UNIVERSITY OF CEBU-BANILAD

COLLEGE OF ACCOUNTANCY
BANILAD, CEBU CITY
Accounting 109 ( Cost Behavior)
Name __________________________ Course & Yr. ________ Schedule ______________ Score _______

I – Encircle the letter of the best answer in each of the given statement/s.

1. Expense A is a fixed cost; expense B is a variable cost. During the current year the activity level has
increased, but is still within the relevant range. In terms of cost per unit of activity, we would expect that:
a. expense A has remain unchanged c. expense A has decreased
b. expense B has decreased d. expense B has increased
2. Within the relevant range of activity, variable cost per unit will:
a. increase in proportion with the level of activity c. vary inversely with the level of activity
b. remain constant d. none of these
3. The linear equation Y = a + bX is often used to express cost formulas. In this equation:
a. the b term represents variable cost per unit of activity. c. the X term represents total cost
b. the a term represents variable cost in total. D. the Y term represents total fixed cost
4. An example of a discretionary fixed cost is
a. insurance c. management training
b. taxes on real estate d. depreciation of buildings and equipment
5. An example of a committed fixed cost is:
a. a training program for salespersons. c. property taxes on the factory building
b. executive travel expenses d. new product research and development
6. Discretionary fixed costs:
a. vary directly and proportionately with the level of activity
b. have a long term planning horizon, generally encompassing many years.
c. are made up of plant, equipment, and basic organizational costs.
d. none of the above.
7. In describing the cost formula equation Y = a + bX, which of the following statements is correct?
a. “X” is the dependent variable
b. “a” is the fixed component
c. In the high-low method, “b” equals change in activity divided by change in costs.
d. As “X” increases “Y” decreases.
8. The contribution approach to the income statement:
a. organizes costs on a functional basis.
b. is useful to managers in planning and decision making.
c. shows a contribution margin rather than a net income figure at the bottom of the statement.
d. can be used only by manufacturing companies.
9. Contribution margin is the excess of revenues over:
a. cost of goods sold b. manufacturing costs c. all direct costs d. all variable costs
10. At an activity level of 10,000 units, variable costs totaled P35,000 and fixed costs totaled P20,800. If 16,000
units are produced and this activity is within the relevant range, then:
a. total cost would equal P89,280 c. fixed cost per unit would equal P5.58
b. total unit cost would equal P4.80 d. total costs would equal P55,800

II – Problem Solving. Give the requirements accordingly with supporting computation/s.

1. Shipping expense is P9,000 for 8,000 pounds shipped and P11,250 for 11,000 pounds shipped. Assuming that
this activity is within the relevant range, if the company ships 9,000 pounds, its expected shipping expense
is _______________.
2. Average maintenance costs are P1.50 per machine hour at an activity level of 8,000 machine hours and P1.20
per machine hour at an activity level of 13,000 machine hours. Assuming that this activity is within the
relevant range, total expected maintenance cost for a budgeted activity level of 10,000 machine-hours would
be _______________.
3. The following activity and cost data were provided by Hammer Corp., which would like in estimating its
future maintenance costs:
Units Maintenance Cost
3 P450
7 530
11 640
15 700
Required:
 1. Using the least-squares regression method to estimate the cost formula, the expected total cost for
an activity level of 101 units would be _____________.
2. Given the cost formula Y = P15,000 + P5X, total cost at an activity level of 8,000 units would be
______________
4. At a sales level of P300,000, James Company’s gross margin is P15,000 less than its contribution margin. Its
net income is P50,000, and its selling and administrative expenses total P120,000. At this sales level,
contribution margin would be ___________________
5. Your boss would like you to estimate the fixed and variable components of a particular cost. Actual data for
this cost for four recent periods appear below.
Activity Cost
Period 1 24 P174
Period 2 25 179
Period 3 20 165
Period 4 22 169
Required: Using the least-squares regression method, what is the cost formula for this cost? _____________
6. Comparative income statements for Boggs Sports Equipment Company for the last two months are presented
below:
July August
Sales in units 11,000 10,000

Sales revenue P165,000 150,000

Less: Cost of Goods Sold __72,600 66,000
Gross Margin 92,400 84,000
Less: Operating expenses
Rent 12,000 12,000
Sales commissions 13,200 12,000
Maintenance Expenses 13,500 13,000
Clerical expense 16,000 15,000
Total Operating expense P54,700 52,000
Net income P37,700 P32,000
All of the company’s are either fixed, variable, or a mixture of the two (i.e.. mixed). Assume that the
relevant range includes all of the activity levels mentioned in this problem.
Required:
1. The total monthly fixed cost for Boggs Sporting Equipment Company is ______________.
2. If sales are projected to be 8,000 units in September, total expected operating expense would
be ____________
7. Johnson Company has provided the following data for the first five months of the year:
Machine Hours Lubrication Cost
January 120 P750
February 160 800
March 200 870
April 150 790
May 170 840
Required:
1. Using the high-low method of analysis, the estimated variable lubrication cost per machine hour is
_______________
2. Using the high- low method of analysis, the estimated monthly fixed component of lubrication cost
is ___________________
3. Using the least squares regression method of analysis, the estimated variable lubrication cost per
machine hour would be ___________________
4. Using the least squares regression method of analysis, the estimated monthly fixed component of
lubrication cost is ________________.
8. Porter Company has provided the following data for the second quarter of the most recent year:
Sales P300,000
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.
Required:
 1. The total contribution margin of Porter Company for the second quarter was _____________
2. The gross margin for Porter Company for the second quarter was _________________
9. 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 P800,000
Less: Cost of goods Sold 560,000
Gross margin 240,000
Less: Operating Expenses:
Selling P98,000
Administrative 98,000 196,000
Net income P44,000
On average, a book sells for P50. Variable selling expenses are P5.50 per book, with the remaining selling
expense being fixed. The variable administrative expenses are 3% of sales, with the remainder being fixed.
Required:
1. The contribution margin for Crandall’s Bookstore for the first quarter is _______________
2. The net income using the contribution approach for the first quarter is _________________
3. The cost formula for operating expenses with “X” equal to the number of books sold is __________
10. ABC Company’s total overhead cost at various levels of activity are presented below:
Month Machine Hours Total Overhead Costs
March 60,000 P216,800
April 50,000 194,000
May 70,000 239,600
June 80,000 262,400
Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. At the
50,000 machine hour level of activity these costs are:
Utilities (V) P54,000
Supervisory salaries (F) 62,000
Maintenance (M) 78,000
Total overhead costs P194,000

V = Variable F = Fixed M = Mixed

The company wants to break down the maintenance cost into its basic variable and fixed cost elements.
Required:
1. Estimate the maintenance cost for June ________________
2. Use the high-low method to estimate the cost formula for maintenance cost _______________
3. Estimate the total overhead cost at an activity level of 55,000 machine hours ______________
11. The Central Valley Company is a merchandising firm that sells a single product. The company’s revenues
and expenses for the last three months are given below:
Central Valley Company
Comparative Income Statement
For the Second Quarter
April May June
Sales in units 4,500 5,250 6,000
Sales revenue P630,000 P735,000 P840,000
Less Cost of goods sold 252,000 294,000 336,000
Gross Margin P378,000 441,000 504,000
Less: Operating Expenses:
Shipping expense 56,000 63,500 71,000
Advertising expense 70,000 70,000 70,000
Salaries and commissions 143,000 161,750 180,500
Insurance expense 9,000 9,000 9,000
Depreciation expense 42,000 42,000 42,000
Total operating expense 320,000 346,250 372,500
Net Income P58,000 P94,750 P131,500

Required: In reference to salaries and commissions expense compute the following:

1. Variable cost per unit ____________
2. Total Fixed Cost _____________
3. Compute the company’s total contribution margin _______________
Key :
I-
1. C
2. B
3. A
4. C
5. C
6. D
7. B
8. B
9. D
10. B

II –
1. 9,750
2. P13,440
3. 1. 2,558
2. P55,000
4. P185,000
5. Y = P110.55 + P2.69X or P110.44+ P2.70X
6. 1. P25,000
2. P46,600
7. 1. P1.50
2. P570
3. P1.56
4. 560.40 or 561
8. 1. P37,250
2. P80,000
9. 1. P128,000
2. P44,000
3. Y = P84,000 + P7.00X
10. 1. 114,000
2. Y = P18,000 + P1.20X
3. P205,400
11. 1. P25 per unit
2. P30,500
3. P771,750