manufacturing overhead costs for different volume levels of the application activity base using a flexible budget formula. If there is an increase in the application activity base that is within the relevant range of activity for the assembly plant, which one of the following relationships regarding variable and fixed costs is true? A. The variable cost per unit is constant, and the total fixed costs increase. B. The variable cost per unit is constant, and the total fixed costs decrease. C. The variable cost per unit and the total fixed costs remain constant. D. The variable cost per unit increases, and the total fixed costs remain constant.

C. The variable cost per unit and the total fixed costs remain constant.

Which one of the following refers to a cost that remains the same as the volume of activity decreases within the relevant range? A. Unit fixed cost. B. Average cost per unit. C. Variable cost per unit. D. Total variable cost.

C. Variable cost per unit.

The difference between variable costs and fixed costs is A. Variable costs per unit change in varying increments, while fixed costs per unit change in equal increments. B. Variable costs per unit fluctuate and fixed costs per unit remain constant. C. Variable costs per unit are fixed over the relevant range and fixed costs per unit are variable. D. Total variable costs are variable over the relevant range and fixed in the long term, while fixed costs never change.

C. Variable costs per unit are fixed over the relevant range and fixed costs per unit are variable.

A company budgets its total production costs at $220,000 for 75,000 units of output and $275,000 for 100,000 units of output. Since additional facilities are needed to produce 100,000 units, fixed costs are budgeted at 20% more than for 75,000 units. What is the budgeted variable cost per unit of output? A. $1.20 B. $2.75 C. $2.20 D. $1.10

D. $1.10

A conglomerate outsources the cleaning of its theaters. The cleaning vendor's charges are based upon the total hours needed to clean the facilities, and more cleaning time is needed as more people attend the theater. The conglomerate has accumulated the following historical data. Month Cleaning Cost Number of Theater Tickets Sold April $11,000 19,700 May 9,000 17,000 June 15,600 28,000 July 15,000 29,000 The conglomerate anticipates selling 25,000 theater tickets in August. If the conglomerate uses the high-low method of separating costs into their fixed and variable components, the conglomerate's budget for August cleaning costs would be A. $13,800 B. $13,500 C. $13,400 D. $13,000

D. $13,000

A manufacturing company is in the process of preparing its flexible budget for next month's manufacturing costs. The company estimates costs within a relevant range of 10,000 to 30,000 units per month. During the last 2 months, electricity costs (a semivariable cost) were $39,600 for 18,000 units and $42,000 for 20,000 units. How much should be budgeted for electricity costs to produce 24,000 units? A. $44,400 B. $52,800 C. $50,400 D. $46,800

D. $46,800

When identifying fixed and variable costs, which one of the following is a typical assumption concerning cost behavior? A. The relevant time period is assumed to be 5 years. B. General and administrative costs are assumed to be variable costs. C. Cost behavior is assumed to be realistic for all levels of activity from zero to maximum capacity. D. Total costs are assumed to be linear when plotted on a graph.

D. Total costs are assumed to be linear when plotted on a graph.

An entity provides the following summary of its total budgeted production costs at three production levels: Volume in Units 1,000 1,500 2,000 Cost A $1,420 $2,130 $2,840 Cost B 1,550 2,200 2,900 Cost C 1,000 1,000 1,000 Cost D 1,630 2,445 3,260 The cost behavior of each of the Costs A through D, respectively, is A. Semivariable, variable, fixed, and variable. B. Variable, fixed, fixed, and variable. C. Variable, semivariable, fixed, and semivariable. D. Variable, semivariable, fixed, and variable.

D. Variable, semivariable, fixed, and variable.