Folk Exam Questions - Chapter 5 1. An analysis of past janitorial costs indicates that janitorial cost is an average of $0.

80 per machine-hour at an activity level of 40,000 machine-hours and $1.00 per machinehour at an activity level of 3 ,000 machine-hours. Assuming that this activity is !ithin the relevant range, !hat is the total e"pected janitorial cost if the activity level is 3#,000 machine-hours$ Solution: %sing the data provided a&ove, janitorial costs are fi"ed 'rather than varia&le or mi"ed( in nature) that is, they total $3 ,000 at &oth 40,000 and 3 ,000 machine hours. *achine +ours 40,000 3 ,000 ,ost per *achine +our $0.80 $1.00 -otal ,ost $3 ,000 $3 ,000

Accordingly, janitorial costs !ould &e e"pected to &e $3 ,000 at 3#,000 machine hours 'or at any other level of machine hours !ithin the relevant range(. . .hipping e"pense is $10,000 for 1,000 pounds shipped and $13,#/0 for 1,/00 pounds shipped. Assuming that this activity is !ithin the relevant range, if the company ships 1, /0 pounds, !hat is its e"pected shipping e"pense$ Solution: %sing the high-lo! method, the company0s varia&le cost per unit for shipping costs can &e calculated as follo!s1 2aria&le cost per unit 3 ,hange in costs 4 ,hange in units 2aria&le cost per unit 3 '$13,#/0 5 $10,000( 4 '1,/00 5 1,000( 2aria&le cost per unit 3 $3,#/0 4 /00 3 $#./0 per pound shipped. -hen, the company0s fi"ed shipping cost can &e calculated as follo!s1 -otal cost 3 -otal varia&le cost 6 -otal fi"ed cost or -otal fi"ed cost 3 -otal cost 5 -otal varia&le cost -otal fi"ed cost 3 $10,000 5 '1,000 pounds " $#./0 per pound( -otal fi"ed cost 3 $10,000 5 $#,/00 3 $ ,/00 7inally, if the company ships 1, /0 pounds, its total shipping cost can &e estimated as follo!s1 -otal cost 3 -otal varia&le cost 6 -otal fi"ed cost -otal cost 3 '1, /0 pounds " $#./0 per pound( 6 $ ,/00 -otal cost 3 $8,3#/ 6 $ ,/00 3 $11,8#/ 3. The following information has been provided by the Batavia Office
Supply Store for the first quarter of the year:

.ales 2aria&le selling e"pense 7i"ed selling e"penses ,ost of goods sold 7i"ed administrative e"penses 2aria&le administrative e"penses

$1,400,000 140,000 100,000 940,000 0,000 90,000

:hat is the contri&ution margin of ;atavia <ffice .upply .tore for the first =uarter$ Solution: .ales 2aria&le e"penses1 2aria&le selling e"pense ,ost of goods sold 2aria&le administrative e"penses -otal varia&le e"penses ,ontri&ution margin $1,400,000 $140,000 940,000 90,000 840,000 $#90,000

4. >e!is ,ompany has provided the follo!ing data for the second =uarter of the most recent year1 .ales 7i"ed manufacturing overhead ?irect la&or 7i"ed selling e"pense 2aria&le manufacturing overhead 2aria&le administrative e"pense ?irect materials 7i"ed administrative e"pense 2aria&le selling e"pense $1, 00,000 ,000 80,000 18/,000 194,000 18 ,000 09,000 1#8,000 188,000

Assume that direct la&or is a varia&le cost and that there !ere no &eginning or ending inventories. :hat !as the total contri&ution margin of >e!is ,ompany for the second =uarter$ Solution: .ales 2aria&le e"penses1 ?irect la&or 2aria&le manufacturing overhead 2aria&le administrative e"penses ?irect materials $1, 00,000 $ 80,000 194,000 18 ,000 09,000

2aria&le selling e"pense -otal varia&le e"penses ,ontri&ution margin

188,000 1,0/1,000 $ 148,000