COST ACCOUNTING AND CONTROL

1st Term., A.Y. 2020-2021

BACOSTMX
Module 2 - Cost Behavior and Accounting for Cost Flows
Activity 2

NAME: (surname first) Lasquite, Rosanna B. SCORE: __________________

YR./ SEC.: 2nd year – ACT195 DATE: Aug. 25, 2020

GENERAL DIRECTION:
Read and analyze the following questions and type your answer in the space provided in each item.

Part I.

Listed below are costs found in various organizations. For each cost item, indicate
whether it would be variable or fixed with respect to the number of units produced and sold by
typing the letter in the space provided for each item.
a. Varible Cost b. Fixed Cost

__B__ 1. Property taxes, factory.

__A__ 2. Boxes used for packaging detergent produced by the company.

__A__ 3. Salespersons’ commissions.

__B__ 4. Supervisor’s salary, factory.

__B__ 5. Depreciation, executive autos.

__B__ 6. Wages of workers assembling computers.

__B__ 7. Insurance, finished goods warehouses.

__A__ 8. Lubricants for production equipment.

__B__ 9. Advertising costs.

__A__10. Microchips used in producing calculators.

__A__11. Shipping costs on merchandise sold.

___B_12. Magazine subscriptions, factory lunchroom.

__A__13. Thread in a garment factory.

__B__14. Billing costs.

__B__15. Executive life insurance.

__A__16. Ink used in textbook production.

__B__17. Fringe benefits, assembly-line workers.

__A__18. Yarn used in sweater production.

__B__19. Wages of receptionist, executive offices.

Part II.

Various costs associated with the operation of factories are given below:

Required:
Classify each cost as either variable or fixed with respect to the number of units
produced and sold. (Type the letter of your answer)

a. Variable cost b. Fixed cost

_A___20. Electricity to run production equipment.

_B___21. Rent on a factory building.

__A__22. Cloth used to make drapes.

__B__23. Production superintendent’s salary.

__B__24. Wages of laborers assembling a product.

__B__25. Depreciation of air purification equipment used to make furniture.

__B__26. Janitorial salaries.

__A__27. Peaches used in canning fruit.

__A__28. Lubricants for production equipment.

__A__29. Sugar used in soft-drink production.

__B__30. Property taxes on the factory.

__B__31. Wages of workers painting a product.

__B__32. Depreciation on cafeteria equipment.

__B__33. Insurance on a building used in producing helicopters.

__A__34. Cost of rotor blades used in producing helicopters.

Part III.
The Pate Company reported the following:

Month 1 Month 2
Units sold...... 6,000 8,000
Cost A........... $35,000 $36,000
Cost B........... $16,000 $16,000
Cost C........... $1,500 $2,000
Cost D........... $12,000 $16,000
Cost E........... $6,000 $8,000
Cost F........... $2,000 $2,000
Cost G........... $4,200 $8,400
Cost H........... $37,300 $44,600
Cost I............. $13,000 $13,500
Cost J............ $10,000 $12,200

Required:
Indicate whether each of the costs above is probably a variable, mixed or fixed cost. (Type the letter
of your answer)

a. Variable Cost c. Fixed cost

b. Mixed Cost

__B__35. Cost A

__C__36. Cost B

__A__37. Cost C

__A__38. Cost D

__A__39. Cost E

__C__40. Cost F

__B__41. Cost G

__B__42. Cost H

__B__43. Cost I

__B__44. Cost J
 Part III.Problem Solving

Problem 1
ABC Company's total overhead costs at various levels of activity are presented below:

Machine Hours Total Overhead Costs

March......... 60,000 $216,800
April............ 50,000 $194,000
May............ 70,000 $239,600
June........... 80,000 $262,400

Assume that the overhead costs above consist of utilities, supervisory salaries, and
maintenance. At the 50,000 machine-hour level of activity these costs are:

Utilities (V)..................................... $  54,000

Supervisory salaries (F)................ 62,000
Maintenance (M)...........................    78,000
Total overhead cost....................... $194,000

V = Variable; F = Fixed; M = Mixed

The company wants to break down the maintenance cost into its basic variable and fixed
cost elements.

45. Estimate the maintenance cost for June. – $114,000

46. Use the high-low method to estimate the cost formula for maintenance cost. –

Month Machine Hours Maintenance Cost

March 60,000 90,000
April 50,000 78,000
May 70,000 102,000
June 114,000 114,000

Machine Hours Maintenance Cost

Highest Month 80,000 114,000
Lowest Month 50,000 78,000
Differences 30,000 36,000

36,000/30,000 = 1.2

Variable Cost per machine hour = $1.2

High Low
Total Maintenance Cost 114,000 78,000
Less: Variable Cost Proportion 96,000 60,000
Fixed Cost Proportion 18,000 18,000

Fixed Cost = $18,000

47. Estimate the total overhead cost at an activity level of 55,000 machine hours. –

Total Overhead Cost = $205,400

Problem 2
Hinrichs Corporation reports that at an activity level of 2,400 units, its total variable cost is $174,504
and its total fixed cost is $55,080.

Required:
For the activity level of 2,700 units, compute:

48. The total variable cost; - $196,317

49. The total fixed cost - $55,080
50. The total cost - $251,397
51. The average variable cost per unit - $72.71
52. The average fixed cost per unit - $20.4
53. The average total cost per unit. Assume that this activity level is within the relevant range. - $93.11

Problem 3:
Green Shade manufactures insulated windows. The firm's repair and maintenance (R&M) cost is
mixed and varies directly with machine hours worked. The following data have been gathered from
recent operations:

Month MHs R&M Cost

May 1400 9000
June 1900 10719
July 2000 10900
August 2500 13000
September 2200 11578
October 2700 13160
November 1700 9525
December 2300 11670

a. Use high-low method to estimate the total fixed cost component of the repair and
maintenance cost.

High Low
Total R&M Cost 13,160 9,000
Less: Variable Cost Proportion 8,640 4,480
Fixed Cost 4,520 4,520

Total Fixed Cost = $4,520

 b. Use high-low method to estimate the variable cost per machine hour for repair and
maintenance cost.

Machine Hours R&M Cost

Highest Month 2,700 13,160
Lowest Month 1,400 9,000
Differences 1,300 4,160

4,160/1,300 = 3.2

Variable Cost per machine hour = $3.2

c. Use least-squares regression to estimate the total fixed cost component of the repair and
maintenance cost. (Round-off to five decimal places)

X Y XY X^2
1,400 9,000 12,600,000 1,960,000
1,900 10,719 20,366,100 3,610,000
2,000 10,900 21,800,000 4,000,000
2,500 13,000 32,500,000 6,250,000
2,200 11,578 25,471,600 4,840,000
2,700 13,160 35,532,000 7,290,000
1,700 9,525 16,192,500 2,890,000
2,300 11,670 26,841,000 5,290,000
Total 16,700 89,552 191,303,200 36,130,000

Equation 2 (89,552 = 8a + b16,700) 2,087.5

= 186,939,800 = 16,700a + 34,861,250b

Equation 3 191,303,200 = 16,700a + 36,130,000b

- 186,939,800 = - 16,700a - 34,861,250b
4,363,400 = 1,268,750b
1,268,750 = 1,268,750

3.43913 = b

89,552 = 8a + 16,700 (3.43913)

= 89,552 = 8a + 57,433.471
= 89,552 – 57,433.471 = 8a
= 32,118.529 = 8a
8 8

4,014.81613 = a

Total Fixed Cost = $4,014.81613

d. Use the least-squares regression to estimate the variable cost per machine hour for repair and
maintenance cost. (Round-off to five decimal places)
3.43913 = b

Variable cost per machine hour = $3.43913