thank.doc description PDF

Preview

Summary

25252208.docx 25252208.docx...

Description

Problems 1.

Marx Inc. supplied the following data: Month Miles Total Cost January 60,000 $95,000 February 70,000 103,000 March 50,000 83,000 April 80,000 101,000 Use the high-low method, to calculate variable cost per unit, total fixed costs, and the cost equation (in good form). Choose March and April....lowest activity levels. VC per unit = [$101,000 ─ $83,000] / [80,000 ─ 50,000] = $0.60 per mile TC = VCx + FC $101,000 = $0.60*80,000 + FC FC = $53,000 TC = 0.60X + 53,000 2. Accustaff Company's high and low level of activity was 8,000 units during March and 3,000 units produced in August. Machine maintenance costs were $29,000 in March and $12,000 in August. Using the high-low method, how much will total maintenance cost be in January of the following year if production is expected to be 7,000 units? VC per unit = [$29,000 ─ $12,000] / [8,000 ─ 3,000] = $3.40 per unit TC = VCx + FC $29,000 FC = $1,800

=

[8,000*$3.40]

+

FC

TC at 7,000 units: TC = 7,000*$3.40 + $1,800 TC = $25,600 3. The following totals are available from accounting records of Steering Company in May when it sold 1,000 widgets with sales totaling $35,000: Fixed product costs $8,000 Variable operating costs $6,000 Variable product costs 12,000 Fixed operating costs 10,000 How much is contribution margin per unit? What information does this amount provide? [$35,000 ─ $12,000 ─ $6,000] / 1,000 = $17 per unit Steering Company has $17,000 available to cover fixed costs and to contribute to profit.

How much is the gross profit ratio? What information does this amount provide? [$35,000 ─ $12,000 ─ $8,000] / $35,000 = 42.86% Steering Company has about 43 cents out of every sales dollar available to cover operating costs and to contribute to profit. 4. Clark Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $6 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio for April? CMR for April: [$20 - $6] / $20 = 70% Operating income?

Operating income: [$20 - $6]*1,000 ─ $1,000 = $13,000

5.

Two costs at Watson, Inc. appear below for specific months of operations.

Delivery costs

Utilities

Month January February March

January February March Which type of costs are these? Justify.

Amount $42,000 42,000 42,000

Units Produced 40,000 60,000 54,000

$ 84,000 126,000 113,400

40,000 60,000 54,000

Delivery: Fixed cost since total cost at all 3 activity levels is the same total.

Utilities: FC ruled out since total cost at both activity levels is different. VC per unit is $84,000/40,000 = $$2.10; and $126,000/60,000 = $2.10; and $113.400/54,000 = $2.10; Since VC per unit is the same for all activity levels, the cost is variable. 6. Regression output appears below. How much is the total expected cost is 3,100 units are produced and sold? Regression Statistics 0.956548 Multiple R 5 R Square 0.914985 Adjusted R 0.906483 Square 5

Standard Error Observatio ns ANOVA

67.79943 2 12

df Regression Residual Total

Intercept X Variable 1

SS 49432. 1 37 45967. 10 62 11 540700

Coefficie Standar nts d Error 847.9829 9 407 1.315078 1 0.127

MS 494732 4596.76 29

F 107. 6

Pvalu t Stat e 0.06 2.084 4 0.00 10.37 6

Significan ce F 1E-06

Uppe r 95%

Lower 95.0%

Uppe r 95.0 %

1755

-58.8

1755

1.033 1.598

1.033

1.598

Lower 95% -58.8

y = 1.3150781*3,100 + 847.98299 = $4,925

7. Butts, Inc. collected the following production data for the past month: Units Produced 1,600 1,300 1,500 1,000

Total Cost $44,000 38,000 45,000 33,000

If the high-low method is used, what is the monthly total cost equation? [$44,000 - $33,000] / [1,600 - 1,000] = $18.33 per unit $44,000 = $18.33333*1,600 + FC FC = $14,667 TC = $18.33x + $14,667 8. Golden Company produced 1,000 items and had the following costs-Depreciation, $10,000; Materials, $8,000; Rent, $5,000, and Labor, $15,000. How much is variable cost per unit?

[$8,000 + 15,000] / 1,000 = $23 per unit 9. Information concerning amounts for Bridges, Inc. appears below: Cost Units January $100,000 1,200 February 120,000 1,600 March 90,000 1,100 April 85,000 1,250 May 110,000 1,300 Using the high-low method, what is the fixed portion of costs?

[$120,000 - $90,000] / [1,600 - 1,100] = $60 per unit $120,000 = $60*1,600 + FC FC = $24,000 10. The following costs were incurred related to providing 80,000 car washes: Car wash labor Soap, cloth, and supplies Water

$240,000 Electric power to move conveyor belt

$72,00 0

32,000 Depreciation

64,000

28,000 Supervisory salaries

46,000

How much is the variable cost per car to the nearest whole cent? Car wash labor $ 240,000 Soap, cloth, and 32,000 supplies Water 28,000 Electric power to move conveyor belt 72,000 Total variable cost $372,000 Variable cost per unit = $372,000/80,000 =

$ 4.65

11. Total costs amount to $6,000 when labor hours total 400, and $5,000 when labor hours total is 300. Using the high-low method, what would be the total cost when labor hours amount to 450 hours?

[$6,000 - $5,000] / [400 - 300] = $10 per hour = variable cost Total cost = Variable cost + Fixed cost $6,000 = $10 (400) + FC; so FC = $2,000; $10(450) + $2,000 = $6,500

12. Page Company’s accountants provided the following information for its sales and production of one product: June July August September October Volume direct labor-hours per 50,000 60,000 70,000 80,000 90,000 month Total cost per month $15,000 $14,900 $18,000 $23,000 $22,800 When using the high-low method, which month’s data will be used to estimate costs? Choose June and October from the Units column. [$22,800 - $15,000] / [90,000 - 50,000] = $0.195 per unit TC = VC x + FC $15,000 = 0.195 (50,000) + FC, so FC = $5,250 How do the results using regression differ from those using the high-low method conceptually and why do they differ? Which is better? Regression uses all the data points (all 5 months) while high-low uses only the highest and lowest activity points. The high-low points can be outliers (extremes) that are not representative of the linear function, so the regression is more accurate as it reflects all activity. Draw a large scale scattergraph (the larger the scale, the more accurate). Write the cost equation based on your graph.

Extending the trendline to the y-axis shows that the line crosses at about $3,300 (fixed costs). The variable cost is rise over run, in this case, approximately: $10,000/2,500 units = $4 per unit

TC = 4.00x + 3,300 13. RMA Company’s accountants provided the following information: June July August September October Miles per month 13,000 9,000 9,500 11,500 14,000 Total cost per month $210,000 $164,000 $160,000 $180,000 $208,000 Use the high-low method for parts A, B, and C. A. Calculate the unit variable cost. ($208,000 - $164,000) / (14,000 - 9,000) = $8.80 per unit B. Calculate total fixed cost. TC = VC x + FC $164,000 = $8.80(9,000) + FC so FC = $84,800 C. Write the total cost equation: y = 8.80X + 84,800 14. Sale Company produced and sold 5,000 tuples. At this level of production, each unit has a selling price of $22, a variable cost of $10, and a fixed cost of $5. How much is the total cost if Sale produces and sells 4,000 tuples? Total fixed cost at 5,000 units = 5,000 x $5 = $25,000 Fixed cost is the same in total regardless of the number of units, so at 4,000 units, FC = $25,000. Total cost at 4,000 units: Variable cost = 4,000 x $10 = $40,000 Fixed cost = $25,000 Total cost = $65,000 15. Which of the following costs are variable? Cost 8,000 Units 10,000 Units 1 $100,000 $125,000 2 40,000 50,000 3 80,000 110,000 Costs 1 and 2 are variable since the cost per unit is the same at both levels. . Variable costs per unit are the same at any level of activity. Costs per unit are: Cost 1: $100,000/8,000 = $12.50 and $125,000/10,000 = $12.50 Cost 2: $40,000/8,000 = $5.00 and $50,000/10,000 = $5.00 Cost 3 is a mixed cost since the total cost is different, however, since the cost per unit is not the same at both levels, this is a mixed cost. Cost 3: $80,000/8,000 = $10.00 and $110,000/10,000 = $11.00 16. Acustaff Company's high and low level of activity was 10,000 units during March and 6,000 units produced in August. Machine maintenance costs were $24,000 in March and $19,000 in August. Using the high-low method, how much will total

maintenance cost be in January of the following year if production is expected to be 8,250 units? Cost per unit using high-low method: [$24,000 - $19,000]/[10,000 - 6,000] = $1.25 per unit Total costs = VC + FC: $24,000 = (10,000*$1.25) + FC; so FC = $11,500 Total costs at 8,250 units = (8,250*$1.25) + $11,500 = $21,813 How does the concept of relevant range apply to this problem? The cost function is assumed to be linear in a company's relevant range...its normal level of operating activity. In this case, it appears that operating anywhere between 6,000 and 10,000 units. When operating outside this range, the company cannot expect the fixed and variable costs to behave the same as within the relevant range. 17. Foress Company reported the following date for four months of 2004: Month Miles Total Cost January 60,00 $95,000 0 February 70,00 103,000 0 March 50,00 88,000 0 April 80,00 118,000 0 In applying the high-low method, how much is the variable cost per unit? First the high and low activity levels are chosen---50,000 and 80,000. The costs correlating to these levels are then chosen: [$118,000 - $88,000]/[80,000 - 50,000] = $1.00 per mile How much is the y-intercept value? y-intercept = fixed costs: $118,000 = $1*80,000 + FC;; FC = $38,000 Write the total cost equation in good form. TC = 1.00x + 38,000 18. The following costs were incurred related to providing 20,000 oil changes: Oil change labor $24,000 Electric power to pump oil Oil and filters 3,000 Depreciation Supplies 2,000 Supervisory salaries How much is the variable cost per oil change to the nearest whole cent? Identify the variable costs: $24,000 + $3,000 + $2,000 + $7,000 = $36,000 (all these costs increase when the number of oil changes increase.)

$7,000 2,000 6,000

VC per unit = $36,000/20,000 = $1.80 per oil change 19. Clinton Cookies bakes chocolate chip cookies and ships them to fast food restaurants for sale to customers. Clinton charges the restaurants $1.25 per cookie. The company has projected the following costs for sales of 3,000 and 4,000 cookies for the next month’s operation: Cost Items 3,000 cookies 4,000 cookies Cookie batter $ 600 $ 800 Baking 1,150 1,300 employees Packaging 450 600 Facilities 300 300 Shipping charges 160 200 Marketing 420 420 Total costs $3,080 $3,620 Calculate the variable cost of each cookie and total fixed cost.

Cookie batter Baking employees Packaging Facilities Shipping charges Marketing Total costs

variable cost/unit 0.20 0.15 0.15 0.04 $ 0.54 $

fixed cost 700 300 40 420 1,460

$

$

Calculations of mixed costs: Baking:

$1,300 - $1,150 4,000 - 3,000

=

$0.15 per unit

$1,300 = 0.154,000 + FC FC = $700 Shipping:

$200 - $160 4,000 - 3,000

=

$0.04 per unit

$200 = .04*4,000 +FC FC = $40 20. Handley Company's activity for the first four months of 2004 is as follows: Machine Hours Electrical Cost January 4,000 $2,800 February 4,800 $3,500 March 4,600 $3,600 April 3,800 $3,000

May 4,400 $3,100 Using the high-low method, how much is the cost per machine hour? [$3,500 - $3,000]/[4,800 - 3,800] = $0.50; Note that the high and low amounts are chosen from the activity column (machines hours), then the corresponding costs are used. 21. Hank’s Toys used high-low data from March and May to determine its unit variable cost of $0.50. Month Units produced Total costs March 14,000 $25,600 May 18,000 27,600 If Hank produces 15,000 units in September, how much is its total cost expected to be? Variable rate = [$27,600 - $25,600]/[18,000 - 14,000] = $0.50 per unit $25,600 = $0.50(14,000) + FC; so FC = $18,600 TC = $18,600 + $0.50(15,000) = $26,100 22. Johnson Manufacturing paid $5,000 for materials, $4,000 for production labor, $3,500 depreciation of manufacturing equipment, $2,500 depreciation of office furniture, and $5,000 for sales salaries. What is the average cost per unit to produce 50 units? ($4,000 + $5,000 + $3,500)/50 units = $250 each 23. At Fruit Company, the total cost to produce 50,000 units is $750,000. Total fixed costs are $250,000. What is the expected cost to produce 48,000 units? VC = ($750,000 - $250,000) = $500,000 VC per unit = $500,000/50,000 = $10 Cost at 48,000 units = $10(48,000) + $250,000 = $730,000 24. At Richetti Company, the total variable cost to produce 15,000 units is $45,000. Total fixed costs are $21,000. What is the expected cost to produce 13,000 units? VC per unit = $45,000/15,000 = $3 per unit Total cost = variable cost + fixed costs = [$3*13,000] + $21,000 = $60,000 Note that product costs include both fixed and variable amounts. If the question asked for the incremental cost, then $39,000, the variable cost would be the answer, only if the difference in units was 13,000. 25. Duffy Company produced and sold 10,000 nits. At this level of production, the selling price per unit is $10, the variable cost per unit is $4, and the fixed cost per unit is $2. How much is the total cost per unit if management produces and sells 12,500 units?

Fixed costs cost $2 per unit when the company produces and sells 10,000 units....giving a total fixed cost of $20,000. No matter how many units are produced and sold, fixed costs don't change...they remain at $20,000. Variable costs: $4 x 12,500 = $50,000 Fixed costs 20,000 Total costs at 12,500 units $70,000 Cost per unit: $70,000/12,500 = $5.60

26. At Adeniran Company, the material and labor cost to produce 800 units is $5,000. Total fixed costs are $6,000. What is the expected cost to produce 900 units? VC per unit = $5,000/800 = $6.25; At 900 units: [$6.25 x 900] + $6,000 = $11,625 27. PoolCo provided the following information for its pool cleaning business for selected months: January 21,000 $194,000

Pools cleaned Total cost

February 25,000 $ 210,000

March 18,000 $164,500

April 18,600 $160,000

May 23,200 $180,000

June 24,600 $208,000

Management has also provided the following output from Excel. Answer the questions that follow. SUMMARY OUTPUT Statistics Multiple 0.839072 R 9 0.790702 R Squre 0 Adjuste 0748837 dR 56 Standar 1074.516 dErr 9 Observa tion 6

ANVA Regress ion Residua l Total

Intrcept

MS 1364290 4 1154446 32.4

F 15.97450 75

Sgnifianc e 0.016286 429

5

SS 1834298 0 4177859. 4 2298208 333

Coefficint s

Std Error

t Stat

P-value

Lowe 95%

Uper 95

Lwer 95%

Uper 9%

4757.088 2

3495830 797

1.366114 712

0.243667 124

49302.76 423

144816.8 819

49302 .76

144816 .88

df 1 4

X Variable 1

6.364705 882

1.595798 475

3.988414 566

0.016286 429

1.934059 018

10.79535 275

1.934 059

10.795 353

A. Based on the regression: 1. How much is the variable cost per unit? $6.36 . If 22,000 pools were cleaned during July, what would be the total cost? Y = 6.36X + 47,757 = ($6.364705882*22,000) + 4,757.0882 = $144,781 B. Use the high-low method to: 1. Calculate the variable cost per unit. High and low points highlighted (select high and low activity levels, then corresponding amounts) [$210,000 - $164,500] / [25,000 - 18,000] = $6.50 per unit 2. Determine total fixed costs if 21,500 pools are cleaned during a month. TC = VC x + FC 210,000 = 6.50 (25,000) + FC, so FC = $47,500 Note that FC are the same at every activity level 3. Write the cost equation in proper form. y = 6.50X + 47,500 28. The following regression output was generated by Casio Enterprises based on deliveries made and the related costs incurred for each. SUMMARY OUTPUT Regression Statistics Multiple R

0.825358

R Square Adj RSquare

0.681216

Standard Error Observati ons ANOVA

0.656695 39.35892 2 15 df

SS

MS

F

Sig F

27.780 017

0.00015 1

Regressi on

1

43,034.7 1

43,034 .71

Residual

13

20,138.6 2

1,549. 12

Total

14

63,173.3 3

Coefficie nts

Std Error

t Stat

Pvalue

Lower 95%

Upper 95%

Lower 95%

Upper 95%

262.2198 72

101.8073 52

2.6267 25

0.0209 17

47.4784 60

487.3612 84

47.478 460

487.361 284

Intercept

X Variable 1

35.58346 15

6.102342

5.270 675

0.0001 51

18.9801 54

45.34677 0

18.980 154

45.3467 70

Answer the questions that follow Do not round in the interim. Use proper decimal notation. 1. Based on the regression, write the cost equation in good form: TC = 35.69X + 262 2. If Casio makes 19 deliveries, how much is the expected cost? TC = $35.5834615*19 + $262.219872 = $938

Multiple Choice 1. What type of information does the high-low method usually produce? a. A reasonable estimate of variable and fixed costs b. A very precise estimate of the behavior of the costs c. A very conservative estimate of costs for analysis purposes d. A exact calculation of variable and fixed costs to be incurred None of the methods product an exact cost calculation. 2. Which one of the following is a relatively accurate method of analyzing cost behavior that relies on an analysis of all cost levels? A. Regression analysis B. Relevant range approach C. Scatter diagram approach D. High-low analysis 3. Information concerning amounts for Bridges, Inc. appears below: Costs Units January $100,000 1,200 February 120,000 1,600 March 90,000 1,100 April 85,000 1,250 May 110,000 1,300 Using the high-low method, what periods would be used? A. February and April B. March and February C. March and April D. Either February and March or February and April Select the months with the highest and lowest activity levels. 4. The cost estimation method that uses all relevant data points is A. regression analysis B. scatter graphs C. high-low method D. A, B, and C

E. Both A and C Scatter-graphs involve graphing data points and eye-balling a line through points, however, the line doesn't go through all the points. Account analysis involves using judgment about which costs are variable and which are fixed and adding them together for one period. The high low method uses on the largest and the smallest activity level. 5. Which of the following best describes the relationship between total fixed costs and total variable costs, as total volume decreases? A. Total fixed costs stays the same and total variable costs stays the same. B. Total fixed costs decreases and total variable costs stays the sam...