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Exam 22: Analyzing Mixed Costs

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Question 31

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Managers can use a variety of methods to estimate the fixed and variable components of a mixed cost.In account analysis,an account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves.

A) True
B) False

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Question 32

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(Appendix 5A) Hiss Corporation's activity for the last six months is as follows: -Using the high-low method of analysis,the estimated monthly fixed component of lubrication cost is closest to:

A) $1,120
B) $1,140
C) $1,170
D) $1,130

E) B) and C)
F) A) and C)

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Question 33

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(Appendix 5A) The following production and average cost data for two levels of monthly production volume have been supplied by a company that produces a single product: -The best estimate of the total variable manufacturing cost per unit is:

The accounting department of Archer Company,a merchandising company,has prepared the following analysis: The accounting department feels that billing expense is a mixed cost,containing both fixed and variable cost elements.The billing expenses and sales in units over the last several months follow: The accounting department now plans to develop a cost formula for billing expense so that a contribution format income statement can be prepared for management's use. Required: a.Using the least-squares method,estimate the cost formula for billing expense.Round off both the fixed cost and the variable cost per thousand units sold to the nearest whole dollar. b.Assume that the company plans to sell 30,000 units during July at a selling price of $100 per unit.Prepare a budgeted income statement for the month,using the contribution format.

(Appendix 5A) Wuensch Inc., an escrow agent, has provided the following data concerning its office expenses: Management believes that office expense is a mixed cost that depends on the number of escrows completed. Note: Real estate purchases usually involve the services of an escrow agent that holds funds and prepares documents to complete the transaction. -Using the high-low method,the estimate of the variable component of office expense per escrow completed is closest to:

A major advantage of the high-low method of cost estimation is that it omits all data from the analysis other than the lowest and highest costs.

Deidoro Company has provided the following data for maintenance cost: Maintenance cost is a mixed cost with variable and fixed components.The fixed and variable components of maintenance cost are closest to:

The R² (i.e.,R-squared)tells us the percentage of the variation in the dependent variable (cost)that is explained by variation in the independent variable (activity).

(Appendix 5A) Inspection costs at one of Ratulowski Corporation's factories are listed below: Management believes that inspection cost is a mixed cost that depends on units produced. -Using the high-low method,the estimate of the variable component of inspection cost per unit produced is closest to:

(Appendix 5A) Hiss Corporation's activity for the last six months is as follows: -Using the high-low method of analysis,the estimated fixed cost per month for electricity is closest to:

(The R² (i.e.,R-squared)varies from 0% to 100%,and the lower the percentage,the better the fit of the data to a straight line.

(Appendix 5A) The management of Casablanca Manufacturing Corporation believes that machine-hours is an appropriate measure of activity for overhead cost. Shown below are machine-hours and total overhead costs for the past six months: Assume that the relevant range includes all of the activity levels mentioned in this problem. -What is Casablanca's independent variable?

The engineering approach to the analysis of mixed costs involves a detailed statistical analysis of cost behavior using methods that minimize the squared errors.

The management of Dethlefsen Corporation would like to have a better understanding of the behavior of its inspection costs.The company has provided the following data: Management believes that inspection cost is a mixed cost that depends on direct labor-hours. Required: Estimate the variable cost per direct labor-hour and the fixed cost per month using the high-low method.Show your work!

Swofford Inc.has provided the following data concerning its maintenance costs: Management believes that maintenance cost is a mixed cost that depends on machine-hours. Required: Estimate the variable cost per machine-hour and the fixed cost per month using the high-low method.Show your work!

The high and low points used in the high-low method tend to be unusual and therefore the cost formula for the mixed cost may not accurately represent all of the data.

Utility costs at one of Hannemann Corporation's factories are listed below: Management believes that utility cost is a mixed cost that depends on machine-hours. Required: Estimate the variable cost per machine-hour and the fixed cost per month using the high-low method.Show your work!

Gamach 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 $104.50 per unit. The best estimate of the total monthly fixed cost is:

Furlan Printing Corp.,a book printer,has provided the following data: Management believes that the press setup cost is a mixed cost that depends on the number of titles printed.(A specific book that is to be printed is called a "title".Typically,thousands of copies will be printed of each title.Specific steps must be taken to setup the presses for printing each title-for example,changing the printing plates.The costs of these steps are the press setup costs.) Required: Estimate the variable cost per title printed and the fixed cost per month using the least-squares regression method.

(Appendix 5A) The following production and average cost data for two levels of monthly production volume have been supplied by a company that produces a single product: -The best estimate of the total monthly fixed manufacturing cost is: