Chapter 6

What is the total cost at an activity level of 5,000 units if y = $12,000 + $3x? $12,000 $30,000 $15,000 $27,000

$27,000

Chip's Woodworking manufactures and sells specialty wood plaques. The production manager reported that the company needs to produce an additional 1,000 plaques to meet customer demand in January. The managerial accountant needs to prepare an external report to show the inventoriable product cost per unit under the absorption costing system. Which of the following represents the cost per unit to produce an additional 1,000 plaques under the absorption costing system? Use the following data to compute your answer. Chips Woodworking Manufacturing Cost Report January Direct materials: $6 Direct labor: $10 Fixed manufacturing overhead: $6,000 Variable manufacturing overhead: $6 Fixed operating expenses (selling, general, and administrative): $2,000 Variable operating expenses (selling, general, and administrative : $2 Unit Cost: ? $30 $24 $22 $28

$28 Unit product cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead Fixed Manufacturing Overhead = Fixed Manufacturing Overhead / Number of new units = $6 + $10 + $6 + ($6,000/1,000) = $22 + 6 = $28/unit

Mike's Bike Shop rents mopeds to tourists at the beach. The old manager charged $20 per day plus $0.05 per mile. The new manager wants to change the marketing strategy and charge $15 per day and exclude the extra $0.05 per mile. What type of costs are most important to consider when the new manager plans to lower the charges to customers? - Mixed costs - Sunk costs - Variable costs - Fixed costs

Fixed costs. The new manager needs to consider fixed costs to make sure that the new, lower charge is sufficient to cover those costs. The other answer choices are incorrect.

Which of the following is a TRUE statement about the graphing of variable costs? - The horizontal axis (x-axis) of a graph represents the total variable costs. - The vertical axis (y-axis) represents the total volume of activity. - Graphs of variable costs begin at the point that represents zero volume and zero cost. - The slope of the variable cost line represents the mixed cost per unit of activity.

Graphs of variable costs begin at the point that represents zero volume and zero cost.

________ is/are an example of a committed fixed cost expense. - Property taxes on company-owned real estate - Research and development (R & D) - An advertising campaign - Capital investments

Property taxes on company-owned real estate

________ are treated as product costs under the variable costing method. - Variable production costs - Variable and fixed manufacturing costs - Direct costs - Variable costs

Variable production costs

Account analysis is ________. - a method to determine cost behavior that is based on two data points: the highest and lowest volumes of activity. - a statement that organizes costs by behavior (variable costs or fixed costs) rather than by function. - a method to determine cost behavior that is based on a manager's judgment in classifying each general ledger account as a variable, fixed, or a mixed cost. - a statistical procedure for determining the line that best fits the data by using all of the historical data points

a method to determine cost behavior that is based on a manager's judgment in classifying each general ledger account as a variable, fixed, or a mixed cost. A contribution margin income statement is an income statement that organizes costs by behavior (variable costs or fixed costs) rather than by function. Regression analysis is a statistical procedure to determine the line that best fits the data by using all of the historical data points, not just the high and low data points. The high-low method is a method to determine cost behavior that is based on two historical data points: the highest and lowest volumes of activity.

The total variable costs ________. - increase but not in direct proportion to increases in volume - are plotted on the vertical axis (y-axis) of a graph - stay constant over a wide range of volume - are inversely proportional on a per-unit basis

are plotted on the vertical axis (y-axis) of a graph. The total variable costs are plotted on the vertical axis (y-axis) of a graph. The total volume is plotted on the horizontal axis (x-axis) of a graph. Total fixed costs are inversely proportional on a per-unit basis. Total fixed costs instead of total variable costs stay constant over a wide range of volume.

Variable costing is also known as ________. - direct costing - product costing - contribution costing - indirect costing

direct costing

Under variable costing, a unit of a product includes ________. - direct materials, direct labor, variable overhead, and fixed overhead costs - indirect labor, and fixed overhead costs - direct materials, direct labor, and variable - overhead costs - direct materials and direct labor

direct materials, direct labor, and variable overhead costs

A unit of product under absorption costing includes ________. - direct materials, direct labor, and fixed overhead costs - direct materials, direct labor, and variable - overhead costs - direct materials and direct labor - direct materials, direct labor, variable overhead, and fixed overhead costs

direct materials, direct labor, variable overhead, and fixed overhead costs

When sales exceed production, the net operating income reported under variable costing is ________. - greater than the net operating income reported under absorption costing - less than net operating income reported under absorption costing - higher or lower because no generalization can be made - equal to the net operating income reported under absorption costing

greater than the net operating income reported under absorption costing. When sales exceed production, the net operating income reported under variable costing generally is greater than the net operating income reported under absorption costing because under variable costing, the cost of goods sold amount is less than under absorption costing. Under variable costing, fixed costs are expensed as period costs, not part of cost of goods sold. The other answer choices are incorrect.

A committed fixed cost ________. - is a cost that occurred in the past and cannot be recovered - is a cost over which management has some control because the cost is a result of an annual management decision - is the estimated or predetermined cost a manager normally uses to compare to an actual cost - is a cost over which management has little or no control in the short run

is a cost over which management has little or no control in the short run. A fixed cost is a cost over which management has little or no control in the short run. A discretionary fixed cost, such as an advertising expense, is a result of an annual management decision. Companies have more control over discretionary fixed costs. A standard cost is the estimated or predetermined cost a manager normally uses to compare to an actual cost. A sunk cost is a cost that occurred in the past and cannot be recovered. A sunk cost is usually not pertinent in a manager's decision-making process.

An advantage of account analysis is ________. - the quantitative nature of the method - the use of multiple data points - its correlational design - its simplicity

its simplicity. Account analysis is not quantitative. Moreover, account analysis is subjective instead of objective. A correlational design shows the relationship among variables and is characteristic of quantitative analysis.

The R-square statistic is often referred to as a "goodness of fit" statistic because it describes the _______. - regression line fit of the data points - intercept coefficient - weight of the variables - X variable 1 coefficient

regression line fit of the data points

When using a variable costing system, the contribution margin (CM) is calculated as the excess of ________. projected revenues over the breakeven revenues over variable costs revenues over fixed costs variable costs over fixed costs

revenues over variable costs