Chapter: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 of Operating TimeHours 5000 6000 7000 8000

Total cost: Variable cost Fixed cost Total costCost per unit Variable cost Fixed costTotal cost per unit

20000168000188000

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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 company’s 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 sold60000 80000 100000

Total cost: Variable cost Fixed cost Total costCost per unit Variable cost Fixed costTotal cost per unit

150000360000510000

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Required:01 Complete the schedule of the company’s total and unit costs above.02 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 company’s total and per unit costs over the relevant range of 30,000 to 50,000 units produced and sold annually is given below.

Unites produced and sold30000 40000 50000

Total costs: Variable cost Fixed costTotal costCost per unit Variable cost Fixed costTotal cost per unit

180000300000480000

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Required:01. Complete the schedule of the company’s total and unit costs above.02. 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 Admitting Departmental Costs

MayJunJuly

AugustSeptember

OctoberNovemberDecember

18001900170016001500130011001500

1470015200137001400014300131001280014600

Requirements:01. Use the high low method to establish the fixed and variable components if

admitting costs.02. Express the fixed and variable components of admitting in the linear equation

from y=a+bx. 03. 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.

Problem No. 05:The Lakeshore Hotel’s Guest days of occupancy and custodial supplies expenses over

the last seven months were:

Months Guest Days of Occupancy Custodial Supplies ExpensesMarchAprilMayJunJuly

augustSeptember

4,00065008000105001200090007500

75008250105001200013500107509750

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:01. Use the high low method, estimate cost formula for custodial supplies expense.02. 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?03. 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.

Problem no. 06:Zabel Company a wholesaler of large custom built air conditioning units for

commercial buildings, has noticed considerable fluctuation in it’s shipping expense from month to month as shown below:

Months Units shipped Total shipping expensesJanuaryFebruaryMarchAprilMayJunJuly

1752368

2200310026001500220030003600

Required:

01. Using the high low method, estimate the cost formula for custodial supplies expense.

02. 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:

03. 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.

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 X-rays taken X-ray costsJanuary

FebruaryMarchAprilMayJunJuly

AugustSeptember

6,2507,0005,0004,2504,5003,0003,7505,5005,750

28,00029,00023,00020,00022,00017,00018,00024,00026,000

Required:

01. Using the high low method, estimate the cost formula for x-ray costs.02. Using the cost formula you derive above, what x-ray costs would you accept

to incur during a month in which 4600 x-rays are taken? 03. 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.

Roushan Ara Sultana,

Assistant Professor

&

Co-coordinator of EMBA Program

Faculty of Business Administration, USTC.

Email: mbaexeustc@gmail.com