DIMAOCOR, SARAH JANE B

Cost Behavior Exercise Answer

Problem 1. Wollogong Group Ltd.

Product Cost
Variable Fixed Direct Direct Manufacturing
Name of the cost cost cost materials labor Overhead
Rental Income $30,000 per year
Direct Materials Cost $80 per unit x x
Rental Cost (warehouse) $500 per month x

Rental Cost (Equipment) $4,000 per month x x

Direct Labor Cost $60 per unit
Depreciation $8,000 per year
Advertising Cost $50,000 per year
Supervisor Salary $1,500 per month
Electricity for operating machines $1.29 per
unit
Shipping Cost $9 per unit
ROI $3,000 per year
x x
x x
x
x x
x x
x

Problem 2. St. Ives Corp

y=a+bx Cost of High Activity Level-Cost of Low Activity Level

b=
y=total Cost High Activity Level-Low Activity Level
a=fixed portion 66,100-32,000
=
b=variable cost per unit 40,000-18,000
x=activity base related to y 34,100
=
22,000
= 1.55 variable cost per unit

Using the high level activity Using the low level activity
y=a+bx y=a+bx
66,100= a + 1.55(40,000) 32,000= a + 1.55(18,000)
66,100= a + 62,000 32,000= a + 27,900
a=4,100 a=4,100
Thus, the fixed portion on the total cost using high low method was 4,100
 Period Opportunity Sunk
cost cost cost
x

x
x

x
x

ow Activity Level
ity Level