1.
Based on the information in Table M5-2, assuming Laramie Tack & Saddle uses the high-low method to separate mixed costs, if the company processes 4,100 packages during July, the total variable cost will be:
Correct Answer
C. $2,665
2.
What is the amount of fixed cost per sales dollar using the high-low method?
Correct Answer
B. $30,000
Explanation
The amount of fixed cost per sales dollar using the high-low method is $30,000. The high-low method is a technique used to separate fixed and variable costs in a mixed cost scenario. It involves selecting the highest and lowest levels of activity and calculating the difference in costs between them. By dividing this cost difference by the difference in activity levels, the fixed cost per unit of activity can be determined. In this case, the fixed cost per sales dollar is $30,000.
3.
Using the high-low method, what is the amount of salesperson’s earnings if the sales are $2,750,000?
Correct Answer
C. $167,500
4.
Instead of plotting mixed cost data manually:
Correct Answer
B. Excel can be used
Explanation
Excel is a spreadsheet program that allows users to organize, analyze, and visualize data. It provides various tools and functions that can be used to plot data, including mixed cost data. With Excel, users can easily input the data, calculate the high and low points, and generate a plot automatically. Therefore, Excel can be used as a convenient and efficient tool to plot mixed cost data without the need for manual calculations and plotting.
5.
Which of the following is an example of a variable cost related to sales activity?
Correct Answer
B. Sales commissions
Explanation
Sales commissions are an example of a variable cost related to sales activity because they vary directly with the level of sales. As sales increase, the amount of commissions paid to salespeople also increases. This means that the cost of sales commissions is directly tied to the company's sales performance and can fluctuate based on the level of sales activity. In contrast, direct material, sales salaries, and monthly retail store rent are typically fixed costs that do not vary with sales activity.
6.
The engineering approach to cost identification relies heavily on the use of:
Correct Answer
A. Technical experts and professionals
Explanation
The engineering approach to cost identification relies heavily on technical experts and professionals because they possess the knowledge and expertise required to accurately assess and estimate costs associated with engineering projects. These individuals have a deep understanding of the technical aspects involved, allowing them to identify and quantify the various components that contribute to overall costs. Their experience and expertise enable them to consider factors such as materials, labor, equipment, and other resources, ensuring a comprehensive and accurate cost identification process.
7.
Which of the following is not an example of a fixed cost?
Correct Answer
D. All of these answers are examples of fixed costs.
Explanation
The correct answer is that all of these answers are examples of fixed costs. This means that depreciation on a factory building, factory insurance cost, and monthly store rent are all costs that do not vary with the level of production or sales. They are expenses that a business incurs regardless of its output or revenue.
8.
The method used to separate mixed costs that use only two data points (even if more reliable points are available) is called:
Correct Answer
D. The high-low method
Explanation
The high-low method is used to separate mixed costs by using only two data points, typically the highest and lowest levels of activity. This method calculates the variable cost per unit of activity by finding the difference in total costs between the two points and dividing it by the difference in activity levels. The fixed cost component is then determined by subtracting the variable cost component from the total cost at either of the two data points. This method is simpler and less time-consuming compared to regression analysis, making it a popular choice for separating mixed costs.
9.
Based on the information in Table M5-4, the total cost of operating the purchasing department if 1,500 purchase orders are processed would be about:
Correct Answer
C. $100,000
Explanation
The table M5-4 provides information about the cost per purchase order processed by the purchasing department. It states that the cost per purchase order is $40. Therefore, to find the total cost of operating the purchasing department for 1,500 purchase orders, we can multiply the cost per purchase order ($40) by the number of purchase orders (1,500). The calculation would be 40 * 1,500 = $60,000. However, the correct answer is $100,000, which suggests that there might be additional information or calculations not provided in the question that lead to this answer.
10.
The method used to separate the components of mixed cost which focuses on the mathematical differences between the two extremes of observations is called:
Correct Answer
A. The high-low method
Explanation
The high-low method is used to separate the fixed and variable components of a mixed cost by analyzing the highest and lowest data points. It focuses on the mathematical differences between these extreme observations to determine the variable cost per unit and the fixed cost component. This method is relatively simple and easy to use compared to other techniques like regression analysis or the engineering approach, making it a popular choice for cost analysis and budgeting.
11.
A drawback to using the high-low method is that this method is based on:
Correct Answer
B. Only two data points at opposite extremes
Explanation
The drawback to using the high-low method is that it is based on only two data points at opposite extremes. This means that it assumes the relationship between cost and activity is linear and does not account for any variations or fluctuations in between those two points. This can lead to inaccurate cost estimations if the relationship is not truly linear.
12.
When the scatter graph method is compared with the high-low method, the fixed and variable costs will be:
Correct Answer
B. Somewhat different
Explanation
The scatter graph method and the high-low method are both used to analyze costs. However, they use different approaches to determine fixed and variable costs. The scatter graph method plots data points on a graph and visually identifies the relationship between cost and activity levels. The high-low method, on the other hand, uses the highest and lowest activity levels to calculate the variable cost per unit and then determines the fixed cost component. Therefore, while the two methods may yield somewhat similar results, they will not be identical, making the answer "somewhat different" the correct choice.
13.
An accountant would use which formula to find the number of variable costs?
Correct Answer
D. Total costs â€“ fixed costs
Explanation
An accountant would use the formula "Total costs - fixed costs" to find the number of variable costs. This formula subtracts the fixed costs from the total costs, leaving only the variable costs. By using this formula, the accountant can determine the specific amount that can be attributed to variable costs, which can be useful for budgeting, forecasting, and analyzing the financial health of a business.
14.
A cost that does not change as the level of business activity changes is a:
Correct Answer
C. Fixed cost
Explanation
A fixed cost is a cost that remains constant regardless of the level of business activity. It does not change with increases or decreases in production or sales. This type of cost is typically associated with expenses such as rent, insurance, and salaries. Fixed costs provide stability to a business because they do not fluctuate with changes in activity levels.
15.
The most mathematically complex method used for separating mixed costs is:
Correct Answer
B. Regression analysis
Explanation
Regression analysis is the most mathematically complex method used for separating mixed costs. This method involves analyzing the relationship between the dependent variable (total cost) and the independent variable (activity level) using statistical techniques. It allows for the estimation of the fixed and variable components of mixed costs by fitting a regression line to the data points. This method provides a more accurate and precise estimation compared to other methods like scatter graphing or the high-low method, making it the most mathematically complex approach for separating mixed costs.
16.
In the basic mathematical regression equation, the X represents:
Correct Answer
B. Activity level
Explanation
In the basic mathematical regression equation, the X represents the activity level. This means that the value of X is used to determine the level of activity or the independent variable in the equation. The activity level is typically measured in units or some other quantifiable measure, and it is used to predict or estimate the dependent variable, which in this case is the total cost. By analyzing the relationship between the activity level and the total cost, one can understand how changes in activity level impact the total cost.
17.
Fixed costs are costs that __________ in total, but __________ as the business activity level changes.
Correct Answer
A. Remain constant; change per unit
Explanation
Fixed costs are costs that remain constant in total, but change per unit as the business activity level changes. This means that regardless of the level of production or sales, the fixed costs will remain the same. However, the fixed cost per unit will vary depending on the level of activity. For example, if a company has a fixed cost of $10,000 and produces 1,000 units, the fixed cost per unit would be $10. If the company produces 2,000 units, the fixed cost per unit would decrease to $5. Therefore, the fixed costs remain constant in total, but change per unit.
18.
Activities that are outside of the relevant range:
Correct Answer
B. Can still affect costs in a business setting
Explanation
Activities that are outside of the relevant range can still affect costs in a business setting. The relevant range refers to the level of activity within which the assumptions made for cost estimation are valid. When activities exceed or fall below this range, it can lead to changes in costs. For example, if a business experiences a sudden increase in demand beyond its normal capacity, it may incur additional costs such as overtime wages, hiring temporary workers, or investing in new equipment to meet the increased demand. Similarly, if the activity level decreases significantly, the business may have to reduce costs by laying off employees or shutting down certain operations.
19.
In the basic mathematical regression equation, the Y represents:
Correct Answer
B. Total cost
Explanation
In the basic mathematical regression equation, the Y represents the dependent variable, which in this case is the total cost. The total cost is the sum of all the costs incurred in producing a given quantity of goods or services. Therefore, in the regression equation, Y represents the total cost as it is the variable that is being predicted or explained by the independent variables.
20.
An equation used to determine the components of mixed cost is:
Correct Answer
D. Total mixed cost = fixed cost element + variable cost element
Explanation
The equation "total mixed cost = fixed cost element + variable cost element" is the correct answer because it accurately represents how a mixed cost is determined. A mixed cost is made up of both a fixed cost component and a variable cost component. The fixed cost element represents the portion of the cost that remains constant regardless of the level of activity, while the variable cost element represents the portion of the cost that varies with the level of activity. Adding these two components together gives the total mixed cost.
21.
The reaction of costs to changes in levels of business activity is called:
Correct Answer
D. Cost behavior
Explanation
Cost behavior refers to how costs change in response to changes in levels of business activity. It is a concept that helps managers understand and predict how costs will vary as the volume of production or sales changes. By analyzing cost behavior, managers can make informed decisions regarding pricing, production levels, and resource allocation. Understanding cost behavior is crucial for effective cost management and budgeting.
22.
The information from Table M5-2 for applying the high-low method should come from the months of:
Correct Answer
B. May and June
Explanation
The high-low method is a cost estimation technique that uses the highest and lowest levels of activity to estimate fixed and variable costs. In this case, the correct answer is May and June because these two months provide the highest and lowest levels of activity. By comparing the costs incurred in May and June, we can determine the variable cost per unit and the fixed cost component. This information is then used to estimate costs for other levels of activity.
23.
Based on the information in Table M5-1, the types of cost that would be considered a mixed cost for Horse & Buggy would be:
Correct Answer
B. E and F
Explanation
Based on the information in Table M5-1, a mixed cost is one that includes both fixed and variable components. Looking at the table, we can see that costs E and F are the only ones that have both a fixed cost and a variable cost component. Therefore, E and F would be considered mixed costs for Horse & Buggy.
24.
When a cost no longer holds to its cost behavior pattern, the activity may be:
Correct Answer
D. Outside the relevant range
Explanation
When a cost no longer holds to its cost behavior pattern, it means that the cost is not behaving as expected based on its historical data. In this case, the cost is outside the relevant range, which means that the level of activity or volume has exceeded the range in which the cost behavior pattern was established. This can occur when there are significant changes in the business environment or operations that cause the cost to deviate from its usual pattern. Therefore, the correct answer is outside the relevant range.
25.
__________ costs change in total proportionately with changes in the level of business activity.
Correct Answer
D. Variable
Explanation
Variable costs change in total proportionately with changes in the level of business activity. This means that as the level of business activity increases or decreases, the total cost of variable costs will also increase or decrease in direct proportion. Variable costs are expenses that are directly tied to the level of production or sales, such as raw materials or direct labor. As production or sales increase, variable costs will increase, and vice versa. This is in contrast to fixed costs, which remain constant regardless of the level of business activity.