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May 2015

MANAGEMENTADVISORYSERVICES
2Cost Behavior Analysis Solution

MULTIPLE CHOICE
1. (a) Using the high-low method: (P178,260 23,700)/(35,000 3,000) = P4.83 variable cost.
Fixed cost equals P23,700 (3,000 4.83) = P9,210. Fixed cost per unit at 8,000 units is P1.15
(9,210 / 8,000). Average cost per unit is equal to P5.98 (P4.83 + P1.15).
2. (d) The average cost is constant because there are no fixed costs.
3.

Ans: C
Variable
Variable
Variable
Variable

component of cost of goods sold:

cost = Change in costs/Change in units
cost = (P502,800 P419,000)/(6,000 5,000)
cost = P83.80 per unit

Variable
Variable
Variable
Variable

component of selling and administrative expenses:

cost = Change in costs/Change in units
cost = (P202,200 P186,500)/(6,000 5,000)
cost = P15.70 per unit

Sales revenue (P127.20 5,300)........................

Variable expenses:
Variable cost of goods sold (P83.80 5,300).....
Variable selling and administrative expense
(P15.70 5,300)........................................
Contribution margin..........................................
4.

Ans: C
MachineHours
High activity level........ 18,000
Low activity level.........
9,000

Average
Cost per
Hour
P0.25
P0.40

P674,160
P444,140
83,210

527,350
P

146,810

Total Utility Cost

(machine-hours
average cost per hour)
P4,500
P3,600

Variable cost = Change in cost Change in activity

= (P4,500 P3,600) (18,000 9,000) = P0.10
Fixed cost element = Total cost Variable cost element
= P4,500 (P0.10 18,000) = P2,700
Therefore, the cost formula for total utility cost is P2,700 per period plus P0.10 per
machine-hour, or Y = P2,700 + P0.10X.
At an activity level of 13,000 machine-hours, total cost is estimated to be:
Y = P2,700 + (P0.10 13,000) = P4,000
5.

Ans: c

High activity level........

Low activity level.........
*Given

Accounts
32,000
22,000

Average
Cost per
Account
Processed
P0.50

Total Utility Cost

(accounts average
cost per account
processed)
P16,000
P12,500*

Variable cost = Change in cost Change in activity

= (P16,000 P12,500) (32,000 22,000) = P0.35
Fixed cost element = Total cost Variable cost element
= P16,000 (P0.35 32,000) = P4,800
Therefore, the cost formula for total utility cost is P4,800 per period plus P0.35 per account
processed, or Y = P4,800 + P0.35X.
At an activity level of 25,000 accounts, total cost is estimated to be:
Y = P4,800 + (P0.35 25,000) = P13,550

6.

Ans: D
Variable cost = Change in cost Change in activity
= (P7,600 P7,300) (1,200 X) = P3, where X = low level of activity
=> P300 (1,200 X) = P3
=> P300 = P3 (1,200 X)
=> P100 = P1,200 X
=> X = P1,100

7.

Ans: D
First, calculate the variable manufacturing cost per unit:
Production
Volume
(Units)
High activity level........
2,000
Low activity level.........
1,000

Average
Cost per
Unit
P6.20
P10.00

Total Manufacturing
Overhead Cost (units
average cost per
unit)
P12,400
P10,000

Variable manufacturing overhead cost = Change in cost Change in activity

= (P12,400 P10,000) (2,000 1,000) = P2.40
Fixed cost element of manufacturing overhead = Total cost Variable cost element
= P12,400 (P2.40 2,000) = P7,600
Total variable cost per unit = Direct material + Direct labor + Variable manufacturing
overhead = P4.00 + P3.50 + P2.40 = P9.90
There are no fixed direct materials or direct labor, so the total fixed costs would be equal to
the fixed cost portion of manufacturing overhead, or P7,600.
8.

Ans: B
Variable
Variable
Variable
Variable

component of cost of goods sold:

cost = Change in costs/Change in units
cost = (P342,000 P273,600)/(5,000 4,000)
cost = P68.40 per unit

Fixed cost:
High volume: P342,000 P68.40 5,000 = P0
Low volume: P273,600 P68.40 4,000 = P0
Variable
Variable
Variable
Variable

component of selling and administrative expenses:

cost = Change in costs/Change in units
cost = (P68,000 P56,800)/(5,000 4,000)
cost = P11.20

Fixed cost:
High volume: P68,000 P11.20 5,000 = P12,000
Low volume: P56,800 P11.20 4,000 = P12,000
Total variable cost per unit:
P68.40 + P11.20 = P79.60
Total fixed cost:
P0 + P12,000 = P12,000
8.

Ans: D
Variable
Variable
Variable
Variable

component of manufacturing overhead:

cost = Change in costs/Change in units
cost = (P1,400* P1,250**)/(800 500)
cost = P0.50

*P1.75 800 = P1,400

**P2.50 500 = P1,250
Fixed cost:
High volume: P1,400 P0.50 800 = P1,000
Low volume: P1,250 P0.50 500 = P1,000
Variable
Variable
Variable
Variable

component of other overhead:

cost = Change in costs/Change in units
cost = (P500* P500**)/(800 500)
cost = P0

*P0.625 800 = P500

**P1.00 500 = P500

Fixed cost:
High volume: P500 P0 800 = P500
Low volume: P500 P0 500 = P500
Total variable cost per unit (includes direct material, direct labor, variable manufacturing
overhead, and variable other overhead):
P2.00 + P1.50 + P0.50 + P0 = P4.00
Total fixed cost:
P1,000 + P500 = P1,500
10. b 11. A 12. d. 13. C 14.d. 15 a 16a 17b 18b 19d 20b 21b 22d 23c 24c 25b 26c 27c 28a 29c
30c 31b 32a 33d