6.Cost Behaviour - II

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Cost Behavior - II 1. The following information was taken from the accounting records of the Belmont Shoe Company for 2007. Production in units Sales in units Sales price per unit Unit Variable costs: Manufacturing Non Manufacturing Fixed Costs: Manufacturing Non Manufacturing

250,000 175,000 $25 $7 4 $200,000 250,000

There was no beginning work-in process inventory and no beginning finished goods inventory. What is the 2007 Cost of Goods sold using variable costing? a) b) c) d) e)

$1,225,000 $1,365,000 $1,925,000 $2,450,000 none of the above 175,000×$7.8 = $1,365,000

2. Information taken from Mohawk Paper Company’s records for the most recent years is as follows. Direct material used Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative costs Fixed selling and administrative costs

$290,000 100,000 50,000 80,000 40,000 20,000

a) The inventorial costs for the year using variable costing methods is a) $440,000 b) $480,000

2 c) $490,000 d) $520,000 290,000+100,000+50,000 = $440,000 b) The inventorial costs for the year using absorption costing methods is a) b) c) d)

$440,000 $480,000 $490,000 $520,000 290,000+100,000+50,000+ 80,000 = $520,000

3. Bell Company has provided the following data for maintenance costs.

Machine hours incurred Maintenance cost incurred

April 12,000 $24,000

May 16,000 $26,000

Using the high-low method, what is the cost formula for maintenance cost? a) b) c) d)

$2.00 per machine hour $1.625 per machine hour $18,000 plus $0.50 per machine hour $24,000 plus $0.50 per machine hour

4. Indiana Corporation produces a single product that it sells for $9 per unit. During the first year of operations, 100,000 units were produced and 90,000 units were sold. Manufacturing costs and selling and administrative expenses for the year were as follows: Raw material Direct labor Factory overhead Selling and administrative

Fixed Costs 0 0 $100,000 $70,000

Variable Costs $1.75 per unit produced $1.25 per unit produced 0.50 per unit produced 0.60 per unit sold

What was Indiana Corporation’s operating income for the year using variable costing? a) $181,000 b) $271,000 c) $281,000

3 d) $371,000 e) None of the above MM = (90,000×$9) – (90,000×$3.5) = $495,000 CM = $495,000 – ( 90,000× 0.6) = $441,000 OI = $441,000 - $170,000 = $271,000 5. Selected information about Buehler Corporation’s operations at high and at low Level. Level of activity Low High Number of units produced 25,000 30,000 Total manufacturing costs $575,000 $680,000 Direct material cost per unit $5 $5 Direct labor cost per unit $6 $6 What is the cost formula for manufacturing overhead? a) b) c) d) e)

$50,000 per period plus $10 per unit $50,000 per period plus $21 per unit $50,000 per period plus $22 per unit $347,000 per period plus $0.10 per unit None of the above

VC per unit = $50,000÷5,000 = $10 FC = $50,000

$350,000 = FC + $10×300,000 TC = $50,000 +$10 × number of units

6. Germaine’s Crushing service provided the following Monthly Handling Costs $19,000 $23,700 $30,000

Miles travelled 20,000 28,000 40,000

Using the high-low method, how much of Germaine’s handling cost is made up of fixed costs? a) b) c) d)

$7,250 $8,000 $9,000 $11,000

$30,000 - $19,000 = $11,000 40,000 - 20,000 = 20,000

4 VC per unit = 11,000 ÷ 20,000 = 0.55 30,000 = FC + 40,000 × 0.55 FC = $8,000 7. Randazzo Inc. budgeted $1,550 for electricity cost during October using a mixed cost formula of y = $800 + $0.60 X where X is machine hour. The company planned to produce 5,000 units of product during that month. Actual electricity cost for the month was $1,810; actual machine hours were 15,200; and actual production was 6,050 units. The most useful analysis of electricity cost for the month would indicate that Randazzo Inc. was a) b) c) d)

$260.0 over budget $157.50 over budget $98.00 over budget $102.50 under budget

8. A manufacturing company that produces a single product has provided the following data concerning the most recent month of operations: Selling Price Units in the beginning inventory Units produced Units sold Units in the ending inventory Fixed Costs Fixed manufacturing overhead Fixed selling and administrative

$104 0 1,700 1,400 300

Variable costs per unit: Direct materials Direct labor Variable MOH Variable S & A

$6,800 $8,400

What is the net operating income for the month under absorption costing? a) $18,400 b) ($4,400) c) $16,600 d) $19,600 9. Alexander Company is estimating its budget expense for cleaning uniforms. The formula to estimate this monthly cost is: Uniform cleaning = $16,560 + $ 0.09 X Where X = number of direct labor hours

$38 $32 $6 $4

5 This estimate includes 42,800 of depreciation. How much will be included in the pro forma income statement for cleaning uniforms in May if the firm expects 144,000 direct labor hours in that month? a) b) c) d)

$12,960 $26,720 $29,520 $32,320

P = 16,560 + 0.09×144,000 = $29,520 = 29,520 – 2,800 = 26,720 10. Wild Berry Toppings produces blackberry jelly. The following information pertains to first year operations. Sales price per jar Production Costs: Direct material (per jar) Direct labor (per jar) Variable Manufacturing overhead (per jar) Annual fixed manufacturing overhead Selling and administrative costs: Variable (per jar) Annual fixed costs

$2.00 $ 0.50 $0.40 $0.10 $600,000 $0.25 $150,000

During the year, the firm produced 1,000,000 jars of jelly and sold 700,000. At year end, there was no work in process inventory. a) If the company uses absorption costing, what is cost of goods sold? a) b) c) d)

$700,000 $805,000 $ 1,120,000 $1,600,000

b) If the company uses variable costing what is the total product contribution margin? a) $280,000 b) $595,000

6 c) $700,000 d) $850,000 11. Last year, Ben Company’s operating income under absorption costing was $4,400 lower than its operating income under variable costing. The company sold 8,000 units during the year, and its variable costs were $8 per unit, of which $3 was variable selling expense. Fixed manufacturing overhead was $1 per unit in beginning inventory under absorption costing. How many units did the company produce during the year? a) b) c) d)

3,600 units 7,120 units 7,450 units 12,400 units

12. Wang Company provides the following information for their first year of operations. Sales Selling and administrative Costs: Fixed Variable Variable production costs per unit: Direct materials Direct labor Variable overhead Fixed factory overhead Production

5,000 units @ $10 $ 1,000 $1 per unit $2 $2 $1 $7,500 7,500 units

If Wang uses absorption costing, cost of goods sold would be a) $20,000 b) $ 25,000 c) $ 30,000 d) $ 36,000

7 b) If Wang uses variable costing. Operating income would be: a) $11,500 b) $14,000 c) $ 16,500 d) $ 20,000 13. Wombat Ltd requires sales of $2,000,000 to cover its fixed costs of $900,000 and to earn net profit of $400,000.What percentage are variable costs of sales? a) 20 % b) 35% c) 45% d) 65% 14. Comparative income statements for Boggs Sporting Equipment Company for the two months are presented below:

Sales in units Sales Revenue Less CGS Gross Margin Less: Operating Expenses: Rent Sales Commissions Maintenance Expenses Clerical Expenses Total operating expenses Operating Income

July 11,000 $165,000 72,600 92,400

August 10,000 $150,000 66,000 84,000

12,000 13,200 13,500 16,000 54,700 $37,700

12,000 12,000 13,000 15,000 52,000 $32,000

All of the company’s costs are either fixed, variable, or a mixture of the two (that is,mixed), Assume that the relevant range includes all of the activity levels mentioned in this problem. What is the total monthly fixed cost for Boggs Sporting Equipment Company? a) b) c) d) e)

$ 12,000 $ 22,500 $ 25,000 $ 40,000 None of the above