ACCT 2101 Chapter 5

Total cost is a combination of fixed and mixed costs.

False

Which of the following examples correctly correlates a unit of activity and a variable cost at a coffee shop chain?

Number of customers and disposable cups.

Which unit of activity makes laundry costs variable for Marriott Hotels?

Number of guests.

In the real world, the relationship between the behavior of a variable cost and changes in the level of activity is

curvilinear.

When a change in the activity level results in a non-direct and non-proportional change in the total variable cost, the relationship is said to be

curvilinear.

The cost of utilities would most likely be a ____________ cost

mixed cost

Clarissa is shopping for a new mobile phone plan. Plan A offers her a fixed rate of $25 per month for up to 400 minutes and $30 per month if she exceeds 400 minutes. Plan B offers a fixed rate of $20 per month for up to 250 minutes and $35 per month if she exceeds 250 minutes. What is Clarissa's average cost per minute for Plan A and Plan B if she uses 350 minutes?

$0.07 and $0.10.

Mike has switched mobile phone plans, and his new plan offers him a fixed monthly rate of $30 for up to 300 minutes. If Mike exceeds 300 minutes, his monthly rate is $40. What is Mike's average cost per minute if he uses 100 minutes, and what is his average cost per minute if he uses 400 minutes?

$0.30 and $0.10.

Peter has opened a small accounting practice and has decided to use FastBooks, a software program designed for small businesses. The licensing fee for FastBooks is $200 per year plus $15 per client for the first 20 clients and $10 per client for every client after the first 20. What is the total variable cost Peter will pay for FastBooks if he has 24 clients during his first year of operation?

$340

Connie is planning to rent a car for her upcoming three-day vacation. The car rental agency charges a flat fee of $35, plus $0.05 per mile driven. Connie plans to drive 135 miles to her vacation destination, to drive 120 miles while she's there, and then to return the car to the rental agency. What is Connie's total fixed cost for the car rental?

$35.00

Jackie owns a data analysis company. The data backup company she uses charges $3 per month for the first 50GB, $2 per month for the next 100GB, and $1 per month for every additional 200GB. In the first 6 months Jackie had less than 50GB of data, in months 7-9 she had 120 GB of data, and in months 10-12 she had 250GB of data. What is the total variable cost of data backup for Jackie in her first year?

$51

Mixed costs 1. Change in total but not proportionately with changes in activity level 2. Include depreciation on manufacturing equipment

1 only.

Mixed costs 1. Include both a variable and a fixed cost component 2. Remain the same per unit at every activity level

1 only.

Jenny's Cutting Station offers 15-minute haircuts for mall shoppers who do not have time for lengthy appointments. Each of Jenny's five employees is paid $1,200 per month, and each also receives tips from customers. Jenny pays rent and overhead costs of $2,000 per month. Shampoo, conditioner, and other products average $1.50 per client. The average price for a haircut is $12. Jenny pays herself $5,000 per month. What are Jenny's fixed costs for a month?

13,000

Bill plays golf at a private club that charges $100 per month and $25 per round of golf. Bill's total cost was $525 this month. How many rounds of golf did Bill play?

17 rounds of golf.

Ryan is a pilot. His local private airstrip charges him $250 per month for membership and airplane storage, and he must pay a flight fee of $50 for each flight he takes. Ryan's bill this month was $1,350. How many flights did he take?

22 flights

The Fitzhugh Corporation saw a 10% decrease in activity levels over the fourth quarter. You have been asked what other changes the company should expect as a result of this decrease. What will you report?

A 10% decrease in variable costs.

The Grelle Company's total variable costs increased by 30% in June. You have been asked what could have caused this increase. What will you report as a reason?

A 30% increase in activity levels.

Vermont Manufacturing has the following costs: Which of Vermont's costs are variable?

A and B.

Colter Company has the following costs: Which of Colter's costs are variable?

A and D.

In June, the Fitz Company noticed that its average fixed cost per unit increased significantly. You have been asked what may have caused the average fixed cost per unit to increase. What will you report?

A decrease in activity levels.

Last month, the Alexia Company experienced a sharp increase in its activity level; however, the company's total fixed cost did not change. You have been asked to determine what cost changes the company can expect as a result of the change in activity level. What will you report?

A decrease in average fixed cost per unit.

When a graph is prepared with total activity on the horizontal axis and total cost on the vertical axis, what will the line depicting a fixed cost look like?

A horizontal line beginning at the vertical axis.

Which of the following is an example of a fixed cost?

A supervision cost that is unchanged when of the number of hours worked or the amount of output produced changes.

Colter Company has the following costs:

C only.

Dilly Donuts has the following costs. Which would the company classify as variable? Select all that apply.

Coffee. Cups.

The Lake Bike Company has the following costs. Which would the company classify as fixed? Select the two that apply.

Depreciation. Rent.

Ken assembles and sells picnic baskets at local Farmers' Markets. Each basket contains food and drinks for two people. Ken's business depends on local events, and he may sell anywhere from 50 to 100 baskets per week. The following are Ken's costs based on the number of picnic baskets sold. Which is an example of a mixed cost?

Employee wages.

Nicole assembles and sells flower bouquets at special school events as a fundraiser for the school. Nicole sells anywhere from 25 to 200 bouquets per event. The following are Nicole's costs based on the number of bouquets sold. Which is an example of a mixed cost?

Fees and donations.

Property tax paid on a company warehouse is an example of what type of cost?

Fixed cost.

Quinn's Flowers sells 100 arrangements in the first week, 125 arrangements in the second week, and 150 arrangements in the third week. Over these three-weeks period, the weekly cost of Quinn remains the same and the cost per unit decreases every week. This is an example of what type of cost?

Fixed cost.

What type of costs are shown in the following table?

Fixed costs.

Which of the following methods uses only two data points to estimate the fixed and variable components of a mixed cost?

High-low method

Clark Company manufactures widgets. In January its delivery costs to customers were $80,000 when 40,000 units were produced while in February its delivery costs were $110,000 when 60,000 units were produced. What type of cost is Clark's delivery cost?

Mixed cost.

Doyle, Inc. manufactures chef's knives. Doyle delivers knives to restaurants throughout the United States. In July Doyle received a bill from its shipper for $56,000 associated with shipping 14,000 knives. In August, the bill from the shipper was $77,000 for delivering 16,000 knives. What type of cost is Doyle's delivery cost?

Mixed cost.

Last month, Pinnacle Industries manufactured 25,000 stepladders. The firm's total cost for making the ladders was $550,000. Of that amount, $350,000 was due to variable costs, and the rest was due to fixed costs. Next month, Pinnacle expects to manufacture 22,500 ladders. Assuming the firm's monthly fixed costs and variable costs per unit remain the same, which of the following statements is accurate?

Pinnacle's total manufacturing costs will drop to $515,000, and its average fixed cost per ladder will rise to $8.89.

Last month, Sprockets, Inc., manufactured 12,000 widgets. The firm's total cost for making the widgets was $240,000. Of that amount, $60,000 was due to fixed costs, and the rest was due to variable costs. Next month, Sprockets expects to manufacture 15,000 widgets. Assuming the firm's monthly fixed costs and variable cost per unit remain the same, which of the following statements is accurate?

Sprockets' average fixed cost per widget will drop to $4, and its total manufacturing costs will increase to $285,000.

Gill's Golf Gear (GGG) has compiled the following data for four of its costs. For Cost 2, what is the cost formula as determined by the high-low method?

Total cost = $10,000 + ($0.20 x quantity of units produced)

Gill's Golf Gear (GGG) has compiled the following data for four of its costs. For Cost 4, what is the cost formula as determined using the high-low method?

Total cost = $300,000 + ($2.00 x quantity of units produced)

How many data points are necessary to estimate costs using the high-low method?

Two

Which of the following would probably be a mixed cost?

Utilities.

A grocery store would classify plastic grocery bags as what type of cost?

Variable cost.

Doyle, Inc. manufactures chef's knives. Doyle sells knives to restaurants throughout the United States. In July Doyle received a bill from the local electric company for $117,600 when 20,000 knives were produced. In August, the bill from the electric company was $176,400 when 30,000 knives were produced. What type of cost is Doyle's electric cost?

Variable cost.

Which of the following costs are combined in order to determine total cost? Select the two that apply.

Variable costs. Fixed Costs

If the maintenance supervision cost in a manufacturing plant is $50,000, no matter how many hours the supervisor works or how much output is produced, this cost is

a fixed cost.

Variable costs include

direct labor.

The line depicting a fixed cost will look like _________________ if a graph is prepared with total activity on the horizontal axis and total cost on the vertical axis.

horizontal line beginning at the vertical axis

The total cost ___________________ for a fixed cost.

remains constant

the _____________ cost remains constant for a fixed cost.

total

Direct materials are a(n) ________ cost.

variable

Clark Company manufactures widgets. In January its utility costs were $168,000 when 40,000 units were produced while in February its utility costs were $252,000 when 60,000 units were produced. What type of cost is Clark's utility cost?

variable cost