Managerial Accounting Canadian 10th Edition by Garrison -Test Bank

 

 

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Sample Test

Chapter 3

Student: ___________________________________________________________________________

1.    Expense A is a fixed cost; expense B 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, you would expect which of the following statements to be true?

 

 

1.    Expense A has remained unchanged.

 

1.    Expense B has decreased.

 

1.    Expense A has decreased.

 

1.    Expense B has increased.

 

 

2.    Which costs will change with a decrease in activity within the relevant range?

 

 

1.    Total fixed costs and total variable costs.

 

1.    Unit fixed cost and total variable costs.

 

1.    Unit variable cost and unit fixed cost.

 

1.    Unit fixed cost and total fixed costs.

 

 

3.    Within the relevant range of activity, how will variable cost per unit behave?

 

 

1.    It will increase in proportion with the level of activity.

 

1.    It will remain constant.

 

1.    It will vary inversely with the level of activity.

 

1.    Its behaviour cannot be determined without additional information.

 

 

4.    What will result from an increase in the activity level within the relevant range?

 

 

1.    An increase in fixed cost per unit.

 

1.    A proportionate increase in total fixed costs.

 

1.    An unchanged fixed cost per unit.

 

1.    A decrease in fixed cost per unit.

 

 

5.    What does the term “relevant range” mean?

 

 

1.    The range within which costs may fluctuate.

 

1.    The range within which a particular cost formula is valid.

 

1.    The range within which production may vary.

 

1.    The range within which the relevant costs are incurred.

 

 

6.    The linear equation Y = a + bX is often used to express cost formulas. Which of the following representations in this equation is correct?

 

 

1.    The b term represents variable cost per unit of activity.

 

1.    The a term represents variable cost in total.

 

1.    The X term represents total costs.

 

1.    The Y term represents total fixed costs.

 

 

7.    Which of the following is an example of a discretionary fixed cost?

 

 

1.    Insurance.

 

1.    Taxes on real estate.

 

1.    Management training.

 

1.    Amortization of buildings and equipment.

 

 

8.    Which of the following is an example of a committed fixed cost?

 

 

1.    A training program for salespersons.

 

1.    Executive travel expenses.

 

1.    Property taxes on the factory building.

 

1.    New product research and development.

 

 

9.    What are discretionary fixed costs?

 

 

1.    They vary directly and proportionately with the level of activity.

 

1.    They have a long-term planning horizon, generally encompassing many years.

 

1.    They are made up of plant, equipment, and basic organizational costs.

 

1.    None of these options.

 

 

10.  In describing the cost formula equation Y = a + bX, which of the following statements is correct?

 

 

1.    The X term is the dependent variable.

 

1.    The a term is the fixed component.

 

1.    In the high-low method, the b term equals change in activity divided by change in costs.

 

1.    As the X term increases, the Y term decreases.

 

 

11.  Which of the following best describes the contribution approach to the income statement?

 

 

1.    It organizes costs on a functional basis.

 

1.    It shows data based on the cost behavior aspect of fixed and variable.

 

1.    It shows a contribution margin rather than an operating income figure at the bottom of the statement.

 

1.    It can be used only by manufacturing companies.

 

 

12.  Contribution margin is the excess of revenues over which of the following?

 

 

1.    Cost of goods sold.

 

1.    Manufacturing cost.

 

1.    All direct costs.

 

1.    All variable costs.

 

 

13.  Which of the following is an example of a cost that is variable with respect to the number of units produced and sold?

 

 

1.    Insurance on the headquarters building.

 

1.    Power to run production equipment.

 

1.    Supervisory salaries.

 

1.    Amortization of factory facilities.

 

 

14.  What is a cost driver?

 

 

1.    It is the largest single category of cost in a company.

 

1.    It is a fixed cost that cannot be avoided.

 

1.    It is a factor that causes variations in a cost.

 

1.    It is an indirect cost that is essential to the business.

 

 

15.  The following data pertain to activity and costs for two months:

 

 

 

Assuming that these activity levels are within the relevant range, what were the mixed costs for November?

 

 

1.    $20,000.

 

1.    $25,000.

 

1.    $35,000.

 

1.    $40,000.

 

 

16.  The following data pertain to activity and costs for two months:

 

 

 

Assuming that these activity levels are within the relevant range, what were the mixed costs for July?

 

 

1.    $10,000.

 

1.    $15,000.

 

1.    $35,000.

 

1.    $40,000.

 

 

17.  At an activity level of 10,000 units, total variable costs were $35,000 while total fixed costs were $20,800. If 16,000 units are produced and this activity is within the relevant range, which of the following statements is correct?

 

 

280.          Total costs would equal $89,280.

 

4.    Total unit cost would equal $4.80.

 

5.    Fixed cost per unit would equal $5.58.

 

800.          Total costs would equal $55,800.

 

 

18.  Anaconda Mining Company shipped 9,000 tons of copper concentrate for $450,000 in March and 11,000 tons for $549,000 in April. Use the high-low method to estimate the shipping costs for 12,000 tons to be shipped in May.

 

 

780.          $548,780.

 

20.  $549,020.

 

1.    $594,000.

 

500.          $598,500.

 

 

19.  An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine hour at an activity level of 10,000 machine hours and $0.25 per machine hour at an activity level of 8,000 machine hours. Assuming that this activity is within the relevant range, what is the total expected maintenance cost if the activity level is 8,700 machine hours?

 

 

400.          $400.

 

740.          $1,740.

 

1.    $2,000.

 

250.          $2,250.

 

 

20.  Shipping expense is $9,000 for 8,000 kilograms shipped and $11,250 for 11,000 kilograms shipped. Assuming that this activity is within the relevant range, if the company ships 9,000 kilograms, its expected shipping expense would be closest to which of the following?

 

 

583.          $8,583.

 

750.          $9,750.

 

972.          $9,972.

 

125.          $10,125.

 

 

21.  Average maintenance costs are $1.50 per machine hour at an activity level of 8,000 machine hours and $1.20 per machine hour at an activity level of 13,000 machine hours. Assuming that this activity is within the relevant range, total expected maintenance cost for a budgeted activity level of 10,000 machine hours would be closest to which of the following?

 

 

433.          $11,433.

 

440.          $13,440.

 

1.    $15,000.

 

128.          $16,128.

 

 

22.  The controller of Joy Co has requested a quick estimate of the manufacturing supplies needed for July when production is expected to be 470,000 units. Below are actual data from the prior three months of operations:

 

 

 

Using these data and the high-low method, what is the best estimate of the cost of manufacturing supplies that would be needed for July? (Assume that this activity is within the relevant range.)

 

 

60.  $752,060.

 

196.          $755,196.

 

284.          $805,284.

 

756.          $1,188,756.

 

 

23.  Which of the following concepts used in estimating cost behaviour is unique to the least-squares regression method?

 

 

1.    Independent variable.

 

1.    Dependent variable.

 

1.    R-squared.

 

1.    Variable cost per unit.

 

 

24.  Given the cost formula Y = $15,000 + $5X, what is the total cost at an activity level of 8,000 units?

 

 

1.    $15,000.

 

1.    $23,000.

 

1.    $40,000.

 

1.    $55,000.

 

 

25.  Given the cost formula Y = $12,000 + $6X, what is the total cost at an activity level of 8,000 units?

 

 

1.    $12,000.

 

1.    $20,000.

 

1.    $48,000.

 

1.    $60,000.

 

 

26.  Reddy Company has the following cost formulas for overhead:

 

 

 

Based on these cost formulas, what is the expected total overhead cost at 600 machine hours?

 

 

500.          $4,500.

 

200.          $5,200.

 

620.          $5,620.

 

340.          $5,340.

 

 

27.  Given the cost formula Y = $17,500 + $4X, at what level of activity will total cost be $42,500?

 

 

1.    4,375 units.

 

1.    5,250 units.

 

1.    6,250 units.

 

1.    10,625 units.

 

 

28.  The following data pertain to activity and utilities costs for two recent years:

 

 

 

Using the high-low method, what is the variable cost per unit for utilities?

 

 

1.    $1.25 per unit.

 

1.    $1.50 per unit.

 

1.    $1.33 per unit.

 

1.    $0.75 per unit.

 

 

29.  The following data pertain to activity and utilities costs for two recent years:

 

 

 

Using the high-low method, what is the cost formula for utilities?

 

 

1.    $1.20 per unit.

 

1.    $1.50 per unit.

 

3.    $3,000 plus $3.00 per unit.

 

1.    $4,500 plus $0.75 per unit.

 

 

30.  At an activity level of 6,000 units, the cost for maintenance is $7,200; at 10,000 units, the cost for maintenance is $11,600. Using the high-low method, what is the cost formula for maintenance?

 

 

1.    $1.16 per unit.

 

1.    $1.20 per unit.

 

1.    $600 plus $1.10 per unit.

 

1.    $1,200 plus $1.10 per unit.

 

 

31.  Bell Company has provided the following data for maintenance costs:

 

 

 

Using the high-low method, what is the cost formula for maintenance cost?

 

 

2.    $2.00 per machine hour.

 

1.    $1.625 per machine hour.

 

1.    $18,000 plus $0.50 per machine hour.

 

1.    $24,000 plus $0.50 per machine hour.

 

 

32.  Buckeye Company has provided the following data for maintenance cost:

 

 

 

Using the high-low method, what is the cost formula for maintenance cost?

 

 

1.    $7,000 per year plus $0.625 per machine hour.

 

1.    $7,000 per year plus $1.60 per machine hour.

 

1.    $21,625 per year plus $0.625 per machine hour.

 

1.    $27,000 per year plus $1.60 per machine hour.

 

 

33.  Selected information about Buehler Corporation’s operations at high and at low levels of activity follow:

 

 

 

Using the high-low method, what is the total variable cost per unit of product?

 

 

11.  $11.05.

 

21.  $21.00.

 

32.  $32.00.

 

35.  $35.00.

 

 

34.  At a sales level of $300,000, James Company’s gross margin is $15,000 less than its contribution margin, its operating income is $50,000, and its total selling and administrative expenses are $120,000. At this sales level, what is the company’s contribution margin?

 

 

1.    $155,000.

 

1.    $170,000.

 

1.    $185,000.

 

1.    $250,000.

 

 

35.  Which of the following statements about the methods for estimating a cost formula is incorrect?

 

 

1.    A scattergram plot should precede the high-low method.

 

1.    A scattergram plot should precede the least-squares regression method.

 

1.    The preferred method is high-low.

 

1.    The preferred method is least-squares regression.

 

 

Rymore Company would like to classify the following costs according to their cost behaviour:

 

 

 

 

 

36.  Which of the following classifications best describes the behaviour of Cost A?

 

 

1.    Mixed.

 

1.    Variable.

 

1.    Fixed.

 

1.    Opportunity cost.

 

 

37.  Which of the following classifications best describes the behaviour of Cost B?

 

 

1.    Mixed.

 

1.    Variable.

 

1.    Fixed.

 

1.    Opportunity cost.

 

 

38.  Which of the following classifications best describes the behaviour of Cost C?

 

 

1.    Mixed.

 

1.    Variable.

 

1.    Fixed.

 

1.    Differential cost.

 

 

Comparative income statements for Boggs Sporting Equipment Company for the last two months are presented below:

 

 

 

 

 

All of the company’s costs are either fixed, variable, or a mixture of the two (that is, mixed). Assume that the relevant range includes all of the activity levels mentioned in this problem.

 

39.  Which of the operating expenses of the company is variable?

 

 

1.    Rent.

 

1.    Sales commissions.

 

1.    Maintenance expenses.

 

1.    Clerical expenses.

 

 

40.  What is the total monthly fixed cost for Boggs Sporting Equipment Company?

 

 

1.    $12,000.

 

500.          $22,500.

 

1.    $25,000.

 

1.    $40,000.

 

 

41.  If sales are projected to be 8,000 units in September, what would be total operating expenses?

 

 

600.          $41,600.

 

750.          $44,750.

 

600.          $46,600.

 

300.          $49,300.

 

 

Gasson Company is a merchandising firm. Next month, the company expects to sell 800 units. The following data describe the company’s revenue and cost structure:

 

 

 

Assume that all activity mentioned in this problem is within the relevant range.

 

42.  What is the expected gross margin next month?

 

 

200.          $11,200.

 

400.          $14,400.

 

400.          $16,400.

 

600.          $17,600.

 

 

43.  What is the expected total administrative expense next month?

 

 

800.          $4,800.

 

300.          $9,300.

 

300.          $13,300.

 

900.          $14,900.

 

 

44.  What is the expected contribution margin next month?

 

 

200.          $11,200.

 

400.          $14,400.

 

1.    $16,000.

 

600.          $17,600.

 

 

45.  What is the expected operating income next month?

 

 

700.          $2,700.

 

100.          $5,100.

 

500.          $7,500.

 

200.          $11,200.

 

 

In the O’Donnell Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were $223,000. Of this amount, utilities were $48,000 (all variable) and amortization was $60,000 (all fixed). The balance of the overhead costs consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were $130,000.

Assume that all of the activity levels mentioned in this problem are within the relevant range.

 

46.  What is the variable cost for maintenance per machine hour?

 

 

1.    $0.75.

 

1.    $1.30.

 

1.    $1.35.

 

1.    $1.44.

 

 

47.  What is the total fixed overhead cost for O’Donnell?

 

 

1.    $55,000.

 

1.    $60,000.

 

1.    $115,000.

 

1.    $130,000.

 

 

48.  If 110,000 machine hours of activity are projected for next period, what would be total expected overhead cost?

 

 

500.          $242,500.

 

1.    $256,000.

 

500.          $263,500.

 

625.          $306,625.

 

 

Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000-unit level of activity, and total expense per unit of $1.95 at the 21,000-unit level of activity.

 

49.  What is the best estimate of the variable cost per unit for Maxwell Company?

 

 

1.    $0.56.

 

1.    $1.79.

 

1.    $1.95.

 

2.    $2.00.

 

 

50.  What is the best estimate of the total fixed cost per period for Maxwell Company?

 

 

360.          $3,360.

 

190.          $29,190.

 

1.    $32,000

 

950.          $40,950.

 

 

51.  What is the best estimate of the total expected costs at the 19,000 level of activity for Maxwell Company?

 

 

50.  $37,050.

 

370.          $37,370.

 

1.    $38,000.

 

830.          $39,830.

 

 

Johnson Company has provided the following data for the first five months of the year:

 

 

 

52.  Using the least squares regression method, the estimated variable lubrication cost per machine hour is closest to which of the following?

 

 

1.    $0.67.

 

1.    $1.56.

 

1.    $1.40.

 

1.    $1.50.

 

 

53.  Using the least squares regression method, the estimated monthly fixed component of lubrication cost is closest to which of the following?

 

 

561.          $561.

 

565.          $565.

 

570.          $570.

 

585.          $585.

 

 

Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the last five months of operations:

 

 

 

54.  Using the high-low method, the estimated variable cost per machine hour for electricity is closest to which of the following?

 

 

1.    $0.40 per hour.

 

1.    $0.98 per hour.

 

1.    $1.68 per hour.

 

2.    $2.50 per hour.

 

 

55.  Using the high-low method, the estimated fixed cost per month for electricity is closest to which of the following?

 

 

870.          $870.00.

 

150.          $1,150.00.

 

290.          $1,290.00.

 

306.          $1,306.50.

 

 

Wilson Company’s activity for the first six months of the current year is as follows:

 

 

 

56.  Using the high-low method, what is the variable cost per machine hour?

 

 

1.    $0.40 per hour.

 

1.    $0.60 per hour.

 

1.    $0.64 per hour.

 

1.    $0.67 per hour.

 

 

57.  Using the high-low method, what is the fixed portion of the electrical cost each month?

 

 

190.          $190.

 

280.          $280.

 

400.          $400.

 

760.          $760.

 

 

Prater Company has provided the following data:

 

 

 

58.  What is the best estimate of the company’s variable operating expense per unit?

 

 

1.    $0.24 per unit.

 

1.    $0.91 per unit.

 

1.    $0.96 per unit.

 

4.    $4.17 per unit.

 

 

59.  What is the best estimate of the company’s total fixed operating expense per year?

 

 

1.    $72,000.

 

1.    $188,000.

 

1.    $200,000.

 

1.    $212,000.

 

 

The following data have been provided by a retailer that sells a single product:

 

 

 

60.  What is the best estimate of the company’s variable operating expenses per unit?

 

 

1.    $0.24 per unit.

 

1.    $0.71 per unit.

 

1.    $0.90 per unit.

 

4.    $4.17 per unit.

 

 

61.  What is the best estimate of the company’s total fixed operating expenses per year?

 

 

1.    $0.

 

1.    $44,000.

 

1.    $80,000.

 

1.    $174,000.

 

 

62.  What is the best estimate of the company’s contribution margin for this year?

 

 

1.    $252,000.

 

1.    $300,000.

 

1.    $158,000.

 

1.    $225,000.

 

 

The following information has been provided by the Evans Retail Stores, Inc., for the first quarter of the year:

 

 

 

63.  What is the gross margin of Evans Retail Stores, Inc., for the first quarter?

 

 

1.    $140,000.

 

1.    $190,000.

 

1.    $210,000.

 

1.    $220,000.

 

 

64.  What is the contribution margin of Evans Retail Stores, Inc., for the first quarter?

 

 

1.    $140,000.

 

1.    $190,000.

 

1.    $210,000.

 

1.    $300,000.

 

 

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

 

 

 

Assume that direct labour is a variable cost and that there was no beginning or ending inventories.

 

65.  What was the total contribution margin of Porter Company for the second quarter?

 

 

250.          $37,250.

 

1.    $87,000.

 

1.    $176,000.

 

1.    $211,000.

 

 

66.  What was the gross margin(loss) for Porter Company for the second quarter?

 

 

1.    $(12,500).

 

1.    $80,000.

 

500.          $131,500.

 

1.    $135,000.

 

 

An income statement for Crandall’s Bookstore for the first quarter of the current year is presented below:

 

 

 

On average, a book sells for $50. Variable selling expenses are $5.50 per book, with the remaining selling expenses being fixed. The variable administrative expenses are 3% of sales, with the remainder being fixed.

 

67.  What is the contribution margin for Crandall’s Bookstore for the first quarter?

 

 

1.    $128,000.

 

1.    $152,000.

 

1.    $240,000.

 

1.    $688,000.

 

 

68.  Using the contribution approach, what is the operating income for the first quarter?

 

 

1.    $44,000.

 

1.    $128,000.

 

1.    $152,000.

 

1.    $240,000.

 

 

69.  What is the cost formula for operating expenses where X represents the number of books sold?

 

 

7.    Y = $84,000 + $7.00X.

 

8.    Y = $84,000 + $8.50X.

 

7.    Y = $98,000 + $7.00X.

 

8.    Y = $98,000 + $8.50X.

 

 

Sorter Company has provided the following data for the third quarter of the most recent year:

 

 

 

Assume that direct labour is a variable cost and that there was no beginning or ending inventories.

 

70.  At the level of sales for the third quarter, how much in additional fixed selling expenses could Sorter Company have afforded to spend and still would have reported $41,500 operating income?

 

 

1.    $50,000.

 

750.          $87,750.

 

500.          $91,500.

 

250.          $96,250.

 

 

71.  Suppose the sales for the third quarter was the equivalent of 1,000 units and that the fixed manufacturing and non-manufacturing costs were valid between the relevant range of 800 and 1,200 units. If Sorter Company had sold 100 additional units, it would have reported what amount of additional operating income?

 

 

150.          $9,150.

 

725.          $23,725.

 

1.    $50,000.

 

650.          $100,650.

 

 

72.  Which of the following items of Sorter Company’s expenses and/or costs can be misleading if reported on a per unit of production and/or sales basis?

 

 

1.    Direct labour

 

1.    Direct materials.

 

1.    Variable administrative expenses.

 

1.    Fixed manufacturing overhead.

 

 

73.  Which of the following should be the first step in the analysis of cost behaviour?

 

 

1.    Estimating the slope coefficient.

 

1.    Estimating the intercept term.

 

1.    Estimating the R-squared in the case of least-squares regression.

 

1.    Scattergram plot.

 

 

74.  Which of the following assumptions is implicit in the simplified contribution approach income statement?

 

 

1.    There are two cost drivers, both units of production and units of sales.

 

1.    The fixed expenses do vary with either units of production or units of sales.

 

1.    Units of production and units of sales are equal.

 

1.    Inventory levels in units do change.

 

 

75.  Which of the following is generally true for the cost of goods sold amount that a merchandising company would report on its income statement?

 

 

1.    It is a mixed cost.

 

1.    It is a variable cost.

 

1.    It is a fixed cost.

 

1.    It has no effect on the contribution margin.

 

 

76.  Modern technology is causing shifts away from variable costs toward more fixed costs in many industries.

 

True    False

 

77.  In order for a cost to be variable, it must vary with either units produced or units sold.

 

True    False

 

78.  A cost that is obtainable in large chunks and that increases or decreases only in response to fairly wide changes in the activity level is known as a step-variable cost.

 

True    False

 

79.  The concept of the relevant range does not apply to fixed costs.

 

True    False

 

80.  Indirect costs, such as manufacturing overhead, are always fixed costs.

 

True    False

 

81.  A cost formula may not be valid outside the relevant range of activity.

 

True    False

 

82.  Discretionary fixed costs arise from annual decisions by management to spend in certain fixed cost areas.

 

True    False

 

83.  Significant reductions in committed fixed costs can usually be made on a temporary basis without seriously impairing the long-term goals of a firm.

 

True    False

 

84.  The planning horizons for committed fixed costs and discretionary fixed costs are generally the same.

 

True    False

 

85.  The high-low method is generally less accurate than the least-squares regression method for analyzing the behaviour of mixed costs.

 

True    False

 

86.  The contribution approach to constructing an income statement emphasizes the functions of production, administration and sales.

 

True    False

 

87.  The “goodness of fit” statistic (that is, R-squared) associated with the least-squares regression method indicates the proportion of a mixed cost that is variable.

 

True    False

 

88.  Because the least-squares regression method is more accurate, a scattergram plot is unnecessary.

 

True    False

 

89.  The contribution approach to the income statement classifies costs by behaviour rather than by function.

 

True    False

 

90.  A mixed cost is partially variable and partially fixed.

 

True    False

 

91.  The following information summarizes the company’s cost structure

 

 

 

Assume that all of the activity levels mentioned in this problem are within the relevant range.

 

Required:

 

Prepare a schedule showing predictions for the following items at the 40,000 unit level of activity:

 

1.    a) Total variable cost.

2.    b) Total fixed cost.

3.    c) Variable cost per unit.

4.    d) Fixed cost per unit.

 

 

 

 

 

 

 

 

 

92.  Mateo Company’s average cost per unit is $1.425 at the 16,000-unit level of activity and $1.38 at the 20,000-unit level of activity. The selling price is $3.00 per unit

 

Assume that all of the activity levels mentioned in this problem are within the relevant range.

 

Required:

 

Predict the following items for Mateo Company:

 

(a) Variable cost per unit.

(b) Total fixed cost per period.

(c) Total expected costs at the 18,000-unit level of activity.

(d) Total Contribution Margin at the 18,000 unit level of production and sales.