Fixed costs expressed on per unit basis

Question

Question 1: Fixed costs expressed on a PER UNIT BASIS vary inversely with changes in activity.

• True
• False

Question 2: Committed fixed costs cannot be reduced to zero without seriously impairing the company's long term goals.

• True
• False

Question 3: A traditional functional income statement organizes costs on the basis of behavior.

• True
• False

Question 4: The contribution margin represents the amount available to contribute toward covering fixed expenses and toward profits for the period.

• True
• False

Question 5: Most companies use the contribution approach in preparing financial statements for external reporting purposes.

• True
• False

Question 6: Since Anytime Pizza is open 24 hours a day, its pizza oven is constantly on and is, therefore, always using natural gas. However, when there is no pizza in the oven, the oven automatically lowers its flame and reduces its natural gas usage by 70%. The cost of natural gas would best be described as a:

• fixed cost.
• mixed cost.
• step-variable cost.
• true variable cost.

Question 7: Within the relevant range, VARIABLE costs can be expected to:

• vary in total in direct proportion to changes in the activity level.
• remain constant in total as the activity level changes.
• increase on a per unit basis as the activity level increases.
• increase on a per unit basis as the activity level decreases.

Question 8: An example of a committed fixed cost is:

• management training seminars.
• a long-term equipment lease.
• research and development.
• advertising.

Question 9: The following data have been collected for four different cost items.

Cost Item    Cost at 100 units    Cost at 140 units
W    $8,000    $10,560
X    $5,000    $5,000
Y    $6,500    $9,100
Z    $6,700    $8,580

Which of the following classifications of these cost items by cost behavior is correct?

Cost W    Cost X    Cost Y    Cost Z
variable    fixed    mixed    variable

Cost W    Cost X    Cost Y    Cost Z
mixed    fixed    variable    mixed

Cost W    Cost X    Cost Y    Cost Z
variable    fixed    variable    variable

Cost W    Cost X    Cost Y    Cost Z
mixed    fixed    mixed    mixed

Question 10: The high-low method is used with which of the following types of costs?

• Variable.
• Mixed.
• Fixed.
• Step-variable.

Question 11: Iaci 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 $133.60 per unit.

Sales volume (units)                                      4,000         5,000
Cost of sales                                            $383,600    $479,500
Selling, general, and administrative costs    $124,400    $136,000

The best estimate of the total contribution margin when 4,300 units are sold is:

$112,230
$162,110
$28,380
$45,150

Question 12: Davis Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

Production volume          1,000 units   2,000 units
Direct materials                $44,200    $88,400
Direct labor                      $37,300    $74,600
Manufacturing overhead    $48,500    $62,200

The best estimate of the total monthly FIXED manufacturing cost is:

(*Hint: Add up your total manufacturing costs (DM + DL + OH) at each production volume level. Then use the high-low method.)

• $130,000
• $177,600
• $34,800
• $225,200

Question 13: Eddy Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

Production volume    6,000 units    7,000 units
Direct materials        $582,600    $679,700
Direct labor              $136,200    $158,900
Manufacturing overhead    $691,800    $714,700

The best estimate of the total VARIABLE manufacturing cost per unit is:

$22.90
$119.80
$142.70
$97.10

Question 14: Farmington Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

Production volume          6,000 units    7,000 units
Direct materials               $195,000    $227,500
Direct labor                      $113,400    $132,300
Manufacturing overhead    $913,200    $931,700

The best estimate of the TOTAL cost to manufacture 6,300 units is closest to:

$1,162,350
$1,242,570
$1,222,515
$1,282,680

Question 15: Gambino 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 $138.80 per unit.

Sales volume (units)                                    6,000          7,000
Cost of sales                                             $369,000    $430,500
Selling, general, and administrative costs     $407,400    $418,600

The best estimate of the total monthly FIXED cost is:

*Another hint: Add up total costs (Cost of sales + Selling, general, and administrative costs) for each sales volume level. Then use the high-low method.

$776,400
$340,200
$812,750
$849,100

Question 16: Harris 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 costs    $107,500    $120,000

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

• $77.00
• $57.00
• $69.50
• $78.50

Question 17: Given the cost formula Y = $12,500 + $5.00X, total cost for an activity level of 4,000 units would be:

• $20,000
• $12,500
• $16,000
• $32,500

Question 18:

Use the following to answer questions 18 - 20:

Babson Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

Production volume            5,000 units    6,000 units
Direct materials                $103,500    $124,200
Direct labor                      $282,500    $339,000
Manufacturing overhead    $667,000    $679,800

The best estimate of the total monthly FIXED manufacturing cost is:

• $1,098,000
• $1,053,000
• $1,143,000
• $603,000

Question 19:  Use the data in Question 18 to answer this question.

The best estimate of the total VARIABLE manufacturing cost per unit is:

• $90.00
• $77.20
• $12.80
• $20.70

Question 20: Use the data in Question 18 to answer this question.

The best estimate of the TOTAL cost to manufacture 5,300 units is closest to:

• $1,116,180
• $1,062,915
• $1,080,000
• $1,009,650