Managerial Accounting Test 2
As a firm starts to operate outside the relevant range, the accuracy of costs estimates for fixed and variable costs:
Fixed Variable decreases decreases
Which of the following are examples of a mixed cost? I. A building that is used for both manufacturing and sales activities. II. An employee's compensation, which consists of a flat salary plus a commission. III. Depreciation that relates to five different machines. IV. Maintenance cost that must be split between sales and administrative offices.
II.
Last year Barker Company's sales were $240,000, its fixed costs were $50,000, and its variable costs were $2 per unit. During the year, 80,000 units were sold. The contribution margin was:
Sales $240,000 -VC -$160,000 =CM (?) 80,000 -FC -$50,000 =OI $30,000
Cournot Company sells 100,000 wrenches for $12.00 a unit. Fixed costs are $300,000 and net income is $200,000. What should be reported as variable expenses in the contribution format income statement:?
Sales 1,200,000 -VC -(?)=700,000 =CM 500,000 -FC -300,000 =OI 200,000
Barton, Inc. had the following data for maintenance cost: 2002 2003 Machine hours incurred 12,000 16,000 Maintenance cost incurred $23,000 $29,000 The cost formula for maintenance within the relevant range shown above would be
VC per unit= (Change in cost/ change in activity) 6000/4000= $1.50 vc/unit TC = FC + (vc/u * units) 29,000 = FC + ($1.50 * 16,000) 29,000 = FC + 24,000 FC = 5,000 Answer: $5,000 plus $1.50 per machine hour
Etron Minerals shipped 8,000 tons of coal for $400,000 in February and 10,000 tons for $499,000 in March. Shipping costs for 11,000 tons expected to be shipped in April would be
$499,000-$400,000=$99,000 10,000-8,000=2,000 99,000/2000= $49.50 VC per unit TC = FC + (vc/u * units) 499,000 = FC + ($49.50 * 10,000) 499,000 = FC + 495,000 FC = 4,000 So, at 11,000 tons: TC = FC + (vc/u * units) TC = 4,000 + ($49.50 *11,000) TC = 548,500
In March, Espresso Express had electrical costs of $225.00 when the total volume was 4,500 cups of coffee served. In April, electrical costs were $227.50 for 4,750 cups of coffee. Using the HIGH-LOW METHOD, what is the estimated fixed cost of electricity per month?
4,750 cups- 4,500 cups= 250 cups $227.50-$225.00= 2.50 2.50/250 cups= $.01 per cup TC $227.50 -VC (4750x.01) $47.50 =FC $180
Variable Costs are costs that
Both vary in total directly and proportionately with changes in the activity level, and remain the same per unit at every activity level
The costs associated with a company's basic Facilities, Equipment, and Organization are known as
Committed Fixed Costs
Contribution margin:
is Both: revenue remaining after deducting variable costs And may be expressed on a per unit basis
An example of discretionary fixed cost is:
management training
Discretionary Fixed Costs
may be reduced for short periods of time with minimal damage to the long-run goals of the organization
FACTORY OVERHEAD taken as a whole would be a perfect example of
mixed cost
The traditional income statement required for external reporting
organizes costs by function rather than by behavior
The following are examples of committed fixed costs
property taxes depreciation on buildings salaries of management personnel
A company's cost formula for maintenance is Y = $4,000 + $3X, where X is machine hours. During a period in which 2,000 machine hours are worked, the expected maintenance cost would be:
Y= $4,000 + $3(2,000) Y= $10,000
The term "relevant range" means the range over which:
a particular cost assumption is valid
The following are typically classified as discretionary fixed costs
employee development (education) programs advertising charitable contributions
The Relevant Range is
the range over which total fixed costs is NOT expected to change
The cost of goods sold in a merchandising firm typically would be classified as a
variable cost
Mixed Costs consist of a
variable cost element and a fixed cost element
The classification of cost as Fixed, Variable, or Mixed is made
within a specified range of activity called the relevant range
