### Determine the cost estimation model

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Question 1

Which of the following would be classified as a discretionary fixed cost?

a. Depreciation

b. Research and Development

c. Property Taxes

d. Interest on Bonds

Question 2

As volume increases, average cost per unit decreases because:

a. Total fixed costs increase

b. Total variable costs increase

c. Total fixed costs stay the same

d. Total variable costs stay the same

Question 3

Which of the following methods of cost estimation utilizes all observations and relies on statistical measures to determine the cost estimation model?

a. High-Low Method

b. Scatter Diagram

c. Least Squares Regression

d. Linear Programming

Question 4

Which of the following methods of cost estimation utilizes judgment to determine the cost estimation model?

a. High-Low Method

b. Scatter Diagram

c. Least Squares Regression

d. Linear Programming

Question 5

Anka Company manufactures and sells specialty items. The following representative direct labor-hours and production costs are provided for a four-month period:

 Month Hrs. Direct Labor Production Costs January 3,000 \$  45,000 February 4,000 52,500 March 7,000 81,000 April 4,000 45,000 Total 18,000 \$223,500

a. Calculate the variable cost per direct labor hour.

b. Calculate the total fixed costs.

c. Estimate total monthly production costs for May using the high-low method, assuming the direct labor hours for May are expected to be 4,500.

Question 6

The total monthly operating costs of Caroline's Yogurt Ice Cream Shack are:

\$1,700 + \$0.45X, where X = 12 ounce serving

Calculate the average cost per serving at each of the following monthly volumes: 1,000, 2,000, 3,000 and 5,000.

Question 7

The J. Page Furniture Company has the following information available regarding costs at various levels of monthly production:

 Production volume (units) 16,000 Units 22,000 Units Direct materials \$  70,000 \$100,000 Direct labor 66,000 90,000 Indirect materials 21,000 30,000 Supervisors' salaries 12,000 12,000 Depreciation on plant and equipment 10,000 10,000 Maintenance 32,000 44,000 Utilities 15,000 21,000 Insurance on plant and equipment 1,600 1,600 Property taxes on plant and equipment 2,000 2,000 Total \$229,600 \$310,600

Identify each of the costs above as being variable, fixed, or mixed.

Question 8

Contribution margin can be defined as:

a. sales revenue minus variable expenses

b. The amount of sales revenue necessary to cover variable expenses

c. The amount of sales revenue necessary to cover fixed and variable expenses

d. Sales revenue minus fixed expenses

Question 9

If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in:

a. net operating income

b. variable expenses

c. unit contribution margin

d. revenue

Question 10

1. Excareno Corp. has provided its contribution format income statement for June. The company produces and sells a single product.

 Sales (8,400 units) \$764,400 variable expenses 445,200 Contribution margin 319,200 Fixed expenses 250,900 Net operating income 68,300

2. Calculate the company's total contribution margin if the company sells 8,200 units.

Question 11

Hopi Corp. expects the following operating results for next year:

 Sales \$400,000 Contribution margin ratio 75% Degree of operating leverage 4

What is Hopi expecting total fixed expenses to be next year?

a. \$75,000

b. \$100,000

c. \$225,000

d. \$200,000

Question 12

Rovinsky Corp, a company that produces and sells a single product, has provided its contribution margin format income statement for November.

 Sales (5,700 units) \$319,200 variable expenses 188,100 Contribution margin 131,100 Fixed expenses 106,500 Net operating income 24,600

Calculate the company's Net Operating Income if the company sales 5,300 units.

Question 13

The Bronco Birdfeed company reported the following information:

 sales (400 cases) \$100,000 variables expenses 60,000 contribution margin 40,000 fixed expenses 35,000 net operating income 5,000

1. How much will the sales of one additional case add to Bronco's net operating income?

Question 14

Gayne Corp. contribution margin ratio is 12% and its fixed monthly expenses are \$84,000. If the company's sales for a month are \$738,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change.

Question 15

Wilson Company prepared the following preliminary budget assuming no advertising expenditures:

 selling price \$10 per unit unit sales 100,000 variable expenses \$600,000 fixed expenses \$300,000

Based on a market study, the company estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10% if \$100,000 were spent on advertising. Assuming that these changes are incorporated in its budget, what should be the budgeted net operating income?

Question 16

Data concerning Strite Corporation's single product appear below:

 selling price per unit \$150.00 variable expense per unit \$42.00 Fixed expenses per month \$421,200

Assume the company's monthly target profit is \$17,000. What would be the unit sales to attain that target profit of \$17,000?

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