# COSTS AND DECISION MAKING All - 19743

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COST AND DESCICION MAKING1

1.   Use the following information to answer this question.

Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the past five months of operations.

Machine Hours

Electrical Cost

August

1,000   \$1,620

September

900      \$1,510

October           1,500   \$1,870

November       2,000   \$1,950

December        1,300   \$1,730

Using the high-low method of analysis, the estimated fixed cost per month for electricity is closest to which of the following?

A. \$870.00

B. \$1,290.00

C. \$1,150.00

D. \$1,306.50

2.   A disadvantage of the high-low method of cost analysis is that

A. it relies totally on the judgment of the person performing the cost analysis.

B. it uses two extreme data points, which may not be representative of normal conditions.

C. it's too time-consuming to apply.

D. it can't be used when there are a very large number of observations.

3.   Use the following information to answer this question.

Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:

Production Cost Data

Direct materials           \$153,000

Direct labor     \$110,500

\$255,000

Sales were \$780,000 for the year, variable selling and administrative expenses were \$88,400, and fixed selling and administrative expenses were \$170,000. There was no beginning inventory. Assume that direct labor is a variable cost.

Under absorption costing, the carrying value on the balance sheet of the ending inventory for the year would be

A. \$230,800.

B  \$0.

C. \$190,800.

D. \$170,000.

4.   Murdoch Corporation has provided the following data concerning its only product:

Murdoch Product Data

Selling price    \$230 per unit

Current sales   39,100 units

Break-even sales         29,716 units

What is the margin of safety in dollars?

A. \$6,834,680

B. \$8,993,000

C. \$2,158,320

D. \$5,995,333

5.   Purchase-order processing is an example of a/an _______ activity.

A. product-level

B. unit-level

C. organization-sustaining

D. batch-level

6.   Use the following information to answer this question.

Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:

Production Cost Data

Direct materials           \$153,000

Direct labor     \$110,500

\$255,000

Sales were \$780,000 for the year, variable selling and administrative expenses were \$88,400, and fixed selling and administrative expenses were \$170,000. There was no beginning inventory. Assume that direct labor is a variable cost.

Under variable costing, the company's net operating income for the year would be _______ than under absorption costing.

A. \$108,000 lower

B. \$60,000 lower

C. \$60,000 higher

D. \$108,000 higher

7.   A company increased the selling price for its product from \$5 to \$6 per unit when total fixed expenses increased from \$100,000 to \$200,000 and variable expense per unit remained unchanged. How would these changes affect the break-even point?

A. The break-even point in units would increase.

B. The break-even point in units would decrease.

C. The break-even point in units would remain unchanged.

D. The effect can't be determined from the information given.

8.   Use the following information to answer this question.

Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the past five months of operations.

Machine Hours

Electrical Cost

August            1,000   \$1,620

September900             \$1,510

October           1,500   \$1,870

Solution Description

like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the past five months of operations.

Machine Hours

Electrical Cost

August

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