Question

1.

Month	Total Maintenance Cost				Production Volume (units)
January	$	1,980			1,850	units
February	$	1,800			1,500	units
March	$	2,200			2,600	units
April	$	2,180			2,275	units
May	$	2,300			2,750	units

Using the high-low method, the variable rate for maintenance is:

Multiple Choice

• $0.40.

• $0.75.

• $1.50.

• $2.00.

2. The current cost structure for the production department of Performance, Inc., has fixed expenses of $500,000 and variable expenses of $200 per unit. Unit sales volume is 6,000 units. Performance, Inc., can reduce variable expenses to $100 per unit with automated manufacturing technology. What is the new fixed expense amount after automation that will produce the same current operating income on sales volume of 6,000 units?

Multiple Choice

• $500,000.

• $1,100,000.

• $1,200,000.

• $1,700,000.

Answer 1

Question 1

Correct answer------------$0.40

Working

		Cost	No. of activities
A	High Level	$             2,300.00	2750
B	Low Level	$             1,800.00	1500
C=A-B	Difference	$                500.00	1,250
A	Cost difference	$                500.00
B	No. of activities difference	1250
C=A/B	Variable cost per unit	$                     0.40

Question 2

Correct answer------------$1,100,000

Working

Old fixed cost	$      500,000.00
Add: Reduction in variable cost (100 x 6000)	$      600,000.00
New Fixed costs	$ 1,100,000.00