$3,300 = $3.00 (1, 100) * The high and low points are chosen by activity, not by cost. Practice Problems Practice Problem #1 Active Company accumulated the following data for a delivery truck. Miles Driven Total Cost Miles Total Cost Driven January 10,000 $15,000 March 9,000 $12,500 February 8,000 $14,500 April 7,500 $13,000 Required: a) Determine the equation to predict total costs for the delivery truck. b) Calculate the total costs be if 12,187 miles were driven. Practice Problem #2 When the Tom-Tom Company's controller was asked to budget the cost of manufacturing supplies for the next year, she plotted supplies cost and units produced by month for the year. She then drew a regression line through the point she plotted for November when the supplies cost was $21,000 and 5,000 drum sets were produced. Required: If the regression line intersected the Y axis at $6,000, determine the equation of the regression line. Practice Problem #3 Data concerning Nelson Company's activity for the first six months of the year appear below: Machine Hours Electrical Cost January 4,000 $3,120 February 6,000 4,460 March 4,800 3,500 April 5,800 5,040 May 3,600 2,900 June 4,200 3,200 4 Required: Using the high-low method of analysis, estimate the variable electrical cost per machine hour.True / False Questions 1. The equation for a mixed cost is total fixed costs + variable cost per unit x units of activity = total cost. True False 2. The high-low method uses cost and activity data from just two data points to establish the formula for a mixed cost. True False 3. Mixed costs are included in cost of goods sold on the income statement. True False 4. Analyzing mixed costs is only necessary when preparing a contribution income statement. True False 5. The high-low method uses the highest and lowest data points based on cost. True False 6. The high-low method uses the highest and lowest costs regardless of whether they are from the data points with the highest and lowest activity levels. True False 6Multiple Choice Questions 1. A mixed cost a) is fixed over a wider range of activity than a step cost. b) is a fixed cost over the relevant range and a variable cost everywhere else. c) contains both fixed and variable components. d) always increases on a per unit basis. 2. The per-unit amount of three different production costs for Jones, Inc., are as follows: Production Cost A Cost B Cost C 20,000 $12.00 $15.00 $20.00 80,000 $12.00 $11.25 $5.00 What type of cost is each of these three costs? a) Cost A is mixed, Cost B is variable, Cost C is mixed b) Cost A is fixed, Cost B is mixed, Cost C is variable. c) Cost A is fixed, Cost B is variable, Cost C is mixed. d) Cost A is variable, Cost B is mixed, Cost C is fixed. 3. A graph of the relationship between total cost and activity level is called a a) Relevant range. b) Scattergraph. c) Contribution margin graph. d) Dependent variable. 4. Bud uses the high-low method of estimating costs. Bud had total costs of $50,000 at its lowest level of activity, when 5,000 units were sold. When, at its highest level of activity, sales equaled 12,000 units, total costs were $78,000. Bud would estimate variable cost per unit as a) $10.00 b) $6.50 c) $4.00 d) $7.53 5. Which of the following is a variable cost? 7 a) A cost that is $20,000 when production is 50,000, and $20,000 when production is 70,000. b) A cost that is $20,000 when production is 50,000, and $28,000 when production is 70,000.c) A cost that is $20,000 when production is 50,000, and $40,000 when production is ?0,000. d) A cost that is $40,000 when production is 50,000, and $40,000 when production is ?0,000. Which of the following is a mixed cost? a) A cost that is $20.00 per unit when production is 50,000, and $20.00 per unit when production is 80,000. b) A cost that is $20.00 per unit when production is 50,000, and $12.50 per unit when production is 80,000. c) A cost that is $20.00 per unit when production is 50,000, and $16.25 per unit when production is 80,000