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1. The step-down method allocates more costs to the producing departments than does the direct method.  Do you agree? Explain.

2. Sometimes direct-labor cost is the best cost-allocation base for overhead application even if wage rates vary within a department.  Do you agree? Explain.

3. An increasing number of companies are using variable costing in their corporate annual reports.  Do you agree? Explain.

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1. The step-down method allocates more costs to the producing departments than does the direct method. Do you agree? Explain.

I agree because the goal is to reduce the costs as much as possible, rather than the opposite when it comes to the direct method. This is because the direct method is a means of dealing with cash flows during a certain period; whereas, when using the step-down method a person is able to reduce them as much as possible by means of spreading everything out for those involved. For example, the direct method uses less cash flow than that of step-down because it is done within a timeframe; however, the step-down method is so broad that is covers any area that is in need of help in order to save the company money. In essence, a company is able to benefit from reducing costs by using step down than any other procedure that is available to use at that time. Through this method, someone is able to make sure to save the organization much money in order to prevent any kind of issues or fines that could occur because of not handling the finances well. Regardless, a person is able to do their job effectively ...

Solution Summary

This solution discussed the step down and direct method as well as labor, best allocation and variable costs with accounting.

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See Also This Related BrainMass Solution

20 multiple choice: Cost Behavior: Analysis and Use

Question 1 5 points Save
Fixed costs expressed on a PER UNIT BASIS vary inversely with changes in activity.
True
False

Question 2 5 points Save
Committed fixed costs cannot be reduced to zero without seriously impairing the company's long term goals.
True
False

Question 3 5 points
A traditional functional income statement organizes costs on the basis of behavior.

True
False

Question 4 5 points
The contribution margin represents the amount available to contribute toward covering fixed expenses and toward profits for the period.

True
False

Question 5 5 points
Most companies use the contribution approach in preparing financial statements for external reporting purposes.
True
False

Question 6 5 points
Since Anytime Pizza is open 24 hours a day, its pizza oven is constantly on and is, therefore, always using natural gas. However, when there is no pizza in the oven, the oven automatically lowers its flame and reduces its natural gas usage by 70%. The cost of natural gas would best be described as a:

fixed cost.
mixed cost.
step-variable cost.
true variable cost.

Question 7 5 points Save
Within the relevant range, VARIABLE costs can be expected to:

vary in total in direct proportion to changes in the activity level.
remain constant in total as the activity level changes.
increase on a per unit basis as the activity level increases.
increase on a per unit basis as the activity level decreases.

Question 8 5 points Save
An example of a committed fixed cost is:
management training seminars.
a long-term equipment lease.
research and development.
advertising.

Question 9 5 points Save
The following data have been collected for four different cost items.

Cost Item Cost at 100 units Cost at 140 units
W $8,000 $10,560
X $5,000 $5,000
Y $6,500 $9,100
Z $6,700 $8,580

Which of the following classifications of these cost items by cost behavior is correct?

Cost W Cost X Cost Y Cost Z
variable fixed mixed variable

Cost W Cost X Cost Y Cost Z
mixed fixed variable mixed

Cost W Cost X Cost Y Cost Z
variable fixed variable variable

Cost W Cost X Cost Y Cost Z
mixed fixed mixed mixed

Question 10 5 points Save
The high-low method is used with which of the following types of costs?

Variable.
Mixed.
Fixed.
Step-variable.

Question 11 5 points Save
Iaci Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $133.60 per unit.

Sales volume (units) 4,000 5,000
Cost of sales $383,600 $479,500
Selling, general, and administrative costs $124,400 $136,000
The best estimate of the total contribution margin when 4,300 units are sold is:

$112,230
$162,110
$28,380
$45,150

Question 12 5 points Save
Davis Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

Production volume 1,000 units 2,000 units
Direct materials $44,200 $88,400
Direct labor $37,300 $74,600
Manufacturing overhead $48,500 $62,200

The best estimate of the total monthly FIXED manufacturing cost is:
(*Hint: Add up your total manufacturing costs (DM + DL + OH) at each production volume level. Then use the high-low method.)

$130,000
$177,600
$34,800
$225,200

Question 13 5 points Save
Eddy Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

Production volume 6,000 units 7,000 units
Direct materials $582,600 $679,700
Direct labor $136,200 $158,900
Manufacturing overhead $691,800 $714,700

The best estimate of the total VARIABLE manufacturing cost per unit is:

$22.90
$119.80
$142.70
$97.10

Question 14 5 points Save
Farmington Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

Production volume 6,000 units 7,000 units
Direct materials $195,000 $227,500
Direct labor $113,400 $132,300
Manufacturing overhead $913,200 $931,700

The best estimate of the TOTAL cost to manufacture 6,300 units is closest to:

$1,162,350
$1,242,570
$1,222,515
$1,282,680

Question 15 5 points Save
Gambino Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $138.80 per unit.

Sales volume (units) 6,000 7,000
Cost of sales $369,000 $430,500
Selling, general, and administrative costs $407,400 $418,600

The best estimate of the total monthly FIXED cost is:
*Another hint: Add up total costs (Cost of sales + Selling, general, and administrative costs) for each sales volume level. Then use the high-low method.

$776,400
$340,200
$812,750
$849,100

Question 16 5 points Save
Harris Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $84.40 per unit.

Sales volume (units) 5,000 6,000
Cost of sales $285,000 $342,000
Selling, general, and administrative costs $107,500 $120,000

The best estimate of the total VARIABLE cost per unit is:

$77.00
$57.00
$69.50
$78.50

Question 17 5 points Save
Given the cost formula Y = $12,500 + $5.00X, total cost for an activity level of 4,000 units would be:

$20,000
$12,500
$16,000
$32,500

Question 18 5 points Save
Use the following to answer questions 18 - 20:

Babson Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

Production volume 5,000 units 6,000 units
Direct materials $103,500 $124,200
Direct labor $282,500 $339,000
Manufacturing overhead $667,000 $679,800
The best estimate of the total monthly FIXED manufacturing cost is:

$1,098,000
$1,053,000
$1,143,000
$603,000

Question 19 5 points Save
Use the data in Question 18 to answer this question.
The best estimate of the total VARIABLE manufacturing cost per unit is:

$90.00
$77.20
$12.80
$20.70

Question 20 5 points Save
Use the data in Question 18 to answer this question.
The best estimate of the TOTAL cost to manufacture 5,300 units is closest to:

$1,116,180
$1,062,915
$1,080,000
$1,009,650

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