Alisha incorporated manufactures medical stents

Assignment: CHAPTER 3 HW

1.

Multiple Choice 3-1

A factor that causes or leads to a change in a cost or activity is a(n)

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifa. slope.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifb. intercept.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifc. driver.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifd. variable term.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gife. cost object.

2.

Multiple Choice 3-4

The following cost formula was developed by using monthly data for a hospital.

Total Cost = $128,000,000 + ($12,000 x Number of Patient Days)

In the cost formula, the term $128,000,000

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifa. is the total variable cost.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifb. is the dependent variable.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifc. is the variable rate.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifd. is the total fixed cost.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gife. cannot be determined from the above formula.

3.

Multiple Choice 3-5

The following cost formula was developed by using monthly data for a hospital.

Total Cost = $128,000,000 + ($12,000 x Number of Patient Days)

In the cost formula, the term $12,000

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifa. is the variable rate.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifb. is the dependent variable.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifc. is the independent variable.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifd. is the intercept.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gife. cannot be determined from the above formula.

4.

Multiple Choice 3-6

The following cost formula was developed by using monthly data for a hospital.

Total Cost = $128,000,000 + ($12,000 x Number of Patient Days)

In the cost formula, the term "Number of patient days"

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifa. is the variable rate.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifb. is the intercept.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifc. is the dependent variable.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifd. is the independent variable.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gife. cannot be determined from the above formula.

5.

Multiple Choice 3-7

The following cost formula was developed by using monthly data for a hospital.

Total Cost = $128,000,000 + ($12,000 x Number of Patient Days)

In the cost formula, the term "Total cost"

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifa. is the variable rate.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifb. is the intercept.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifc. is the dependent variable.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifd. is the independent variable.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gife. cannot be determined from the above formula.

6.

Multiple Choice 3-8

The following cost formula for total purchasing cost in a factory was developed using monthly data.

Total Cost = $235,000 + ($75 x Number of Purchase Orders)

Next month, 8,000 purchase orders are predicted. The total cost predicted for the purchasing department next month

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifa. is $8,000.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifb. is $235,000.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifc. is $600,000.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifd. is $835,000.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gife. cannot be determined from the above formula.

7.

Multiple Choice 3-9

An advantage of the high-low method is that it

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifa. is subjective.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifb. is objective.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifc. is the most accurate method.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifd. removes outliers.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gife. is descriptive of nonlinear data.

8.

Multiple Choice 3-11

The following six months of data were collected on maintenance cost and the number of machine hours in a factory: http://sjc.cengagenow.com/ilrn/books/mhma05h/images/ch03/mhma05h_ch03_MC_3-10.e.jpg Select the correct set of high and low months.

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifa. High: January, Low: April

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifb. High: January, Low: March

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifc. High: June, Low: March

http://sjc.cengagenow.com/media/img/MC_circle16x16_cut.gifd. High: June, Low: April

9.

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Cornerstone Exercise 3-16 Using High-Low to Calculate Fixed Cost, Calculate the Variable Rate, and Construct a Cost Function

Pizza Vesuvio makes specialty pizzas. Data for the past eight months were collected: http://sjc.cengagenow.com/ilrn/books/mhma05h/images/ch03/mhma05h_ch03_CrEx_3-16.e.jpg

Pizza Vesuvio's controller wants to calculate the fixed and variable costs associated with labor used in the restaurant.

In your calculations, round the variable rate per employee hour to the nearest cent.

Required:

1. Using the high-low method, calculate the fixed cost of labor. $ _________________

2. Using the high-low method, calculate the variable rate.

$ _________________ per employee hour

3. Using the high-low method, construct the cost formula for total labor cost.

Total labor cost = $ _________________ + [$ _________________ × Employee hours]

10.

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Cornerstone Exercise 3-17 Using High-Low to Calculate Predicted Total Variable Cost and Total Cost for Budgeted Output

Pizza Vesuvio makes specialty pizzas. Data for the past eight months were collected: http://sjc.cengagenow.com/ilrn/books/mhma05h/images/ch03/mhma05h_ch03_CrEx_3-16.e.jpg

Assume that this information was used to construct the following formula for monthly labor cost.

Total Labor Cost = $5,237 + ($7.40 x Employee Hours)

Required:

Assume that 675 employee hours are budgeted for the month of September. Use the total labor cost formula for the following calculations:

1. Calculate total variable labor cost for September. $ _________________

2. Calculate total labor cost for September. $ _________________

11.

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Cornerstone Exercise 3-18 Using High-Low to Calculate Predicted Total Variable Cost and Total Cost for a Time Period that Differs from the Data Period

Pizza Vesuvio makes specialty pizzas. Data for the past eight months were collected: http://sjc.cengagenow.com/ilrn/books/mhma05h/images/ch03/mhma05h_ch03_CrEx_3-16.e.jpg

Assume that this information was used to construct the following formula for monthly labor cost.

Total Labor Cost = $5,237 + ($7.40 x Employee Hours)

Required:

Assume that 4,000 employee hours are budgeted for the coming year. Use the total labor cost formula to make the following calculations:

1. Calculate total variable labor cost for the coming year. $ _________________

2. Calculate total fixed labor cost for the coming year. $ _________________

3. Calculate total labor cost for the coming year. $ _________________

12.

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Exercise 3-20 Variable and Fixed Costs

What follows are a number of resources that are used by a manufacturer of futons. Assume that the output measure or cost driver is the number of futons produced. All direct labor is paid on an hourly basis, and hours worked can be easily changed by management. All other factory workers are salaried.

Required:

Classify the resource costs as variable or fixed.

a. Power to operate a drill (to drill holes in the wooden frames of the futons)

_________________

b. Cloth to cover the futon mattress

_________________

c. Salary of the factory receptionist

_________________

d. Cost of food and decorations for the annual Fourth of July party for all factory employees

_________________

e. Fuel for a forklift used to move materials in a factory

_________________

f. Depreciation on the factory

_________________

g. Depreciation on a forklift used to move partially completed goods

_________________

h. Wages paid to workers who assemble the futon frame

_________________

i. Wages paid to workers who maintain the factory equipment

_________________

j. Cloth rags used to wipe the excess stain off the wooden frames

_________________

13.

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Exercise 3-24 Cost Behavior

Alisha Incorporated manufactures medical stents for use in heart bypass surgery. Based on past experience, Alisha has found that its total maintenance costs can be represented by the following formula: Maintenance Cost = $1,750,000 + $125X, where X = Number of Heart Stents. Last year, Alisha produced 25,000 medical stents. Actual maintenance costs for the year were as expected.

Required:

1. What is the total maintenance cost incurred by Alisha last year? $ _________________

2. What is the total fixed maintenance cost incurred by Alisha last year? $ _________________

3. What is the total variable maintenance cost incurred by Alisha last year? $ _________________

4. What is the maintenance cost per unit produced? $ _________________ per unit

5. What is the fixed maintenance cost per unit? $ _________________ per unit

6. What is the variable maintenance cost per unit? $ _________________ per unit

7. Conceptual Connection: The number of stents produced in Exercise 3-24 (25,000) is only half of the number produced in Exercise 3-23 (50,000), yet the maintenance cost per unit (see Requirement 4) is larger in Exercise 3-24 than in Exercise 3-23. Briefly explain why Alisha's maintenance cost per unit in Exercise 3-24 is different than in Exercise 3-23. Should Alisha's management use maintenance cost per unit to make decisions?

The input in the box below will not be graded, but may be reviewed and considered by your instructor. _________________

14.

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Exercise 3-30 High-Low Method

Luisa Crimini has been operating a beauty shop in a college town for the past 10 years. Recently, Luisa rented space next to her shop and opened a tanning salon. She anticipated that the costs for the tanning service would primarily be fixed but found that tanning salon costs increased with the number of appointments. Costs for this service over the past eight months are as follows: http://sjc.cengagenow.com/ilrn/books/mhma05h/images/ch03/mhma05h_ch03_ex3-30.gif

Required:

1. Which month represents the high point? The low point?

High point

_________________

Low point

_________________

2. Using the high-low method, compute the variable rate for tanning. Compute the fixed cost per month. Round the variable rate per tanning appointment to the nearest cent.

Variable rate for tanning

$ _________________ per tanning appointment

Fixed cost per month

$ _________________

3. Using the variable rate and fixed cost, what is the cost formula for tanning services? _________________

4. Calculate the total predicted cost of tanning services for September for 2,500 appointments using the cost formula found in Requirement 3. Of that total cost, how much is the total fixed cost for September? How much is the total predicted variable cost for September? In your calculations, round variable cost per unit to the nearest cent. If required, round the final answers to the nearest dollar.

Total predicted cost for September

$ _________________

Total fixed cost for September

$ _________________

Total predicted variable cost for September

$ _________________

5. Conceptual Connection: Identify and briefly explain any additional issues that Luisa might be wise to consider when using the high-low method to estimate the costs of her tanning salon.

The input in the box below will not be graded, but may be reviewed and considered by your instructor. _________________