128. Blacken Company manufactures motorcycles. The company’s management accountant wants to calculate
the fixed and variable costs associated with utility cost incurred by the factory. Data for the past six months
were collected.
Month
Utility cost
Machine hours
March
$ 30,255
2,200
April
32,750
2,525
May
34,712
2,710
June
31,850
2,410
July
30,720
2,290
August
29,980
2,150
Required:
A. Using the high-low method calculate the variable rate per machine hour for the utility cost.
B. Using the high-low method calculate the fixed cost of utilities.
C. Construct a cost formula for total utility cost.
129. Boswan Company incurred the following costs and machine hours for the months of April and May.
Type of cost
January
February
Insurance
$ 10,000
$ 10,000
Factory supplies
3,000
4,500
Direct labor
20,000
30,000
Maintenance
5,500
5,750
Machine hours
1,000
1,500
Required:
A. Assuming that the driver for all costs is machine hours determine the cost behavior of each of the four types of costs above (fixed, variable, or
mixed).
B. Assume that the following is the cost formula for maintenance cost.
Total maintenance cost = $5,000 + ($.50 ´ no. of machine hours)
Construct a cost formula to be used to estimate total monthly costs within the relevant range.
C. Estimate the total monthly costs to be incurred by Boswan Company at a level of 1,800 machine hours.
130. Laconic Company manufactures ultra-sound equipment. Based on past experience, Laconic has found that
total annual repair and maintenance cost can be represented by the following formula: total annual repair and
maintenance cost = $205,000 + $7.50x, where x = machine hours. Last year, Laconic incurred 145,000 machine
hours.
Required:
A. What was the total repair and maintenance cost incurred by Laconic last year?
B. What was the total fixed repair and maintenance cost incurred by Laconic last year?
C. What was the total variable repair and maintenance cost incurred by Laconic last year?
D. What was the repair and maintenance cost per machine hour last year?
E. What was the fixed repair and maintenance cost per machine hour last year?
F. What was the variable repair and maintenance cost per machine hour last year?
131. Olson Company makes hearing aids. Olson has found that total electricity cost for the factory can be
represented by the following formula: total annual electricity cost = $149,000 + $2.75x, where x = labor hours.
Last year, Olson incurred 212,000 labor hours.
Required:
A.
What is the independent variable in Olson’s cost formula?
B.
What was the total electricity cost incurred by Olson last year?
C.
What would be Olson Company’s estimated electricity cost for next year if they have budgeted 229,000 labor hours?
132. Arcadia Company incurred the following costs and machine hours during the first three months of the
current year. Assume that the driver for all costs is machine hours.
Type of cost
February
March
Electricity
$ 15,000
$ 18,000
Depreciation
15,000
15,000
Factory supplies
5,600
7,600
Property taxes
12,000
12,000
Machine hours
700
950
Required:
A.
Using the high-low method, construct a cost formula for electricity cost.
B.
If Arcadia had total costs in April of $53,000, how many machine hours did they incur during April?
C.
If Arcadia expects to incur 1,500 machine hours in May what would be the estimate of their total costs?
133. Arcadia Company incurred the following costs and machine hours during the first three months of the
current year. Assume that the driver for all costs is machine hours.
Type of cost
February
March
Electricity
$ 15,000
$ 18,000
Depreciation
15,000
15,000
Factory supplies
5,600
7,600
Property taxes
12,000
12,000
Machine hours
700
950
Coefficients shown by a regression program are:
Intercept
7,600
X Variable 1
5.10
Required:
1.
Using the results of regression calculate the fixed cost of maintenance and the variable rate per machine hour.
2.
Using the results of regression, construct the cost formula for the total maintenance cost.
3.
Calculate the budgeted cost for maintenance assuming that 610 hours are worked next month.
134. Andover Company makes weather balloons. The company controller wanted to calculate the fixed and
variable costs associated with the maintenance costs incurred by the factory. Data for the past six months were
collected.
Month
Maintenance cost
Machine hours
January
$ 10,120
526
February
9,560
389
March
9,712
412
April
10,460
569
May
10,226
541
June
9,686
399
Required:
1.
Using the high low method, calculate the fixed cost of maintenance and the variable rate per machine hour.
2.
Using the high low method, construct the cost formula for the total maintenance cost.
3.
Calculate the budgeted cost for maintenance assuming that 610 hours are worked next month.
135. Graber and Johnson, Attorney’s at Law, recently opened up a law practice in the Northwest. Their goal is
to generate a monthly net income of $10,000. They have initially set their billing rate at $150 per hour. Their
billable hours in the first month of operations (January) were 150 and in the second month of operations
(February); 175 billable hours. The costs incurred at these levels for January and February are given below.
150 billable hours
175 billable hours
Salaries:
Mr. Graber
$ 10,000
$ 10,000
Ms. Johnson
10,000
10,000
Legal Secretary
4,000
4,000
Depreciation (Furniture)
500
500
Supplies
450
525
Rent
1,000
1,000
Utilities
412
449.50
Required:
1.
Classify each cost as fixed, variable, or mixed using billable hours as the driver.
2.
Use the high-low method to separate mixed costs into their fixed and variable components.
3.
Compute the net income/loss for January and February.
4.
If they expect to average 200 billable hours each month what do they need to set as a billing rate per hour to achieve their goal of
generating $10,000 of monthly net income? Show your calculations.
136. Hipcuts Company operates a chain of trendy beauty salons. The company’s chief executive officer is
interested in accumulating some information on the overhead costs incurred by the company. You have been
asked to analyze the following six months worth of data.
Month
Overhead cost
No. of Appointments
April
$ 60,160
867
May
56,500
624
June
58,900
689
July
63,500
974
August
59,325
730
September
62,400
901
A regression analysis produced the following coefficients.
Intercept
42,900
X Variable 1
20.46
Required:
1.
Using the results of regression, construct a cost formula for the total overhead cost.
2.
The CEO would like to limit total overhead cost in future months to 20% of total revenues. Will that be possible if total revenues are
expected to average $300,000 per month and total appointments per month are expected to average 1,000? Show all of your
calculations.
137. Grindgood Company operates a chain of cozy coffee shops. The company’s chief executive officer is
interested in accumulating some information on the overhead costs incurred by the company. You have been
asked to analyze the following six months worth of data.
Month
Overhead cost
No. of Appointments
April
$ 60,160
867
May
56,500
624
June
58,900
689
July
63,500
974
August
59,325
730
September
62,400
901
Required:
1.
Using the high low method, construct a cost formula for the total overhead cost.
2.
The CEO would like to limit total overhead cost in future months to 20% of total revenues. Will that be possible if total revenues are
expected to average $300,000 per month and total labor hours per month are expected to average 1,000? Show all of your
calculations.
138. Consider each of the following independent situations.
A.
The salary of a legal secretary in a law firm
B.
A lease contract for an automobile which requires a monthly payment of $300 plus $.05 per mile.
C.
The cost of lumber for a homebuilder.
D.
The cost of internet service which is calculated based on hours of usage.
E.
The cost of telephone service which includes a fixed monthly charge of $50 plus $.10 a minute for long distance calls.
F.
The salary cost of seasonal tax preparers for a CPA firm. One tax preparer can prepare 100 tax returns per month.
G.
A factory supervisor’s salary
H.
The cost of sugar in the production of soft drinks
Required:
For each situation, describe the cost as one of the following: fixed cost, variable cost, mixed cost, or step cost.
139. Harnow Company manufactures drill presses. Based on past experience, Harnow has found that its total
overhead cost can be represented by the following formula: Total overhead cost = $35,500 + $1.25x, where x =
number of machine hours. Last year Harnow incurred 120,000 machine hours.
Required:
A.
What was the total overhead cost incurred by Harnow last year?
B.
What was the total variable overhead cost incurred by Harnow last year?
C.
What was the total overhead cost per machine hour last year?
D.
What was the fixed overhead cost per machine hour last year?
E.
If Harnow incurs 140,000 machine hours next year, what will be the total overhead cost per machine hour.
140. The cost accountant for Bolagio Company used an Excel spreadsheet program to run ordinary least squares
on a set of cost data for its utility cost. Bolagio’s cost driver for utility cost is machine hours. The following
results were produced.
Intercept
2,490
X Variable
4.89
Required:
A.
Construct the cost formula for Bolagio’s utility cost using the results from the method of least squares.
B.
Using the formula computed in (A), what is the estimated cost of utilities for May assuming that Bolagio will incur 110,000 machine
hours.
141. Harnock Company constructed the following cost formula for its monthly janitorial cost.
Total monthly janitorial cost = $5,000 + ($.48 ´ units of output)
Required:
A. Identify the independent variable
B. Identify the dependant variable
C. Identify the intercept
D. Identify the slope
E. Compute the total janitorial cost if Harnock produces 10,000 units of output next year.
142. Explain the differences between a variable, fixed, and a mixed cost.
143. Explain the difference between a committed and a discretionary fixed cost.
144. Why is managerial judgement essential to predicting cost behavior?
145. Why is it necessary to separate a mixed cost into its variable and fixed components?
146. Why would cost behavior change outside of the relevant range?