Question

1

The Nowra Company has assembled the following data pertaining to certain costs that cannot be easily identified as either fixed or variable. Nowra Company has heard about a method of measuring cost functions called the high-low method and has decided to use it in this situation.

	Month	Cost	Hours
	January	$40 000	3500
	February	24 400	2000
	March	31 280	2450
	April	36 400	3000
	May	44 160	3900
	June	42 400	3740

How is the cost function stated?

	a.	y = $21 360 + $1.52X
	b.	y = $10 112 + $8.64X
	c.	y = $26 672 + $1.84X
	d.	y = $3600 + $10.40X
	e.	No correct answer

2

The Yeppoon Company uses the high-low method to estimate its cost function. The information for 2018 is provided below:

		Machine-hours	Costs
	Highest observation of cost driver	2000	$225 000
	Lowest observation of cost driver	1000	$125 000

What is the constant for the estimating cost equation?

		$0
		$225 000
		$25 000
		$125 000
		No correct answer

3

The cost components of an air conditioner include $35 for the compressor; $11.50 for the sheet moulded compound frame; and $80 per unit for assembly. The factory machines and tools cost is $55 000. The company expects to produce 1500 air conditioners in the coming year. What cost function best represents these costs?

	a.	y = 55 000 + 126.50X
	b.	y = 55 000 + 1500X
	c.	y = 1500 + 126.5X
	d.	y = 1500 + 55 000X
	e.	No correct answer

4

V8 Engineering Pty used the following data to evaluate their current operating system. The company sells items for $14.50 each and had used a budgeted selling price of $15 per unit.

                                                                   Actual             Budgeted
        Units sold                                   206 000 units      200 000 units
        Variable costs                            $965 000               $950 000
        Fixed costs                                    $53 000                 $50 000

What is the static-budget variance of variable costs?

	a.	$13 000 unfavourable
	b.	$15 000 favourable
	c.	$13 000 favourable
	d.	$15 000 unfavourable
	e.	No correct answer

Answer 1

Q.1	Correct Option d. y = $3600 + $10.40X
		Cost	Hours
	High LEVEL	44160	3900
	Low Level	24400	2000
	Change	19760	1900
	Change per unit (Variable cost) = Change in total cost / Change in Hours
				=(19760/1900)
				10.4
	Fixed Cost calculation
	Variable Cost + Fixed cost = Total cost
	10.4 * 3900 + Fixed Cost = 44160
	Fixed Cost = $3600
Q.2	Correct Option C i.e. $25000
	Fixed is constant, hence calculate fixed cost
		Cost	Hours
	High LEVEL	225000	2000
	Low Level	125000	1000
	Change	100000	1000
	Change per unit (Variable cost) = Change in total cost / Change in Units Sold
				=(100000/1000)
				100
	Fixed Cost calculation
	Variable Cost + Fixed cost = Total cost
	100 * 2000 + Fixed Cost = 225000
	Fixed Cost = $25000
Q.3	Correct Option a. y = 55 000 + 126.50X
	Variable Cost	126.5	(35+11.50+80)
	Fixed cost	55000
Q.4	Correct Option D i.e. $15000 Unfavorable
	Static Budget variance = Budgeted variable cost - actual variable cost
	=950000 - 965000
	=15000 Unfavorable