ACCT 2230 Lecture Notes - Lecture 3: Variable Cost, Dependent And Independent Variables

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ceruleanalpaca747

13 Jan 2018

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Cost structure: the relative proportion of fixed, variable, and mixed costs found in an organization. The idea that a variable cost is constant per unit but varies in total with the activity level is crucial. For a cost to be variable, it must be variable with respect to an activity base: a measure of whatever causes a variable cost to be incurred (direct labour hours, machine-hours, units produced, and km) True variable costs: direct materials is a true (proportionately variable) because the amount used during a period varies in direct proportion to the level of production activity. Any amounts purchased but not used can be stored and carried forward to the next period as inventory. Step-variable cost: a cost (maintenance worker) that is obtainable only in large amounts and that increases and decreases only in response to fairly wide changes in the activity level.

Related Questions

1. Which one of the following refers to a cost that remains the same as the volume of activity decreases within the relevant range?

A. Average cost per unit.

B. Variable cost per unit.

C. Unit fixed cost.

D. Total variable cost.

2. The relevant range refers to the activity levels over which

A. Cost relationships hold constant.

B. Costs fluctuate.

C. Production varies.

D. Relevant costs are incurred.

3. When identifying fixed and variable costs, which one of the following is a typical assumption concerning cost behavior?

A. General and administrative costs are assumed to be variable costs.

B. Cost behavior is assumed to be realistic for all levels of activity from zero to maximum capacity.

C. Total costs are assumed to be linear when plotted on a graph.

D. The relevant time period is assumed to be 5 years.

4. A management accountant is about to prepare graphs of total variable cost and per-unit variable cost for use in a short-term planning model. Dollars will be depicted on the vertical axis; activity will be shown on the horizontal axis. How will these graphs appear under completion?

Total Variable Cost; Per-Unit Variable Cost

A. Straight line, sloping upward to the right; Straight line, parallel to the horizontal axis

B. Curvilinear, sloping upward to the right; A line that basically parallels the horizontal axis, first decreasing and then increasing

C. Straight line, sloping upward to the right; Straight line, sloping upward to the right

D. Straight line, parallel to the horizontal axis; Straight line, sloping upward to the right

5. A company has found that its total electricity cost has both a fixed component and a variable component within the relevant range. The variable component seems to vary directly with the number of units produced. Which one of the following statements concerning electricity cost is incorrect?

A. The total electricity cost will increase as production volume increases.

B. The total electricity cost per unit of production will increase as production volume increases.

C. The variable electricity cost per unit of production will remain constant as production volume increases.

D. The fixed electricity cost per unit of production will decline as production volume increases.

silversnake284

A manufacturing company prepays its insurance coverage for athree-year period. The premium for the three years is $4,770 and ispaid at the beginning of the first year. Seventy percent of thepremium applies to manufacturing operations and thirty percentapplies to selling and administrative activities. What amountsshould be considered product and period costs respectively for thefirst year of coverage?

The following costs were incurred in September:

Direct materials	$45,200
Direct labor	$31,000
Manufacturing overhead	$23,400
Selling expenses	$19,100
Administrative expenses	$33,700

Conversion costs during the month totaled:

At an activity level of 8,600 machine-hours in a month, NoonerCorporation's total variable production engineering cost is$734,440 and its total fixed production engineering cost is$154,000. What would be the total production engineering cost perunit, both fixed and variable, at an activity level of 8,800machine-hours in a month? Assume that this level of activity iswithin the relevant range.

apricotgoat901

Mansah Co., Ltd., of Ghana is a manufacturing company whose total factory overhead costs fluctuate considerably from year to year according to increases and decreases in the number of direct labor-hours worked in the factory. Total factory overhead costs at high and low levels of activity for recent years are given below: Level of Activity Low High Direct labor-hours 56,100 74,800 Total factory overhead costs $ 276,310 $ 315,580 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 56,100-hour level of activity as follows: Indirect materials (variable) $ 95,370 Rent (fixed) 130,000 Maintenance (mixed) 50,940 Total factory overhead costs $ 276,310 To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements. Required: 1. Estimate how much of the $315,580 factory overhead cost at the high level of activity consists of maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $315,580 consists of indirect materials and rent. Think about the behavior of variable and fixed costs

viridianantelope156

ACCT 2230 Lecture Notes - Lecture 3: Variable Cost, Dependent And Independent Variables

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