Managerial ACCT2 2nd Edition Sawyers Test Bank 1

Managerial ACCT2 2nd Edition Sawyers
Test Bank
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Chapter 5--Cost Behavior
Student: ___________________________________________________________________________
1. ____ are costs that do not change in total when production volume increases or decreases within the relevant
range.
A. Variable costs
B. Relevant costs
C. Fixed costs
D. Period costs
2. Which of the following is most likely to be classified as a fixed cost?

A. Factory utilities
B. Factory supplies
C. Direct labor
D. Factory insurance
3. Which of the following costs is least likely to be classified as a fixed cost?
A. Factory rent
B. Plant manager salary
C. Direct materials
D. Depreciation on factory building
4. As production goes up, total fixed costs ____.

A. decrease
B. increase
C. remain the same
D. cannot be predicted
5. As production increases, fixed costs per unit ____.

A. increase
B. decrease
C. remain the same
6. As production decreases, fixed costs per unit ____.

A. increase
B. decrease
C. remain the same
7. ____ are costs that change in total when production volume increases or decreases within the relevant range.
A. Variable costs
B. Facility-level costs
C. Fixed costs
D. Period costs
8. As production goes up, total variable costs ____.

A. decrease
B. increase
C. remain the same
9. As production increases, variable costs per unit ____.
A. increase
B. decrease
C. remain the same
D. can not be predicted
10. As production decreases, variable costs per unit ____.

A. increase
B. decrease
C. remain the same
11. Which of the following is most likely to be classified as a variable cost?

A. Factory rent
B. Factory insurance
C. Direct materials
D. Depreciation of factory building
12. Which of the following is least likely to be classified as a variable cost?

A. Direct materials
B. Factory supplies
C. Direct labor
D. Administrative building rent
13. When predicting cost behavior, the volume of production for which the fixed and variable cost relationships
are assumed to hold true is called the:
A. true range.
B. regression area.
C. dependent variable area.
D. relevant range.
14. You are given the following cost and volume information:
Volume Total Cost

(in units) (in $)
200 $1,000
400 1,000
600 1,000
Which type of cost is given?

A. Variable
B. Fixed
C. Mixed
D. Cannot be determined
Volume Total Cost

(in units) (in $)
200 $1,000
400 2,000
600 3,000

A. Variable
B. Fixed
C. Step
D. Mixed
Volume Cost per unit

(in units) (in $)
200 $10
400 10
600 10

A. Variable
B. Fixed
C. Mixed
D. Can not be determined

(in units) (in $)
500 $6
1,000 3
1,500 2

A. Semi variable
B. Fixed
C. Variable
D. Mixed
18. In the cost equation, y = $500 + $5.40x, $5.40 represents:

A. variable cost per unit.
B. fixed cost per unit.
C. mixed cost per unit.
D. step cost per unit.
19. In the cost equation, y = $500 + $5.40x, $500 represents:

A. total variable cost.
B. total fixed cost.
C. total mixed cost.
D. total cost.
20. The cost equation, y = $500 + $5.40x, x represents:

A. variable cost.
B. step cost.
C. units produced.
D. mixed cost.
21. Howard Inc. provides temporary clerical services to local businesses. The company has determined that total
costs for a given month can be predicted by using the following formula:
Total costs = $2,500 + $20x
where "x" equals total direct labor hours for the month. If total direct labor hours for June are expected to be
600, what are total costs expected to be?
A. $ 9,500
B. $14,500
C. $12,000
D. $ 2,520
22. Logan Inc. plans to double its rental space next year which will increase its fixed costs by 30% while
variable costs will remain the same. Current year costs are as follows:
Variable costs $20 per unit

Fixed costs $15,000
If next year production is expected to be 13,500 units, estimated total costs will be:
A. $289,500.
B. $270,000.
C. $285,000.
D. $250,500.
23. Jansen Inc. currently produces and sells 9,000 units per year with the following cost data:

Fixed costs $7,500
Next year, Jansen plans to increase its advertising budget, which will increase fixed costs by 7%. With increased advertising, the company expects
the number of units produced and sold to increase by 12%. Determine the budgeted total cost for next year.
A. $70,500
B. $78,060
C. $78,585
D. $71,025
24. Bob's Burgers
Bob's Burgers currently produces and sells 12,000 burgers per month with the following costs:
Variable costs $2.40 per unit

Fixed costs $60,000
Bob has recently switched food suppliers and anticipates that variable costs will decrease by $0.35 per unit. In addition, Bob has renegotiated his
store lease and fixed costs will be dropping by $8,000 per month.
Refer to the information provided for Bob's Burgers. What will be Bob's new cost equation?
A. Total costs = $60,000 + $2.75x
B. Total costs = $60,000 + $2.05x
C. Total costs = $8,000 + $0.35x
D. Total costs = $52,000 + $2.05x
25. Bob's Burgers


Fixed costs $60,000
Refer to the information provided for Bob's Burgers. Bob anticipates selling 12,300 burgers during the month of July. What will be estimated total
costs during July?
A. $77,215
B. $88,800
C. $76,600
D. $85,825
26. Quality Products Inc. incurred total costs of $50,000 to produce 1,400 units. Variable costs are $15 per unit.
What are estimated fixed costs?
A. $21,000
B. $71,000
C. $48,600
D. $29,000
27. Bixby Inc. expects total costs to be $75,000 when 500 units are sold and the variable cost is $18 per unit.
Bixby expects to sell 750 units in July. What will be expected total costs in July?
A. $75,000
B. $79,500
C. $66,000
D. $88,500
28. Chadwick Ski Lodge
Chadwick Ski Lodge decides how many housekeepers it needs to hire based on expected hotel occupancy. The
following shows the budgeted housekeeping costs per month at various occupancies:
Number of occupied Housekeeping costs

rooms
0 - 25 $1
1,500
26 - 40 2
3,000
41 - 55 3
4,500
Refer to the information provided for Chadwick Ski Lodge. What type of cost is housekeeping?
A. Semi variable
B. Variable
C. Step
D. Mixed


rooms
0 - 25 $1
1,500
26 - 40 2
3,000
41 - 55 3
4,500
Refer to the information provided for Chadwick Ski Lodge. The number of occupied rooms during the month of January is expected to be between
41 and 55 at all times. For the month of January, what type of cost does housekeeping effectively become?
A. Fixed
B. Variable
C. Step
D. Mixed
30. A cost that has both a fixed and variable component is called a(n):
A. step cost.
B. mixed cost.
C. irrelevant cost.
D. relevant cost.
31. Regression analysis is a technique used to:
A. estimate the step and mixed components of total cost.
B. estimate the fixed and variable components of a mixed cost.
C. estimate the fixed and variable components of a step cost.
D. estimate the fixed and mixed components of step cost.
32. Which of the following statements is true regarding regression analysis?

A. It is usually the most accurate technique used to determine equivalent units.
B. It is usually the most accurate technique used to determine net income.
C. It is usually the most accurate technique used to determine the total units of production.
D. It is usually the most accurate technique used to determine mixed cost behavior.
33. Which of the following statements is false regarding regression analysis?

A. It is used to predict the fixed and variable components of a mixed cost.
B. It is used to predict whether a cost is a product or a period cost.
C. It is usually more accurate than the high/low method.
D. It uses statistical methods to fit a cost line through a number of data points.

A. It is often less accurate than the high/low method.
B. It is a better predictor of fixed costs than variable costs.
C. It can not be used to predict the effect that a change in volume of production has on net income.
35. When using regression analysis to predict mixed cost behavior, which of the following would be the
dependent variable?
A. The highest level of activity.
B. The lowest level of activity.
C. The mixed cost at a given level of production.
D. The variable cost per unit.
independent variable?
D. The volume of production that drives a particular amount of mixed cost.
37. Regression Analysis 1
You run a regression analysis and receive the following results:
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.88000000
R Square 0.78219168
Adjusted R Square 0.70958891
Standard Error 1165.19000
Observations 5
df SS MS F Significance F
Regression 1 14626984.4 1E+07 10.7736 0.0463451
Residual 3 4073015.604 1E+06
Total 4 18700000
Coefficients Standard Error t Stat P-value

Intercept 16146.37 8167.49 1.977 0.14249
X Variable 1 2.380 0.730 3.282 0.04635
Refer to the Regression Analysis 1 above. What would be the equation to predict mixed cost behavior?
A. Y = $2.38 + $16,146.37x
B. Y = $1,165.19 + $.88x
C. Y = $16,146.37 + $2.38x
D. Y = $8,167.49 + $.73x
SUMMARY OUTPUT
R Square 0.78219168
Observations 5
Regression 1 14626984.4 1E+07 10.7736 0.0463451
Residual 3 4073015.604 1E+06
Total 4 18700000

Intercept 16146.37 8167.49 1.977 0.14249
X Variable 1 2.380 0.730 3.282 0.04635
Refer to the Regression Analysis 1 above. To the nearest dollar, what would be the estimated total costs if 15,000 units were produced?
A. $51,846
B. $16,148
C. $19,117
D. $35,700
SUMMARY OUTPUT
R Square 0.940438758
Observations 5
ANOVA
Regression 1 6139184.211 6139184.211 47.36832487 0.006283174
Residual 3 388815.7895 129605.2632
Total 4 6528000

Intercept 3056.58 454.25 6.728812231 0.006701298
X Variable 1 1.27 0.18 6.882465029 0.006283174
Refer to the Regression Analysis 2 above. What would be the equation to predict total mixed costs?
A. Y = $1.27 + $3,056.58x
B. Y = $454.25 + $.18x
C. Y = $360.007 + $1.27x
D. Y = $3,056.58 + $1.27x
SUMMARY OUTPUT
R Square 0.940438758
Observations 5
ANOVA
Regression 1 6139184.211 6139184.211 47.36832487 0.006283174
Residual 3 388815.7895 129605.2632
Total 4 6528000

Intercept 3056.58 454.25 6.728812231 0.006701298
X Variable 1 1.27 0.18 6.882465029 0.006283174
Refer to the Regression Analysis 2 above. To the nearest dollar, what would be the estimated total costs if 500 units were produced?
A. $ 544
B. $4,236
C. $3,692
D. $3,147
41. George's Ice Cream Shop believes most of its utilities costs are mixed. George has collected the following
data on gallons of ice cream used and related utilities costs for the past six months:
Number of
gallons used Utilities cost
May 20 $ 700
June 30 850
July 40 1,100
August 30 975
September 25 900
October 22 720
George has run a regression analysis on the above information and has come up with the following data:
Coefficients
Intercept 329.5047923
X Variable 1 19.5686901
Using regression analysis, which of the following formulas would be the best predictor of total estimated mixed costs?
A. Y = $300 + $20x
B. Y = $329.50 + $19.57x
C. Y = $900 + $30x
D. Y = $19.56 + $329.50x
42. Hill Top Products has run a regression analysis for utilities costs and the total production for the past six
months. The regression analysis shows an R square (R2) of .86. Which of the following statements best
describes the meaning of R2?
A. 86 percent of the company's total costs are utilities costs.
B. 14 percent of the variation in utilities costs is explained by the increase or decrease in production.
C. 86 percent of the variation in utilities costs is explained by the increase or decrease in production.
D. 86 percent of the company's total costs are fixed costs and the remaining 14 percent are variable costs.
43. In regression analysis, an R square (R2) of 1.0 would indicate:

A. that 1 percent of the data points are on the regression line.
B. that 1 percent of the total mixed costs can be attributable to fixed costs.
C. that 1 percent of the total mixed costs can be attributable to variable costs.
D. that there is a perfect correlation between the independent and dependent variables.
44. The high/low method:

A. considers only the highest and lowest costs for a given time period.
B. is superior to regression analysis.
C. considers all data points available.
D. uses the data points for only the high and low levels of activity.
45. When using the high/low method, the change in cost divided by the change in volume is:
A. the fixed cost per unit.
B. the mixed cost per unit.
C. the variable cost per unit.
D. the total cost per unit.
46. Cool Creams

Cool Creams provided the following data for number of ice creams produced and its total overhead costs for
past five months:
Number of ice creams Total overhead costs

January 14,000 $64,500
February 25,000 114,000
March 6,000 28,500
April 23,000 105,000
May 27,000 123,000
Refer to the information provided for Cool Creams. Using the high/low method, what is the variable cost per unit?
A. $4.50
B. $5.50
C. $4.75
D. $4.32
47. Cool Creams

past five months:

January 14,000 $64,500
February 25,000 114,000
March 6,000 28,500
April 23,000 105,000
May 27,000 123,000
Refer to the information provided for Cool Creams. Using the high/low method, what is the overhead cost equation?
A. Y = $6,000 + $4.75x
B. Y = $1,500 + $4.50x
C. Y = $7,630 + $4.32x
D. Y = $1,500 + $4.32x
48. Cardinal Cleaners
Cardinal Cleaners documented the gallons of cleaning solvent it used as well as total overhead costs for the past
five months as follows:
Number of gallons Total overhead costs

July 160 $6,500
August 150 6,100
September 155 6,700
October 175 7,000
November 170 6,800
Refer to the Cardinal Cleaners information above. Using the high/low method, what is the variable cost per unit?
A. $25.00
B. $0.03
C. $900.00
D. $36.00


July 160 $6,500
August 150 6,100
September 155 6,700
October 175 7,000
November 170 6,800
Refer to the Cardinal Cleaners information above. Using the high/low method, what is equation to predict total overhead costs?
A. Y = $700 + $36x
B. Y = $900 + $25x
C. Y = $175 + $41x
D. Y = $100 + $40x

July 160 $6,500
August 150 6,100
September 155 6,700
October 175 7,000
November 170 6,800
Refer to the Cardinal Cleaners information above. Cardinal uses the high/low method to predict total overhead costs. If Cardinal anticipates using
162 gallons of solvent in December, what are expected total overhead costs?
A. $6,500
B. $6,532
C. $5,832
D. $700
51. Speedy Couriers

Speedy Couriers documented the miles driven and total vehicle costs for the past five months as follows:
Number of miles Total vehicle costs

January 1,600 $3,600
February 2,000 4,600
March 1,500 3,450
April 1,800 3,900
May 2,200 4,500
Refer to the Speedy Couriers information above. Using the high/low method, what is the cost equation to predict total vehicle costs?
A. Y = $985 + $1.64x
B. Y = $4,500 + $2.05x
C. Y = $560 + $2.30x
D. Y = $1,200 + $1.50x
52. Speedy Couriers

January 1,600 $3,600
March 1,500 3,450
April 1,800 3,900
May 2,200 4,500
Refer to the Speedy Couriers information above. Using the high/low method, if Speedy expects to drive 1,750 miles in June, what will be expected
total vehicle costs?
A. $3,825.00
B. $4,585.00
C. $8,087.50
D. $3,855.00
53. Denver Manufacturing

Denver Manufacturing would like to do a better job budgeting for maintenance costs and, consequently, they
have prepared a schedule showing maintenance costs and units produced for the past five months as follows:
Number of Total
units produced maintenance costs
January 5,400 $4,800
March 4,900 4,500
April 5,600 4,900
May 6,000 5,490
Refer to the Denver Manufacturing information above. Using the high/low method, what is the cost equation to predict total maintenance costs?
A. Y = $90 + $.90x
B. Y = $2,540 + $.40x
C. Y = $1,646 + $.5824x
D. Y = $2.50x - $11,320
Number of Total
January 5,400 $4,800
March 4,900 4,500
April 5,600 4,900
May 6,000 5,490
Refer to the Denver Manufacturing information above. Using the high/low method, if Denver expects to produce 5,000 units in June, what will be
budgeted total maintenance costs?
A. $4,590
B. $4,558
C. $4,540
D. $4,363
55. When comparing a "pre-tax cost" and an "after-tax cost", which of the following is true?
A. The after-tax cost will be greater than the pretax cost.
B. They will be the same amount.
C. The pre-tax cost will be greater than the after-tax cost.
D. The higher the tax rate, the lower the difference in the amount between them.
56. The after-tax benefit of a taxable cash receipt can be calculated as follows:
A. After-tax benefit = Pretax receipt ´ tax rate
B. After-tax benefit = Pretax receipt ´ (1 - tax rate)
C. After-tax benefit = Pretax receipt ´ (1 + tax rate)
D. After-tax benefit = Pretax receipt ¸ tax rate
57. After-tax income can be calculated as follows:

A. After-tax income = Pretax income ´ tax rate
B. After-tax income = Pretax income ¸ (1 - tax rate)
C. After-tax income = Pretax income ´ (1 + tax rate)
D. After-tax income = Pretax income ´ (1 - tax rate)
58. The manager of a company is considering a special project that will increase sales revenue by $27,500
without affecting costs. If the company has a tax rate of 40%, what will be the after-tax income?
A. $16,500
B. $11,000
C. $27,500
D. $38,500
59. Blossom Products is considering a special project that will increase sales revenue by $127,000 without
affecting costs. If the company has a tax rate of 40%, what will be the after-tax income?
A. $ 50,800
B. $ 76,200
C. $127,000
D. $203,200
60. Putnam Distributors is contemplating whether or not to accept a special order. Putnam wishes to have after-
tax cash receipts of $54,000 if they accept the order. If Putnam has a tax rate of 40%, what is the price the
customer should be charged for their order?
A. $32,400
B. $21,600
C. $90,000
D. $54,000
61. Triangle Associates is contemplating making a large charitable contribution. If their tax rate is 40%, what is
the after-tax cost of making a $150,000 contribution?
A. $210,000
B. $ 60,000
C. $150,000
D. $ 90,000
62. Manning Inc. is contemplating the rental of a special tool for $45,000 per month. If their tax rate is 40%,
what is the after-tax monthly cost of renting the tool?
A. $27,000
B. $18,000
C. $63,000
D. $45,000
63. Portia's Salon is contemplating an increase in their rental space that will result in a before-tax rent increase
of $14,500 per month. If their tax rate is 40%, what is the after-tax monthly increase in rent cost?
A. $ 5,800
B. $ 8,700
C. $20,300
D. $14,500
64. Beauregard Imports has pretax income of $75,000. If their tax rate is 35%, what will be their after-tax
income?
A. $ 48,750
B. $123,750
C. $ 26,250
D. $101,250
65. Blue Ridge Resorts has the following pretax information available for the current year:
Pretax receipts $800,000

Pretax costs 300,000
Assuming all receipts are taxable and all costs are tax-deductible, what will be Blue Ridge's after-tax net income for the year if their tax rate is 30%?
A. $330,000
B. $150,000
C. $350,000
D. $770,000
66. Under variable costing, which of the following is not considered a product cost?
A. Direct materials
B. Direct labor
C. Fixed manufacturing overhead
D. Variable manufacturing overhead
67. Under absorption costing, which of the following is not considered a product cost?
A. Direct labor
B. Fixed manufacturing overhead
C. Variable manufacturing overhead
D. Administrative costs
68. The primary difference between variable and absorption costing is the treatment of:
A. fixed selling and administrative costs.
B. variable selling and administrative costs.
C. fixed manufacturing overhead.
D. variable manufacturing overhead.
69. Which of the following statements is false regarding absorption costing?

A. Variable overhead is treated as a product cost.
B. Absorption costing is required for external financial statements prepared in accordance with generally
accepted accounting principles (GAAP).
C. Fixed manufacturing overhead is treated as a product cost.
D. Fixed manufacturing overhead is expensed in the period incurred.
70. Which of the following statements is false regarding variable costing?

B. Variable costing is required for external financial statements prepared in accordance with generally accepted
accounting principles (GAAP).
C. Fixed manufacturing overhead is treated as a period cost.
D. Period costs are expensed as they are incurred.
71. Which of the following descriptions would not be found on an income statement prepared using variable
costing?
A. Sales
B. Fixed costs
C. Cost of goods sold
D. Net operating income
72. Which of the following line descriptions would not be found on an income statement prepared using
absorption costing?
A. Sales
B. Contribution margin
73. Assuming the number of units sold and produced are the same, which of the following statements is true
when comparing net operating income using absorption and variable costing?
A. Absorption costing will yield a higher net operating income.
B. Variable costing will yield a higher net operating income.
C. Net operating income will be the same under both methods.
D. Variable costing will have higher sales revenue.
74. Assuming that the number of units produced is greater than the number of units sold, which of the following
statements is true when comparing net operating income using absorption and variable costing?
D. Sales revenue will be less using absorption costing.
75. Assuming that the number of units produced is less than the number of units sold, which of the following
D. The sales price per unit will be less using absorption costing.
76. Tyson Manufacturing has the following information available for 2012:
Direct materials $6.00 per unit

Direct labor $2.00 per unit
Variable manufacturing overhead $1.50 per unit
Variable selling and administrative costs $3.00 per unit
Fixed manufacturing overhead $40,000
Fixed selling and administrative costs $50,000
During 2012, Tyson produced 10,000 units out of which 9,100 units were sold for $50 each.
Refer to the information provided for Tyson Manufacturing. What is the net operating income under variable costing?
A. $251,250
B. $254,850
C. $285,000
D. $291,250

Refer to the information provided for Tyson Manufacturing. What is the net operating income under absorption costing?
A. $251,250
B. $254,850
C. $285,000
D. $299,850
78. Cornell Products has the following information available for 2012:

Variable selling and administrative costs $ .50 per unit
During 2012, Cornell produced 6,000 units out of which 5,400 units were sold for $20 each.
Refer to the information provided for Cornell Products. What is the net operating income under variable costing?
A. $35,000
B. $29,000
C. $26,000
D. $23,000

Refer to the information provided for Cornell Products. What is the net operating income under absorption costing?
A. $23,000
B. $29,000
C. $26,000
D. $35,000
80. B & B Manufacturing produces a single product. Last year, the company produced 10,000 units out of
which 9,500 were sold. There were no units in beginning inventory. The company had the following costs:
Variable
costs per
unit:
Production $6.00
Selling and administrative $2.00
Fixed
costs
(total):
Production $15,000
Selling and administrative $10,000
Refer to the information provided for B & B Manufacturing. What is the unit product cost using variable costing?
A. $ 8.00
B. $ 6.00
C. $ 7.50
D. $10.50
Variable
costs per
unit:
Production $6.00
Fixed
costs
(total):
Production $15,000
Refer to the information provided for B & B Manufacturing. What is the unit product cost using absorption costing?
A. $ 8.00
B. $ 6.00
C. $ 7.50
D. $10.50
82. Lockhart Products produces a single product. During 2012 the company incurred the following costs:
Variable product costs $8.00 per unit

Variable period costs $2.00 per unit
Total fixed product costs $21,000
Total fixed period costs $10,000
Lockhart had no units in beginning inventory. During 2012, 6,000 units were produced and 5,000 units were sold. Which of the following statements
is true when comparing net operating income using absorption versus variable costing?
A. Net operating income will be $3,500 higher using absorption costing than using variable costing.
B. Net operating income will be $3,500 lower using absorption costing than using variable costing.
C. Net operating income will be $4,200 higher using absorption costing than using variable costing.
D. Net operating income will be $4,200 lower using absorption costing than using variable costing.
83. Which of the following statements is true regarding variable costing?

A. Variable costing is also known as full costing.
B. Per unit contribution margin is affected by production levels in variable costing.
C. In a variable costing income statement, fixed costs are separated from variable costs.
D. Variable costing focuses attention on all product costs and not only relevant product costs.
84. Label whether each of the following costs is most likely fixed (F) or variable (V).
Direct materials
Factory rent
Sales commissions expense
Direct labor
Depreciation on factory building
Factory insurance
Direct materials
Secretary salary
Shipping supplies
Gasoline costs
86. For each of the following statements, fill in the blank with either the word increase, decrease, or stay the
same.
a. As production increases, total fixed costs ______________.

b. As production increases, fixed costs per unit _____________.
c. As production decreases, variable costs per unit _____________.
d. As production decreases, total variable costs _______________.
same.
a. As production decreases, total fixed costs ______________.

b. As production decreases, fixed costs per unit _____________.
c. As production increases, variable costs per unit _____________.
d. As production increases, total variable costs _______________.
88. Briefly describe the difference between fixed, variable, and mixed costs. Give one example of each.
89. You are the manager of a small cookie stand. The variable cost of producing one chocolate chip cookie is
$.75. Your fixed costs per week are $1,000. What is the total cost per unit if 1,000 cookies are produced and
sold per week? 2,000 cookies? Do your answers for the two quantities differ? Why or why not?
90. Jameson Inc. plans to double its rental space next year, which will increase its fixed costs by 15%. Current
year costs include variable costs of $14.5 per unit and fixed costs of $850,000. With the expansion of the rental
space, next year's production is expected to be 7,000 units.
Required: Calculate total estimated costs for next year.
91. Richardson Corporation plans to increase its advertising budget by 20% next year. The company currently
spends $15,000 on advertising costs. In addition to advertising, Richardson spends $50,000 per year for other
fixed costs and $10 per unit for variable costs. If Richardson anticipates producing 30,000 units next year, what
will be next year's total costs?

92. Compare and contrast the two methods that are used to predict mixed costs.
93. Describe regression analysis and list several of its possible uses.
94. You are trying to determine whether machine hours or direct labor dollars would be the best cost driver for
overhead costs. You run two regression analyses and obtain the following results:
Machin
e hours:
Multiple R .39429
R square .15547
Adjusted R square .14964
Standard error .44416
Direct
labor
dollars:
Multiple R .89429
R square .79547
Which variable would be the best selection for a cost driver and why?
95. Why should income taxes be considered by corporate decision-makers?
96. How do variable costing and absorption costing differ? When is net operating income different under the
two methods?
97. Your company leases a copier. The contract states that you must pay the leasing company $3,000 per year
and $.005 per copy.
Required:
A. Write
the
equation
to
predict
estimate
d total
lease
cost.
B. Compute
the
estimate
d total
costs if:
i. 10,000 copies are made.
ii. 50,000 copies are made.
C. Compute
the
estimate
d cost
per unit
if:
98. Sabina and Associates has the following current year costs:

Fixed costs $20,000
Next year, the company plans to enter into an arrangement with a supplier that will result in a 15% decrease in variable costs. They also plan on
reducing their rental space, which will decrease fixed costs by 10%.
Required:
A. What will be the new equation to predict total costs?
B. If next year's production is expected to be 10,000 units, what will be total estimated costs?
99. You run a regression analysis and receive the following results:
Multiple R .39429
R Square .15547
Adjusted R Square .14964
Standard Error .44416
Analysis of Variance
DF Sum of Squares Mean Square
Regression 1 5.26588 5.26588
Residual 145 28.60536 .19728
F = 26.69262 Signif F
= .0000
Variables in the Equation

Variable Coefficie Standard error t Stat P-value
nts
X Variable 1 11.03 .021000 5.166 .0000
00
Intercept 8833.07 .090000 9.751 .0000
00
Required:
A. What is the fixed cost in this regression analysis?
B. What is the variable cost per unit?
C. Prepare the cost equation based upon these results.
D. Does this regression equation "fit" the data well? What information did you examine to answer this question?
100. Pearson Products believes one of its costs is a mixed cost and has run a regression analysis which shows
the following:
SUMMARY OUTPUT
R Square 0.928740713
Observations 8
ANOVA
Regression 1 69996575.46 69996575.46 78.19955153 0.000116235
Residual 6 5370612.038 895102.0063
Total 7 75367187.5

Intercept 11568.56000 1352.390000 8.554149469 0.000140059
X Variable 1 1.9800000 0.223900000 8.843051031 0.000116235
Required:
A. Write the equation to predict estimated total mixed costs.
B. If 1,000 units are produced, what will be total mixed costs?
C. What does the "R Square" number tell Pearson? Interpret the "R Square" data for Pearson.
101. Noble Inc. documented the number of units produced as well as maintenance costs for the past five months
as follows:
Number of units Total overhead costs

October 120,000 $ 6,200
November 180,000 10,000
December 100,000 6,000
January 110,000 8,000
February 135,000 9,000
Noble uses the high/low method of estimating mixed costs.
Required:
A. What is the equation to predict estimated total overhead costs?
B. If the company expects to produce 150,000 units in March, what will be the estimated total overhead costs?
102. Reliable Movers Inc. documented the miles driven and total moving van costs for the past five months as
follows:

January 3,000 $4,800
March 5,000 6,100
April 4,000 5,000
May 6,000 6,000
In order to budget total vehicle costs for the upcoming summer months, Reliable wishes to estimate total vehicle costs using the high/low method.
Required:
A. What is the equation to predict estimated total vehicle costs?
B. If the company expects to drive 9,000 miles in June, what will be the estimated total vehicle costs?
103. A manager is considering a special project that will increase cash sales by $80,000 and increase costs by
$30,000. All cash receipts are taxable and all costs are tax deductible. If the tax rate is 30%, what will be the
after-tax profit from the special project?
104. A manager is considering a special project. Corporate policy dictates that all special projects must generate
an after-tax profit of $21,000. If the company expects costs related to the project to be equal to $43,000, what is
the before-tax cash sales price that should be charged in order to adhere to corporate policy assuming the
company has a tax rate of 30%?
105. Preferred Products has the following cost information available for 2012:

During 2012, Preferred produced 5,000 units out of which 4,600 units were sold for $30 each.
Required:
A. Calculate Preferred's net operating income assuming the company uses variable costing.
B. Calculate Preferred's net operating income assuming the company uses absorption costing.
106. Hellman Manufacturing has the following cost information available for 2012:

During 2012, Merriman produced 12,500 units out of which 11,000 units were sold for $60 each.
Required:
A. Calculate Hellman's net operating income assuming the company uses variable costing.
B. Calculate Hellman's net operating income assuming the company uses absorption costing.
Chapter 5--Cost Behavior Key
1. ____ are costs that do not change in total when production volume increases or decreases within the relevant
range.
A. Variable costs
B. Relevant costs
C. Fixed costs
D. Period costs
2. Which of the following is most likely to be classified as a fixed cost?

A. Factory utilities
B. Factory supplies
C. Direct labor
D. Factory insurance
3. Which of the following costs is least likely to be classified as a fixed cost?

A. Factory rent
B. Plant manager salary
C. Direct materials
D. Depreciation on factory building
4. As production goes up, total fixed costs ____.

A. decrease
B. increase
C. remain the same
5. As production increases, fixed costs per unit ____.

A. increase
B. decrease
C. remain the same
6. As production decreases, fixed costs per unit ____.
A. increase
B. decrease
C. remain the same
7. ____ are costs that change in total when production volume increases or decreases within the relevant range.
A. Variable costs
B. Facility-level costs
C. Fixed costs
D. Period costs
8. As production goes up, total variable costs ____.

A. decrease
B. increase
C. remain the same
9. As production increases, variable costs per unit ____.

A. increase
B. decrease
C. remain the same
10. As production decreases, variable costs per unit ____.

A. increase
B. decrease
C. remain the same
11. Which of the following is most likely to be classified as a variable cost?

A. Factory rent
B. Factory insurance
C. Direct materials
D. Depreciation of factory building
12. Which of the following is least likely to be classified as a variable cost?
A. Direct materials
B. Factory supplies
C. Direct labor
D. Administrative building rent
13. When predicting cost behavior, the volume of production for which the fixed and variable cost relationships
are assumed to hold true is called the:
A. true range.
B. regression area.
C. dependent variable area.
D. relevant range.
Volume Total Cost

(in units) (in $)
200 $1,000
400 1,000
600 1,000

A. Variable
B. Fixed
C. Mixed
D. Cannot be determined
Volume Total Cost

(in units) (in $)
200 $1,000
400 2,000
600 3,000

A. Variable
B. Fixed
C. Step
D. Mixed

(in units) (in $)
200 $10
400 10
600 10

A. Variable
B. Fixed
C. Mixed
D. Can not be determined

(in units) (in $)
500 $6
1,000 3
1,500 2

A. Semi variable
B. Fixed
C. Variable
D. Mixed
18. In the cost equation, y = $500 + $5.40x, $5.40 represents:

A. variable cost per unit.
B. fixed cost per unit.
C. mixed cost per unit.
D. step cost per unit.
19. In the cost equation, y = $500 + $5.40x, $500 represents:

A. total variable cost.
B. total fixed cost.
C. total mixed cost.
D. total cost.
20. The cost equation, y = $500 + $5.40x, x represents:
A. variable cost.
B. step cost.
C. units produced.
D. mixed cost.
21. Howard Inc. provides temporary clerical services to local businesses. The company has determined that total
costs for a given month can be predicted by using the following formula:
Total costs = $2,500 + $20x
where "x" equals total direct labor hours for the month. If total direct labor hours for June are expected to be
600, what are total costs expected to be?
A. $ 9,500
B. $14,500
C. $12,000
D. $ 2,520
22. Logan Inc. plans to double its rental space next year which will increase its fixed costs by 30% while
variable costs will remain the same. Current year costs are as follows:

Fixed costs $15,000
If next year production is expected to be 13,500 units, estimated total costs will be:
A. $289,500.
B. $270,000.
C. $285,000.
D. $250,500.
23. Jansen Inc. currently produces and sells 9,000 units per year with the following cost data:

Fixed costs $7,500
Next year, Jansen plans to increase its advertising budget, which will increase fixed costs by 7%. With increased advertising, the company expects
the number of units produced and sold to increase by 12%. Determine the budgeted total cost for next year.
A. $70,500
B. $78,060
C. $78,585
D. $71,025
24. Bob's Burgers

Fixed costs $60,000
Refer to the information provided for Bob's Burgers. What will be Bob's new cost equation?
A. Total costs = $60,000 + $2.75x
B. Total costs = $60,000 + $2.05x
C. Total costs = $8,000 + $0.35x
D. Total costs = $52,000 + $2.05x
25. Bob's Burgers


Fixed costs $60,000
Refer to the information provided for Bob's Burgers. Bob anticipates selling 12,300 burgers during the month of July. What will be estimated total
costs during July?
A. $77,215
B. $88,800
C. $76,600
D. $85,825
26. Quality Products Inc. incurred total costs of $50,000 to produce 1,400 units. Variable costs are $15 per unit.
What are estimated fixed costs?
A. $21,000
B. $71,000
C. $48,600
D. $29,000
27. Bixby Inc. expects total costs to be $75,000 when 500 units are sold and the variable cost is $18 per unit.
Bixby expects to sell 750 units in July. What will be expected total costs in July?
A. $75,000
B. $79,500
C. $66,000
D. $88,500

rooms
0 - 25 $1
1,500
26 - 40 2
3,000
41 - 55 3
4,500
Refer to the information provided for Chadwick Ski Lodge. What type of cost is housekeeping?
A. Semi variable
B. Variable
C. Step
D. Mixed


rooms
0 - 25 $1
1,500
26 - 40 2
3,000
41 - 55 3
4,500
Refer to the information provided for Chadwick Ski Lodge. The number of occupied rooms during the month of January is expected to be between
41 and 55 at all times. For the month of January, what type of cost does housekeeping effectively become?
A. Fixed
B. Variable
C. Step
D. Mixed
30. A cost that has both a fixed and variable component is called a(n):
A. step cost.
B. mixed cost.
C. irrelevant cost.
D. relevant cost.
31. Regression analysis is a technique used to:
A. estimate the step and mixed components of total cost.
B. estimate the fixed and variable components of a mixed cost.
C. estimate the fixed and variable components of a step cost.
D. estimate the fixed and mixed components of step cost.

A. It is usually the most accurate technique used to determine equivalent units.
B. It is usually the most accurate technique used to determine net income.
C. It is usually the most accurate technique used to determine the total units of production.
D. It is usually the most accurate technique used to determine mixed cost behavior.
33. Which of the following statements is false regarding regression analysis?

A. It is used to predict the fixed and variable components of a mixed cost.
B. It is used to predict whether a cost is a product or a period cost.
C. It is usually more accurate than the high/low method.

A. It is often less accurate than the high/low method.
B. It is a better predictor of fixed costs than variable costs.
C. It can not be used to predict the effect that a change in volume of production has on net income.
dependent variable?
D. The variable cost per unit.
independent variable?
D. The volume of production that drives a particular amount of mixed cost.
SUMMARY OUTPUT
R Square 0.78219168
Observations 5
Regression 1 14626984.4 1E+07 10.7736 0.0463451
Residual 3 4073015.604 1E+06
Total 4 18700000

Intercept 16146.37 8167.49 1.977 0.14249
X Variable 1 2.380 0.730 3.282 0.04635
Refer to the Regression Analysis 1 above. What would be the equation to predict mixed cost behavior?
A. Y = $2.38 + $16,146.37x
B. Y = $1,165.19 + $.88x
C. Y = $16,146.37 + $2.38x
D. Y = $8,167.49 + $.73x
SUMMARY OUTPUT
R Square 0.78219168
Observations 5
Regression 1 14626984.4 1E+07 10.7736 0.0463451
Residual 3 4073015.604 1E+06
Total 4 18700000

Intercept 16146.37 8167.49 1.977 0.14249
X Variable 1 2.380 0.730 3.282 0.04635
Refer to the Regression Analysis 1 above. To the nearest dollar, what would be the estimated total costs if 15,000 units were produced?
A. $51,846
B. $16,148
C. $19,117
D. $35,700
SUMMARY OUTPUT
R Square 0.940438758
Observations 5
ANOVA
Regression 1 6139184.211 6139184.211 47.36832487 0.006283174
Residual 3 388815.7895 129605.2632
Total 4 6528000

Intercept 3056.58 454.25 6.728812231 0.006701298
X Variable 1 1.27 0.18 6.882465029 0.006283174
Refer to the Regression Analysis 2 above. What would be the equation to predict total mixed costs?
A. Y = $1.27 + $3,056.58x
B. Y = $454.25 + $.18x
C. Y = $360.007 + $1.27x
D. Y = $3,056.58 + $1.27x
SUMMARY OUTPUT
R Square 0.940438758
Observations 5
ANOVA
Regression 1 6139184.211 6139184.211 47.36832487 0.006283174
Residual 3 388815.7895 129605.2632
Total 4 6528000

Intercept 3056.58 454.25 6.728812231 0.006701298
X Variable 1 1.27 0.18 6.882465029 0.006283174
Refer to the Regression Analysis 2 above. To the nearest dollar, what would be the estimated total costs if 500 units were produced?
A. $ 544
B. $4,236
C. $3,692
D. $3,147
41. George's Ice Cream Shop believes most of its utilities costs are mixed. George has collected the following
data on gallons of ice cream used and related utilities costs for the past six months:
Number of
gallons used Utilities cost
May 20 $ 700
June 30 850
July 40 1,100
August 30 975
September 25 900
October 22 720
George has run a regression analysis on the above information and has come up with the following data:
Coefficients
Intercept 329.5047923
X Variable 1 19.5686901
Using regression analysis, which of the following formulas would be the best predictor of total estimated mixed costs?
A. Y = $300 + $20x
B. Y = $329.50 + $19.57x
C. Y = $900 + $30x
D. Y = $19.56 + $329.50x
42. Hill Top Products has run a regression analysis for utilities costs and the total production for the past six
months. The regression analysis shows an R square (R2) of .86. Which of the following statements best
describes the meaning of R2?
A. 86 percent of the company's total costs are utilities costs.
B. 14 percent of the variation in utilities costs is explained by the increase or decrease in production.
C. 86 percent of the variation in utilities costs is explained by the increase or decrease in production.
D. 86 percent of the company's total costs are fixed costs and the remaining 14 percent are variable costs.
43. In regression analysis, an R square (R2) of 1.0 would indicate:

A. that 1 percent of the data points are on the regression line.
B. that 1 percent of the total mixed costs can be attributable to fixed costs.
C. that 1 percent of the total mixed costs can be attributable to variable costs.
D. that there is a perfect correlation between the independent and dependent variables.
44. The high/low method:

A. considers only the highest and lowest costs for a given time period.
B. is superior to regression analysis.
C. considers all data points available.
D. uses the data points for only the high and low levels of activity.
45. When using the high/low method, the change in cost divided by the change in volume is:
A. the fixed cost per unit.
B. the mixed cost per unit.
C. the variable cost per unit.
D. the total cost per unit.
46. Cool Creams

past five months:

January 14,000 $64,500
February 25,000 114,000
March 6,000 28,500
April 23,000 105,000
May 27,000 123,000
Refer to the information provided for Cool Creams. Using the high/low method, what is the variable cost per unit?
A. $4.50
B. $5.50
C. $4.75
D. $4.32
47. Cool Creams

past five months:

January 14,000 $64,500
February 25,000 114,000
March 6,000 28,500
April 23,000 105,000
May 27,000 123,000
Refer to the information provided for Cool Creams. Using the high/low method, what is the overhead cost equation?
A. Y = $6,000 + $4.75x
B. Y = $1,500 + $4.50x
C. Y = $7,630 + $4.32x
D. Y = $1,500 + $4.32x

July 160 $6,500
August 150 6,100
September 155 6,700
October 175 7,000
November 170 6,800
Refer to the Cardinal Cleaners information above. Using the high/low method, what is the variable cost per unit?
A. $25.00
B. $0.03
C. $900.00
D. $36.00


July 160 $6,500
August 150 6,100
September 155 6,700
October 175 7,000
November 170 6,800
Refer to the Cardinal Cleaners information above. Using the high/low method, what is equation to predict total overhead costs?
A. Y = $700 + $36x
B. Y = $900 + $25x
C. Y = $175 + $41x
D. Y = $100 + $40x

July 160 $6,500
August 150 6,100
September 155 6,700
October 175 7,000
November 170 6,800
Refer to the Cardinal Cleaners information above. Cardinal uses the high/low method to predict total overhead costs. If Cardinal anticipates using
162 gallons of solvent in December, what are expected total overhead costs?
A. $6,500
B. $6,532
C. $5,832
D. $700
51. Speedy Couriers


January 1,600 $3,600
March 1,500 3,450
April 1,800 3,900
May 2,200 4,500
Refer to the Speedy Couriers information above. Using the high/low method, what is the cost equation to predict total vehicle costs?
A. Y = $985 + $1.64x
B. Y = $4,500 + $2.05x
C. Y = $560 + $2.30x
D. Y = $1,200 + $1.50x
52. Speedy Couriers

January 1,600 $3,600
March 1,500 3,450
April 1,800 3,900
May 2,200 4,500
Refer to the Speedy Couriers information above. Using the high/low method, if Speedy expects to drive 1,750 miles in June, what will be expected
total vehicle costs?
A. $3,825.00
B. $4,585.00
C. $8,087.50
D. $3,855.00

Number of Total
January 5,400 $4,800
March 4,900 4,500
April 5,600 4,900
May 6,000 5,490
Refer to the Denver Manufacturing information above. Using the high/low method, what is the cost equation to predict total maintenance costs?
A. Y = $90 + $.90x
B. Y = $2,540 + $.40x
C. Y = $1,646 + $.5824x
D. Y = $2.50x - $11,320
Number of Total
January 5,400 $4,800
March 4,900 4,500
April 5,600 4,900
May 6,000 5,490
Refer to the Denver Manufacturing information above. Using the high/low method, if Denver expects to produce 5,000 units in June, what will be
budgeted total maintenance costs?
A. $4,590
B. $4,558
C. $4,540
D. $4,363
55. When comparing a "pre-tax cost" and an "after-tax cost", which of the following is true?
A. The after-tax cost will be greater than the pretax cost.
B. They will be the same amount.
C. The pre-tax cost will be greater than the after-tax cost.
D. The higher the tax rate, the lower the difference in the amount between them.
56. The after-tax benefit of a taxable cash receipt can be calculated as follows:
A. After-tax benefit = Pretax receipt ´ tax rate
B. After-tax benefit = Pretax receipt ´ (1 - tax rate)
C. After-tax benefit = Pretax receipt ´ (1 + tax rate)
D. After-tax benefit = Pretax receipt ¸ tax rate
57. After-tax income can be calculated as follows:

A. After-tax income = Pretax income ´ tax rate
B. After-tax income = Pretax income ¸ (1 - tax rate)
C. After-tax income = Pretax income ´ (1 + tax rate)
D. After-tax income = Pretax income ´ (1 - tax rate)
58. The manager of a company is considering a special project that will increase sales revenue by $27,500
without affecting costs. If the company has a tax rate of 40%, what will be the after-tax income?
A. $16,500
B. $11,000
C. $27,500
D. $38,500
59. Blossom Products is considering a special project that will increase sales revenue by $127,000 without
affecting costs. If the company has a tax rate of 40%, what will be the after-tax income?
A. $ 50,800
B. $ 76,200
C. $127,000
D. $203,200
60. Putnam Distributors is contemplating whether or not to accept a special order. Putnam wishes to have after-
tax cash receipts of $54,000 if they accept the order. If Putnam has a tax rate of 40%, what is the price the
customer should be charged for their order?
A. $32,400
B. $21,600
C. $90,000
D. $54,000
61. Triangle Associates is contemplating making a large charitable contribution. If their tax rate is 40%, what is
the after-tax cost of making a $150,000 contribution?
A. $210,000
B. $ 60,000
C. $150,000
D. $ 90,000
62. Manning Inc. is contemplating the rental of a special tool for $45,000 per month. If their tax rate is 40%,
what is the after-tax monthly cost of renting the tool?
A. $27,000
B. $18,000
C. $63,000
D. $45,000
63. Portia's Salon is contemplating an increase in their rental space that will result in a before-tax rent increase
of $14,500 per month. If their tax rate is 40%, what is the after-tax monthly increase in rent cost?
A. $ 5,800
B. $ 8,700
C. $20,300
D. $14,500
64. Beauregard Imports has pretax income of $75,000. If their tax rate is 35%, what will be their after-tax
income?
A. $ 48,750
B. $123,750
C. $ 26,250
D. $101,250
65. Blue Ridge Resorts has the following pretax information available for the current year:
Pretax receipts $800,000

Pretax costs 300,000
Assuming all receipts are taxable and all costs are tax-deductible, what will be Blue Ridge's after-tax net income for the year if their tax rate is 30%?
A. $330,000
B. $150,000
C. $350,000
D. $770,000
66. Under variable costing, which of the following is not considered a product cost?
A. Direct materials
B. Direct labor
C. Fixed manufacturing overhead
D. Variable manufacturing overhead
67. Under absorption costing, which of the following is not considered a product cost?
A. Direct labor
B. Fixed manufacturing overhead
C. Variable manufacturing overhead
D. Administrative costs
68. The primary difference between variable and absorption costing is the treatment of:
A. fixed selling and administrative costs.
B. variable selling and administrative costs.
C. fixed manufacturing overhead.
D. variable manufacturing overhead.
69. Which of the following statements is false regarding absorption costing?

B. Absorption costing is required for external financial statements prepared in accordance with generally
accepted accounting principles (GAAP).
C. Fixed manufacturing overhead is treated as a product cost.
D. Fixed manufacturing overhead is expensed in the period incurred.
70. Which of the following statements is false regarding variable costing?

B. Variable costing is required for external financial statements prepared in accordance with generally accepted
accounting principles (GAAP).
C. Fixed manufacturing overhead is treated as a period cost.
D. Period costs are expensed as they are incurred.
71. Which of the following descriptions would not be found on an income statement prepared using variable
costing?
A. Sales
B. Fixed costs
72. Which of the following line descriptions would not be found on an income statement prepared using
absorption costing?
A. Sales
B. Contribution margin
73. Assuming the number of units sold and produced are the same, which of the following statements is true
when comparing net operating income using absorption and variable costing?
D. Variable costing will have higher sales revenue.
74. Assuming that the number of units produced is greater than the number of units sold, which of the following
D. Sales revenue will be less using absorption costing.
75. Assuming that the number of units produced is less than the number of units sold, which of the following
D. The sales price per unit will be less using absorption costing.

Refer to the information provided for Tyson Manufacturing. What is the net operating income under variable costing?
A. $251,250
B. $254,850
C. $285,000
D. $291,250

Refer to the information provided for Tyson Manufacturing. What is the net operating income under absorption costing?
A. $251,250
B. $254,850
C. $285,000
D. $299,850

Refer to the information provided for Cornell Products. What is the net operating income under variable costing?
A. $35,000
B. $29,000
C. $26,000
D. $23,000

Refer to the information provided for Cornell Products. What is the net operating income under absorption costing?
A. $23,000
B. $29,000
C. $26,000
D. $35,000
Variable
costs per
unit:
Production $6.00
Fixed
costs
(total):
Production $15,000
Refer to the information provided for B & B Manufacturing. What is the unit product cost using variable costing?
A. $ 8.00
B. $ 6.00
C. $ 7.50
D. $10.50
Variable
costs per
unit:
Production $6.00
Fixed
costs
(total):
Production $15,000
Refer to the information provided for B & B Manufacturing. What is the unit product cost using absorption costing?
A. $ 8.00
B. $ 6.00
C. $ 7.50
D. $10.50
82. Lockhart Products produces a single product. During 2012 the company incurred the following costs:
Variable product costs $8.00 per unit

Variable period costs $2.00 per unit
Total fixed product costs $21,000
Total fixed period costs $10,000
Lockhart had no units in beginning inventory. During 2012, 6,000 units were produced and 5,000 units were sold. Which of the following statements
is true when comparing net operating income using absorption versus variable costing?
A. Net operating income will be $3,500 higher using absorption costing than using variable costing.
B. Net operating income will be $3,500 lower using absorption costing than using variable costing.
C. Net operating income will be $4,200 higher using absorption costing than using variable costing.
D. Net operating income will be $4,200 lower using absorption costing than using variable costing.
83. Which of the following statements is true regarding variable costing?

A. Variable costing is also known as full costing.
B. Per unit contribution margin is affected by production levels in variable costing.
C. In a variable costing income statement, fixed costs are separated from variable costs.
D. Variable costing focuses attention on all product costs and not only relevant product costs.
Direct materials
Factory rent
Sales commissions expense
Direct labor
Depreciation on factory building
Direct materials V
Factory rent F
Sales commissions expense V
Direct labor V
Depreciation on factory building F
Factory insurance
Direct materials
Secretary salary
Shipping supplies
Gasoline costs
Factory insurance F
Direct materials V
Secretary salary F
Shipping supplies V
Gasoline costs V
same.
a. As production increases, total fixed costs ______________.

b. As production increases, fixed costs per unit _____________.
c. As production decreases, variable costs per unit _____________.
d. As production decreases, total variable costs _______________.
a. As production increases, total fixed costs stay the same .

b. As production increases, fixed costs per unit decrease .
c. As production decreases, variable costs per unit stay the same .
d. As production decreases, total variable costs decrease .
same.
a. As production decreases, total fixed costs ______________.

b. As production decreases, fixed costs per unit _____________.
c. As production increases, variable costs per unit _____________.
d. As production increases, total variable costs _______________.
a. As production decreases, total fixed costs stay the same .

b. As production decreases, fixed costs per unit increase .
c. As production increases, variable costs per unit stay the same .
d. As production increases, total variable costs increase .
88. Briefly describe the difference between fixed, variable, and mixed costs. Give one example of each.
Total fixed costs remain the same as production goes up or down within the relevant range; however, fixed
costs per unit go up as production goes down and vice versa. Rent is a good example of a fixed cost.
Variable costs in total go up or down in direct proportion to an increase or decrease in production within a
relevant range; however, they are constant when expressed on a per unit basis. Direct materials are a good
example of a variable cost.
Mixed costs have components of both fixed and variable costs. Factory maintenance would be a good example
of a mixed cost.
89. You are the manager of a small cookie stand. The variable cost of producing one chocolate chip cookie is
$.75. Your fixed costs per week are $1,000. What is the total cost per unit if 1,000 cookies are produced and
sold per week? 2,000 cookies? Do your answers for the two quantities differ? Why or why not?
The cost per unit for 1,000 cookies is: $1,000 + .75(1,000) = $1,750/1,000 = $1.75
The cost per unit for 2,000 cookies is: $1,000 + .75(2,000) = $2,500/2,000 = $1.25
The cost per unit differs because the cost is a mixed cost. When 2,000 units are produced, the fixed cost is
spread over twice as many units as when 1,000 are produced, while the variable cost per unit remains the same.
90. Jameson Inc. plans to double its rental space next year, which will increase its fixed costs by 15%. Current
year costs include variable costs of $14.5 per unit and fixed costs of $850,000. With the expansion of the rental
space, next year's production is expected to be 7,000 units.
Total estimated costs for next year will be $1,079,000 calculated as follows:
Fixed costs next year: $850,000 ´ 1.15 = $977,500

Variable costs next year: 7,000 units ´ $14.5 = 101,500
Total estimated costs $1,079,000
91. Richardson Corporation plans to increase its advertising budget by 20% next year. The company currently
spends $15,000 on advertising costs. In addition to advertising, Richardson spends $50,000 per year for other
fixed costs and $10 per unit for variable costs. If Richardson anticipates producing 30,000 units next year, what
will be next year's total costs?
Total estimated costs for next year will be $368,000 calculated as follows:
Fixed
costs
next
year:
Advertising $15,000 ´ 1.20 = $ 18,000
Other fixed costs = 50,000
Variable 30,000 units ´ $10 = 300,000
costs
next
year:
Total $368,000
estimate
d costs
92. Compare and contrast the two methods that are used to predict mixed costs.
Both regression analysis and the high/low method are techniques that can be used to predict the fixed and
variable components of a mixed cost.
Regression analysis is the more precise method because it uses statistical methods to fit a cost line through a
number of data points.
The high/low method does not involve statistics. It uses only two data points for the cost line based on the
highest and lowest activity levels.
93. Describe regression analysis and list several of its possible uses.
Regression analysis is a statistical technique that attempts to fit a regression line through a number of data
points.
Regression analysis can be used in many different ways including predicting mixed costs by separating out the
mixed cost into its fixed and variable components. Regression analysis could be used by marketing managers to
predict advertising or distribution costs. It could also be used by production managers to estimate production
relationships, such as the number of defective goods produced when overtime hours increase, or the estimated
total cost of production at different production levels. Regression analysis can also be used to identify
appropriate cost drivers.
94. You are trying to determine whether machine hours or direct labor dollars would be the best cost driver for
overhead costs. You run two regression analyses and obtain the following results:
Machin
e hours:
Multiple R .39429
R square .15547
Direct
labor
dollars:
Multiple R .89429
R square .79547
Which variable would be the best selection for a cost driver and why?
Direct labor dollars would be the best cost driver because direct labor dollars explain over 79% of the variance
in overhead costs, while machine hours explain around 15% of the variance. This could be determined by
examining the R square value which indicates how well the correlation is between the dependent and
independent variables. The higher the percentage, the more perfect the correlation.
95. Why should income taxes be considered by corporate decision-makers?
The payment of income taxes affects a company's cash flow, so a company's management has an incentive to
minimize tax expense. The different alternatives considered when making a decision may have different tax
consequences, thus, it is in management's best interest to consider taxes when making a decision. Also the
structure of a transaction may affect the deductibility of expenses, so taxes should be considered in the decision-
making process.
96. How do variable costing and absorption costing differ? When is net operating income different under the
two methods?
Variable costing and absorption costing treat fixed overhead costs differently. Under variable costing, fixed
overhead costs are treated as period costs, whereas under absorption costing, fixed overhead costs are treated as
product costs.
Net operating income will differ under the two methods when the number of units produced and sold is
different. When sales exceed production, variable costing will report higher net operating income than
absorption costing. When production exceeds sales, absorption costing will report higher net operating income
than variable costing.
97. Your company leases a copier. The contract states that you must pay the leasing company $3,000 per year
and $.005 per copy.
Required:
A. Write
the
equation
to
predict
estimate
d total
lease
cost.
B. Compute
the
estimate
d total
costs if:
C. Compute
the
estimate
d cost
per unit
if:
A. Y=
$3,000 +
$.005x
B. Estimate
d total
costs:
i. 10,000 copies: Y = $3,000 + $.005(10,000) = $3,050
ii. 50,000 copies: Y = $3,000 + $.005(50,000) = $3,250
C. Estimate
d cost
per unit:
i. 10,000 copies: $3,050 ¸ 10,000 copies = $.305 per copy
ii. 50,000 copies: $3,250 ¸ 50,000 copies = $.065 per copy
98. Sabina and Associates has the following current year costs:

Fixed costs $20,000
Next year, the company plans to enter into an arrangement with a supplier that will result in a 15% decrease in variable costs. They also plan on
reducing their rental space, which will decrease fixed costs by 10%.
Required:
A. What will be the new equation to predict total costs?
B. If next year's production is expected to be 10,000 units, what will be total estimated costs?
A. Y = $18,000 + $3.40x
Variable cost per unit will change to: $4 ´ .85 = $3.40 per unit, and fixed costs will change to: $20,000 ´ .90 = $18,000
B. Y = $18,000 + $3.40 ´ 10,000 units = $52,000

99. You run a regression analysis and receive the following results:
Multiple R .39429
R Square .15547
Adjusted R Square .14964
Standard Error .44416
Analysis of Variance
DF Sum of Squares Mean Square
Regression 1 5.26588 5.26588
Residual 145 28.60536 .19728
F = 26.69262 Signif F
= .0000
Variables in the Equation

Variable Coefficie Standard error t Stat P-value
nts
X Variable 1 11.03 .021000 5.166 .0000
00
Intercept 8833.07 .090000 9.751 .0000
00
Required:
A. What is the fixed cost in this regression analysis?
B. What is the variable cost per unit?
C. Prepare the cost equation based upon these results.
D. Does this regression equation "fit" the data well? What information did you examine to answer this question?
A. $8,833.07
B. $11.03
C. Y = $8,833.07 + $11.03x
D. No. The R square value is .15547, which is very low and indicates that a large portion of changes in cost have not been explained by the x-
variable.
100. Pearson Products believes one of its costs is a mixed cost and has run a regression analysis which shows
the following:
SUMMARY OUTPUT
R Square 0.928740713
Observations 8
ANOVA
Regression 1 69996575.46 69996575.46 78.19955153 0.000116235
Residual 6 5370612.038 895102.0063
Total 7 75367187.5

Intercept 11568.56000 1352.390000 8.554149469 0.000140059
X Variable 1 1.9800000 0.223900000 8.843051031 0.000116235
Required:
A. Write the equation to predict estimated total mixed costs.
B. If 1,000 units are produced, what will be total mixed costs?
C. What does the "R Square" number tell Pearson? Interpret the "R Square" data for Pearson.
A. Y = $11,568.56 + $1.98x
B. Y = $11,568.56 + $1.98(1,000) = $13,548.56
C. R Square indicates how well correlated the dependent and independent variables are. An R Square of 1.0 is a perfect correlation. Pearson's
R-Square is .9287, which means that more than 92% of the data points are on the regression line. In other words, more than 92% of the
costs can be explained by the changes in units produced.
101. Noble Inc. documented the number of units produced as well as maintenance costs for the past five months
as follows:
Number of units Total overhead costs

October 120,000 $ 6,200
November 180,000 10,000
December 100,000 6,000
January 110,000 8,000
February 135,000 9,000
Noble uses the high/low method of estimating mixed costs.
Required:
A. What is the equation to predict estimated total overhead costs?
B. If the company expects to produce 150,000 units in March, what will be the estimated total overhead costs?
A. Y = $1,000 + $.05x
Highest number of units = November

Lowest number of units = December
Variable cost per unit = ($10,000 - $6,000)/(180,000 - 100,000) = $.05 per unit
Calculation of fixed cost: $10,000 = $.05(180,000) + FC

FC = $1,000
(note: using the low activity information will produce the same fixed costs)
B. Y = $1,000 + $.05(150,000) = $8,500

102. Reliable Movers Inc. documented the miles driven and total moving van costs for the past five months as
follows:

January 3,000 $4,800
March 5,000 6,100
April 4,000 5,000
May 6,000 6,000
In order to budget total vehicle costs for the upcoming summer months, Reliable wishes to estimate total vehicle costs using the high/low method.
Required:
A. What is the equation to predict estimated total vehicle costs?
B. If the company expects to drive 9,000 miles in June, what will be the estimated total vehicle costs?
A. Y = $3,600 + $.40x
Highest number of miles = May

Lowest number of miles = January
Variable cost per unit = ($6,000 - $4,800)/(6,000 - 3,000) = $.40 per mile
Calculation of fixed cost: $6,000 = $.40(6,000) + FC

FC = $3,600
(note: using the low activity information will produce the same fixed costs)
B. Y = $3,600 + $.40(9,000) = $7,200
103. A manager is considering a special project that will increase cash sales by $80,000 and increase costs by
$30,000. All cash receipts are taxable and all costs are tax deductible. If the tax rate is 30%, what will be the
after-tax profit from the special project?
After-tax profit will be $35,000.
After-tax profit = ($80,000 - $30,000) ´ (1 - .30) = $35,000

104. A manager is considering a special project. Corporate policy dictates that all special projects must generate
an after-tax profit of $21,000. If the company expects costs related to the project to be equal to $43,000, what is
the before-tax cash sales price that should be charged in order to adhere to corporate policy assuming the
company has a tax rate of 30%?
Before-tax sales price needs to be $73,000.
After-tax profit = Before-tax profit ´ (1 - tax rate)
21,000 = (x - 43,000) ´ (1 - .30)
21,000 = .70(x - 43,000)
21,000 = .70x - 30,100
51,100 = .70x
x = $73,000
105. Preferred Products has the following cost information available for 2012:

During 2012, Preferred produced 5,000 units out of which 4,600 units were sold for $30 each.
Required:
A. Calculate Preferred's net operating income assuming the company uses variable costing.
B. Calculate Preferred's net operating income assuming the company uses absorption costing.
A. Variabl
e
costing
:
Sales (4,600 ´ $30) $138,000
Variable costs: [4,600 ´ ($4 + $3 + $2 + $1)] 46,000
Contribution margin 92,000
Fixed costs: ($25,000 + $10,000) 35,000
Net operating income $ 57,000
B. Absorp
tion
costing
:
Sale $138,000
s
(4,6
00 ´
$30)
Cost
of
goo
ds
sold:
Variable product costs [4,600 ´ ($4 + $3 + $2)] $41,400
Fixed product costs [($25,000/5,000) ´ 4,600] 23,000 64,400
Gros 73,600
s
mar
gin
Selli
ng
and
adm
inist
rativ
e
cost
s:
Variable selling and administrative (4,600 ´ $1) 4,600
Fixed selling and administrative 10,000 14,600
Net $ 59,000
oper
atin
g
inco
me
106. Hellman Manufacturing has the following cost information available for 2012:

During 2012, Merriman produced 12,500 units out of which 11,000 units were sold for $60 each.
Required:
A. Calculate Hellman's net operating income assuming the company uses variable costing.
B. Calculate Hellman's net operating income assuming the company uses absorption costing.
A. Variabl
e
costing
:
Sales (11,000 ´ $60) $660,000
Variable costs: [11,000 ´ ($6 + $4 + $2 + $1)] 143,000
Contribution margin 517,000
Fixed costs: ($80,000 + $25,000) 105,000
Net operating income $412,000
B. Absorp
tion
costing
:
Sales $660,000
(11,000
´ $60)
Cost of
goods
sold:
Variable product costs [11,000 ´ ($6 + $4 + $2)] $132,000
Fixed product costs [($80,000/12,500) ´ 11,000] 70,400 202,400
Gross 457,600
margin
Selling
and
admini
strative
costs:
Variable selling and administrative (11,000 ´ $1) 11,000
Fixed selling and administrative 25,000 36,000
Net $421,600
operati
ng
income

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Chapter 5--Cost Behavior

2. Which of the following is most likely to be classified as a fixed cost?

4. As production goes up, total fixed costs ____.

5. As production increases, fixed costs per unit ____.

6. As production decreases, fixed costs per unit ____.

8. As production goes up, total variable costs ____.

10. As production decreases, variable costs per unit ____.

11. Which of the following is most likely to be classified as a variable cost?

12. Which of the following is least likely to be classified as a variable cost?

Volume Total Cost

Which type of cost is given?

Volume Total Cost

Which type of cost is given?

Volume Cost per unit

Which type of cost is given?

Volume Cost per unit

Which type of cost is given?

18. In the cost equation, y = $500 + $5.40x, $5.40 represents:

19. In the cost equation, y = $500 + $5.40x, $500 represents:

20. The cost equation, y = $500 + $5.40x, x represents:

Total costs = $2,500 + $20x

Variable costs $20 per unit

Variable costs $7 per unit

Variable costs $2.40 per unit

25. Bob's Burgers

Variable costs $2.40 per unit

Number of occupied Housekeeping costs

29. Chadwick Ski Lodge

Number of occupied Housekeeping costs

32. Which of the following statements is true regarding regression analysis?

33. Which of the following statements is false regarding regression analysis?

34. Which of the following statements is true regarding regression analysis?

Coefficients Standard Error t Stat P-value

Coefficients Standard Error t Stat P-value

Coefficients Standard Error t Stat P-value

Coefficients Standard Error t Stat P-value

43. In regression analysis, an R square (R2) of 1.0 would indicate:

44. The high/low method:

46. Cool Creams

Number of ice creams Total overhead costs

47. Cool Creams

Number of ice creams Total overhead costs

Number of gallons Total overhead costs

49. Cardinal Cleaners

Number of gallons Total overhead costs

Number of gallons Total overhead costs

51. Speedy Couriers

Number of miles Total vehicle costs

Number of miles Total vehicle costs

53. Denver Manufacturing

57. After-tax income can be calculated as follows:

Pretax receipts $800,000

69. Which of the following statements is false regarding absorption costing?

70. Which of the following statements is false regarding variable costing?

Direct materials $6.00 per unit

Direct materials $6.00 per unit

Direct materials $1.00 per unit

Direct materials $1.00 per unit

Variable product costs $8.00 per unit

83. Which of the following statements is true regarding variable costing?

a. As production increases, total fixed costs ______________.