Cost Behaviour Problem

Topics:
Cost Behaviour
Problem no. 01:

Neptune Rentals offers a boat rental service. Consider the following cost of the
company over the relevant range of 5,000 hours of operating time for its boats.
Hours
Total cost:
Variable cost
Fixed cost
Total cost
Cost per unit
Variable cost
Fixed cost
Total cost per unit
Hours of Operating Time

5000
6000
7000
8000
20000
168000
188000
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?
?
?
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Requirement:
Compute the missing amounts, assuming that cost behavior patterns remain
unchanged within the relevant range of 5000 to8000 hours.
Problem no. 02:

Parker Company manufactures and sells a single product. A partially completed
schedule of the companys total and per unit cost over a relevant range of 60000 to 100000
units produced and sold each year is given below:
Units produced and sold
60000
80000
Total cost:
Variable cost
Fixed cost
Total cost
Cost per unit
Variable cost
Fixed cost
Total cost per unit
100000
150000
360000
510000
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?
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Required:
1
Complete the schedule of the companys total and unit costs above.
2
Assume that the company produces and sells 90,000 units during a year. The
selling price is tk7.50 per unit. Prepare an income statement in the contribution
format for the year.
Problem no. 03:

Harries company manufactures and sells a single product. A partially completed
schedule of the companys total and per unit costs over the relevant range of 30,000 to
50,000 units produced and sold annually is given below.
Total costs:
Variable cost
Fixed cost
Total cost
Cost per unit
Variable cost
Fixed cost
Total cost per unit
30000
Unites produced and sold

40000
50000
180000
300000
480000
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?
?
?
Required:
1.
Complete the schedule of the companys total and unit costs above.
2.
Assume that the company product and sells 45,000 units during a year at a selling
price of TK 16 per unit. Prepare an income statement in the contribution format
for the year.
Problem no. 04:

The administrator of Azalea Hills hospitals would you like a cost formula linking the
costs involved in admitting patients to the number of patients admitted during a month. The
admitting department costs and the number of patients admitted during the immediately
preceding 8 months are given in the table on following pages:
Month
Number of patients Admitted
May
Jun
July
August
September
October
November
December
1800
1900
1700
1600
1500
1300
1100
1500
Admitting Departmental
Costs
14700
15200
13700
14000
14300
13100
12800
14600
Requirements:
1.
Use the high low method to establish the fixed and variable components if
admitting costs.
2.
Express the fixed and variable components of admitting in the linear equation
from y=a+bx.
Problem No. 05:

The Lakeshore Hotels Guest days of occupancy and custodial supplies expenses over
the last seven months were:
Months
March
April
May
Jun
July
august
September
Guest Days of Occupancy

4,000
6500
8000
10500
12000
9000
7500
Custodial Supplies Expenses

7500
8250
10500
12000
12500
10750
9750
Guests days in a measure of the overall activity at the hotel. For examples a guest who
stays at the hotel for three days is counted as three guest days.
Required:
1. Use the high low method, estimate cost formula for custodial supplies expense.
2. Using the cost formula you derive above, what amount of custodial supplies expenses.
Would you expect to be incurred at an occupancy level of 11000 guest days?
Problem no. 06:
Zabel Company a wholesaler of large custom built air conditioning units for
commercial buildings, has noticed considerable fluctuation in its shipping expense from
month to month as shown below:
Months
January
February
March
April
May
Jun
July
Units shipped
1
7
5
2
3
6
8
Total shipping expenses

2200
3100
2600
1500
2200
3000
3600
Required:
1.
Using the high low method, estimate the cost formula for custodial supplies
expense.
2.
The president has no confidence in the high low method and would you like to
checkout your results using the scatter graph method. Do the following:
a. Prepare a scatter graph, using the data given above, plot cost on the vertical
axis and activity on the horizontal axis. Fit a straight line to your plotted points
using a ruler.
b. Using a scatter graph, estimate the approximate variable cost per shipped and
the approximate fixed cost per month with the quick and dirty method.
Problem no. 07:
The number of X-rays taken and x-ray costs over the last nine month in Beverly
Hospital are given below:
Month
January
February
March
April
May
Jun
July
August
September
Required:
1.
2.
X-rays taken
6,250
7,000
5,000
4,250
4,500
3,000
3,750
5,500
5,750
X-ray costs
28,000
29,000
23,000
20,000
22,000
17,000
18,000
24,000
26,000
Using the high low method, estimate the cost formula for x-ray costs.
Using the cost formula you derive above, what x-ray costs would you accept
to incurred during a month in which 4600 x-rays are taken?

Cost Behaviour Problem

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What are the steps involved in using the high-low method to estimate cost functions?

What additional analysis can be done using a scatter plot method?

Topics:

Problem no. 01:

Hours of Operating Time

Problem no. 02:

Problem no. 03:

Unites produced and sold

Problem no. 04:

Number of patients Admitted

Problem No. 05:

Guest Days of Occupancy

Custodial Supplies Expenses

Total shipping expenses

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