Question

1. ABC Company has produced a higher level of production in May than it produced in April, but had the same variable costs per unit and the same total fixed costs. Which of the following is true about May’s reported costs?

A. Total variable cost is less in May

B. Total cost per unit is less in May

C. Total cost per unit is more in May

D. Total fixed costs are more in May

2. Depreciation on sewing machines used in apparel manufacturing is classified as

A. Variable, selling & administrative cost

B. Variable manufacturing overhead

C. Fixed, selling & administrative cost

D. Fixed manufacturing overhead

3. ABC Company finds that its utility costs increase as its production goes up, but the costs also include a baseline amount that doesn’t vary with production. The following information is gathered.

Month	Production Units	Utility Costs
January	390	$4,578
February	301	$4,352
March	500	$4,936
April	490	$5,098
May	470	$4,611
June	240	$4,048

Using the High-low method and the information above, what is the variable cost of utilities per production unit being used in the factory, rounded to the nearest penny?

A. $4.35

B. $10.36

C. $11.59

D. $12.47

4.     Using the High-low method XYZ Company analyzed its manufacturing overhead that was a mixed cost. It identified the following points as its HIGH and LOW points and calculated the variable component of the cost as $3 per unit:

Manufacturing Overhead                        Production in Units

HIGH                $580,000                                   160,000 units

LOW                 $310,000                                   70,000 units

What is the fixed component of manufacturing overhead?

A. $ 90,000

B. $100,000

C. $210,000

D. $270,000

Answer 1

Solution 1:

Option C is correct.

There is direct relationship between variable cost per unit and production. As production increases, the variable cost per unit also increases. Therefore, Option A is incorrect.

There is direct relationship between total cost and production. As production increases, the total cost also increases. Therefore, Option B is incorrect.

There is direct relationship between total cost and production. As production increases, the total cost also increases. Therefore, option C is correct.

From the question, we know that fixed costs is same. Therefore, option D is incorrect.

Solution 2:

Option D is correct.

Expenses which vary directly with sales are variable, selling cost whereas depreciation does not vary (it is fixed). Therefore, option A is incorrect.

Costs related to production that vary with production are variable manufacturing overhead whereas depreciation remains fixed. Therefore, option B is incorrect.

Expenses which are not directly related to sales are Fixed, selling & administrative cost whereas depreciation on sewing machine manufacturing overead. Therefore, option C is incorrect.

Costs that do not change with production would be depreciation of sewing machine. Therefore, option D is correct.

Solution 3:

Option A is correct.

High utility costs = $5,098, High production unit = 490,

Low utility costs = $4,048, Low production unit = 240

Variable cost of utilities per production unit = (High utility cost - Low utility cost)/(High unit - Low unit)

Variable cost of utilities per production unit =(5,098 - 4048)/ (490-240)

Variable cost of utilities per production unit = $4.20

The closest value of Variable cost of utilities per production unit = $4.20 is $4.35

Solution 4:

Option B is correct.

Variable cost per unit = (High manufacturing overhead - Low manufacturing overhead)/(High production - Low production)

Variable cost per unit = ($580,000 - $310,000)/(160,000 - 70,000)

Variable cost per unit = $270,000/90,000

Variable cost per unit = $3.00

Fixed component = $310,000 - 70,000*$3.00

Fixed component = $100,000