PRACTICE SET – COST BEHAVIOR B.

total fixed overhead of $240,000 and the same hourly rate for
variable overhead.
C. total fixed overhead of $240,000 and a higher hourly rate for
THEORIES
variable overhead.
D. total variable overhead of less than $150,000 and a lower hourly
1. As the level of activity increases, how will a mixed cost in total rate for variable overhead.
and per unit behave? E. total variable overhead of less than $150,000 and a higher hourly
rate for variable overhead.
In Total Per Unit
A. Increase Decrease
9. Arkansas Company pays a sales commission of 5% on each
B. Increase Increase
unit sold. If a graph is prepared, with the vertical axis
C. Increase No effect
representing per-unit cost and the horizontal axis representing
D. Decrease Increase
units sold, how would a line that depicts sales commissions be
E. Decrease No effect
drawn?
2. Since Landers Pizza is open 24 hours a day, its pizza oven is
A. As a straight diagonal line, sloping upward to the right.
constantly on and is, therefore, always using natural gas.
B. As a straight diagonal line, sloping downward to the right.
However, when there is no pizza in the oven, the oven
C. As a horizontal line.
automatically lowers its flame and reduces its natural gas
D. As a vertical line.
usage by 70%. The cost of natural gas would best be described
E. As a curvilinear line.
as a:
10. Which of the following choices correctly classifies a committed
A. fixed cost. fixed cost and a discretionary fixed cost?
B. mixed cost.
C. step-variable cost. Committed Discretionary
D. true variable cost. A. Promotion Management salaries
B. Building depreciation Charitable contributions
3. When the activity level is expected to decline within the C. Management training Property taxes
relevant range, what effects would be anticipated with respect D. Equipment rentals Equipment depreciation
to each of the following? E. Research and development Advertising

Fixed costs per unit Variable costs per unit PROBLEM SOLVING
A. Increase Increase
B. Increase No change
1. Pennsylvania Corporation has a machining capacity of 200,000
C. No change No change
hours per year. Utilization of capacity is normally 75%; it has
D. No change Increase
been as low as 40% and as high as 90%. An analysis of the
accounting records revealed the following selected costs:
4. For the past 8 months, Alabama Corporation has experienced a
steady increase in its cost per unit even though total costs have
At a 40% At a 90%
remained stable This cost per unit increase may be due to
Utilization Utilization Rate
_____________ costs because the level of activity at Jinan is
Rate
_______________.
Cost A:
Total $440,000 $ 440,000
A. fixed, decreasing
Per hour $5.50 ?
B. fixed, increasing
Cost B:
C. variable, decreasing
Total ? $1,944,000
D. variable, increasing
Per hour $10.80 $10.80
Cost C:
5. Which of the following would usually be considered a
Total $680,000 $1,330,000
committed fixed cost for a retail sales corporation?
Per hour $8.50 $7.39
A. lease payments made on its store buildings
Pennsylvania uses the high-low method to analyze cost behavior.
B. the cost of the Wyoming trip given to the employee of the year
C. the cost of running an annual leadership seminar for managers
D. both a and c above Required:
1. Classify each of the costs as being either variable, fixed, or
6. What type of cost exhibits the behavior that follows? semi-variable.
2. Calculate amounts for the two unknowns in the preceding
Manufacturing table.
Volume (Units) Cost Per Unit 3. Calculate the total amount that Pennsylvania would expect at a
50,000 $1.95 75% utilization rate for Cost A, Cost B, and Cost C.
70,000 1.95 4. Develop an equation that Pennsylvania can use to predict total
cost for any level of hours within its range of operation.
A. Variable cost.
B. Fixed cost. 2. Shipping costs at Wisconsin Company are a mixture of variable
C. Semi-variable cost. and fixed components. The company shipped 8,000 tons of coal
D. Discretionary fixed cost. for $400,000 in shipping costs in February and 10,000 tons for
E. Step-fixed cost. $499,000 in March. Assuming that this activity is within the
relevant range, expected shipping costs for 11,000 tons would
be.
7. Minnesota Corporation observed that when 25,000 units were
sold, a particular cost amounted to $70,000, or $2.80 per
3. Colorado Corporation has provided the following production and
unit. When volume increased by 15%, the cost totaled
average cost data for two levels of monthly production volume.
$80,500 (i.e., $2.80 per unit). The cost that Plaza is studying
The company produces a single product.
can best be described as a:
Production volume 4,000 units 5,000 units
A. variable cost. Direct materials $99.20 per unit $99.20 per unit
B. fixed cost. Direct labor $45.50 per unit $45.50 per unit
C. semi-variable cost. Manufacuring overhead $94.00 per unit $77.60 per unit
D. discretionary fixed cost.
E. step-fixed cost. The best estimate of the total monthly fixed manufacturing cost is:

8. Oregon has the following budgeted costs at its anticipated 4. Indiana Corporation has provided the following production and
production level (expressed in hours): variable overhead, average cost data for two levels of monthly production volume.
$150,000; fixed overhead, $240,000. If Webster now revises The company produces a single product.
its anticipated production slightly downward, it would expect:
Production volume 7,000 units 8,000 units
A. total fixed overhead of $240,000 and a lower hourly rate for Direct materials $87.40 per unit $87.40 per unit
variable overhead. Direct labor $20.20 per unit $20.20 per unit
Manufacuring overhead $101.50 per unit $90.80 per unit
The best estimate of the total cost to manufacture 7,300 units is
closest to:

5. Delaware Corporation is a wholesaler that sells a single

product. Management has provided the following cost data for
two levels of monthly sales volume. The company sells the
product for $84.40 per unit.

Sales volume (units) 5,000 6,000

Cost of sales $285,000 $342,000
Selling, general, and administrative $107,500 $120,000
costs

The best estimate of the total variable cost per unit is:

6. Your boss would like you to estimate the fixed and variable
components of a particular cost. Actual data for this cost over
four recent periods appear below.

Activity Cost
Period 1 25 $363
Period 2 22 $345
Period 3 23 $348
Period 4 20 $322

Using the least-squares regression method, what is the cost formula

for this cost?

Use the following to answer questions 7-10:

Comparative income statements for Missouri Company for the last

two months are presented below:

September October
Sales in units 5,000 7,000

Sales revenue $100,000 $140,000

Less: Cost of goods sold 40,000 56,000
Gross margin 60,000 84,000
Less: Operating expenses:
Shipping expense 7,500 10,500
Clerical expense 10,000 12,000
Maintenance expense 17,000 17,000
Total operating expense 34,500 39,500
Net operating income $25,500 $44,500

7. Which of the following classifications best describes the

behavior of shipping expense?

A. Mixed
B. Variable
C. Fixed
D. none of the above

8. Which of the following classifications best describes the

behavior of clerical expense?

A. Mixed
B. Variable
C. Fixed
D. none of the above

9. Assuming that Missouri Company uses the high-low method of

analysis, the total monthly fixed cost for Tudor Retailing
Company would be estimated to be:

10. Assuming that Missouri Company uses the high-low method of

analysis, the total operating expense if Missouri Company sells
6,500 units during a month would be estimated to be: