Cooke Corporation reports that at an activity level of 7,000 units, the total variable cost is $590,730, and the total fixed cost is $372,750. What would be the total cost, both fixed and variable, at an activity level of 7,100 units? Assume that this level of activity is within the relevant range.

Cooke Corporation reports that at an activity level of 7,000 units, the total variable cost is $590,730, and the total fixed cost is $372,750.

What would be the total cost, both fixed and variable, at an activity level of 7,100 units? Assume that this level of activity is within the relevant range.

ANSWER

INCORRECT

·       

THE CORRECT ANSWER

$971,919

·       

YOU WERE SURE AND INCORRECT

$970,362

·       

$963,480

·       

$977,244

·       

I DON'T KNOW YET

WHAT YOU NEED TO KNOW

The total cost is $971,919. The other answer choices are incorrect.

Variable cost per unit = $590,730 / 7,000 units = $84.39 unit
Total cost = Total fixed cost + Total variable cost
= $372,750 + ($84.39 per unit × 7,100 units)
= $372,750 + $599,169
= $971,919

________ is an example of a discretionary fixed cost expense.

ANSWER

INCORRECT

·       

THE CORRECT ANSWER

Advertising

·       

Depreciation

·       

YOU WERE SURE AND INCORRECT

Property tax

·       

Insurance

·       

I DON'T KNOW YET

WHAT YOU NEED TO KNOW

Advertising is an example of a discretionary fixed cost expense. Companies have more control over discretional fixed cost expenses. Insurance, property taxes, and depreciation are committed fixed cost expenses.

When using a variable costing system, the contribution margin (CM) is calculated as the excess of ________.

ANSWER

INCORRECT

·       

variable costs over fixed costs

·       

YOU WERE SURE AND INCORRECT

projected revenues over the breakeven

·       

THE CORRECT ANSWER

revenues over variable costs

·       

revenues over fixed costs

·       

I DON'T KNOW YET

WHAT YOU NEED TO KNOW

When using a variable costing system, the contribution margin (CM) is calculated as the excess of revenues over variable costs. The other answer choices are incorrect.

The following data pertains to activity and utility cost for two recent periods:

Activity level (units)	8,000	5,000
Utility cost	$8,000	$6,500

Utility cost is a mixed cost with both fixed and variable components.

What is the cost formula for utility cost using the high-low method?

ANSWER

INCORRECT

·       

y = $1,500 + $1.25x

·       

YOU WERE SURE AND INCORRECT

y = $1.25x

·       

THE CORRECT ANSWER

y = $4,000 + $0.50x

·       

y = $1.00x

·       

I DON'T KNOW YET

WHAT YOU NEED TO KNOW

The cost formula for utility cost using the high-low method is y = $4,000 + $0.50x.

	Units	Utility Cost
High level of activity	8,000	$8,000
Low level of activity	5,000	6,500
Change	3,000	$1,500

Variable cost per unit = Change in cost / Change in activity
= $1,500 / 3,000 units
= $0.50 per unit

Fixed cost = Total cost - Variable cost element
= $8,000 - ($0.50 per unit × 8,000 units)
= $8,000 - $4,000
= $4,000

The vertical axis (y-axis) on a graph plots ________.

ANSWER

INCORRECT

·       

total volume of activity

·       

YOU WERE SURE AND INCORRECT

increases in direct proportion to increases in volume

·       

increases but not in direct proportion to increases in costs

·       

THE CORRECT ANSWER

total fixed costs

·       

I DON'T KNOW YET

WHAT YOU NEED TO KNOW

The vertical axis (y-axis) on a graph plots total fixed costs.

The horizontal axis (x-axis) represents the total volume of activity.

Total variable costs increase in direct proportion to increases in volume.

Total mixed costs increase but not in direct proportion to increases in costs.

Which of the following is a TRUE statement about the graphing of variable costs?

ANSWER

INCORRECT

·       

THE CORRECT ANSWER

Graphs of variable costs begin at the point that represents zero volume and zero cost.

·       

YOU WERE SURE AND INCORRECT

The horizontal axis (x-axis) of a graph represents the total variable costs.

·       

The vertical axis (y-axis) represents the total volume of activity.

·       

The slope of the variable cost line represents the mixed cost per unit of activity.

·       

I DON'T KNOW YET

WHAT YOU NEED TO KNOW

Graphs of variable costs begin at the point that represents zero volume and zero cost is a TRUE statement about the graphing of unit variable costs.

The vertical axis (y-axis) of a graph represents the total variable costs.

The horizontal axis (x-axis) shows the total volume of activity.

The slope of the variable cost line represents the variable cost per unit of activity.