MS 0702 COST BEHAVIOR

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MS 0702 COST
BEHAVIOR
A. JJ Company has provided the following data for the first five months of the year:

Machine Lubrication
Hours Cost
January .. 10 125
February. 20 210
March..... 30 330
April ....... 40 450
May ....... 50 545
1. Using the high-low method of analysis, compute the
estimated variable lubrication cost per machine hour
rounded to the nearest centavo

2. Using the high-low method of analysis, the compute

estimated monthly fixed component of the lubrication cost.

3. Using the least-squares regression method of analysis, the

estimated variable lubrication cost per machine hour is
closest to?

4. Using the least-squares regression method of analysis, the

estimated monthly fixed component
of lubrication cost is closest to:
5. Using the high-low method of analysis, the estimated
total lubrication cost for June if the
estimated machine hours is 45 is closest to:

6. Using the least-squares regression method of analysis, the

estimated total lubrication cost for
June if the estimated machine hours is 45 is closest to:

7. Using the high-low method of analysis, the estimated

total lubrication cost for June if the
estimated machine hours is 0 is closest to:

8. Using the least-squares regression method of analysis, the

estimated total lubrication cost for
June if the estimated machine hours is 0 is closest to:
 Driver Effect
Machine Lubrication
Hours Costs
n x y
1 10 Lowest 125
2 20 210
3 30 330
4 40 450
5 50 Highest 545
Cost at Cost at
Highest Lowest Change in
Activity Activity Total Costs
545 - 125 = 420 10.50 per
50 - 10 40 VARIABLE machine
Highest Lowest Change in COST RATE hour
Activity Activity Activity

Cost at Cost at
Highest Lowest Change in
Activity Activity Variable Costs
545 - 125 = 420 10.50 per
50 - 10 40 VARIABLE machine
Highest Lowest Change in COST RATE hour
Activity Activity Machine Hours

Cost at Cost at
Highest Lowest
Activity Activity Variable Costs
545 - 125 = 420 10.50 per
50 - 10 40 VARIABLE machine
Highest Lowest Machine Hours COST RATE hour
Activity Activity
 y = a + b x
FORMULA FOR A STRAIGHT LINE
HIGHEST ACTIVITY
y = a + b x FORMULA FOR A STRAIGHT LINE
545 = a + 10.50 50
545 = a + 525.00
545-525 = a
20.00 = a
LOWEST ACTIVITY
y = a + b x FORMULA FOR A STRAIGHT LINE
125 = a + 10.50 10
125 = a + 105.00
125-105 = a
20.00 = a

y = 20.00 + 10.50 x
COST PREDICTING FORMULA
 TOTAL = FIXED + VARIABLE X ACTIVITY
COSTS COSTS COSTS
RATE

y = a + b x

DEPENDENT Y INTERCEPT SLOPE OF INDEPENDENT

VARIABLE THE LINE VARIABLE
 y = a + b x
20.00 = 20.00 + 10.50 0OUTSIDE THE RANGE OF OBSERVATION
114.50 = 20.00 + 10.50 9OUTSIDE THE RANGE OF OBSERVATION
125.00 = 20.00 + 10.50 10RELEVANT RANGE
492.50 = 20.00 + 10.50 45RELEVANT RANGE
545.00 = 20.00 + 10.50 50 RELEVANT RANGE
555.50 = 20.00 + 10.50 51OUTSIDE THE RANGE OF OBSERVATION
2,120.00 = 20.00 + 10.50 200OUTSIDE THE RANGE OF OBSERVATION
THE DATA WERE COLLECTED IN THE RANGE OF 10 TO 50 IT IS UNRELIABLE TO EXTRPOLATE OUTSIDE THAT RANGE
c 32. Predicting costs at activity levels that
are outside the relevant range is called
a. association.
b. correlation.
c. extrapolation.
d. none of the above.
Cost at Cost at
Highest Lowest Change in
Activity Activity Total Costs
545 - 125 = 420 10.50 per
50 - 10 40 VARIABLE machine
Highest Lowest Change in COST RATE hour
Activity Activity Activity
 TC TC
545.00 - 125.00 = 420.00 Change in total costs
FC+VC FC+VC Change FC Change VC
20+525 - 20+105 = 0 420.00
Change in total costs = Change VC
420.00 = 420.00
CORRECT
Cost at Cost at
Highest Low est
Activity Activity
-
-
Highest Low est
Activity Activity

WRONG
Highest Low est
Cost - Cost
-

Highest Low est

Activity Activity
 _ _
∑xy - n (x) (y)
b
_
∑x² - n (x)²
 Driver Effect
Machine Lubrication
Hours _ Costs _
n x x y y xy x²
1 10 30 125 332 1,250 100
2 20 30 210 332 4,200 400
3 30 30 330 332 9,900 900
4 40 30 450 332 18,000 1,600
5 50 30 545 332 27,250 2,500
150 150 1,660 1,660 60,600 5,500
∑x ∑y ∑xy ∑x²

_
x 150/5 30
_
y 1,660/5 332
 Driver Effect
Machine Lubrication
Hours _ Costs _
n x x y y xy x²
1 10 30 125 332 1,250 100
2 20 30 210 332 4,200 400
3 30 30 330 332 9,900 900
4 40 30 450 332 18,000 1,600
5 50 30 545 332 27,250 2,500
150 150 1,660 1,660 60,600 5,500
∑x ∑y ∑xy ∑x²

_
x 150/5 30
_
y 1,660/5 332
_ _
∑xy - n (x) (y)
b
_
∑x² - n (x)²

60,600 - 5 30 332
5,500 - 5 30 ²

60,600 - 49,800 = 10,800 10.80 per

5,500 - 4,500 1,000 machine
hour
 Driver Effect
Machine Lubrication
Hours _ Costs _
n x x y y xy x²
1 10 30 125 332 1,250 100
2 20 30 210 332 4,200 400
3 30 30 330 332 9,900 900
4 40 30 450 332 18,000 1,600
5 50 30 545 332 27,250 2,500
150 150 1,660 1,660 60,600 5,500
∑x ∑y ∑xy ∑x²

_
x 150/5 30
_
y 1,660/5 332
_ _
∑xy - n (x) (y)
b
_
∑x² - n (x)²

60,600 - 5 30 332
5,500 - 5 30 ²

60,600 - 49,800 = 10,800 10.80 per

5,500 - 4,500 1,000 machine
hour

1,250 - 30 332 (8,710)

4,200 - 30 332 (5,760)
9,900 - 30 332 (60)
18,000 30 332 8,040
27,250 - 30 332 = 17,290 10,800 10.80
100 - 30 ² (800) 1,000
400 - 30 ² (500)
900 - 30 ² -
1,600 30 ² 700
2,500 - 30 ² 1,600
 ∑xy - n (x) (y)
b
_
∑x² - n (x)²

60,600 - 5 30 332
5,500 - 5 30 ²

60,600 - 49,800 = 10,800 10.80 per

5,500 - 4,500 1,000 machine
hour

1,250 - 30 332 (8,710)

4,200 - 30 332 (5,760)
9,900 - 30 332 (60)
18,000 30 332 8,040
27,250 - 30 332 = 17,290 10,800 10.80
100 - 30 ² (800) 1,000
400 - 30 ² (500)
900 - 30 ² -
1,600 30 ² 700
2,500 - 30 ² 1,600
 _ _
a = y - (b) x
a = 332 - 10.80 30
a = 332 - 324.00
a = 8.00 or 8

TOTAL = FIXED + VARIABLE

COSTS COSTS COSTS

TOTAL = FIXED + VARIABLE X ACTIVITY

COSTS COSTS COSTS
RATE

y = a + b x FORMULA FOR A STRAIGHT LINE

y = 8 + 10.80 x COST PREDICTING FORMULA

y = 8 + 10.80 45 JUNE'S FORECASTED LUBRICATION COSTS

y = 8 + 486.00
y = 494.00
 y = a + b x
8.00 = 8 + 10.80 0 OUTSIDE THE RANGE OF OBSERVATION
105.20 = 8 + 10.80 9 OUTSIDE THE RANGE OF OBSERVATION
116.00 = 8 + 10.80 10 RELEVANT RANGE
494.00 = 8 + 10.80 45 RELEVANT RANGE JUNE'S FORCASTED COST
548.00 = 8 + 10.80 50 RELEVANT RANGE
558.80 = 8 + 10.80 51 OUTSIDE THE RANGE OF OBSERVATION
 _ _
∑xy - n (x) (y)
b
_
∑x² - n (x)²
ACTUAL - AVERAGE
 y = 20.00 + 10.50 x
COST PREDICTING FORMULA
y = a + b x FORMULA FOR A STRAIGHT LINE
y = 8 + 10.80 x COST PREDICTING FORMULA
B. JJ Cute Company has provided the following data for the first five months of the year:

Machine Hours Lubrication Cost

January 10 100
February 20 200
March 30 300
April 40 400
May 50 500

Repeat requirements 1 to 8 in problem A.

Cost at Cost at
Highest Lowest
Activity Activity Variable Costs
500 - 100 = 400 10.00 per
50 - 10 40 VARIABLE machine
Highest Lowest Machine Hours COST RATE hour
Activity Activity
y = a + b x
FORMULA FOR A STRAIGHT LINE
HIGHEST ACTIVITY
y = a + b x FORMULA FOR A STRAIGHT LINE
500 = a + 10.00 50
500 = a + 500.00
500-500 = a
- = a
LOWEST ACTIVITY
y = a + b x FORMULA FOR A STRAIGHT LINE
100 = a + 10.00 10
100 = a + 100.00
100-100 = a
- = a

y = - + 10.00 x
COST PREDICTING FORMULA
 Driver Effect
Machine Lubrication
Hours _ Costs _
n x x y y xy x²
1 10 30 100 300 1,000 100
2 20 30 200 300 4,000 400
3 30 30 300 300 9,000 900
4 40 30 400 300 16,000 1,600
5 50 30 500 300 25,000 2,500
150 150 1,500 1,500 55,000 5,500
∑x ∑y ∑xy ∑x²

_
x 150/5 30
_
y 1,660/5 300
_ _
∑xy - n (x) (y)
b
_
∑x² - n (x)²

55,000 - 5 x 30 x 300
5,500 - 5 x 30 ²

55,000 - 45,000 = 10,000 10.00 per

5,500 - 4,500 1,000 machine
hour

_ _
a = y - (b) x
a = 300 - 10.00 x 30
a = 300 - 300.00
a = - or -
a 8. RST's average cost per unit is the
same at all levels of volume. Which
of the following is true?
a. RST must have only variable
costs.
b. RST must have only fixed costs.
c. RST must have some fixed costs
and some variable costs.
d. RST's cost structure cannot be
determined from this information.
A. JJ Cute Company has provided the following data for the first five months of the year:

Machine Lubrication
Hours Cost
January .. 10 125
February. 20 210
March ..... 30 330
April ....... 40 450
May ....... 1 10

In the month of May the plant closed due to health quarantine. Repeat requirements 1 to 8 in
problem A.
n x y
1 10 Lowest 125
2 20 210
3 30 330
4 40 Highest 450
5 1 10 OUTLIER
 Cost at Cost at
Highest Lowest
Activity Activity Variable Costs
450 - 125 = 325 10.83 per
40 - 10 30 VARIABLE machine
Highest Lowest Machine Hours COST RATE hour
Activity Activity

Driver Effect
Machine Lubrication
Hours _ Costs _
n x x y y xy x²
1 10 25 125 279 1,250 100
2 20 25 210 279 4,200 400
3 30 25 330 279 9,900 900
4 40 25 450 279 18,000 1,600
100 100 1,115 1,115 33,350 3,000
∑x ∑y ∑xy ∑x²

_
x 100/4 25.00
_
y 1115/4 278.75
_ _
∑xy - n (x) (y)
b
_
∑x² - n (x)²

33,350 - 4 25 278.75
3,000 - 4 25 ²

33,350 - 27,875 = 5,475 10.95 per

3,000 - 2,500 500 machine
hour
A. JJ Cute Company has provided the following data for the first five months of the year:

Machine Lubrication
Hours Cost
January .. 10 125
February. 20 210
March ..... 30 330
April ....... 40 450
May ....... 200 2000

In the month of May JJ Cute Company accepted a one-time special order from a foreign buyer
that required overtime work. Repeat requirements 1 to 8 in problem A.
 Drive r Effe ct
Ma chine Lubrica tion
Hours Costs
n x y
1 10 125
2 20 Low e st 210
3 30 330
4 40 Highe st 450
5 200 2000 OUTLIER

Cost at Cost at
Highest Lowest
Activity Activity Variable Costs
450 - 125 = 325 10.83 per
40 - 10 30 VARIABLE machine
Highest Lowest Machine Hours COST RATE hour
Activity Activity

Drive r Effe ct
Machine Lubrica tion
Hours _ Costs _
n x x y y xy x²
1 10 25 125 279 1,250 100
2 20 25 210 279 4,200 400
3 30 25 330 279 9,900 900
4 40 25 450 279 18,000 1,600
100 100 1,115 1,115 33,350 3,000
∑x ∑y ∑x y ∑x ²

_
x 100/4 25.00
_
y 1115/4 278.75
_ _
∑x y - n (x ) (y)
b
_
∑x ² - n (x )²

33,350 - 4 25 278.75
3,000 - 4 25 ²

33,350 - 27,875 = 5,475 10.95 pe r

3,000 - 2,500 500 ma chine
hour
d 11. A cost-predicting equation
determined through regression analysis
a. always gives close predictions.
b. will not work any better than one
obtained using the high-low method.
c. can be used only for costs that vary
with sales or production.
d. could be severely affected by
outliers.
E. JJ Cute Company has provided the following data for the first five months of the
year:

Machine Hours Lubrication Cost

January 10 125
February 20 210
March 30 330
April 40 450
May 50 545

Using the Excel Output forecast the cost for 45 machine hours.
50 545
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.99833237
R Square 0.996667521
Adjusted R Square 0.995556695
Standard Error 11.40175425
Observations 5

ANOVA
df SS MS F Significance F
Regression 1 116640 116640 897.2308 8.17E-05
Residual 3 390 130
Total 4 117030

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%Lower 95.0%
Upper 95.0%
Intercept 8 11.95826074 0.668993608 0.551378 -30.0565 46.05652 -30.0565 46.05652
X Variable 1 10.8 0.360555128 29.9538106 8.17E-05 9.652553 11.94745 9.652553 11.94745
 y = a + b X x
8.00 10.80

494.00 = 8.00 + 10.80 X 45

548.00 = 8.00 + 10.80 X 50

54.00
53.8200461 0.9967
0.17995386 0.0033
 Regression Statistics
Multiple R 0.99833237
R Square 0.996667521
Adjusted R Square 0.995556695
Standard Error 11.40175425
Observations 5

68%

95%

99.70%
459.79 471.20 482.60 494.00 505.40 516.80 528.21

k-bar=494  = 11.40
a 36. The closeness of the relationship between the cost and
the activity is called
a. correlation.
b. spurious.
c. regression analysis.
d. manufacturing overhead.

d 37. R-squared is a measure of

a. the spurious relationship between cost and activity.
b. the fixed cost component.
c. the variable cost per unit of activity.
d. how well the regression line accounts for the
changes in the dependent variable.
b 34. Looking at the following scatter diagrams we can conclude that
P P
| ** | **
| * ** | ** *
| *** * | * *
| * * | **
| |
| |
|__________________ |__________________
activity activity
Cost A Cost B

a. cost A will be easier to predict than cost B.

b. cost B will be easier to predict than cost A.
c. cost A is out-of-control.
d. cost B has no fixed component.
 A. The income statement of Ansel Co.are presented below.

Particular October November

(P) (P)
Sales 80,000 90,000
Cost of Sales 48,000 54,000
Gross Profit 32,000 36,000
Operating
Expenses
Selling 8,500 8,800
Administrative 9,200 9,400
Total
Operating
Expenses 17,700 18,200
Net Income 14,300 17,800

Ansel owner enlist your help to develop a CVP relationship for planning and control.

Required:
1. Using the high-low method, compute the variable and fixed component of the cost of sales,
selling and administrative expenses.
2. Prepare a contribution margin income statement based on sales of P100,000.
3. Compute for the peso breakeven point.
 Particular November(P) October(P)

Sales 90,000 80,000 10,000

Cost of Sales 54,000 48,000 6,000
Gross Profit 36,000 32,000
Operating
Expenses
Selling 8,800 8,500 300
Administrative 9,400 9,200 200
Total Operating 18,200 17,700
Expenses
Net Income 17,800 14,300
 Computation
Variable Variable
Cost Cost
Particular November(P) October(P)
Rate Rate
Sales 90,000 80,000 10,000 Change in Sales 10,000/10,000 100%
Cost of Sales 54,000 48,000 6,000 Change in Cost of Sales 6,000/10,000 60%
Gross Profit 36,000 32,000
Operating
Expenses
Selling 8,800 8,500 300 Change in Selling Expenses 300/10,000 3%
Administrative 9,400 9,200 200 Change in Administrative Expenses200/10,000 2%
Total Operating 18,200 17,700
Expenses
Net Income 17,800 14,300
 Variable
Cost
Particular November(P) October(P)
High Low Rate
Sales 90,000 80,000 10,000 Change in Sales 10,000/10,000 100%
Cost of Sales 54,000 48,000 6,000 Change in Cost of Sales 6,000/10,000 60%
Gross Profit 36,000 32,000
Operating
Expenses
Selling 8,800 8,500 300 Change in Selling Expenses 300/10,000 3%
Administrative 9,400 9,200 200 Change in Administrative Expenses200/10,000 2%
Total Operating 18,200 17,700
Expenses
Net Income 17,800 14,300
 Variable
Cost
Particular November(P) October(P)
High Low Rate
Sales 90,000 80,000 10,000 Change in Sales 10,000/10,000 100%
Cost of Sales 54,000 48,000 6,000 Change in Cost of Sales 6,000/10,000 60%
Gross Profit 36,000 32,000
Operating
Expenses
Selling 8,800 8,500 300 Change in Selling Expenses 300/10,000 3%
Administrative 9,400 9,200 200 Change in Administrative Expenses
200/10,000 2%
Total Operating 18,200 17,700
Expenses
Net Income 17,800 14,300

Particular November(P)

Sales 100% 90,000

Variable Cost
Cost of Sales 60% 54,000
Selling 3% 2,700
Administrative 2% 1,800
Total Variable Cost 65% 58,500
Contribution Margin
35% 31,500
Fixed Costs
Cost of Sales 54,000-54,000 -
Selling 8,800-2,700 6,100
Administrative 9,400-1,800 7,600
Total Fixed Costs 13,700
Net Income 17,800
 Particular November(P)

Sales 100% 100,000

Variable Cost
Cost of Sales 60% 60,000
Selling 3% 3,000
Administrative 2% 2,000
Total Variable Cost 65% 65,000
Contribution Margin
35% 35,000
Fixed Costs
Cost of Sales
Selling 6,100
Administrative 7,600
Total Fixed Costs 13,700
Net Income 21,300

Breakevenpoint =
13,700/35% 39,142.86
Sales 100%
Variable Cost
Total Variable Cost 65%
Contribution Margin 35%
Total Fixed Costs 13,700
Net Income
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