PROBLEMS

Relevant Range
A specific activity level that is bounded by a minimum and
maximum amount.
High-Low Method
1. Choose the representative highest and lowest activity levels with their
corresponding costs.
2. Get the differences (or changes) between the highest and lowest cost and direct
labor hours.
3. Determine the rate of cost variability with activity level.
4. Determine the total amount at fixed cost.
Problem #12

Where:
Y = total monthly manufacturing overhead cost
L = labor hours
M = machine hours
The measure of goodness of fit are good and no evidence of multicolinearity exists.
The company will use 10,000 labor hours and 3,000 machine hours next month.

Required:
1. Determine the total manufacturing overhead costs that Aloha should
incur next month.
2. Aloha makes a product that has 60.75 in material costs. It requires
four hours of labor time and 45 minutes of machine time. Laborers earn
20 per hour. What is the product's per unit variable manufacturing cost?
Problem #13
M. Munda Company produces and sells rattan baskets. The number of
units produced and the corresponding total production costs for six
months, which are representatives for the year, are as follows:
y = total manufacturing production costs
x = number of units produced per month
a = fixed production cost per month
b = variable production per unit
n = number of months
∑ = summation
Problem 13a.
The cost function derived by the simple least squares method
a. is linear.
b. is curvilinear.
c. is parabolic.
d. must be tested for minimum and maximum points.
Problem 13b.
Using the least squares method, the variable production cost per unit is
approximately
a. 5
b. 10
c. 0.27
d. 3.74
Problem 13c.
Using the least squares method, the monthly fixed production cost is
approximately
a. 1,500
b. 18,000
c. 4,350
d. 52,200
Problem 13d
If the high-low method is used, the results when compared with those under the method of least squares,
are
Variable Cost Per Unit Total Fixed Costs
a. Equal Equal
b. Higher by 1.26 Lower by 2,850
c. Lower by 1.26 Higher by 2,850
d. Higher by 5 Lower by 1,500
The following data have been collected for four different cost items.
The following data were collected from the records of the shipping department of a company.
Kleencar operates a car spa. Incoming cars are put on an automatic conveyor belt. Cars are washed as the conveyor belt carries
the car from the start station to the finish station. After the car moves off the conveyor belt, the card is dried manually. Workers
then clean and vacuum the inside of the car. Carl serviced 80,000 cars in 2011. He reports the following costs for 2011:
The estimated unit costs for CNR Inc., when it is operating at a production and sales level of 12,000 are
as follows:
Problem
An analysis of past janitorial costs indicates that average janitorial cost is P1.50 per
machine hour at an activity level of 40,000 machine hours and P1.20 per machine
hour at an activity level of 50,000 machine hours. Assuming that this activity is
within the relevant range, what is the total expected janitorial cost if the activity
level is 45,000 machine hours?
Solution

Problem
The Mix Company uses the high-low method to estimate the cost function. The
information for 2012 is provided below:

What is the total cost for 400 hours?

Solution

400 hrs. x 30 = 12,000

1. Malabon Industries has developed two new products but has only
enough plant capacity to introduce one product during the coming
year. The following data will assist management in deciding which
product should be selected.

Malabon’s fixed overhead includes rent and utilities, equipment

depreciation and supervisory salaries. Selling and administrative
expenses are not allocated to products.
Raw Materials
Machining @ P12 per hour
Assembly @ P10 per hour
Variable overhead @ P8 per hour
Fixed overhead @ P4 per hour
Total Cost
Suggested selling price
Actual R & D costs
Proposed advertising and promotion costs

A. For Malabon’s Product A, the unit costs for raw materials,

machining and assembly represents

a. Conversion Costs
b. Separable Costs
c. Prime Costs
d. Common Costs
Answer:

c. Prime Costs

*Prime Costs are the direct cost of a commodity in terms of the

materials and labor involved in its production, excluding fixed
costs.
B. The difference between the P99.98 suggested selling price
for Product B and its total unit cost of P88.00 represent the
unit’s

a. Contribution Margin Ratio

b. Gross Profit
c. Contribution
d. Gross Profit Margin Ratio
Answer:

b. Gross Profit
C. The total overhead cost of P27.00 for Product B is a

a. Carrying Cost
b. Sunk Cost
c. Mixed Cost
d. Committed Cost
Answer:

c. Mixed Cost

* Mixed costs is a cost that contains both a fixed cost component

and a variable cost component.
D. Research and Development Costs for the two new products
are

a. Conversion Costs
b. Sunk Costs
c. Relevant Costs
d. Avoidable Costs
Answer:

b. Sunk Costs

*Sunk Costs is a cost that has already been incurred and cannot
be recovered.
E. The advertising and promotion costs for the product selected
by Malabon will be

a. Discretionary Cost
b. Opportunity Costs
c. Prime Costs
d. Incremental Costs
Answer:

a. Discretionary Cost

*Discretionary Costs is a cost that a business or household can

get by without, if necessary.
F. The costs included in the fixed overhead are
a. Joint Costs
b. Discretionary Costs
c. Opportunity Costs
d. Prime Costs
Answer:

b. Discretionary Costs
2. The following cost data were taken from the records of a
manufacturing company:
Required:
The manufacturing cost incurred during the year.
Answer:

Depreciation on factory equipment P1,000

Wages of production workers 28,000
Raw materials used 47,000
Factory rent 2,000
Factory insurance 500
Materials handling 1,500
P80,000

*Manufacturing costs is the sum of costs of all resources

consumed in the process of making a product.
The estimated unit costs for CNR Inc., when it is operating at a
production and sales level of 12,000 units, are as follows:
Expense item Estimated Unit Cost
Direct Materials P 32
Direct Labor 10
Variable factory overhead 15
Fixed factory overhead 6
Variable distribution and administrative 3
Fixed distribution and administration 4

Required:

1. Identify the estimated conversion cost per unit.

2. Identify the estimated prime cost per unit.
3. Determine the estimated total variable cost per unit.
4. Compute the total cost that would be incurred during a month
with a production level of 12,000 units and a sales level of 8,000
units.