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112. The following four months of data were collected on utility cost and the number of labor hours in a factory.
Utility Labor
Month cost hours
January $22,100 3,975
February 24,600 5,430
March 23,500 4,400
April 20,140 3,200
Using the high-low method, compute the variable rate for the utility cost.
a. $1.02
b. $2.80
c. $1.07
d. $2.00
113. The following four months of data were collected on utility cost and the number of labor hours in a factory.
Utility Labor
Month cost hours
January $22,100 3,975
February 24,600 5,430
March 23,500 4,400
April 20,140 3,200
Using the high-low method, compute the fixed cost of electricity.
a. $13,740
b. $10,860
c. $6,400
d. None of these are correct.
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114. The following four months of data were collected on utility cost and the number of labor hours in a factory.
Utility Labor
Month cost hours
January $22,100 3,975
February 24,600 5,430
March 23,500 4,400
April 20,140 3,200
What would be the estimate of electricity cost if the factory incurred 4,700 labor hours next month?
a. $9,400
b. $20,260
c. $23,140
d. $19,560
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115. The method of least squares was used to develop a cost equation to predict the cost of monthly equipment
maintenance. The following computer output was received:
Intercept 32,000
Slope 25
What was the cost formula for equipment maintenance?
a. total maintenance cost = $25 × machine hours
b. total maintenance cost = $32,000
c. total maintenance cost = $32,000 + ($25 × machine hours)
d. None of these are correct.
116. The method of least squares was used to develop a cost equation to predict the cost of monthly equipment
maintenance. The following computer output was received:
Intercept 40,000
Slope 20
The driver used was the number of machine hours.
Using the cost formula for the equipment maintenance cost, what is the predicted cost of equipment maintenance for
April, assuming that 8,000 machine hours will be logged in April?
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a. $185,000
b. $140,000
c. $200,000
d. None of these are correct.
117. The method of least squares was used to develop a cost equation to predict the cost of monthly equipment
maintenance. The following computer output was received:
Intercept 32,000
Slope 25
What is the independent variable of the cost formula for equipment maintenance?
a. number of machine hours
b. the variable rate
c. the fixed cost
d. the total cost
Chapter 3
118. The following data for 6 months was collected from a factory.
Electricity Machine
Month cost hours
June $45,000 4,540
July 23,000 3,380
August 32,000 3,870
September 43,000 4,345
October 22,000 3,200
November 46,200 4,680
Select the correct set of high and low months.
a. high: August, low: October
b. high: June, low: October
c. high: October, low: September
d. high: November, low: October
119. The following 6 months of data were collected on electricity cost and the number of machine hours in a factory.
Electricity Machine
Month cost hours
June $25,160 4,500
July 26,170 4,810
August 27,250 5,120
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September 26,680 5,010
October 27,950 5,430
November 27,500 5,190
An independent variable value used in calculating the cost line using the high-low method is:
a. $27,950
b. 5,430
c. $25,160
d. 4,000
120. The following 6 months of data were collected on electricity cost and the number of machine hours in a factory.
Electricity Machine
Month cost hours
June $25,160 4,500
July 26,170 4,810
August 27,250 5,120
September 26,680 5,010
October 27,950 5,430
November 27,500 5,190
A dependent variable value used in calculating the cost line using the high-low method is:
a. $27,900
b. 5,430
c. $25,160
d. 4,500
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121. Margolo Company makes cross-country skis. The company controller wants to calculate the fixed and variable costs
associated with janitorial services incurred by the factory. Data for the past 6 months were collected.
Janitorial Labor
Month cost hours
January $9,200 10,120
February 8,800 9,500
March 9,350 10,500
April 9,620 11,100
May 8,400 8,660
June 9,400 10,650
Select the correct set of high and low months.
a. high: June, low: April
b. high: June, low: May
c. high: January, low: February
d. high: April, low: May
122. Which of the following is not true of the method of least squares?
a. The method uses only variable cost to calculate the total cost.
b. The method uses only two points to develop the cost function.
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c. The method involves minimization of the squared differences between actual observations and the line (cost
function).
d. The method offers ways to assess the reliability of cost equations.
123. If an automobile manufacturer changes from skilled labor to computer-controlled assembly procedures, the past data
a. are useful in predicting future costs.
b. are of little or no value in predicting future costs.
c. should be used without adjustments to predict future costs.
d. are representative of future costs.
124. Which of the following is an advantage of using the scatter-graph method over the high-low method to estimate
costs?
a. It is a statistical method to determine “best fit”.
b. A cost analyst can review the data visually and eliminate outliers.
c. The quality of the cost formula relies on the objective judgment of the analysts.
d. The cost formula can be determined simply by looking at two points of data.
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125. If at a given volume total costs and fixed costs are known, the variable costs per unit may be computed as follows:
a. (total costs − fixed costs) / unit volume
b. (total costs / unit volume) − fixed costs
c. (total costs × unit volume) − (fixed costs / unit volume)
d. total costs − (fixed costs / unit volume)
126. Which of the following types of costs is a product cost for absorption costing but a period cost for variable costing?
a. direct materials
b. direct labor
c. fixed factory overhead per unit sold
d. variable selling expense
e. total administrative expense
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127. Which of the following is never included in product cost?
a. overhead
b. direct materials
c. variable selling expense
d. fixed factory overhead
e. direct labor
128. Generally Accepted Accounting Principles (GAAP) require the use of which accounting method for external
reporting?
a. absorption costing.
b. variable costing.
c. transfer price costing.
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d. responsibility costing.
e. all of these are acceptable for GAAP.
129. Variable costing is
a. a good way to value inventories for the balance sheet.
b. used for external reporting purposes.
c. not useful for companies with multiple segments.
d. a useful tool for management decision making.
e. can only be used by start-up companies.
130. Which of the following is true of absorption costing?
a. It assigns all manufacturing costs to the product.
b. It is used only for internal reporting such as financial statements.
c. It assigns only variable manufacturing costs to the product.
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d. None of these.
131. Gross margin is to absorption costing as ____ is to variable costing.
a. gross profit
b. contribution margin
c. income
d. territory margin
132. When monthly production volume and sales are the same, ____.
a. absorption income equals variable income
b. absorption income is greater than variable income
c. the cost of goods sold equals miscellaneous expenses
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d. the cost of goods sold is greater than miscellaneous expenses
133. When production is less than sales volume, income under absorption costing will be ____ income using variable
costing procedures.
a. greater than
b. less than
c. equal to
d. randomly different than
134. The inventory cost computed under absorption costing is ____ the inventory cost computed using variable costing.
a. equal to
b. half of
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c. greater than
d. thrice as much
135. Which of the following statements is true?
a. Absorption costing income exceeds variable costing income when units produced and sold are equal.
b. Variable costing income exceeds absorption costing income when units produced exceed units sold.
c. Absorption costing income exceeds variable costing income when units produced are less than units sold.
d. Absorption costing income exceeds variable costing income when units produced are greater than units sold.
136. Which of the following is not included in absorption costing?
a. Fixed overhead
b. Direct materials
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c. Direct labor
d. Contribution margin
137. What is the primary difference between variable and absorption costing?
a. inclusion of fixed selling expenses in product costs
b. inclusion of variable factory overhead in period costs
c. inclusion of fixed selling expenses in period costs
d. inclusion of fixed factory overhead in product costs
138. Last year, Richmon Company produced 10,000 units and sold 6,000 units at a price of $20. Costs for the last year
were as follows:
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Direct materials $30,000
Direct labor 38,000
Variable factory overhead 8,000
Fixed factory overhead 40,000
Variable selling expense 5,000
Fixed selling expense 4,900
Fixed administrative expense 11,000
Fixed factory overhead is applied based on expected production. Last year, Richmon expected to produce 10,000
units. Assuming that beginning inventory was zero, what is the value of ending inventory under absorption costing?
(Note: Round answers to the nearest dollar.)
a. $50,000
b. $38,000
c. $46,400
d. $10,000
e. $31,000
139. Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as
follows:
Direct materials $25,000
Direct labor 35,000
Variable factory overhead 12,000
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Fixed factory overhead 37,000
Variable selling expense 9,000
Fixed selling expense 7,500
Fixed administrative expense 15,500
Assuming that beginning inventory was zero, what is the value of ending inventory under variable costing?
a. $3,300
b. $2,500
c. $5,000
d. $3,720
e. $7,200
140. Last year, Richmon Company produced 10,000 units and sold 6,000 units at a price of $20. Costs for last year were
as follows:
Direct materials $30,000
Direct labor 38,000
Variable factory overhead 8,000
Fixed factory overhead 40,000
Variable selling expense 5,000
Fixed selling expense 4,900
Fixed administrative expense 11,000
Fixed factory overhead is applied based on expected production. Last year, Richmon expected to produce 10,000 units.
What is operating income for last year under absorption costing?
a. $39,000
b. $55,000
c. $63,100
d. $12,430
e. $29,340
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141. Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as
follows:
Direct materials $25,000
Direct labor 35,000
Variable factory overhead 12,000
Fixed factory overhead 37,000
Variable selling expense 9,000
Fixed selling expense 7,500
Fixed administrative expense 15,500
Fixed factory overhead is applied based on expected production. Last year, Fabre expected to produce 20,000 units. What
is operating income for last year under variable costing?
a. $111,800
b. $91,780
c. $82,200
d. $78,400
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e. $66,350
142. Zeklen Company had the following data for the month:
Variable costs per unit:
Direct materials $6.00
Direct labor 2.00
Variable overhead 1.00
Variable selling expenses 0.60
Fixed overhead is $2,000 per month; it is applied to production based on normal activity of 1,000 units. During the month,
3,000 units were produced. Zeklen started the month with 200 units in beginning inventory, with unit product cost equal
to this month’s unit product cost. A total of 1,200 units were sold during the month at a price of $10. Selling and
administrative expense for the month, all fixed, totaled $2,400.
What is the unit product cost under absorption costing?
a. $7
b. $12
c. $4
d. $10
e. $11
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143. Loring Company had the following data for the month:
Variable costs per unit:
Direct materials $4.00
Direct labor 3.20
Variable overhead 1.00
Variable selling expenses 0.40
Fixed overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units. During the month,
2,000 units were produced. Loring started the month with 300 units in beginning inventory, with unit product cost equal to
this month’s unit product cost. A total of 2,100 units were sold during the month at price of $14. Selling and
administrative expense for the month, all fixed, totaled $3,600.
What is operating income under variable costing?
a. $3,540
b. $7,980
c. $11,340
d. −$540
e. $3,740