Cost Behavior - II
1. The following information was taken from the accounting records of the Belmont Shoe Company for 2007.
Production in units 250,000
Sales in units 175,000
Sales price per unit $25
Unit Variable costs:
Manufacturing $7
Non Manufacturing 4
Fixed Costs:
Manufacturing $200,000
Non Manufacturing 250,000
There was no beginning work-in process inventory and no beginning finished goods inventory.
What is the 2007 Cost of Goods sold using variable costing? a) $1,225,000
b) $1,365,000 c) $1,925,000 d) $2,450,000 e) none of the above
175,000×$7.8 = $1,365,000
2. Information taken from Mohawk Paper Company’s records for the most recent years is as follows.
Direct material used $290,000
Direct labor 100,000
Variable manufacturing overhead 50,000
Fixed manufacturing overhead 80,000
Variable selling and administrative costs 40,000 Fixed selling and administrative costs 20,000 a) The inventorial costs for the year using variable costing methods is
a) $440,000 b) $480,000
c) $490,000 d) $520,000
290,000+100,000+50,000 = $440,000
b) The inventorial costs for the year using absorption costing methods is a) $440,000
b) $480,000 c) $490,000 d) $520,000
290,000+100,000+50,000+ 80,000 = $520,000
3. Bell Company has provided the following data for maintenance costs.
April May
Machine hours incurred 12,000 16,000
Maintenance cost incurred $24,000 $26,000
Using the high-low method, what is the cost formula for maintenance cost? a) $2.00 per machine hour
b) $1.625 per machine hour
c) $18,000 plus $0.50 per machine hour d) $24,000 plus $0.50 per machine hour
4. Indiana Corporation produces a single product that it sells for $9 per unit. During the first year of operations,
100,000 units were produced and 90,000 units were sold. Manufacturing costs and selling and administrative
expenses for the year were as follows:
Fixed Costs Variable Costs
Raw material 0 $1.75 per unit produced
Direct labor 0 $1.25 per unit produced
Factory overhead $100,000 0.50 per unit produced
Selling and administrative $70,000 0.60 per unit sold
What was Indiana Corporation’s operating income for the year using variable costing? a) $181,000
b) $271,000 c) $281,000
d) $371,000
e) None of the above
MM = (90,000×$9) – (90,000×$3.5) = $495,000 CM = $495,000 – ( 90,000× 0.6) = $441,000 OI = $441,000 - $170,000 = $271,000
5. Selected information about Buehler Corporation’s operations at high and at low Level. Level of activity
Low High Number of units produced 25,000 30,000 Total manufacturing costs $575,000 $680,000 Direct material cost per unit $5 $5 Direct labor cost per unit $6 $6 What is the cost formula for manufacturing overhead?
a) $50,000 per period plus $10 per unit b) $50,000 per period plus $21 per unit c) $50,000 per period plus $22 per unit d) $347,000 per period plus $0.10 per unit e) None of the above
VC per unit = $50,000÷5,000 = $10 $350,000 = FC + $10×300,000 FC = $50,000 TC = $50,000 +$10 × number of units
6. Germaine’s Crushing service provided the following Monthly Handling Costs Miles travelled
$19,000 20,000
$23,700 28,000
$30,000 40,000
Using the high-low method, how much of Germaine’s handling cost is made up of fixed costs? a) $7,250 b) $8,000 c) $9,000 d) $11,000 $30,000 - $19,000 = $11,000 40,000 - 20,000 = 20,000
VC per unit = 11,000 ÷ 20,000 = 0.55 30,000 = FC + 40,000 × 0.55 FC = $8,000
7. Randazzo Inc. budgeted $1,550 for electricity cost during October using a mixed cost formula of y = $800 + $0.60
X where X is machine hour. The company planned to produce 5,000 units of product during that month. Actual
electricity cost for the month was $1,810; actual machine hours were 15,200; and actual production was
6,050 units. The most useful analysis of electricity cost for the month would indicate that Randazzo Inc. was
a) $260.0 over budget b) $157.50 over budget c) $98.00 over budget d) $102.50 under budget
8. A manufacturing company that produces a single product has provided the following data concerning the most
recent month of operations:
Selling Price $104 Variable costs per unit:
Units in the beginning inventory 0 Direct materials $38
Units produced 1,700 Direct labor $32
Units sold 1,400 Variable MOH $6
Units in the ending inventory 300 Variable S & A $4
Fixed Costs
Fixed manufacturing overhead $6,800 Fixed selling and administrative $8,400
What is the net operating income for the month under absorption costing? a) $18,400
b) ($4,400) c) $16,600 d) $19,600
9. Alexander Company is estimating its budget expense for cleaning uniforms. The formula to estimate this monthly
cost is:
Uniform cleaning = $16,560 + $ 0.09 X Where X = number of direct labor hours
This estimate includes 42,800 of depreciation.
How much will be included in the pro forma income statement for cleaning uniforms in May if the firm expects
144,000 direct labor hours in that month? a) $12,960 b) $26,720 c) $29,520 d) $32,320 P = 16,560 + 0.09×144,000 = $29,520 = 29,520 – 2,800 = 26,720
10. Wild Berry Toppings produces blackberry jelly. The following information pertains to first year operations.
Sales price per jar $2.00
Production Costs:
Direct material (per jar) $ 0.50
Direct labor (per jar) $0.40
Variable Manufacturing overhead (per jar) $0.10 Annual fixed manufacturing overhead $600,000 Selling and administrative costs:
Variable (per jar) $0.25
Annual fixed costs $150,000
During the year, the firm produced 1,000,000 jars of jelly and sold 700,000. At year end, there was no work in
process inventory.
a) If the company uses absorption costing, what is cost of goods sold? a) $700,000
b) $805,000 c) $ 1,120,000 d) $1,600,000
b) If the company uses variable costing what is the total product contribution margin? a) $280,000
c) $700,000 d) $850,000
11. Last year, Ben Company’s operating income under absorption costing was $4,400 lower than its operating income
under variable costing. The company sold 8,000 units during the year, and its variable costs were $8 per unit, of
which $3 was variable selling expense. Fixed manufacturing overhead was $1 per unit in
beginning inventory under absorption costing. How many units did the company produce during the year?
a) 3,600 units b) 7,120 units c) 7,450 units d) 12,400 units
12. Wang Company provides the following information for their first year of operations.
Sales 5,000 units @ $10
Selling and administrative Costs:
Fixed $ 1,000
Variable $1 per unit
Variable production costs per unit:
Direct materials $2
Direct labor $2
Variable overhead $1
Fixed factory overhead $7,500
Production 7,500 units
If Wang uses absorption costing, cost of goods sold would be a) $20,000
b) $ 25,000 c) $ 30,000
b) If Wang uses variable costing. Operating income would be: a) $11,500
b) $14,000 c) $ 16,500
d) $ 20,000
13. Wombat Ltd requires sales of $2,000,000 to cover its fixed costs of $900,000 and to earn net profit of
$400,000.What percentage are variable costs of sales? a) 20 %
b) 35% c) 45%
d) 65%
14. Comparative income statements for Boggs Sporting Equipment Company for the two months are presented
below: July August Sales in units 11,000 10,000 Sales Revenue $165,000 $150,000 Less CGS 72,600 66,000 Gross Margin 92,400 84,000
Less: Operating Expenses:
Rent 12,000 12,000
Sales Commissions 13,200 12,000
Maintenance Expenses 13,500 13,000
Clerical Expenses 16,000 15,000
Total operating expenses 54,700 52,000
Operating Income $37,700 $32,000
All of the company’s costs are either fixed, variable, or a mixture of the two (that is,mixed), Assume that the
relevant range includes all of the activity levels mentioned in this problem. What is the total monthly fixed cost for Boggs Sporting Equipment Company?
a) $ 12,000 b) $ 22,500
c) $ 25,000 d) $ 40,000
