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Exam 6: Cost Behaviour

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Question 91

Multiple Choice

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If Toby prepares a traditional income statement for the month of June,what would be his gross profit?

A) $260,000
B) $160,000
C) $60,000
D) $100,000

E) C) and D)
F) A) and D)

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Question 92

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Total variable costs change in direct proportion to changes in volume.

A) True
B) False

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Question 93

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If there is little or no relationship between the cost and volume,the data points on a scatter plot will appear almost random.

Sugartown Corporation has total sales revenues of $225,000.If their total fixed costs are $40,000 and their total variable costs are $65,000,then the total contribution margin is

An R-square value of 1.0 indicates a perfect relationship between the volume of activity and the cost being analyzed.

Total fixed costs for Yellow Boats Inc.are $100,000.Total costs,both fixed and variable,are $500,000 if 125,000 units are produced.The total variable costs at a level of 200,000 units would be

BestCalls has a special plan offer this month.There is a $4.00 per month charge each month and calls anywhere in the United States are $0.03 per minute.What would the monthly cost be if you typically talk for 500 minutes per month?

At Raines Company the fixed cost per unit at a production level of 200,000 units is

Travel Throne Inc.produces after-market heated seats for motorcycles.The company's average cost per seat is $350.00 when it produces 6,000 seats per month. Required: 1.What is the total cost of producing 6,000 seats? 2.If $750,000 of the total cost is fixed,what is the variable cost of producing each seat? 3.What is Travel Throne's cost equation? 4.What is the expected total cost of producing 7,000 seats in a month?

An equation of a line for all costs is

When graphing total mixed costs,the cost line always begins at the origin.

When performing account analysis,managers decide how to classify each account as a variable,fixed or mixed cost.

Total mixed costs can be expressed as a combination of the variable and fixed cost equations.

Northern Lights Electric Ltd.(NLE)is a small electric utility servicing small northern communities.The company currently sends monthly bills to its customers via the community post offices.Because of a concern for the environment and recent increases in postal rates,NLE management is considering offering an option to its customers for paperless billing.In addition to saving printing,paper,and postal costs,paperless billing will save energy and water (through reduced paper needs,reduced waste disposal,and reduced transportation needs. )While the company's management would like to switch to 100% paperless billing,many of its customers are not comfortable with paperless billing or may not have web access,so the paper billing option will remain regardless of whether NLE adopts a paperless billing system or not. The cost of the paperless billing system would be $120,000 per year with no variable costs since the costs of the system are the salaries of the clerks and the cost of leasing the computer system.The paperless billing system being proposed would be able to handle up to 200,000 bills per quarter (more than 200,000 bills per quarter would require a different computer system and is outside the scope of the current situation at NLE. ) NLE has gathered its cost data for the past year by quarter for paper,toner cartridges,printer maintenance costs,and postage costs for its billing department.The cost data is as follows: The company projects that it will process a total of 460,000 bills next year. Required: 1.Calculate the average variable cost per bill under the current paper-based billing system (rounded to the nearest cent). 2.What will be the effect on operating income if 30% of the customers switch to electronic billing? 3.Provide an example of a qualitative factor that would influence managements decision to adopt an electronic billing system.

Using the high- low method,what is the variable maintenance cost per machine hour at Menno Corp?

An R-square value over .80 generally indicates that the cost equation is very reliable for predicting costs at other volumes within the relevant range.

Spadina Carriage Company offers guided mini-bus tours through downtown Toronto.The tour business is highly regulated by the city.Spadina Carriage Company has the following operating costs during July: During July (a month during peak season)Spadina Carriage Company had 16,240 passengers.Eighty-five percent of passengers were adults ($30 fare)while 15% were children ($20 fare). Required: 1.Prepare the company's contribution margin income statement for the month of April.Round all figures to the nearest dollar. 2.Assume that passenger volume increases by 20% in August.Which figures on the income statement would you expect to change,and by what percentage would they change? Which figures would remain the same as in July?

If inventory has not increased or decreased,but has stayed the same,operating income will be higher under variable costing than it is under absorption costing.

The following graphs indicate which type of cost behaviour?

When using the high-low method,what data point can be used to solve for the fixed cost component?