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Introduction to Managerial Accounting

Jeannie M. Folk
Ray H. Garrison
Eric Noreen

Cost Behavior: Analysis and Use

Multiple Choice Quiz

Expense #1 is a fixed cost; expense #2 is a variable cost. During the current year the activity level has increased, but is still within the relevant range. In terms of cost per unit of activity, we would expect that:

expense #1 will be unchanged.

expense #2 will decrease.

expense #1 will decrease.

expense #2 will increase.

Which costs will change with an increase in activity within the relevant range?

Total fixed costs and total variable cost.

Per unit fixed costs and total variable cost.

Per unit variable cost and per unit fixed cost.

Per unit fixed cost and total fixed cost.

An analysis of past janitorial costs indicates that janitorial cost is an average of $0.40 per machine-hour at an activity level of 20,000 machine-hours and $0.50 per machine-hour at an activity level of 16,000 machine-hours. Assuming that this activity is within the relevant range, what is the total expected janitorial cost if the activity level is 18,500 machine-hours?

$1,600

$6,960

$8,000

$9,000

Shipping expense is $34,000 for 16,000 pounds shipped and $40,000 for 19,000 pounds shipped. Assuming that this activity is within the relevant range, if the company ships 18,000 pounds, its expected shipping expense is closest to:

$37,000.

$37,895.

$38,000.

$38,250.

Given the cost formula Y = $30,000 + $5X, total cost at an activity level of 16,000 units would be:

$30,000.

$46,000.

$80,000.

$110,000.

Colloseu Company would like to classify the following costs according to cost behavior. The following data is available:

	July	August
Sales in units	3,000	3,200

Cost #1	$ 70,000	$ 72,000
Cost #2	32,000	32,000
Cost #3	135,000	144,000

Which of the following classifications best describes the behavior of Cost #2?

Mixed.

Variable.

Fixed.

none of the above.

Colloseu Company would like to classify the following costs according to cost behavior. The following data is available:

	July	August
Sales in units	3,000	3,200

Cost #1	$ 70,000	$ 72,000
Cost #2	32,000	32,000
Cost #3	135,000	144,000

Which of the following classifications best describes the behavior of Cost #3?

Mixed.

Variable.

Fixed.

none of the above.

The following information has been provided by the Douglas Grocery Store for the first quarter of the year:

Sales	$700,000
Variable selling expense	70,000
Fixed selling expenses	50,000
Cost of goods sold	320,000
Fixed administrative expenses	110,000
Variable administrative expenses	30,000

The gross margin of Douglas Grocery Store for the first quarter is:

$280,000.

$380,000.

$420,000.

$440,000.

The following information has been provided by the Douglas Grocery Store for the first quarter of the year. (Note that this is the same data provided for the previous question):

Sales	$700,000
Variable selling expense	70,000
Fixed selling expenses	50,000
Cost of goods sold	320,000
Fixed administrative expenses	110,000
Variable administrative expenses	30,000

The contribution margin of Douglas Grocery Store for the first quarter is:

$280,000.

$380,000.

$420,000.

$600,000.

LaPorte Company has provided the following data for the second quarter of the most recent year:

Sales	$600,000
Fixed manufacturing overhead	110,000
Direct labor	145,000
Fixed selling expense	92,500
Variable manufacturing overhead	82,000
Variable administrative expense	96,000
Direct materials	103,000
Fixed administrative expense	89,000
Variable selling expense	99,500

Assume that direct labor is a variable cost and that there were no beginning or ending inventories. The total contribution margin of LaPorte Company for the second quarter was:

$74,500.

$174,000.

$352,000.

$422,000.

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