Question

28-34

28. An example of a fixed cost related to delivery activity is: a. rent on a factory building b. depreciation on a factory building c. vehicle insurance d. the salary of the vice president of sales 29. The extent of business activity within which cost behavior assumptions are valid is known as the: a. total cost horizon b. fixed cost index C. relevant range d. variable cost index 30. When the firm lacks past experience concerning a cost's reaction to activity, the method most likely used to separate the components of a mixed cost will be the: a. high-low method b. scatter graphing c. engineering approach d. regression analysis 31. When the scatter graph method is compared with the high-low method, the fixed and variable costs will be: a. identical b. extremely different c. somewhat different d. None of these answers is correct Martinez & Company is trying to determine the amount of the cost of utilities that is variable per KWH (kilowatt hour). Martinez has information from the past two months. In June the store used 10,600 KWH at a cost of $954 and in July it used 12,932 KWH at a cost of $1,094. What is the cost per KWH using the high-low method? a. $ 0.06 b. $ 1.67 c. $ 0.03 d. $16.67

Answer 1

28. C. Vehicle insurance

Because only vehicle insurance is a valid fixed cost for the delivery activity.

29. D. Variable cost index

30. C. Engineering Approach

31. B. Extremely Different

Because scattered plot method will consider all the available points while the high low method consider only two points that is high and low scattered plot method is more reliable than high low method.

32. a. 0.06$

Using high low method-:

= (highest cost- lowest cost)/(highest production- lowest production

=(1094-954)/(12932-10600)

= 0.06

33. C.318$

Variable cost when production is 10600 = 10600*0.06= 636$

Fixed cost = total - variable cost

= 954-636

= 318$

34. d. 1002$

Variable cost = 11400*0.06 = 684$

Fixed cost = 318$

Total cost= 684$+318$ = 1002$

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