1. For the automobile manufacturer, cost of a driver's side air bag purchased from the supplier and installed in every automobile would best be describeed as the:

a. fixed cost.
b. mixed cost.
c. step-variable cost.
d. variable cost.

2. XYZ Wool Company manufactures and sells sweaters. Last year, it operated at 100% of capacity and had cost formula for total manufacturing costs which is given below:

Y = $50,000 + $400X

Suppose no change in cost structure, what would cost formula of XYZ have been last year if they only operated at 90% of production capacity?

a. Y = $45,000 + $360X
b. Y = $45,000 + $400X
c. Y = $50,000 + $360X
d. Y = $50,000 + $400X

3. The management of ABC Corporation would like for you to analyze their repair costs, which are given below:

              Machine-Hours         Repair-Hours
April            4,459                      $98,523
May            4,426                      $98,296
June           4,493                       $98,781
July            4,417                       $98,207
August       4,432                       $98,349
September 4,446                       $98,420
October      4,489                      $98,749
November  4,475                      $98,654

Management believes that repair cost is the mixed cost which depends on number of machine-hours. Using the least-squares regression method, the estimates of variable and fixed components of repair cost would be closest to:

a. $22.11 per machine-hour plus $98,497 per month
b. $7.37 per machine-hour plus $65,670 per month
c. $8.19 per machine-hour plus $62,015 per month
d. $7.55 per machine-hour plus $64,859 per month

4. During a latest lengthy strike at ABC Manufacturing Company, management replaced striking assembly line workers with office workers. Assembly line workers were being paid $18 per hour while office workers are only paid $10 per hour. What is the most likely effect on labor variances in first month of this strike?

       Labor Rate Variance      Labor Efficiency Variance
A)       Unfavorable                           No effect
B)          No effect                           Unfavorable
C)        Unfavorable                             Favorable
D)         Favorable                            Unfavorable

a. Item A
b. Item B
c. Item C
d. Item D

5.  The journal entry given below:

Work in Process                               25,000
Direct Labor Efficiency Variance      1,200
Direct Labor Rate Variance               2,000
Accrued Wages Payable                   24,200

indicates that:

A. total labor variance was $800, unfavorable.
B. employees received the unexpected rate increase during the period.
C. more labor time was needed to complete output of period than was allowed at standard.
D. responses a and b are both correct.