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Exam 2: Cost Behavior and Cost Estimation

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Question 31

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Assume a scattergraph shows $500 at no activity and $2,500 at an activity level of 1,000

A) $2.00.
B) $1.40.
C) $2.50.
D) $5.00.

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

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Question 32

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Assume a selling price of $20 per

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Question 33

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With a fixed cost,the cost per

If activity level increases,what happens to the total fixed cost?

Which of the following is not a step in estimating total cost using the high-low method?

A contribution margin format income statement

Mounce Corporation leases a color copier for a monthly fee of $75 plus a charge of $0.02 per copy.Mounce's copy cost is classified as a

Cost behaviors and estimates are valid only within the normal level of operating activity.This range is referred to as the

A contribution format income statement just rearranges the individual costs components and produces the same operating income as the traditional functional income statement.

An example of a committed fixed cost is

A characteristic of a variable cost is

GAAP-based income statements categorize expenses based on

The formula for the contribution margin ratio is

Chocolate Delight sells chocolate dipped fruit to local restaurants.Chocolate Delight delivered 30,000 chocolate dipped strawberries to customers in May and 24,000 in June.Delivery costs for the two months were $1,500 and $1,200,respectively.Using these two months' data,the delivery cost function is best estimated as

Which of the following is a true statement relating to step costs?

Indicate which of the following costs are classified as mixed,step,or variable costs.

Gabbard and Fink CPA firm leases tax software from BGG Tax Software Company to prepare federal and state income tax returns.The lease agreement calls for a base charge of $5,000 per year plus $100 per year for each state for which returns are prepared.In addition,Gabbard and Fink are charged $2 $1 for federal and $1 for state for each tax return prepared.All of their clients have federal and state returns prepared,with 60 percent in Arkansas and 40 percent in Oklahoma. Required: a.What is the firm's total annual cost for the software if a total 2,500 returns are prepared? b.What is the firm's cost per unit at a level of 2,500 returns? c.What is the firm's cost per return if 2,000 are prepared? d.Besides software lease cost,list five other costs that Gabbard and Fink must consider when they set the price they will charge their clients.

The contribution format income statement presents cost by behavior.

Hartland Horticulture provides and maintains live plants in office buildings.The company's 850 customers are charged $30 per month for this service,which includes weekly watering visits.The variable cost to service a customer's location is $18 per month.The company incurs $2,000 each month to maintain its fleet of four service vans and $3,000 each month in salaries.Hartland pays a bookkeeping service $2 per customer each month to handle all invoicing and accounting functions. Required: a.Prepare Hartland's contribution format income statement for the month. b.What is the expected monthly operating income if 150 customers are added? c.Mr.Hartland is exploring options to reduce the annual bookkeeping costs. Option 1:Renegotiate the current contract with the bookkeeping service to pay a flat fee of $10,200 per year plus $1 per customer per month. Option 2:Hire a part-time bookkeeper for $18,000 per year to handle the invoicing and simple accounting.He would need to pay $5,000 per year to have taxes and year-end financial statements prepared. Compare the current bookkeeping cost with the two options at customer levels of 850,1,000,and 1,100. d.Besides the bookkeeping costs incurred,what should Mr.Hartland consider before he makes a change in bookkeeping services?

The formula,Electricity cost = $10 + $0.08 x kwh used is the formula for a