ANDREA FLORENCE G.

VIDAL BSA 4
ACCTG 16

Exercise 1: True/False

1. A cost that does not change in total as output changes is a variable cost.

ANSWER: FALSE

2. The cost of raw materials used is usually a variable cost.

ANSWER: TRUE

3. Fixed costs are costs that in total remain constant within the relevant range as the level of output
increases or decreases.

ANSWER: TRUE

4. As output decreases fixed costs per unit will also decrease.

ANSWER: FALSE

5. As output increases variable cost per unit will also increase.

ANSWER: FALSE

Exercise 2: Multiple Choice

1. Knowing how costs change as output changes is essential to

a. Planning

b. controlling

c. decision making

d. all of these are correct

2. A fixed cost within the relevant range

a. increases in total as output increases

b. does not change in total as output changes

c. decreases in total as output decreases

d. has both a variable and a fixed component

3. Which of the following would be an example of a fixed cost?

a. raw materials

b. sales commissions

c. utilities

d. property taxes

4. Which of the following would not be an example of a fixed cost?

a. cost to lubricate factory machinery

b. factory supervisor's salary

c. rent on factory building

d. advertising costs

5. Discretionary fixed costs

a. cannot be easily changed

b. often involves a long-term contract

c. can be changed relatively easy at management discretion

d. increase as output increases

Exercise 3: Computations

Figure 3-1 Total cost = Fixed cost + Variable Rate Output

1. Refer to Figure 3-1. In the cost formula above which element would be the dependent variable?

a. variable rate

b. fixed cost

c. total cost

d. output
2. Refer to Figure 3-1. In the cost formula above which element would be the independent variable?

a. fixed cost

b. total cost

c. output

d. variable rate

3. Refer to Figure 3-1. In the cost formula above which element would be the intercept?

a. fixed cost

b. total cost

c. output

d. variable rate

4. Refer to Figure 3-1. In the cost formula above which element would be the slope?

a. variable rate

b. output

c. fixed cost

d. total cost

Figure 3-2. Ruskin Company had utilities cost of $95,000 at an output level of 30,000 units. The utilities
cost was a mixed cost and the fixed portion was $50,000. What would the estimate of total utilities cost
be at an output level of 40,000 units?

a. $65,000

b. $95,000

c. $110,000

d. $125,000
Reflection
The following six months of data were collected on electricity cost and the number of machine hours in
a factory.

Month Electricity Cost Machine Hours

June $25,160 4,500

July 26,170 4,810

August 27,250 5,120

September 26,680 5,010

October 27,950 5,430

November 27,500 5,190

Required:

A. Using the high-low method compute the variable rate for the electricity cost.

= (27,950 – 25,160)/(5,430 – 4,500)

=3

B. Using the high-low method compute the fixed cost of electricity.

= 27,950 – (3 x 5,430)

= 11,660

C. Estimate the total electricity cost to be incurred in December if 5,300 machine hours are incurred.

=11,660 + (3 x 5,300)

=27,560