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Exam 5: Cost Behavior and Estimation

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Question 41

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The linearity assumption is:

A) the assumption that the relationship between fixed costs and variable costs can be approximated by a straight line.
B) the assumption that the relationship between fixed costs and variable costs can be approximated by a curved line.
C) realistic in all costing situations.
D) the assumption that total cost depends on activity level.

E) A) and B)
F) A) and C)

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Question 42

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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:

A) $195,000
B) $145,000
C) $40,000
D) $65,000

E) A) and B)
F) All of the above

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Question 43

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Royal Enterprises has presented the following information for the past three months operations: a. Using the high-low method, calculate the fixed cost per month and variable cost per unit. b. What would total costs be for a month with 5,000 units produced?

Which of the following statements is true?

Heather Inc has the following information for its first year of operations: a. Prepare Heather's full absorption costing income statement. b. Prepare Heather's variable costing income statement.

The cost estimating approach that uses the two most extreme activity observations is the:

Total contribution margin is equal to:

Campbell, Inc. sold 100,000 units last year for $2.00 each. Variable costs per unit were $0.30 for direct materials, $0.50 for direct labor, and $0.30 for variable overhead. Fixed costs were $60,000 in manufacturing overhead and $40,000 in nonmanufacturing costs. a. What is the total contribution margin? b. What is the unit contribution margin? c. What is the contribution margin ratio? d. If sales increase by 20,000 units, by how much will profits increase?

Lavender Inc has the following information for its first year of operations: a. Prepare Lavender's full absorption costing income statement. b. Prepare Lavender's variable costing income statement.

Chilton, Inc. sold 11,000 units last year for $20 each. Variable costs per unit were $4 for direct materials, $1.50 for direct labor, and $2.50 for variable overhead. Fixed costs were $60,000 in manufacturing overhead and $40,000 in nonmanufacturing costs. a. What is the total contribution margin? b. What is the unit contribution margin? c. What is the contribution margin ratio? d. If sales increase by 2,000 units, by how much will profits increase?

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?

Carson, which uses the high-low method of estimating costs, reported total costs of $24 per unit when production was at its lowest level, at 10,000 units. When production doubled to its highest level, the total cost per unit dropped to $15. Carson would estimate its total fixed cost as:

Elm uses the high-low method of estimating costs. Elm had total costs of $250,000 at its lowest level of activity, when 5,000 units were sold. When, at its highest level of activity, sales equaled 10,000 units, total costs were $390,000. Elm would estimate variable cost per unit as:

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?

Star, Inc. used Excel to run a least-squares regression analysis, which resulted in the following output: What is Star's formula for estimating costs?

Using the results of the least-squares regression analysis, which value estimates variable cost per unit?

A cost that remains the same, in total, regardless of changes in activity level is a:

Maple Corp. has a selling price of $20, variable costs of $15 per unit, and fixed costs of $25,000. Maple expects profit of $300,000 at its anticipated level of production. What is Maple's unit contribution margin?

Contribution margin plus variable cost per unit equals total sales revenue

A grocery store wants to encourage its customers to bring their own shopping bags, thus saving the store money on purchasing plastic or paper bags and saving the environment in the process. For an Earth Day promotion, the store gives away free canvas bags and engages in a substantial advertising campaign to highlight the initiative. Then, the store rewards customers who bring their own bags with a 5% discount on all future shopping trips. Which of the following is not a way this initiative might be reflected in the grocery store's contribution margin income statement?