Question 1

If sales revenue doubles,variable costs will

Accepted Answer

A)  decrease in total.
B)  increase in total.
C)  decrease on a per unit basis.
D)  increase on a per unit basis.E) All of the above
F) B) and D)

Question 2

Sparrow,Inc.used the high-low method to estimate that its fixed costs are $105,000.At its low level of activity,50,000 units,average cost was $2.60 per unit.What would Sparrow predict as its variable cost per unit?

Accepted Answer

A)  $0.50
B)  $1.55
C)  $2.10
D)  $2.60E) A) and B)
F) All of the above

Question 3

The per-unit amount of three different production costs for Thunderbird,Inc. ,are as follows: What type of cost are each of these three costs?

Accepted Answer

A)  Cost A is fixed,Cost B is mixed,Cost C is variable.
B)  Cost A is fixed,Cost B is variable,Cost C is mixed.
C)  Cost A is variable,Cost B is mixed,Cost C is fixed.
D)  Cost A is variable,Cost B is fixed,Cost C is mixeD.A variable cost stays the same per unit but increases in total when production increases,a fixed cost decreases per unit but stays the same in total when production increases,and a mixed cost decreases per unit and increases in total when production increases.E) B) and D)
F) None of the above

Question 4

The visual fit method is the most objective way to fit a line to cost data.The visual fit method is very subjective and not very exact.

Accepted Answer

A) True 
 B)False

Question 5

Star,Inc.used Excel to run a least-squares regression analysis,which resulted in the following output: How much of the variation in cost is explained by production?

Accepted Answer

A)  It is impossible to determine.
B)  92.13%
C)  95.17%
D)  97.55%E) None of the above
F) All of the above

Question 6

The linearity assumption is

Accepted Answer

A)  the assumption that the relationship between fixed costs and variable costs can be approximated by a straight line.
B)  necessary to the high-low method of analyzing mixed costs.
C)  realistic in all costing situations.
D)  the assumption that total cost depends on activity level.E) All of the above
F) A) and D)

Question 7

A scattergraph cannot be created by hand because it is too complex.While a scattergraph can be created by computer,it can also be created by manually plotting the data.

Accepted Answer

A) True 
 B)False

Question 8

The cost estimating approach that involves "eye-balling" the closest fitting line to the data is the

Accepted Answer

A)  scattergraph method.
B)  high-low method.
C)  visual fit method.
D)  regression analysis.E) A) and B)
F) C) and D)

Question 9

Meadow,which uses the high-low method,had total costs of $500,000 at its lowest level of activity when 5,000 units were sold.When,at its highest level of activity,sales equaled 12,000 units,total costs were $780,000.Meadow would estimate fixed costs as

Accepted Answer

A)  $280,000.
B)  $300,000.
C)  $640,000.
D)  $1,200,000.E) All of the above
F) C) and D)

Question 10

Firms may choose to use absorption costing or variable costing for external financial reporting purposes.Variable costing does not meet the external reporting requirements of GAAP.

Accepted Answer

A) True 
 B)False

Question 11

The high-low method needs three observations of costs to calculate the cost formula.The high-low method requires two observations of cost.

Accepted Answer

A) True 
 B)False

Question 12

The per-unit amount of three different production costs for Onini,Inc. ,are as follows: What type of cost are each of these three costs?

Accepted Answer

A)  Cost A is fixed,Cost B is mixed,Cost C is variable.
B)  Cost A is fixed,Cost B is variable,Cost C is mixed.
C)  Cost A is variable,Cost B is mixed,Cost C is fixed.
D)  Cost A is variable,Cost B is fixed,Cost C is mixeD.A variable cost stays the same per unit but increases in total when production increases,a fixed cost decreases per unit but stays the same in total when production increases,and a mixed cost decreases per unit and increases in total when production increases.E) None of the above
F) A) and C)

Question 13

Laredo,Inc.has a contribution margin ratio of 45%.This month,sales revenue was $200,000,and profit was $40,000.If sales revenue increases by $20,000,by how much will profit increase?

Accepted Answer

A)  $1,800
B)  $4,500
C)  $5,000
D)  $9,000E) All of the above
F) B) and C)

Question 14

Kent Corp.has fixed costs of $25,000.Kent expects profit of $300,000 at its anticipated level of production,65,000 units.What is Kent's unit contribution margin?

Accepted Answer

A)  $5
B)  $10
C)  $27.50
D)  $20E) A) and B)
F) A) and C)

Question 15

When Greenway,Inc.sells 48,000 units,its total fixed cost is $115,200.What is its total fixed cost when it sells 54,000 units?

Accepted Answer

A)  $100,800
B)  $115,200
C)  $129,600
D)  It cannot be determined from the information given.E) A) and B)
F) A) and C)

Question 16

Jasper Enterprises had the following cost and production information for April: What is Jasper Enterprise's income under absorption costing?

Accepted Answer

A)  $1,400,000
B)  $1,460,000
C)  $1,745,000
D)  $1,785,000E) None of the above
F) A) and B)

Question 17

Fremont,which uses the high-low method,reported total costs of $10 per unit at its lowest production level,5,000 units.When production tripled to its highest level,the total cost per unit dropped to $5.Fremont would estimate its total fixed cost as

Accepted Answer

A)  $5.
B)  $15.
C)  $50,000.
D)  $37,500.E) All of the above
F) B) and C)

Question 18

If a scattergraph contains points that do not fall in a perfect line,

Accepted Answer

A)  the relationship between the variables is not good enough to warrant fitting a line to the data.
B)  this is an indication that there is no relationship whatsoever between the variables.
C)  the visual fit method and high-low methods should not be used,but least-squares regression can be used.
D)  a straight line can still be used to approximate the relationship if a general linear trend can be discerneD.The relationship need not be perfect to approximate a relationship.E) B) and D)
F) A) and B)

Question 19

Orchid Corp.has a selling price of $15,variable costs of $10 per unit,and fixed costs of $25,000.If Orchid sells 13,000 units,contribution margin will equal

Accepted Answer

A)  $195,000.
B)  $145,000.
C)  $40,000.
D)  $65,000.E) A) and C)
F) A) and D)

Question 20

Star,Inc.used Excel to run a least-squares regression analysis,which resulted in the following output: What is Star's total fixed cost?

Accepted Answer

A)  $61,603
B)  $92,130
C)  $175,003
D)  $236,606E) A) and B)
F) B) and C)

Exam 5: Cost Behavior

The visual fit method is the most objective way to fit a line to cost data.The visual fit method is very subjective and not very exact.

Correct AnswerverifiedShow Answer

The high-low method needs three observations of costs to calculate the cost formula.The high-low method requires two observations of cost.

Correct AnswerverifiedShow Answer

When Greenway,Inc.sells 48,000 units,its total fixed cost is $115,200.What is its total fixed cost when it sells 54,000 units?

Correct AnswerverifiedShow Answer

Firms may choose to use absorption costing or variable costing for external financial reporting purposes.Variable costing does not meet the external reporting requirements of GAAP.

Correct AnswerverifiedShow Answer

The linearity assumption is

Correct AnswerverifiedShow Answer

Star,Inc.used Excel to run a least-squares regression analysis,which resulted in the following output: How much of the variation in cost is explained by production?

Correct AnswerverifiedShow Answer

Star,Inc.used Excel to run a least-squares regression analysis,which resulted in the following output: What is Star's total fixed cost?

Correct AnswerverifiedShow Answer

If a scattergraph contains points that do not fall in a perfect line,

Correct AnswerverifiedShow Answer

The cost estimating approach that involves "eye-balling" the closest fitting line to the data is the

Correct AnswerverifiedShow Answer

Jasper Enterprises had the following cost and production information for April: What is Jasper Enterprise's income under absorption costing?

Correct AnswerverifiedShow Answer

The per-unit amount of three different production costs for Thunderbird,Inc. ,are as follows: What type of cost are each of these three costs?

Correct AnswerverifiedShow Answer

Fremont,which uses the high-low method,reported total costs of $10 per unit at its lowest production level,5,000 units.When production tripled to its highest level,the total cost per unit dropped to $5.Fremont would estimate its total fixed cost as

Correct AnswerverifiedShow Answer

Sparrow,Inc.used the high-low method to estimate that its fixed costs are $105,000.At its low level of activity,50,000 units,average cost was $2.60 per unit.What would Sparrow predict as its variable cost per unit?

Correct AnswerverifiedShow Answer

If sales revenue doubles,variable costs will

Correct AnswerverifiedShow Answer

Laredo,Inc.has a contribution margin ratio of 45%.This month,sales revenue was $200,000,and profit was $40,000.If sales revenue increases by $20,000,by how much will profit increase?

Correct AnswerverifiedShow Answer

The per-unit amount of three different production costs for Onini,Inc. ,are as follows: What type of cost are each of these three costs?

Correct AnswerverifiedShow Answer

Meadow,which uses the high-low method,had total costs of $500,000 at its lowest level of activity when 5,000 units were sold.When,at its highest level of activity,sales equaled 12,000 units,total costs were $780,000.Meadow would estimate fixed costs as

Correct AnswerverifiedShow Answer

Orchid Corp.has a selling price of $15,variable costs of $10 per unit,and fixed costs of $25,000.If Orchid sells 13,000 units,contribution margin will equal

Correct AnswerverifiedShow Answer

Kent Corp.has fixed costs of $25,000.Kent expects profit of $300,000 at its anticipated level of production,65,000 units.What is Kent's unit contribution margin?

Correct AnswerverifiedShow Answer

A scattergraph cannot be created by hand because it is too complex.While a scattergraph can be created by computer,it can also be created by manually plotting the data.

Correct AnswerverifiedShow Answer

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