Post Test Chapter 1

POST TEST CHAPTER 1-CAE09
Solution:
1. Erg Manufacturing Company has developed the following overhead cost formulas:
Cost Formula Depreciation $500 Set-up $400 plus $0.20 per machine-hour Lubrication
$50 plus $0.25 per machine-hour Utilities $0.40 per machine-hour Based on these cost
formulas, the total overhead cost expected for Erg Manufacturing Company if 200
machine hours are worked is:
Ans. $1,120
Fixed Variable
Cost Cost Total
Portion Portion Cost
Lubricants (variable cost = $0.25 × 200) $50 $50 $100
Utilities (variable cost = $0.40 × 200) $80 80
Depreciation $500 500
Setup (variable cost = $0.20 × 200) $400 $40 440
Total cost $1,120
2. You are applying the scattergraph method and find that the regression line you have
drawn passes through a data point with the following coordinates: 7,500 units and
$10,000. The regression line passes through the Y axis at the $4,000 point. Which of
the following is the cost formula that represents the slope of this line?
Ans. Y=$4,000+$0.80X
Variable cost = Change in cost ÷ Change in activity
= ($10,000 – $4,000) ÷ (7,500 – 0) = $0.80
Since the regression line passes through the Y axis at the $4,000 point, the $4,000
represents the fixed costs.
Therefore, the cost formula would be Y=$4,000+$0.80X.
3. At an activity level of 7,200 machine-hours in a month, Falks Corporation's total

variable production engineering cost is $556,416 and its total fixed production
engineering cost is $226,008. What would be the total production engineering cost per
unit, both fixed and variable, at an activity level of 7,300 units in a month? Assume that
this level of activity is within the relevant range.
Ans. $108.24
$556,416/7200 = $77.28
$77.28 x 7300 = $564,144
$564,144 +$226,008 = $790,152
$790,152 / 7300 = $108.24
4. Electrical costs at one of Finfrock Corporation's factories are listed below: Machine-
Hours -Electrical Cost March 3,642 -$40,537 April 3,616 -$40,319 May 3,667 -$40,706
June 3,634 -$40,462 July 3,665 -$40,703 August 3,659 -$40,680 September 3,644 -
$40,547 October 3,612 -$40,268 November 3,624 -$40,364 Management believes that
electrical cost is a mixed cost that depends on machine-hours. Using the high-low
method to estimate the variable and fixed components of this cost, these estimates
would be closest to:
Ans. $7.96 per machine-hour; $11,517 per month
= ($40,706 − $40,268) ÷ (3,667 − 3,612) = $7.96
Fixed cost element = Total cost − Variable cost element

= $40,706 − ($7.96 × 3,667) = $11,517
Therefore, the cost formula for total electrical cost is $11,517 per period plus $7.96 per
machine-hour, or Y = $11,517 + $7.96X
5. Timchak Corporation reports that at an activity level of 9,900 units, its total variable
cost is $919,116 and its total fixed cost is $259,974. What would be the total cost, both
fixed and variable, at an activity level of 10,100 units? Assume that this level of activity
is within the relevant range.
Ans. $1,197,658
Variable cost per unit: $919,116 ÷ 9,900 units = $92.84 per unit
The cost function is:
Y = $259,974 + $92.84X
Y = $259,974 + $92.84(10,100)
Y = $1,197,658
6. At an activity level of 8,400 machine-hours in a month, Braughton Corporation's total

variable maintenance and repair cost is $697,284 and its total fixed maintenance and
repair cost is $464,100. What would be the total maintenance and repair cost, both fixed
and variable, at an activity level of 8,500 units in a month? Assume that this level of
activity is within the relevant range.
Ans. $1,169,685
Variable cost per machine-hour: $697,284 ÷ 8,400 hours = $83.01 per unit
The cost function is:
Y = $464,100 + $83.01X
Y = $464,100 + $83.01(8,500)
Y = $1,169,685
7. A consulting company would like to develop a method of predicting its total costs in a
period. The following past costs have been recorded by the company in two periods:
Number of client-hours 420 -515 Total cost $82,200 -$90,275 The best estimate of the
cost formula for the company (where X is the number of client-hours) is:
Ans. Y = $46,500 + $85 X
= ($90,275 – $82,200) ÷ (515 – 420) = $85
Fixed cost element = Total cost – Variable cost element

= $90,275 – ($85 × 515) = $46,500
Therefore, the cost formula for total cost is $46,500 per period plus $85 per clienthour,
or Y = $46,500 + $85X.
8. Jackson, Inc., is preparing a budget for next year and requires a breakdown of the
cost of steam used in its factory into fixed and variable components. The following data
on the cost of steam used and direct labor hours worked are available for the last six
months: Cost of Steam -Direct Labor-Hours July $ 15,850 -3,000 August 13,400 -2,050
September 16,370 -2,900 October 19,800 -3,650 November 17,600 -2,670 December
18,500 -2,650 Total $101,520 -16,920 If Jackson uses the high-low method of analysis,
the estimated variable cost of steam per direct labor hour would be:
Ans. $4.00
= ($19,800 – $13,400) ÷ (3,650 – 2,050) = $4.00
9. Shown below are units produced and total manufacturing costs for the past four
months at Minga Manufacturing Corporation: Units Produced -Total Cost Jul 120 -
$446,000 Aug 150 -$508,000 Sep 180 -$668,000 Oct 160 -$574,000 What is Minga's
cost formula for total manufacturing cost under the high-low method?
Ans. Y = $2,000 + $3,700X
= ($668,000 – $446,000) ÷ (180 – 120) = $3,700

= $668,000 – ($3,700 × 180) = $2,000
Therefore, the cost formula for total cost is $2,000 per period plus $3,700 per unit, or Y
= $2,000 + $3,700X.
10. Wright Company has observed that at an activity level of 5,000 units the cost for
maintenance is $6,500, and at 10,000 units the cost for maintenance is $9,000. Using
the high-low method, the cost formula for maintenance is:
Ans. $4,000 plus $.50 per unit
= ($9,000 – $6,500) ÷ (10,000 – 5,000) = $0.50

= $9,000 – ($0.50 × 10,000) = $4,000
Therefore, the cost formula for total maintenance cost is $4,000 per period plus $0.50
per unit, or Y = $4,000 + $0.50X.

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POST TEST CHAPTER 1-CAE09

3. At an activity level of 7,200 machine-hours in a month, Falks Corporation's total

Fixed cost element = Total cost − Variable cost element

6. At an activity level of 8,400 machine-hours in a month, Braughton Corporation's total

Fixed cost element = Total cost – Variable cost element

Fixed cost element = Total cost – Variable cost element

Fixed cost element = Total cost – Variable cost element

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