Kuis 1: Basic Managerial Accounting Concept and Cost Behaviour

1. The following cost formula was developed using the monthly

data for an accounting firm.

Total cost = $87,100 + ($210 × number of tax returns)

The term "number of tax returns"
a) is the independent variable
b) is the intercept
c) is the dependent variable
d) is the variable rate

2. Advantages of the method of least squares over the high-low method

include all of the following except
a) only two points are used to develop the cost function.
b) a statistical method is used to mathematically derive the cost function
c) the squared differences between actual observations and the line (cost function) are minimized.
d) All the observations have an effect on the cost function

3. Gross margin equals

a) cost of goods sold − selling and administrative expenses
b) sales revenue − cost of goods sold
c) cost of goods manufactured + selling and administrative expenses
d) direct materials + direct labor + manufacturing overhead.

4. Rancor Inc. had a per-unit conversion cost of $2.50 during April and
incurred direct materials cost of $100,000, direct labor costs of
$75,000, and overhead costs of $45,000 during the month. How many
units did they manufacture during the month?
a) 48,000
b) 18,000
c) 30,000
d) 70,000
Ans:
($75,000 + $45,000)/$2.50 = $48,000

5. Which of the following would not be found on the income statement

of a manufacturer?
a) work in process
b) sales revenue
c) cost of goods sold
d) operating income
 6. Botana Company constructed the following formula for monthly
utility cost.

Total utility cost = $1,200 + ($8.10 × labor hours)

Assume that 775 labor hours are budgeted for the month of April.

Calculate the total utility cost for the month of April

a) $7,477.50
b) $6,277.50
c) $1,200.00
d) $5,077.50

7. If production volume increases from 8,000 to 10,000 units

a) total costs will increase by 20%.
b) total costs will increase by 25%.
c) total variable costs will increase by 25%.
d) mixed and variable costs will increase by 25%.

8. 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

9. The formula for a mixed cost is

a) total cost = total variable cost + ( fixed rate × amount of output).
b) total cost = total fixed cost + (variable rate × amount of output).
c) total cost = variable rate × amount of output.
d) None of these are correct

10. The method of least squares was used to develop a cost

equation to predict the cost of monthly equipment maintenance. The
following computer output was received:

Intercept =32,000
Slope=25
The driver used was the number of machine hours.
What was the cost formula for equipment maintenance?
a) total maintenance cost = $32,000 + ($25 × machine hours)
b) total maintenance cost = $32,000
c) total maintenance cost = $25 × machine hours
d) None of these are correct

11. Fixed cost per unit is $9 when 20,000 units are produced and $6
when 30,000 units are produced.

What is the total fixed cost when nothing is produced?

a) 180.000
b) 360.000
c) 150.000
d) 240.000

12. Botana Company constructed the following formula for

monthly utility cost.

Total utility cost = $1,200 + ($8.10 × labor hours)

Assume that 775 labor hours are budgeted for the month of April

Calculate the total variable utility cost for the month of April
a) $1,200.00
b) $7,477.50
c) $6,277.50
d) $5,077.50