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Exam 13: Analyzing Mixed Costs

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Question 31

Multiple Choice

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Andom Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total monthly fixed manufacturing cost is: (Round your intermediate calculations to 2 decimal places.)

A) $74,800
B) $54,100
C) $99,800
D) $33,400

E) B) and C)
F) All of the above

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Question 32

Multiple Choice

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One of Matthew Corporation's competitors has learned that Matthew has a total expense per unit of $1.50 at the 15,000 unit level of activity and total expense per unit of $1.45 at the 20,000 unit level of activity. Assume that the relevant range includes all of the activity levels mentioned in this problem. What would be the competitor's prediction of variable cost per unit for Matthew Corporation?

A) $1.30
B) $0.77
C) $1.50
D) $1.45

E) A) and C)
F) A) and B)

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Question 33

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The Blaine Corporation is a highly automated manufacturer. At an activity level of 6,000 machine setups, total overhead costs equal $240,000. Of this amount, depreciation totals $80,000 (all fixed) and lubrication totals $72,000 (all variable) . The remaining $88,000 of the total overhead cost consists of utility cost (mixed) . At an activity level of 9,000 setups, utility cost totals $112,000. Assume that the relevant range includes all of the activity levels mentioned in this problem. The total fixed overhead costs for Blaine Corporation are most likely closest to:

Recent maintenance costs of Divers Corporation are listed below: $\begin{array}{lcc} & \begin{array}{c}\text { Machine- } \\\text { Hours }\end{array} & \begin{array}{c}\text { Maintenance } \\\text { Costs }\end{array} \\\text { February } & 527 & \$ 5,144 \\\text { March } & 499 & \$ 5,033 \\\text { April } & 542 & \$ 5,220 \\\text { May } & 541 & \$ 5,196 \\\text { June } & 489 & \$ 4,973 \\\text { July } & 543 & \$ 5,200 \\\text { August } & 558 & \$ 5,288 \\\text { September } & 513 & \$ 5,060\end{array}$ Management believes that maintenance cost is a mixed cost that depends on machine-hours. Using the least-squares regression method, the estimate of the fixed component of maintenance cost per month is closest to:

Callander Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $140.50 per unit. The best estimate of the total variable cost per unit is: (Round your intermediate calculations to 2 decimal places.)

The least-squares regression method computes the regression line that minimizes the sum of the squared deviations from the plotted points to the line.

Compton Corporation is a wholesale distributor of educational CD-ROMs. The company's records indicate the following: Using the high-low method of analysis, what are the company's estimated total fixed selling and administrative expenses per year? (Round your intermediate calculations to 2 decimal places.)

The following data pertains to activity and maintenance cost for two recent periods: Maintenance cost is a mixed cost with both fixed and variable components. Using the high-low method, the cost formula for maintenance cost is: (Round your intermediate calculations to 2 decimal places.)

The engineering approach to the analysis of mixed costs involves a detailed statistical analysis of cost behavior using methods that minimize the squared errors.

Gamach Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $104.50 per unit. The best estimate of the total monthly fixed cost is:

Larker Brothers, Inc., used the high-low method to derive its cost formula for electrical power cost. According to the cost formula, the variable cost per unit of activity is $4 per machine-hour. Total electrical power cost at the high level of activity was $19,200 and at the low level of activity was $18,400. If the high level of activity was 3,300 machine hours, then the low level of activity was:

Electrical costs at one of Rome Corporation's factories are listed below: Management believes that electrical cost is a mixed cost that depends on machine-hours. Using the high-low method, the estimate of the variable component of electrical cost per machine-hour is closest to:

Deidoro Company has provided the following data for maintenance cost: Maintenance cost is a mixed cost with variable and fixed components. The fixed and variable components of maintenance cost are closest to: (Round your intermediate calculations to 2 decimal places.)

One of Matthew Corporation's competitors has learned that Matthew has a total expense per unit of $1.50 at the 15,000 unit level of activity and total expense per unit of $1.45 at the 20,000 unit level of activity. Assume that the relevant range includes all of the activity levels mentioned in this problem. What would be the competitor's prediction of total fixed cost per period? (Round your intermediate calculations to 2 decimal places.)

Edal Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total variable manufacturing cost per unit is: (Round your intermediate calculations to 2 decimal places.)

Which of the following statements is true when referring to the high-low method of cost analysis?

Butler Sales Company is a distributor that has an exclusive franchise to sell a particular product made by another company. Butler Sales Company's traditional format income statements for the last two years are given below: $\begin{array}{lrr} & \text { This Year } & \text { Last Year } \\\text { Units sold } & 200,000& 160,000 \\\text { Sales revenue } & \$ 1,000,000& \$ 800,000 \\\text { Cost of goods sold } & \underline{700,00 0} & \underline{560,000}\\\text { Gross margin } & 300,000 & 240,000 \\\text { Selling and administrative expense } & \underline{210,000} & 198,000 \\\text { Net operating income } & \$ 90,000 & \$ 42,00 0\end{array}$ Selling and administrative expense is a mixture of fixed costs and variable costs that vary with respect to the number of units sold. Required: a. Estimate the company's variable selling and administration expense per unit, and its total fixed selling and administrative expense per year. b. Compute the company's contribution margin for this year.

The accounting department of Archer Company, a merchandising company, has prepared the following analysis: $\begin{array} { l l } { \text { Cost } } & { \text { Cost Formula } } \\\text { Cost of goods sold } & \$ 56 \text { per unit } \\\text { Sales commissions } & 12 \% \text { of sales } \\\text { Advertising expense } & \$ 300,000 \text { per month } \\\text { Administrative salaries } & \$ 160,000 \text { per month } \\\text { Billing expense } & ? \\\text { Depreciation expense } & \$ 62,000 \text { per month }\end{array}$ The accounting department feels that billing expense is a mixed cost, containing both fixed and variable cost elements. The billing expenses and sales in units over the last several months follow: $\begin{array}{lcc}& \begin{array}{c}\text { Units Sold } \\\text { (thousands) }\end{array} & \begin{array}{c}\text { Billing } \\\text { Expense }\end{array} \\\text { January } & 9 & \$ 30,000 \\\text { February } & 11 & \$ 33,000 \\\text { March } & 14 & \$ 36,000 \\\text { April } & 17 & \$ 42,000 \\\text { May } & 15 & \$ 39,000 \\\text { June } & 12 & \$ 35,000\end{array}$ The accounting department now plans to develop a cost formula for billing expense so that a contribution format income statement can be prepared for management's use. Required: a. Using the least-squares method, estimate the cost formula for billing expense. Round off both the fixed cost and the variable cost per thousand units sold to the nearest whole dollar. b. Assume that the company plans to sell 30,000 units during July at a selling price of $100 per unit. Prepare a budgeted income statement for the month, using the contribution format.

Jorgenson Corporation has provided the following data for the first five months of the year: Using the least-squares regression method of analysis, the estimated monthly fixed component of lubrication cost is closest to:

The Stephens Leadership Center provides training seminars in personal development and time management. The company is relatively new and management is seeking information regarding the Center's cost structure. The following information has been gathered since the inception of the business in January of the current year: $\begin{array}{lcc} & \text { Seminars Offered } & \text { Costs Incurred } \\\text { January } & 10 & \$ 17,000 \\\text { February } & 12 & \$ 18,800 \\\text { March } & 15 & \$ 20,900 \\\text { April } & 18 & \$ 23,762 \\\text { May } & 16 & \$ 21,800 \\\text { June } & 13 & \$ 19,400\end{array}$ Required: a. Using the high-low method, estimate the variable cost per seminar and the total fixed cost per month. b. Using the least-squares method, estimate the variable cost per seminar and the total fixed cost per month.