COST TERMS, CONCEPTS, AND BEHAVIOR

Management Accounting Review

/RCROQUE

Test 1. TRUE OR FALSE QUESTIONS.

________ 1. Costs incurred in one year are always meaningful in the following year.
________ 2. Manufacturing overhead includes all direct material, direct labor, and other indirect costs.
________ 3. Discretionary fixed costs are not necessary to successful operation of the business.
________ 4. Discretionary costs should be the first ones cut in a cost-reduction program.
________ 5. Direct costs are often difficult to trace to the specific cost object under consideration.
________ 6. When the physical association of raw materials with the finished product is too small to
trace in terms of cost, they are usually classified as indirect materials.
________ 7. Thread used in the production of mattresses is classified as direct material.
________ 8. The cost of goods sold of a manufacturing company equals beginning finished goods
inventory + cost of goods available for sale - ending finished goods inventory.
________ 9. Product costs are deducted from revenue when the production process is completed.
________ 10. Product costs appear on financial statements only when products are sold.
________ 11. All of the following are examples of opportunity costs: salary given up to start a business;
rental income given up when you live in a house you own; interest expense that could be
incurred when you purchased your car on a cash basis.
________ 12. A variable cost is constant if expressed on a per unit basis but the total peso amount
changes as the number of units increases or decreases.
________ 13. High-low, scatter diagram, and regression analysis are methods of developing formulas
to predict mixed costs.
________ 14. The first step in high-low method is to choose the highest and lowest costs incurred.
________ 15. A multiple regression equation uses more than one driver to predict costs.

Test 2. MULTIPLE CHOICE QUESTIONS.

1. Cost tracing is
A. The assignment of direct costs to the chosen cost object.
B. A function of cost allocation.
C. The process of tracking both direct and indirect costs associated with a cost object.
D. The process of determining the actual cost of the cost object.

2. Cost behavior analysis is a study of how a firm’s costs

A. Relate to competitor’s costs.
B. Relate to general price level changes.
C. Respond to changes in activity levels within the company.
D. Respond to changes in the gross national product.

3. Manufacturing overhead includes all

A. Direct material, direct labor, and administrative costs.
B. Manufacturing costs except direct labor.
C. Manufacturing costs except direct labor and direct materials.
D. Selling and administrative costs.

4. Product costs are

A. Expensed when incurred.
B. Inventoried.
C. Treated in the same manner as period costs.
D. Subtracted from cost of goods sold.

5. The one cost that would be classified as part of both prime cost and conversion cost would be
A. Indirect material.
B. Direct labor.
C. Direct material.
D. Indirect labor.

6. Depreciation of factory equipment would be classified as

A. Operating cost.
B. Manufacturing overhead.
C. Depreciation expense.
D. Administrative cost.

7. Costs that are expensed when incurred are called

A. Product costs.
B. Direct costs.
C. Inventoriable costs.
D. Period costs.
8. Market research and public relation costs are
A. Step – variable costs.
B. Committed fixed costs.
C. Pure variable costs.
D. Discretionary costs.

9. The distinction between direct and indirect costs depends on whether a costs
A. Is controllable or non-controllable.
B. Is variable or fixed.
C. Can be conveniently and physically traced to a cost object under consideration.
D. Will increase with changes in level of activity.

10. Which of the following items is a direct cost?

A. Customer-service costs of a multiproduct firm; Product A is the cost object.
B. Printing costs incurred for a payroll check processing; payroll check processing is the cost object.
C. The salary of a maintenance supervisor in a multiproduct manufacturing plant; Product B is the cost object.
D. Utility costs of the administrative offices; the accounting department is the cost object.

11. The cost of the cushions that are used to manufacture sofas is best described as a
A. Manufacturing overhead cost.
B. Period cost.
C. Variable cost.
D. Conversion cost.

12. Otmay Company manufactures and sells washing machines. In order to make assembly of the machines faster
and easier, some of the metal parts in the machines are coated with grease. How should the cost of this grease
be classified?
Direct Material Cost Fixed Cost
A. Yes Yes
B. Yes No
C. No Yes
D. No No

13. A security guard's wages at a factory would be an example of

Indirect Labor Fixed Manufacturing Overhead
A. Yes Yes
B. Yes No
C. No Yes
D. No No

14. RCR's average cost per unit is the same at all levels of volume. Which of the following is true?
A. RCR must have only variable costs.
B. RCR must have only fixed costs.
C. RCR must have some fixed costs and some variable costs.
D. RCR's cost structure cannot be determined from this information.

15. As volume increases, total fixed costs

A. Remain constant and per-unit fixed costs increase.
B. Remain constant and per-unit fixed costs decrease.
C. Remain constant and per-unit fixed costs remain constant.
D. Increase and per-unit fixed costs increase.

16. The term "relevant range" as used in cost accounting means the range over which
A. Costs may fluctuate.
B. Cost relationships are valid.
C. Production may vary.
D. Relevant costs are incurred.

17. These are mutually beneficial cost, which occur when the same resource is used in the output of two or more
services or products, or simply the cost of facilities or services shared by two or more departments or operations.
A. Joint costs
B. Common costs
C. Committed costs
D. Discretionary costs

18. An example of a cost that is irrelevant to a future decision is a/n

A. Differential cost.
B. Opportunity cost.
C. Sunk cost.
D. Out-of-pocket cost.

19. Regression analysis is better that high-low method of cost estimation because regression analysis
A. Is more mathematical.
 B. Fits its data into a mathematical equation.
C. Uses all data points, not just two.
D. Takes more time to do.

20. The scatter diagram method of cost estimation

A. Is influenced by extreme observations.
B. Requires the use of judgment.
C. Uses the least squares method.
D. Is superior to the other methods in its ability to distinguish between discretionary and committed fixed costs.

Problems

Problem 1

1. P7.32
2. P1,950
3. P49,530
4. P1,850
5. P93,290

Problem 2

1. P156,250
2. P197,500

Problem 3

1. P4,950
2. P2,560

Problem 4

1. TC = P4,500 + 2.50X
2. P13,250
3. TC = P903 + 3.54X
4. P13,309 or P13,293

X Y XY x^2
Units
Month Total Cost
Produced
1 3,000 ₱12,000 ₱36,000,000 9,000,000
2 4,200 15,000 ₱63,000,000 17,640,000
3 4,000 16,000 ₱64,000,000 16,000,000
4 3,400 13,500 ₱45,900,000 11,560,000
5 3,200 11,500 ₱36,800,000 10,240,000
6 3,100 11,500 ₱35,650,000 9,610,000
20,900 ₱79,500 ₱281,350,000 74,050,000

4,200 15,000 79,500 6A 20,900 B

3,000 12,000 ₱281,350,000 20,900 A 74,050,000 B
1,200 3,000 276,925,000 20,900 A 72,801,667 B
VCu ₱2.50 ₱4,425,000 ₱0 A ₱1,248,333 B
FC ₱4,500
Units 3500 TC ₱13,250 VCu ₱3.54
FC ₱903
Units 3500 TC ₱13,309

Other Problems

Problem 1
1. P65,000
2. P23,000

Problem 2
1. P220,000
2. P164,000
3. P334,000

Problem 3
1. P121,000
2. P135,000
3. P169,000

Problem 4
1. P790,000
2. P250,000

Problem 5
1. P1,057,000
2. P631,000
3. P300,000