BUS-2003 Study Guide - Midterm Guide: Gross Margin, Contribution Margin, Fixed Cost
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DEPARTMENT OF BUSINESS AND ADMINISTRATION
November 1, 2010
Student Number: __________________________________________
Instructions: Please answer the following questions on the examination test sheets. If you need
more room, please use the back of the pages. Show your calculations in detail.
Question One: (9 marks; 1 mark each)
Use the following to answer parts a-c:
Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000-unit level of activity, and
total expense per unit of $1.95 at the 21,000-unit level of activity.
a) What is the best estimate of the variable cost per unit for Maxwell Company?
b) What is the best estimate of the total fixed cost per period for Maxwell Company?
A) $ 3,360.
c) What is the best estimate of the total expected costs at the 19,000 level of activity for Maxwell
Use the following information to answer parts d-f:
Porter Company has provided the following data for the second quarter of the most recent year:
Fixed Manufacturing Overhead $ 55,000
Direct Labour $ 72,500
Fixed Selling Expenses $ 46,250
Variable Manufacturing Overhead $ 41,000
Variable Administrative Expenses $ 48,000
Direct Materials $ 51,500
Fixed Administrative Expenses $ 44,500
Variable Selling Expenses $ 49,750
Assume that direct labour is a variable cost and that there were no beginning or ending inventories.
d) What was the total contribution margin of Porter Company for the second quarter?
A) $ 37,250.
B) $ 87,000.
e) What was the gross margin for Porter Company for the second quarter?
B) $ 80,000.
C) $ 131,500.
D) $ 135,000.
f) Average maintenance costs are $1.50 per machine hour at an activity level of 8,000 machine
hours and $1.20 per machine hour at an activity level of 13,000 machine hours. Assuming that
this activity is within the relevant range, total expected maintenance cost for a budgeted activity
level of 10,000 machine hours would be closest to which of the following?