QUIZ REVIEW Homework Tutorial Chapter 5

QUIZ REVIEW

HOMEWORK TUTORIAL – CHAPTER 5 – SET 3

STEPS APPLICABLE IN SOLVING ALL HOMEWORK PROBLEMS

1. Scan the problem.

2. Locate what is required.
3. Find the formula which applies to the requirement.
4. Make your calculation based on the formula.
FORMULAS
HIGH/ LOW METHOD
Activity Rate: Change in cost from the high level to the low level of activity/change in
activity from the high level to the low level of activity.
Fixed Cost: 1. Find the activity rate. 2. Multiply the activity rate X the high level of
activity to get the variable cost at the high level of activity. 3. Subtract variable cost at
the high level from the total cost at the high level.
Total Mixed Cost: Y(total mixed cost) = a(fixed cost) + b(rate) x X(activity)
Total Cost: Total expense/unit x total activity
Variable Cost: Activity rate X total activity.
CONTRIBUTION MARGIN INCOME STATEMENT
Contribution Margin: Sales – Variable Cost.
Gross Margin: Sales – Cost of Goods Sold.
Net Operating Income (Contribution Margin Format): Sales – variable cost =

contribution margin – selling expense – administrative expense = net operating income
Net Operating Income (Financial Statement Format): Sales – cost of goods sold = gross
margin – selling expense – administrative expense = net operating income.
1. Given the cost formula Y = $12,000 + $6X, total cost at an activity level of 8,000
units would be:
Y(total mixed cost) = a(fixed cost) + b(rate) x X(activity)
Calculation: 12,000 + (6 x 8,000) = 60,000

A) $20,000.
B) $60,000.
C) $12,000.
D) $48,000.
Use the following to answer questions 2-4:
Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000 unit level
of activity and total expense per unit of $1.95 at the 21,000 unit level of activity.
2.The best estimate of the variable cost per unit for Maxwell Company is:
Calculation: 2,00 x 16,000 = total cost at the low (32,000). 1.95 x 21,000 = total cost
at the high (40,950)
 Activity Rate: Change in cost from the high level to the low level of
activity/change in activity from the high level to the low level of activity.
Calculation: 40,950 – 32,000 = 8,950/ 21,000 – 16,000 = 5,000 = 1.79
A) $0.56.
B) $1.79.
C) $2.00.
D) $1.95.
3.The best estimate of the total fixed cost per period for Maxwell Company is:
Fixed Cost: 1. Find the activity rate. 2. Multiply the activity rate X the high level of
activity to get the variable cost at the high level of activity. 3. Subtract variable cost at
the high level from the total cost at the high level.
Calculation: 1.79 x 21,000 = 37,950 variable cost at the high. Total cost at the high
40,950 – 37,950 = 3,360 fixed cost
A) $40,950.
B) $32,000.
C) $3,360.
D) $29,190.
4.The best estimate of the total expected costs at the 19,000 unit level of activity for
Maxwell Company is:
Calculation: 3,360 + 1.79(19,000) = 37,370
A) $37,050.
B) $38,000.
C) $37,370.
D) $39,830.

Porter Company has provided the following data for the second quarter of the most recent year:
Sales $300,000
Fixed manufacturing overhead 55,000
Direct labor 72,500
Fixed selling expense 46,250
Variable manufacturing overhead 41,000
Variable administrative expense 48,000
Direct materials 51,500
Fixed administrative expense 44,500
Variable selling expense 49,750
Assume that direct labor is a variable cost and that there were no beginning or ending
inventories.
5.The total contribution margin of Porter Company for the second quarter was:
Contribution Margin: Sales – Variable Cost
Calculation: 300,000 (sales) – Variable Cost (72,500 + 41,000 + 48,000 + 51,500 +

49,750) = 262,750 total variable. 300,000 - 262,750 = 37,250
A) $37,250.
B) $87,000.
C) $176,000.
D) $211,000.
6.The gross margin for Porter Company for the second quarter was:
Gross Margin: Sales – Cost of Goods Sold.
Calculation: 300,000 (sales) – cost of goods sold (55,000 + 72,500 + 41,000 +

51,500 = 220,000) 300,000 sales – 220,000 cost of goods sold = 80,000 gross
margin
A) $(12,500).
B) $80,000.
C) $131,500.
D) $135,000
An income statement for Crandall's Bookstore for the first quarter of the current year is
presented below:
Crandall’s Bookstore
Income Statement
For the First Quarter of the Current Year
Sales $800,000
Less cost of goods sold 560,000
Gross margin 240,000
Less operating expenses:
Selling $98,000
Administrative 98,000 196,000
Net income $ 44,000
On average, a book sells for $50. Variable selling expenses are $5.50 per book, with the
remaining selling expenses being fixed. The variable administrative expenses are 3% of
sales, with the remainder being fixed.
7.The contribution margin for Crandall's Bookstore for the first quarter is:
Contribution Margin: Sales – Variable Cost
Calculation: 80,000 sales – variable costs: 560,000 cost of goods sold + 88,000
variable selling (5.50 x 16,000*) + 24,000 variable administrative (3% x
800,000) = 128,000 contribution margin
*800,000 sales/50 book price = 16,000 books
A) $688,000.
B) $128,000.
C) $152,000.
D) $240,000.
8.The net income using the contribution approach for the first quarter is:
Net Operating Income (contribution format) same as Net Operating Income

(financial format) i.e., 44,000
A) $240,000.
B) $152,000.
C) $44,000.
D) $128,000
9.The cost formula for operating expenses with "X" equal to the number of books
sold is:
Calculation: 84,000 fixed: 10,000 (98,000 - 88,000) + 74,000 (98,000 – 24,000)

7.00 variable rate: 5.50 selling + 1.50 administrative (50 price/unit x 3%)
A) Y = $84,000 + $7.00X.
B) Y = $84,000 + $8.50X.
C) Y = $98,000 + $7.00X.
D) Y = $98,000 + $8.50X.
10. At an activity level of 10,000 units, variable costs totaled $35,000 and fixed costs
totaled $20,800. If 16,000 units are produced and this activity is within the relevant
range, then:
Calculation: 3.50 35,000/10,000 = variable expense/unit + 1.30 fixed cost/unit

(20,800 fixed/16,000 units) 3.50 + 1.30 = 4.80
A) total cost would equal $89,280.

B) total unit cost would equal $4.80.
C) fixed cost per unit would equal $5.58.
D) total costs would equal $55,800. 47.
11. Given the cost formula Y = $17,500 + $4X, at what level of activity will total cost
be $42,500?
Calculation: 42,500 = 17,500 + 4X; 25,000 (42,500 – 17,500) = 4X; X = 6,250
A. 10,625 units
B. 4,375 units
C. 6,250 units
D. 5,250 units

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QUIZ REVIEW

HOMEWORK TUTORIAL – CHAPTER 5 – SET 3

STEPS APPLICABLE IN SOLVING ALL HOMEWORK PROBLEMS

1. Scan the problem.

HIGH/ LOW METHOD

Total Cost: Total expense/unit x total activity

Variable Cost: Activity rate X total activity.

CONTRIBUTION MARGIN INCOME STATEMENT

Contribution Margin: Sales – Variable Cost.

Gross Margin: Sales – Cost of Goods Sold.

Net Operating Income (Contribution Margin Format): Sales – variable cost =

Y(total mixed cost) = a(fixed cost) + b(rate) x X(activity)

Calculation: 12,000 + (6 x 8,000) = 60,000

Use the following to answer questions 2-4:

Total Cost: Total expense/unit x total activity

Calculation: 40,950 – 32,000 = 8,950/ 21,000 – 16,000 = 5,000 = 1.79

Calculation: 3,360 + 1.79(19,000) = 37,370

Use the following to answer questions 5-6:

Contribution Margin: Sales – Variable Cost

Calculation: 300,000 (sales) – Variable Cost (72,500 + 41,000 + 48,000 + 51,500 +

Gross Margin: Sales – Cost of Goods Sold.

Calculation: 300,000 (sales) – cost of goods sold (55,000 + 72,500 + 41,000 +

Use the following to answer questions 7-9:

Contribution Margin: Sales – Variable Cost

Net Operating Income (contribution format) same as Net Operating Income

Calculation: 84,000 fixed: 10,000 (98,000 - 88,000) + 74,000 (98,000 – 24,000)

Total Cost: Total expense/unit x total activity

Calculation: 3.50 35,000/10,000 = variable expense/unit + 1.30 fixed cost/unit

A) total cost would equal $89,280.

Calculation: 42,500 = 17,500 + 4X; 25,000 (42,500 – 17,500) = 4X; X = 6,250

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