52. Speedy Couriers
Speedy Couriers documented the miles driven and total vehicle costs for the past five months as follows:
Number of miles
Total vehicle costs
January
800
$1,095
February
1,000
1,440
March
750
1,200
April
900
1,380
May
1,100
1,410
Refer to the Speedy Couriers information above. Using the high/low method, if Speedy expects to drive 1,200 miles in June, what will be expected
total vehicle costs?
53. Denver Manufacturing
Denver Manufacturing would like to do a better job budgeting for maintenance costs and, consequently, they
have prepared a schedule showing maintenance costs and units produced for the past five months as follows:
Number of
units produced
Total
maintenance costs
January
5,400
$4,800
February
6,600
5,180
March
4,900
4,500
April
5,600
4,900
May
6,000
5,490
Refer to the Denver Manufacturing information above. Using the high/low method, what is the cost equation to predict total maintenance costs?
54. Denver Manufacturing
Denver Manufacturing would like to do a better job budgeting for maintenance costs and, consequently, they
have prepared a schedule showing maintenance costs and units produced for the past five months as follows:
Number of
units produced
Total
maintenance costs
January
5,400
$4,800
February
6,600
5,180
March
4,900
4,500
April
5,600
4,900
May
6,000
5,490
Refer to the Denver Manufacturing information above. Using the high/low method, if Denver expects to produce 5,000 units in June, what will be
budgeted total maintenance costs?
55. In decision-making, which of the following kinds of costs should always be taken into account?
56. In decision-making, which of the following statements is true?
57. In general, when are variable costs not relevant to a decision?
58. In general, when are fixed costs relevant to a decision?
59. Another word for a relevant cost is a(n) ____ cost.
60. University Memorabilia Inc. is a locally run retail shop. The store usually closes at 5:00 pm, but the owners
have inquired about the extra costs involved by letting the store stay open until 9:00 pm. The store manager has
listed the following monthly expenditures and their related costs:
Item:
1.
Manager salary
$40,000 per year
2.
Store rent
$5,000 per month
3.
Sales’ associates wages
$9 per hour
4.
Store utilities
$4 per hour
Which of the above cost items would be relevant to the decision about staying open extra hours?
61. Which of the following statements is true regarding the impact of taxes on decision-making?
62. When comparing a “pre-tax cost” and an “after-tax cost”, which of the following is true?
63. The after-tax benefit of a taxable cash receipt can be calculated as follows:
64. After-tax net income can be calculated as follows:
65. The manager of a company is considering a special project that will increase sales revenue by $90,000
without affecting costs. If the company has a tax rate of 30%, what will be the after-tax revenue?
66. Blossom Products is considering a special project that will increase sales revenue by $60,000 without
affecting costs. If the company has a tax rate of 25%, what will be the after-tax revenue?
67. Putnam Distributors is contemplating whether or not to accept a special order. Putnam wishes to have after-
tax cash receipts of $5,200 if they accept the order. If Putnam has a tax rate of 35%, what is the price the
customer should be charged for their order?
68. Triangle Associates is contemplating making a large charitable contribution. If their tax rate is 35%, what is
the after-tax cost of making a $20,000 contribution?
69. Manning Inc. is contemplating the rental of a special tool for $3,000 per month. If their tax rate is 35%,
what is the after-tax monthly cost of renting the tool?
70. Portia’s Salon is contemplating an increase in their rental space that will result in a before-tax rent increase
of $1,000 per month. If their tax rate is 30%, what is the after-tax monthly increase in rent cost?
71. Beauregard Imports has pretax income of $75,000. If their tax rate is 35%, what will be their after-tax
income?
72. Blue Ridge Resorts has the following pretax information available for the current year:
Pretax receipts
$800,000
Pretax costs
300,000
Assuming all receipts are taxable and all costs are tax-deductible, what will be Blue Ridge’s after-tax net income for the year if their tax rate is 30%?
73. Label whether each of the following costs is most likely fixed (F) or variable (V).
Direct materials
Factory rent
Sales commissions expense
Direct labor
Depreciation on factory building
74. Label whether each of the following costs is most likely fixed (F) or variable (V).
Factory insurance
Direct materials
Secretary salary
Shipping supplies
Gasoline costs
Factory insurance
F
Direct materials
V
Secretary salary
F
Shipping supplies
V
Gasoline costs
V
75. For each of the following statements, fill in the blank with either the word increase, decrease, or stays the
same.
a.
As production increases, total fixed costs ______________.
b.
As production increases, fixed costs per unit _____________.
c.
As production decreases, variable costs per unit _____________.
d.
As production decreases, total variable costs _______________.
a.
As production increases, total fixed costs stay the same .
b.
As production increases, fixed costs per unit decrease .
c.
As production decreases, variable costs per unit stay the same .
Direct materials
V
Factory rent
F
Sales commissions expense
V
Direct labor
V
Depreciation on factory building
F
76. For each of the following statements, fill in the blank with either the word increase, decrease, or stays the
same.
a.
As production decreases, total fixed costs ______________.
b.
As production decreases, fixed costs per unit _____________.
c.
As production increases, variable costs per unit _____________.
d.
As production increases, total variable costs _______________.
77. Briefly describe the difference between fixed, variable, and mixed costs. Give one example of each.
78. You are the manager of a small cookie stand. The variable cost of producing one chocolate chip cookie is
$.75. Your fixed costs per week are $1,000. What is the total cost per unit if 1,000 cookies are produced and
sold per week? 2,000 cookies? Do your answers for the two quantities differ? Why or why not?
a.
As production decreases, total fixed costs stay the same .
b.
As production decreases, fixed costs per unit increase .
c.
As production increases, variable costs per unit stay the same .
d.
As production increases, total variable costs increase .
79. Jameson Inc. plans to double its rental space next year, which will increase its fixed costs by 40%. Current
year costs include variable costs of $3 per unit and fixed costs of $40,000. With the expansion of the rental
space, next year’s production is expected to be 10,000 units.
Required: Calculate total estimated costs for next year.
80. Richardson Corporation plans to increase its advertising budget by 20% next year. The company currently
spends $15,000 on advertising costs. In addition to advertising, Richardson spends $50,000 per year for other
fixed costs and $10 per unit for variable costs. If Richardson anticipates producing 30,000 units next year, what
will be next year’s total costs?
Required: Calculate total estimated costs for next year.
81. Compare and contrast the two methods that are used to predict mixed costs.
82. Describe regression analysis and list several of its possible uses.
83. You are trying to determine whether machine hours or direct labor dollars would be the best cost driver for
overhead costs. You run two regression analyses and obtain the following results:
Machine hours:
Multiple R
.39429
R square
.15547
Adjusted R square
.14964
Standard error
.44416
Direct labor dollars:
Multiple R
.89429
R square
.79547
Adjusted R square
.28964
Standard error
.44416
Which variable would be the best selection for a cost driver and why?
84. Why should income taxes be considered by corporate decision-makers?
85. Your company leases a copier. The contract states that you must pay the leasing company $3,000 per year
and $.005 per copy.
Required:
A.
Write the equation to predict estimated total
lease cost.
B.
Compute the estimated total costs if:
i.
10,000 copies are made.
ii.
50,000 copies are made.
C.
Compute the estimated cost per unit if:
i.
10,000 copies are made.
ii.
50,000 copies are made.
86. Sabina and Associates has the following current year costs:
Variable costs
$4 per unit
Fixed costs
$20,000
Next year, the company plans to enter into an arrangement with a supplier that will result in a 15% decrease in variable costs. They also plan on
reducing their rental space, which will decrease fixed costs by 10%.
Required:
A.
What will be the new equation to predict total costs?
B.
If next year’s production is expected to be 10,000 units, what will be total estimated costs?
Y = $18,000 + $3.40x
variable cost per unit will change to: $4 ´ .85 = $3.40 per unit, and fixed costs will change to: $20,000 ´ .90 = $18,000
B.
Y = $18,000 + $3.40(10,000) = $52,000
A.
Y = $3,000 + $.005x
B.
Estimated total costs:
i.
ii.
C.
Estimated cost per unit:
i.
ii.
87. You run a regression analysis and receive the following results:
Multiple R
.39429
R Square
.15547
Adjusted R Square
.14964
Standard Error
.44416
Analysis of Variance
DF
Sum of Squares
Mean Square
Regression
1
5.26588
5.26588
Residual
145
28.60536
.19728
F = 26.69262
Signif F
= .0000
Variables in the Equation
Variable
Coefficie
nts
Standard error
t Stat
P-value
X Variable 1
11.03
00
.021000
5.166
.0000
Intercept
8833.07
00
.090000
9.751
.0000
Required:
A.
What is the fixed cost in this regression analysis?
B.
What is the variable cost per unit?
C.
Prepare the cost equation based upon these results.
D.
Does this regression equation “fit” the data well? What information did you examine to answer this question?
A.
$8,833.07
$11.03
C.
Y = $8,833.07 + $11.03x
88. Pearson Products believes one of its costs is a mixed cost and has run a regression analysis which shows the
following:
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.963711945
R Square
0.928740713
Adjusted R Square
0.916864165
Standard Error
946.0983069
Observations
8
ANOVA
df
SS
MS
F
Significance F
Regression
1
69996575.46
69996575.46
78.19955153
0.000116235
Residual
6
5370612.038
895102.0063
Total
7
75367187.5
Coefficients
Standard Error
t Stat
P-value
Intercept
11568.56000
1352.390000
8.554149469
0.000140059
X Variable 1
1.9800000
0.223900000
8.843051031
0.000116235
Required:
A.
Write the equation to predict estimated total mixed costs.
B.
If 1,000 units are produced, what will be total mixed costs?
C.
What does the “R Square” number tell Pearson? Interpret the “R Square” data for Pearson.
A.
Y = $11,568.56 + $1.98x
B.
Y = $11,568.56 + $1.98(1,000) = $13,548.56
89. Noble Inc. documented the number of units produced as well as maintenance costs for the past five months
as follows:
Number of units
Total overhead costs
October
120,000
$ 6,200
November
180,000
10,000
December
100,000
6,000
January
110,000
8,000
February
135,000
9,000
Noble uses the high/low method of estimating mixed costs.
Required:
A.
What is the equation to predict estimated total overhead costs?
B.
If the company expects to produce 150,000 units in March, what will be the estimated total overhead costs?
A.
Y = $1,000 + $.05x
High number of units = November
Low number of units = December
Variable cost per unit = ($10,000 – $6,000)/(180,000 – 100,000) = $.05 per unit
Calculation of fixed cost: $10,000 = $.05(180,000) + FC
FC = $1,000
(note: using the low activity information will produce the same fixed costs)
Y = $1,000 + $.05(150,000) = $8,500
90. Reliable Movers Inc. documented the miles driven and total moving van costs for the past five months as
follows:
Number of miles
Total vehicle costs
January
3,000
$4,800
February
3,500
5,200
March
5,000
6,100
April
4,000
5,000
May
6,000
6,000
In order to budget total vehicle costs for the upcoming summer months, Reliable wishes to estimate total vehicle costs using the high/low method.
Required:
A.
What is the equation to predict estimated total vehicle costs?
B.
If the company expects to drive 9,000 miles in June, what will be the estimated total vehicle costs?
91. A manager is considering a special project that will increase cash sales by $80,000 and increase costs by
$30,000. All cash receipts are taxable and all costs are tax deductible. If the tax rate is 30%, what will be the
after-tax profit from the special project?
A.
Y = $3,600 + $.40x
High number of miles = May
Low number of miles = January
Variable cost per unit = ($6,000 – $4,800)/(6,000 – 3,000) = $.40 per mile
Calculation of fixed cost: $6,000 = $.40(6,000) + FC
FC = $3,600
(note: using the low activity information will produce the same fixed costs)
Y = $3,600 + $.40(9,000) = $7,200
92. A manager is considering a special project. Corporate policy dictates that all special projects must generate
an after-tax profit of $21,000. If the company expects costs related to the project to be equal to $43,000, what is
the before-tax cash sales price that should be charged in order to adhere to corporate policy assuming the
company has a tax rate of 30%?