Question

ONE:

Chrystal Company incurred the following costs for the months of January and February:

Type of Cost January / February

Insurance $7,000 $7,000

Utilities 2,600 3,800

Depreciation 2,000 2,000

Materials 5,000 8,000

Assume that output was 1,000 units in January and 3,000 units in February, utility cost is a mixed cost, and the fixed cost of utilities was $2,000. What was the variable rate per unit of output for utilities cost?

a.$0.40

b.$0.60

c.$0.20

d.$0.30

TWO:

If production volume decreases from 15,000 units to 12,000 units, _____.

a.mixed and variable costs will decrease by 45%

b.average unit costs will decrease by 30%

c.total fixed costs will increase by 25%

d.total fixed costs will decrease by 25%

THREE:

Fixed costs are costs that in total:

a.are constant within the relevant range as the level of output changes.

b.increase as the miscellaneous expenses decrease.

c.decrease as the per unit variable cost increases.

d.All of these choices are correct.

FOUR:

The method of least squares:

a.is a statistical way of separating a mixed cost into fixed and variable components.

b.always produces the same cost formula when used on the same data set.

c.is a way to find the best-fitting line through a set of data points.

d.All of these choices are correct.

FIVE:

The high-low method:

a.has the advantage of subjectivity.

b.is the most accurate cost estimation method.

c.is the most accurate methods.

d.is not affected by the presence of outliers.

Answer 1

ONE

The Answer is b.$0.6

Utility had Fixed costs to the extent of $ 2000

So variable part is $ 600 ($2600-$2000) in the month of January and $ 1800($3800-$2000) in the month of February

So Variable cost of $ 0.6/ unit for 1000 units in the month of January is $ 600

and $ 0.6 /unit for 3000 units in the month of February is $ 1800

So $ 0.6 per unit is right and all other options do not satisfy the criteria

TWO

If Production Volume Decreases from 15000 units to 12000 units

a. Mixed and Variable Costs will decrease by 45%

All other options are wrong because When production decreases average Unit Costs will not decrease because Variable cost per unit will remain the same as only total variable costs decrease and not cost per unit of output and Fixed cost per unit will increase  and there wont be any change in total fixed Costs.Only Fixed Cost per unit will vary So Total Fixed Costs will not vary.

THREE

Answer is a

Fixed Costs are that in total are constant with the relevant range as the level of output changes

All other options are not appropriate and hence wrong

FOUR

Answer is d. All options are right

FIVE

The High Low method

Answer is d. Not affected by the presence of outliers

High Low method ignores the presence of Outliers and is objective not subjective and is not the most accurate method .The results are mostly Inaccurate .So all other options are wrong