Multiple choice - one point each,
1. Within the relevant range, which of the following statements is true with respect to fixed costs per unit?
A) They will increase as production increases,
B) They will decrease as production decreases.
C) They will decrease as production them
D) They will remain the same as production levels change,
2. Ajax uses the high-low method of estimating costs. Ajax had total costs of $50,000 at its lowest level of activity, when 5,000 units were sold. When, at its highest level of activity, sales equaled 12,000 units, total costs were $78,000. Ajax would estimate variable cost per unit as
A. $10.00
B. $6.50
C. $4.00
D. $7.53
3. For external reporting purposes, U.S. CARP allows companies to use
A) either the absorption format or the contribution margin format as long as they stay consistent.
B) the contribution margin format of the income statement.
C) the absorption format of the income statement.
D) the variable costing format of the income statement.
4. The contribution margin income statement presents above the contributien margin line.
A) only variable expenses relating to cost of goods sold/product activities
B) only fixed expenses relating to cost of goods sold/product activities
C) all fixed expenses
D) all variable expenses
5. A step cost
A. is a fixed cost over the relevant rat, and a variable cost everywhere else.
B. contains both fixed and variable components.
C. increases in direct proportion to changes in activity.
D. is fixed over some range of activity.
6. Which is true about a scatter plot?
A) If there is a strong relationship between cost and volume, the points will fall in a linear pattern.
B) If there is a strong relationship between cost and volume, the points will fall in a scattered pattern.
C) Cost and volume have no effect on the pattern of the points on a scatter plot.
D) A strong relationship between production and inventory is shown by a linear pattern.
7. Which method are managers using when they use their judgment to classify costs as variable, fixed, or mixed?
A) High-low method
B) Account analysis
C) Regression analysis
D) Low-high method
8. What are scatter plots useful for?
A) Estimating fixed costs using the high and low activity points in a set of data
B) Determining the overall strength of the relationship between historical cost and volume
C) Accurately predicting fixed costs
D) Accurately predicting variable cos.
9. If sales revenue doubles, variable costs will
A. decrease in total.
B. increase in total.
C. decrease on a per unit basis.
D. increase on a per unit basis.
10. Boostre, Inc. places a quality assurance logo on each of its units. To use this logo, it must pay the quality assurance firm $5,000 per month plus $1 per unit. The cost to Boostre of using the quality assurance logo would be a
A. fixed cost.
B. mixed cost.
C. variable cost.
D. step cost
11. When Sherka, Inc. sells 40,000 units, its total fixed cost is $96,000. What is its total fixed cost when it sells 45,000 units?
A. $84,000
B. $96,000
C. $108,000
D. It cannot be determined from the information given.
12. Jones Ice Cream Stand Is operated by Mr. Jones and experiences different sates patterns throughout the year. To plan for the future, Mr. Jones wants to determine its cost behavior patterns. He has the following Mformation available about the ice cream stand's operating costs and the number of soft serve cones served.
|
Month
|
Number of ice cream cones
|
Total Operating costs
|
|
April
|
800
|
$950
|
|
May
|
825
|
$875
|
|
June
|
1,125
|
$1,000
|
|
July
|
2,000
|
$1,250
|
|
August
|
1,500
|
$1,875
|
|
September
|
900
|
$1,500
|
Using the high-low method, determine the following - 6 points - Show your work!
1) Variable cost per ice cream cone
2) Total fixed cost.
3) The predicted operating costs in a month where 1,000 ice cream cones are served.
13. Burble, Inc. used Excel to run a least-squares regression analysis, which resulted in the following:
|
Regression Statistics
|
|
|
|
Multiple R
|
0.7225
|
|
|
|
|
R Square
|
0.85
|
|
|
|
|
Observations
|
30
|
|
|
|
|
Coefficients
|
Stiondard
|
T State
|
P-Value
|
|
Intercept
|
38000
|
3603
|
2.84
|
0.021
|
|
Production (X)
|
5.75
|
0.4641
|
14.51
|
0
|
a. What is litirble's total fixed cost,
b. What is Burble's variable cost per unit?
c. Would you recommend that management use this activity to determine/predict costs? EXPLAIN your answer; what item(s) above did you use for your recommendation?
14. Sally's Gift Baskets sells gift baskets for 5125 each. Each gift basket costs $60 for its DM, DI., and Variable MOH. Debby pays 81,330 per month in fixed manufacturing costs, $1,000 in fixed selling and administrative costs, and variable selling expenses in the form of sales commis/done of 5% of the sales price. In May, 140 gilt baskets were made and sold.
Complete the following - Show your worlk
a. Under the absorption method, calculate gross profit AND operating income for May (make sure you label each).
b. Under the variable method, calculate contribution margin AND operating income for May (make sure you label each).