Chapter 4 – Costs in Management Accounting: Concepts, Classifications, Accumulation

MULTIPLE CHOICE:

1. Cost is the monetary measure of the amount of resources given up in obtaining goods
and services. Costs may be classified as unexpired or expired.

Which of the following costs is not always considered to be expired immediately upon
being recognized?
a. salesmen’s commission
b. depreciation expense for factory equipment
c. cost of goods sold
d. salary of the company president

2. An activity that causes resources to be consumed is called a

a. non-value-added activity
b. cost driver
c. just-in-time activity
d. extracurricular activity
 e.
3. It refers to anything (a product, product line, a business segment) for which cost is
computed.
a. Cost object
b. Cost driver
c. Cost control
d. Cost variance
f.
4. It is a grouping of individual cost items, or an account in which a variety of similar costs
are accumulated.
a. Cost driver
b. Cost variance
c. Income statement
d. Cost pool
g.
5. It is an event, action, transaction, task, or unit of work that consumes resources and
with a specified purpose.
a. Cost object
b. Activity
c. Cost driver
d. Direct labor
h.
6. An activity that adds costs to the product or service, but does not make such product
or service more valuable to customers is called
a. non-value-added activity
b. value-adding activity
c. costly activity
d. valuable activity
i.
7. Which of the following statement is correct?
a. A cost driver is an accounting technique used to control costs.
b. A cost driver is a measure of activity, such as direct labor hours, machine
hours, beds occupied, computer time, etc.,
c. A cost driver is an accounting measurement used to evaluate whether or not
performance is proceeding according to plan.
d. A cost driver is a mechanical basis used to assign costs to activities.
j.
8. Product costs or inventoriable costs
a. are charged to expense when products become part of the finished goods
inventory.
b. include only the prime costs of producing a product.
c. are treated as assets before the products are sold.
d. Include only the conversion costs of producing the products.
k.
9. Which of the following costs is not a product cost?
a. Wages paid to workers for rework on defective products.
b. Wages paid to truck loaders who load finished goods onto outgoing
delivery trucks.
c. Fringe benefits paid to factory workers.
d. Wages paid to workers for idle time due to machine breakdown in a production
 department.
l.
10. Product costs
a. are always expensed in the same period in which they are incurred.
b. are inventoriable costs.
c. vary directly with changes in the cost driver.
d. are always charged to an asset account in the same period in which they are
incurred.

m. ITEMS 11 and 12 ARE BASED ON THE FOLLOWING INFORMATION:

n. Following are costs incurred by Abtina Manufacturing Corporation during the

previous month:

o. Direct materials
P 5,000

p. Indirect materials
2,000

q. Direct labor
6,000

r. Indirect labor
1,000

s. Factory utilities
4,000

t. Advertising costs
8,000

u. Sales commissions
12,000

v. Depreciation on administration building

3,000

w. Salaries of administrative personnel

20,000

x. Depreciation – delivery equipment

2,000

y. Overtime pay – factory workers

1,500

z. Rework cost on defective products discovered during quality inspection

2,500

aa.
11. Total products costs:
a. P67,000
b. P45,000
c. P22,000
d. P18,000
ab.
12. Total period costs:
a. P67,000
b. P45,000
c. P49,000
d. P22,000
ac.
13. Manufacturing costs do not include
a. prime costs.
b. conversion costs.
c. indirect materials
d. salary of the company president, under whom is the vice president for
production.
ad.
14. Direct labor cost is a
a. prime cost.
b. conversion cost.
c. product cost
d. all of the above

ae.

af. ITEMS 15 to 21 ARE BASED ON THE FOLLOWING INFORMATION:

ag. Data about Maritz Company’s production and inventories for the month of June
are as follows:

ah. Purchases – direct materials

P143,440

ai. Freight in
5,000

aj. Purchase returns and allowances

2,440
ak. Direct labor
175,000

al. Actual factory overhead

120,000

am. Inventories: June 1 June 30

an. Finished goods P68,000 P56,000

 ao. Work in process 110,000 135,000

ap. Direct materials 52,000 44,000

aq. Maritz Company applies factory overhead to production at 80% of direct labor
cost. Over- or underapplied overhead is closed to cost of goods sold at year-end.
The company’s accounting period is on the calendar year basis.

15. Maritz Company’s prime cost for June was

a. P154,000
b. P329,000
c. P198,000
d. . P315,000
ar.
16. Maritz Company’s conversion cost for June was
a. P315,000
b. P295,000
c. P329,000
d. P444,000
as.
17. For the month of June, Maritz Company’s total manufacturing cost was
a. P469,000
b. P444,000
c. P644,000
d. P449,000
at.
18. For June, Maritz Company’s cost of goods transferred to the finished goods inventory
account was
a. P579,000
b. P461,000
 c. P469,000
d. P444,000
au.
19. Maritz Company’s cost of goods sold for June was
a. P441,000
b. P481,000
c. P456,000
d. P444,000
av.
20. The amount of over/underapplied inventory overhead factory for the month of June
was
a. P140,000 overappplied
b. P120,000 underapplied
c. P20,000 overappplied
d. P20,000 underapplied
aw.
21. The cost of goods sold for the month of June should be increased (decreased) by the
amount of over/under-applied factory overhead of
a. P20,000
b. (P20,000)
c. (P120,000)
d. P0
ax.
22. For product costing purposes, an indirect factory cost
a. Is not directly chargeable to the company
b. Is chargeable to prime costs
 c. Is chargeable to conversion costs
d. Is never included in the computation of product cost
ay.
23. A fixed cost that would be considered a direct cost is
a. salary of the sales manager when the cost object is the sales department
b. salary of the controller when the cost object is a unit product
c. fees of the Board of Directors when the cost object is the Production Department
d. the rental cost of the finished good warehouse when the cost object is the
Accounting Department
az.
24. Indirect materials and indirect labor are
ba. Prime Cost Conversion Cost Manufacturing
Cost
a. Yes Yes Yes
b. No No Yes
c. No Yes Yes
d. Yes No No
bb.
25. Which of the following is a direct product cost?
a. Wood in a furniture factory
b. Salary of the foreman in the assembly division of an automobile company
c. Depreciation of the factory equipment
d. Salesman’s commission
bc.
26. The variable portion of the semi-variable cost of electricity for a manufacturing plant is
a
bd. Product Cost Prime Cost
Conversion Cost
 a. No No Yes
b. Yes Yes No
c. Yes Yes Yes
d. Yes No Yes
be.
27. The salaries of the factory janitorial and maintenance staff should be classified as
a. direct labor cost
b. period cost
c. prime cost
d. factory overhead cost
bf.
28. For decision-making purposes, relevant costs are
a. variable past costs
b. all fixed and variable costs
c. anticipated future costs that will differ among various alternatives
d. costs incurred within the relevant range of production
bg.
29. Differential costs
a. are variable costs
b. are anticipated future costs that will differ among various alternatives
c. are the differences in costs between any two alternative courses of action
d. are costs that differ under alternatives
bh.
30. An income or benefit that is give up when one alternative is selected over another is
called
 a. loss
b. opportunity cost
c. relevant cost
d. differential cost
31. Sunk costs
a. are relevant costs
b. are anticipated future costs that will differ among various alternatives
c. are irrelevant for decision-making purposes
d. are decreases in costs from one alternative to another
bi.
32. Which of the following costs would be considered relevant in short-term decision-
making?
a. Production costs of goods available for sale
b. Incremental fixed costs
c. Acquisition costs of idle asset to be used in a proposed project
d. Variable costs
bj.
33. Which of the following statements about cost behavior is correct?
a. Within the relevant range, total variable costs may vary directly with
activity, while total fixed costs remain unchanged for a given period despite
fluctuations in activity.
b. Within the relevant range, variable cost per unit varies directly with activity, while
fixed cost per unit remains unchanged for a given period despite fluctuations in
activity.
c. Within the relevant range, fixed cost per unit varies directly with activity, while
variable cost per unit remains unchanged for a given period despite fluctuation in
activity.
d. Within the relevant range, total variable costs may vary inversely with activity,
while total fixed costs remain unchanged for a given period despite fluctuations in
activity.
bk.
34. In cost accounting, the term relevant range refers to the range over which
a. relevant costs are incurred
 b. production should be confined
c. total fixed costs fluctuate
d. cost relationships are valid
bl.
35. Depreciation computed using the straight-line method is classified as
a. variable cost
b. fixed cost
c. relevant cost
d. opportunity cost
bm.
36. Within the relevant range, unit variable costs
a. are constant per unit, regardless of units produced or sold
b. vary directly with the activity level
c. vary inversely with the activity level
d. are at the minimum
bn.
37. When production (in units) decreases, the average cost per unit of product increases.
This increase in the average cost per unit is due to the
a. increase in variable cost per unit
b. increase in fixed cost per unit
c. increase in total variable costs
d. increase in total fixed costs
bo.
38. Consider Line AB in each of the following graphs:
bp. Graph 1 Graph 2
Graph 3
B
bq.
B
br.
A
COSTbs.A COST A B COST

UNITS UNITS UNITS

 bt.

bu. Line AB is the

bv. Graph 1 Graph 2 Graph 3

a. total sales line fixed cost per unit line total variable cost line
b. variable cost per line total variable cost line total fixed cost line
c. total variable cost line total fixed cost line total cost line
d. break-even line parallel line total sales line
bw.
39. When activity changes, this cost shifts upward or downward by a certain interval.
a. Step cost
b. Cost interval
c. Shifting cost
d. Incremental cost
bx.
40. These costs are long-term in nature and cannot be eliminated even for short periods of
time without affecting the probability or long-term goals of the firm.
a. Avoidable costs
b. Committed fixed costs
c. Variable costs
d. Controllable costs
41. This type of fixed costs usually arises from periodic decisions by management to
spend in certain fixed costs area. They may be changed by management from period
to period or even within the period if circumstances demand such change.
a. Period costs
 b. Committed fixed costs
c. Variable costs
d. Discretionary fixed costs
by.
42. Mixed costs are costs that have
a. variable and fixed costs components
b. manufacturing and administrative costs component
c. selling and administrative costs component
d. direct and indirect costs component
bz.
43. In cost behavior analysis, the linearity assumption states that
a. in all cases, there is strict linear relationship between the cost and cost driver
b. within the relevant range, there is a strict relationship between the cost and the
cost driver
c. within the relevant range, there is a strict linear relationship between the
cost and the cost driver
d. within the relevant range, all costs are fixed and may be drawn graphically as
straight lines
44. The fixed and variable components of mixed costs may be separated by using any of
the following methods, excepts
a. High-low method
b. Scattergraph method
c. Least squares method
d. Weighted-average method
ca.
45. The following data were collected from the records of the Receiving Department of a
company:
cb. Month Number of Items Received Receiving and Handling
costs
cc. January 2,800 P17,500
 cd. February 2,000 12,500
ce. March 1,190 7,450
cf. April 5,200 32,500
cg. May 4,410 27,600
ch. June 4,016 25,100

ci. The receiving and handling cost is most likely to be a

a. step cost
b. variable cost
c. fixed costs
d. semi-variable cost

cj. ITEMS 46 to 48 ARE BASED ON THE FOLLOWING INFORMATION:

ck. Charity Company wants to analyze the behavior of its selling costs for budgeting
purposes. Cost drivers (activity measures) and costs incurred in the first quarter and the
first month of the second quarter are as follows:

cl. January February March April

cm. Selling costs:

cn. Sales salaries P42,500 P42,500 P42,500

P51,000

co. Commissions 15,000 17,500 14,000

16,000

cp. Shipping costs 34,000 38,000 32,400

35,600

cq. Advertising 20,000 20,000 25,000

20,000

cr. Cost drivers:

cs. Peso sales P300,000 P350,000 P280,000

P320,000

ct. Sales in units 30,000 35,000 28,000

32,000

cu. Sales orders 150 175 140

160

cv.

cw. The sales staff are paid monthly salaries plus commission. Advertising expenses
are charged subject to the discretion of management. The increase in sales salaries in
April is due to the increase in the sales staff, from five to six persons.
46. In relation to the appropriate cost drivers, how should the company’s selling costs be
classified?

cx. Sales cy. Commissions cz. Shipping da. Advertising

Salaries costs
a. Variable db. Variable dc. Variable dd. Variable
b. Fixed de. Variable df. Variable dg. Fixed
c. Fixed dh. Variable di. Mixed dj. Fixed
d. Mixed dk. Variable dl. Mixed dm. Fixed
dn.
47. Using the high-low method and the algebraic equation y = a + bx (where y equals total
shipping costs; a equals total fixed costs; b equals variable shipping cost per unit; and
x is the number of units sold), the cost formula for the shipping costs may be
expressed as
a. y = 10,000 + 0.80x
b. y = 0.80 + 10,000
c. y = 10,000 + 0.80
d. y = 10,000 + 5,600
do.
48. If the company plans to sell 36,000 units in May and fixed costs will remain at the April
level, the total selling costs for May would be
a. P122,600
b. P125,800
c. P127,800
d. P 81,000

dp. ITEMS 49 to 54 ARE BASED ON THE FOLLOWING INFORMATION:

dq. Maco Corporation’s Research and Development Department was able to develop
a new product – a flashlight powered by solar energy. After reviewing the data prepared
by the company’s controller, Maco’s management is confident that the new product will
contribute profit to the company.

dr. The data prepared by the controller are as follows:

ds. Suggested selling price P200

dt. Costs: Materials P 60

du. Parts fabrication (P10 per hour) 40

 dv. Assembly (P6 per hour) 18

dw. Variable overhead (P4 per hour) 28

dx. Fixed overhead (P3 per hour) 21

dy. Total cost P167

dz. The total research and development cost incurred to develop the new product
amounted to P200,000. The company is planning to spend half of this amount for
promotion and advertising.

ea. The company’s fixed overhead includes rent, equipment depreciation, and
salaries of factory supervisors.

49. For Maco’s new flashlight, total prime costs amount to

a. P118
b. P167
c. P146
d. P107
eb.
50. The difference between the flashlight’s suggested selling price of P200 and the total
cost of P167 represents each flashlight’s
a. gross profit
b. contribution margin
c. net profit
d. operating income
ec.
51. The total overhead cost of P49 per unit is a
a. prime cost
b. variable cost
c. mixed cost
d. fixed cost
ed.
52. The total research and development costs of P200,000 incurred to develop the new
product is a(n)
a. relevant cost
b. sunk cost
c. avoidable cost
d. postponable cost
ee.
53. The costs included in Maco’s fixed overhead are
a. prime costs
b. discretionary costs
c. committed costs
d. variable costs
ef.
54. the planned spending on promotion and advertising for the flashlight is a
a. variable cost
b. discretionary cost
c. sunk cost
d. past cost
55. The least exact method for separating the variable and fixed cost components of a
mixed cost is
a. matrix algebra
b. the high-low method
c. the least squares method
d. computer simulation

eg. ITEMS 56 to 58 ARE BASED ON THE FOLLOWING INFORMATION:

eh. Meng Company is preparing a flexible budget for next year and requires a
breakdown of the factory maintenance cost into the fixed and variable elements.
 ei. The maintenance costs and machine hours (the selected cost driver) for the past
six months are as follows:

ej. Maintenance Costs Machine Hours

ek. January P15,500 1,800

el. February 10,720 1,230

em. March 15,100 1,740

en. April 15,840 2,190

eo. May 14,800 1,602

ep. June 10,600 1,590

eq.

56. If Meng Company uses the high-low method of analysis, the estimated variable rate of
maintenance cost per machine hour is
a. P7.23
b. P8.73
c. P5.46
d. P5.33
er.
57. The average annual fixed maintenance cost amounts to
a. P4,160
b. P8,320
c. P49,920
d. P5,120
es.
58. What is the average rate per hour at a level of P1,500 machine hours?
a. P5.33
b. P8.11
 c. P7.23
d. P5.46
59. The manager of the mixing department of Ali Van Company wants to determine the
fixed variable components of the department’s costs. He collected information on total
cost and the number of kilos mixed for the past 12 months. He wants more accurate
results, so he is planning to use a sophisticated method for cost separation. The
manage should use
a. high-low method
b. regression analysis
c. game theory
d. queuing theory
et.
60. The usual formula of regression (least squares) equation is:
eu. y = a + bx + e.
ev. Considering such equation, which of the following is incorrect?
a. the dependent variable is x, while the independent variable is y.
b. the y-axis intercept is a
c. the slope of the line is b
d. the error term is e
ew.
61. Multiple regression analysis involves the use of
ex. Dependent Variable(s) Independent Variable(s)
a. None One
b. One One
c. One Two or more
d. Two or more One
ey.

ez. ITEMS 62 to 64 ARE BASED ON THE FOLLOWING INFORMATION:

 fa. Frances Corporation conducted a regression analysis of its factory overhead
costs. The analysis yielded the following cost relationship:

fb. Total factory overhead cost = P50,000 per month + 5H*

fc. *H = number of direct labor hours, the selected cost driver for overhead costs.

fd. Each unit of product requires 6 direct labor hours. The company’s normal
production is 20,000 units of product per year.

62. The total overhead cost for a month’s production of 2,000 units is
a. P60.000
b. P50,000
c. P110,000
d. P0
fe.
63. The predetermined fixed overhead rate per hour is
a. P6.00
b. P5.00
c. P2.50
d. 0.42
ff.
64. The total predetermined factory overhead rate per hour is
a. P5.00
b. P7.50
c. P10.00
d. P35.00
fg.

fh. ITEMS 62 to 65 ARE BASED ON THE FOLLOWING INFORMATION:

 fi. The management of a hotel is interested in the relationship between room
cleaning costs and guest-days in its hotel. Using regression analysis on room cleaning
costs and guest-days collected over 12 months, the relationship was shown graphically

as follows:

fj.

65. The estimated monthly fixed room cleaning cost is

a. P25,000
b. P30,000
c. P10,000
d. P0
fk.
66. The estimated increase in the room cleaning cost for each additional guest-day is
a. P26.27
b. P10.00
c. P60,000
d. P25,000
67. The cost formula for the cleaning costs may be expressed as
a. Cost = P25,000 + guest-days
b. Cost = P25,000
c. Cost = P25,000 + P10
d. Cost = P25,000 + P10 (guest days)
fl.
68. If the relevant range is from 0 to 2,000 guest-days, how much is the total room
cleaning cost for 2,200 guest-days?
a. P47,000
b. P22,000
c. P25,000
d. Cannot be determined from the given information
fm.
 fn. ITEMS 69 to 74 ARE BASED ON THE FOLLOWING INFORMATION:

fo. M. Munda Company produces and sells rattan baskets. The number of units
produced and the corresponding total production costs for six months, which are
representatives for the year, are as follows:

fp. Month Units Produces Production Costs

fq. April 500 P4,000

fr. May 700 8,000

fs. June 900 6,000

ft. July 600 7,500

fu. August 800 8,500

fv. September 550 7,250

fw. Based on the given information and using the least squares method of
computation, ` select the best answer for each question, where:

fx. y = total monthly productions costs

fy. x = number of units produced per month

fz. a = fixed production cost per month

ga. b = variable production cost per unit

gb. n = number of months

gc. ∑ = summation

69. If the least squares method is to be used to segregate the variable and fixed cost
components of the total production costs, the equation(s) required to express the
relationship between the fixed and variable costs are
a. ∑y = na + b∑x and ∑xy = a∑x + b∑x2
b. ∑xy = a∑x + b∑x2
c. ∑y = na + b∑x
d. y = a + b∑x2 and ∑y = na + b∑x
gd.
70. The cost function derived by the simple least squares method
a. is linear
 b. is curvilinear
c. is parabolic
d. must be tested for minimum and maximum points
ge.
71. The monthly production costs can be expressed as
a. y = a + bx
b. y = b + ax
c. y = ax + b
d. x = a + by
gf.
72. Using the least squares method, the variable production cost per unit is approximately
a. P5
b. P10
c. 0.27
d. 3.74
gg.
73. Using the least squares method, the monthly fixed production cost is approximately
a. P1,500
b. P18,000
c. P4,350
d. P52,200
gh.
74. If the high-low points method is used, the results when compared with those under the
method of least squares, are
gi. Variable Cost Per Unit Total fixed Costs
a. Equal Equal
b. Higher by P1.26 Lower by P2,850
c. Lower by P1.26 Higher by P2,850
d. Higher by P5 Lower by P1,500
gj.

gk. ITEMS 75 to 77 ARE BASED ON THE FOLLOWING INFORMATION:

gl. The cost accountant of Ginatemple Corporation has complied the actuals costs
for six different levels of activity. The data shown in the table and graph below:

gm. Observation Units Produced Actual Costs

gn. A 40 P100,000

go. B 80 100,000

gp. C 120 300,000

gq. D 160 400,000

gr. E 200 500,000

gs. F 200 600,000

gt.

75. In the graph, line segment ACDE is known as the line of

a. segregation
b. average cost
c. regression
d. standard deviation
gu.
76. If only the pints that lie on the line are to be considered, a cost analysis will show that
such costs are
a. variable costs
b. fixed costs
 c. mixed costs
d. step costs
gv.
77. If points B and F will not be considered in the computation, a cost function for the given
data will be expressed as
a. y = a + bx
b. y = a
c. y = bx
d. y = a + b

gw. ITEMS 78 to 82 ARE BASED ON THE FOLLOWING INFORMATION:

gx. As part of cost study, the cost accountant of Shinly Corporation has recorded the
cost of operations at seven different levels of materials usage. The records show the
following:

gy. Kilos of Materials Costs of Operation

gz. 80 P800
ha. 60 480
hb. 20 320
hc. 120 1,200
hd. 140 1,280
he. 40 480
hf. 100 1,040
hg. Sum of the kilos (∑x) 560
hh. Sum of the costs (∑y) P5,600
hi. Sum of the kilos multiplied by the costs (∑xy) P545,600
hj. Sum of the kilos squared (∑x2) 56,000
78. Using the high-low points method, the variable cost of operations per kilo of materials
used is
a. P8.00
 b. P9.14
c. P16
d. 10
hk.
79. Using the same high-low points method, the fixed cost of operations is
a. P320
b. P103
c. P160
d. P206
hl.
80. Using the least squares method, the average rate of variability per kilo of materials
used is
a. P8.00
b. P0.11
c. P10.00
d. P8.71
hm.
81. Using the least squares method, the fixed portion of the cost is
a. P320
b. P103
c. P160
d. P206
hn.
82. The projected cost of operations for 90 kilos of materials is
a. P886.90 if the high-low points method is used
 b. P880.00 if the method of least squares method is used
c. P886.90 if the method of least squares method is used
d. P880.00 regardless of the methods used
ho.
83. The cost accountant of Trisha Company conducted an analysis of total costs in relation
to the number of labor hours uses and came up with the function for a relevant range
of 50,000 labor hours to 400,000 labor hours, as follows:
hp. Total cost = P400,000 + 20x*
hq. *x = number of direct labor hours

hr. How much is the total cost for 40,000 direct labor hours?

a. P1,200,000
b. P800,000
c. P400,000
d. Cannot be determined from the given information
hs.
84. It is the measure of the co-variation between the dependent and independent
variables.
a. correlation
b. ratio
c. standard error
d. variance
ht.
85. Correlation is a term frequently used in conjunction with regression analysis and is
measured by the valued of the coefficient of correlation r. The value of r
a. is always positive
b. is always negative
c. is a measure of the relative relationship between two variables
d. ranges in size from negative one to zero
 hu.
86. The coefficient of correlation that indicates the strongest linear association between
the dependent and independent variables is
a. -0.08
b. 0.40
c. -0.80
d. 0.04

hv.

hw.

hx.

hy.
87. What coefficient of correlation results from the following data?
hz. X Y
ia. 2 4
ib. 4 8
ic. 6 12
id. 8 16
ie. 10 20
a. -1
b. +1
c. 0
d. Cannot be determined from the given data
if.
88. A scatter diagram is a tool which may be used to demonstrate correlations. The scatter
diagram’s objective is to
a. show frequency distribution in graphic form
 b. display a population of items for analysis
c. indicate the critical path
d. divide a universe of data into homogenous groups
ig.
89. If the coefficient of correlation between two variables is -0.95, how might a scatter
diagram of these variables appear?
a. A least squares line that slopes up to the right
b. A least squares line that slopes down to the right
c. Random points
d. A least squares line that slopes to the left
ih.
90. Using regression analysis, Melody the accountant of Lacuata Company graphed the
following relationship of its most expensive product line’s sales with its customer’s
income levels:
ii.

ij.If there is a strong statistical relationship between the sales and customers’ income
levels, which of the following best represents the correlation coefficient for this
relationships?

a. 0
b. -0.96
c. +0.96
d. +9.6
ik.
91. In regression analysis, the coefficient of determination is a measure of
a. the estimated value of the dependent variable
b. the slope of the line of regression
c. the amount of variation in the dependent variable that cannot be explained by the
independent variable
d. the amount of variation in the dependent variable that can be explained by
the independent variable
il.
92. Verfermin Company uses regression analysis to develop a cost formula for predicting
productions costs. The company’s accountant is considering two different cost drivers
im. (units produced and direct labor hours) as the independent variable [x]. The
analysis showed the following results”
in. Independent Variable Y-intercept Slope (b) r r2
io. Units produced P30,000 12 0.85 0.72
ip. Direct labor hours 50,000 8 0.95 0.90

iq. Which cost formula should be used?

a. Cost = 30,000
b. Cost = 50,000 + 8x
c. Cost = 30,000 + 0.85x
d. Cost = 50,000 + 7.60x
ir.
93. Consider the following graph:
is.

it. If the regression analysis is applied to the data on the graph, the coefficients of
correlation (r) and determination (r2) will indicate the existence of a
a. high direct linear relationship, high explained variation ratio
b. low direct linear relationship, low explained variation ratio
c. high inverse linear relationship, high explained variation ratio
d. low inverse linear relationship, low explained variation ratio
iu.
94. Odessa, the auditor of Sta. Maria Appliance Center has developed a multiple
regression model that has been used for a number of years to estimate the amount of
installment sales from credit applicants’ income levels. During the current year, Odessa
applied the model and discovered that the r2 value decreased dramatically although
the model seems to be working well. Which conclusion is justified by the change?
a. Regression analysis is no longer an appropriate technique to estimate installment
sales.
b. Some new factors, not included in the model, are causing installment sales
to change.
c. The model is no longer reliable.
d. The decrease in the value of r2 should not be considered in the model.
 iv.
95. It is a part of the accounting system that measures costs for decision-making and
financial purposes.
a. Financial accounting
b. Cost accounting
c. Responsibility accounting
d. Segment accounting
iw.
96. Traditional cost accounting may best be described by
a. all the journals, ledgers, records, and financial statements used by an entity to
record, classify, summarize, and report the economic activities of such entity
b. the entire general and subsidiary ledges of a merchandising firm
c. the general ledger and subsidiary accounts and related records used by an
entity to accumulate the costs of goods or services that it provides
d. the subsidiary ledgers used to record the economic activities of the firm
ix.
97. A cost accounting system has internal and external reporting objectives. Some
objectives include the following, except
a. income determination
b. product costing and inventory valuation
c. planning, evaluating, and controlling operations
d. determination of sales commission
iy.
98. Which of the following statements is correct?
a. The accounting system is part of cost accounting that measures costs for
decision-making and financial reporting purposes.
b. Cost accumulation involves collecting costs by natural classification, such
as materials or labor.
c. Cost allocation or cost assignment involves tracing and assigning costs to cost
drivers, such as direct labor hours or number of units.
d. Cost and managerial accounting are goods in the economic sense and, as such,
their costs must exceed their benefits.
 99. The method of averaging costs and providing management with unit cost data used by
companies may depend on the type of products being produced – whether
homogenous or heterogeneous products. The appropriate costing methods for such
types of products are
iz. Homogeneous Products Heterogeneous Products
a. Process Costing Job-order costing
b. Process Costing Process Costing
c. Job-order costing Job-order costing
d. Job-order costing Process Costing
ja.
100. Which of the following statements is correct?
a. Standard costing is a method that uses predetermined factors, such as
quantity and price, to compute the standard cost of the manufacturing cost
elements.
b. Standard costing may be used with job-order costing, but not with process
costing.
c. Standard costing may be used with process costing, but not with job-order
costing.
d. Backflush costing is a cost accounting method that keeps track (in detail) of the
flow of cost of work in process.
jb.
101. This costing system is a hybrid of job-order and process costing systems wherein
materials are allocated on the basis of batches of production.
a. job-process costing system
b. pro-job costing system
c. operation costing system
d. backflush costing system
jc.
102. An operation costing system is
a. the master control program that governs the operation of a computer system
b. the same as a process costing system, except that conversion costs are charged
specifically to products or batches as In job-order costing system
c. identical to a process costing system, except that the actual cost is used for
direct labor
d. the same as a process costing system, except that direct materials costs
are charged specifically to products or batches of production
 jd.
103. Within accounting system, cost accounting
a. is a combination of managerial accounting and financial accounting since
its purpose can be to provide internal reports for use in management
planning, control and decision-making, and because its product costing
function satisfies external reporting requirements
b. is concerned only with internal reporting that aids management in decision-
making
c. can best be defined as external reporting to government, stockholders, and other
interested parties
d. is a combination of managerial accounting and responsibility accounting
je.
104. Which of the following alternatives does not correctly classify the business
application to appropriate costing system?
jf. Process Costing System Job Order Costing
System
a. Car repair shop Paint manufacturer
b. Softdrinks manufacturer Public accounting firm
c. Wallpaper manufacturer Print shop
d. Pen manufacturer Renovation job contractors
jg.
105. Operation costing system is a hybrid process and job-order costing systems. It is
used by companies that produce goods that undergo some similar and some
dissimilar processes. Which of the following would most likely use the operation
costing system?
a. movie production
b. clothing manufacturing
c. paper manufacturing
d. custom printing
jh.
106. It is a costing method that delays much of the accounting for production cost until the
completion of production even the sale of goods. It is most appropriate when
inventories are low or when the change in inventories is minimal, that is, when most
production costs for a period flow into cost of goods sold. This costing method is
called
a. standard costing
b. process costing
c. job-order costing
 d. backflush costing
ji.
107. Backflush costing is most likely to be used when
a. the company carries significant amount of inventory
b. the company wants sequential tracking of costs
c. a just-in-time production philosophy has been adopted by the company
d. when the change in inventories is significant
108. A company changed from a traditional manufacturing operation with a job-order
costing system to a JIT operation with a backflush costing system. How will this
change affect the company’s inspection costs and recording detail of costs tracjed to
jobs processes?
jj. Inspection Costs Detail of Costs Tracked to Jobs
a. Increase Increase
b. No effect No effect
c. Decrease Decrease
d. Increase Decrease

jk. ITEMS 109 to 113 ARE BASED ON THE FOLLOWING INFORMATION:

jl. Duque Corporation uses backflush costing in accounting for the cost of its
product. During the period, the following the following data were recorded:

jm. Production 20,000 units

jn. Sales 18,000 units

jo. Direct materials purchased P562,800

jp. Direct materials used P560,000

jq. Conversion costs incurred P300,000

jr.

109. The journal entry to record the purchase of direct materials is

a. Finished goods inventory 562,800
js. Accounts payable 562,800
 jt.
b. Materials 562,800
ju. Accounts payable 562,800
jv.
c. Finished goods 560,000
jw. Materials 560,000
jx.
d. No entry
jy.
110. The journal entry to record usage of direct materials in production is
a. Work in process 560,000
jz. Materials 560,000
ka.
b. Finished goods 560,000
kb. Materials 560,000
kc.
c. Materials inventory 2,800
kd. Materials 2,800
ke.
d. No entry
kf.
111. The journal entry to record the incurrence of conversion costs is
a. Work in process 300,000
kg. Conversion costs 300,000
 kh.
b. Conversion costs control 300,000
ki. Cash, Accounts payable, Other credits 300,000
kj.
c. Finished goods 300,000
kk. Conversion costs 300,000
kl.
d. No entry
km.
112. The journal entry to charge conversion costs to production is
a. Work in process 300,000
kn. Conversion costs control 300,000
ko.
b. Work in process 300,000
kp. Conversion costs inventory 300,000
kq.
c. Finished goods 300,000
kr. Conversion costs 300,000
ks.
d. No entry
kt.
113. The journal entry to record the completion and sale of finished goods is
a. Finished good 86,000
ku. Cost of goods sold 774,000
 kv. Materials 560,000
kw. Conversion costs control 300,000
kx.
b. Finished good 86,280
ky. Cost of goods sold 776,520
kz. Materials 562,800
la. Conversion costs control 300,000
lb.
c. Finished goods 86,000
lc. Cost of goods sold 774,000
ld. work in process 860,000
le.
d. No entry
lf.
114. In this costing system, the various activities performed in business segment or in the
entire organization are identified, costs are collected on the basis of underlying nature
and extent of such activities, and then assigned to the products or services based on
consumption of such activities by the products or services.
a. Operation costing system
b. Activity-based costing system
c. Job-order costing system
d. Process costing system

lg. ITEMS 109 to 113 ARE BASED ON THE FOLLOWING INFORMATION:

lh. A company produces and sells two types of products. It classifies its costs as
belonging to four functions – production, marketing, distribution, and customer services.
For purposes of setting selling prices for products, all company costs are assigned to the
two products. The direct costs of the four functions are traced directly to the products.
The indirect costs, on the other hand, are accumulated into four separate cost pools and
then assigned to the two products using appropriate allocation bases.

115. The allocation base that would most likely be the best for allocating indirect costs of
the marketing function is
a. number of shipments
b. number of sales persons
 c. number of customer phone calls
d. direct labor hours
li.
116. The allocation base that would most likely be the best for allocating the indirect costs
of the distribution function is
a. number of shipments
b. number of sales persons
c. direct labor hours
d. machine hours
lj.
117. The allocation base that would most likely be the best for allocating the indirect costs
of the customer services function is
a. number of shipments
b. number of sales persons
c. number of customer phone calls
d. number of units produced
lk.
118. It is comprehensive understanding of how an organization generates its output. It
involves the determination of which activities are value-adding or non-value-adding
and how the latter may be reduced or eliminated. It is a key component of ABC
Management that links product costing and continuous improvement.
a. ABC System
b. Process value analysis
c. Backflush costing
d. JIT system
ll.
119. Which of the following statements is not correct?
a. ABC tends to increase the number of cost pools and cost drivers used.
b. ABC’s philosophy is to accumulate heterogeneous cost pools.
 c. In ABC system, homogenizing cost pools minimizes broad averaging of costs
that have different drivers
d. Design of an ABC system that starts with process value analysis, a
comprehensive understanding of how an organization generates its output.
lm.
120. In ABC system, costs are grouped in cost pools and then allocated by common
allocation base, which ordinarily is the cost’s cost driver. Such allocation base is the
common denominator for systematically correlating indirect costs and a cost object.
ln. In a homogeneous cost pool, the allocation base should
lo.
a. be a non-financial measure so that the allocation may be more objective
b. be a financial measure so that the allocation may be more objective
c. have a cause-and-effect relationship with the cost items in the cost pool
d. assign the costs in the pool uniformly to cost objects even if the cost objects do
not use resources uniformly
lp.
121. Which of the following statements is false?
a. Under ABC, a product is allocated only those costs that pertain to its production,
hence, the products are not cross-subsidized
b. In ABC, the activities determined serve as cost objects. Costs for each activity
are accumulated in a cost pool and then allocated using the appropriate activity
base or cost driver.
c. If a firm manufactures only one product, rather than multiple products, ABC
is more likely to result in major differences from traditional costing system.
d. ABC is useful for allocating production costs, as well as marketing and
distribution costs.
lq.
122. ABC differs from traditional product costing because it uses multiple allocation bases
and therefore, allocates costs (such as overhead costs) more accurately. This
normally results in
a. equalizing setup costs for all product lines
b. lower setup costs being charged to low volume products
c. decreased unit costs for low-volume products than is reported by traditional
product costing systems
d. substantially greater unit costs for low-volume products than is reported
by traditional product costing systems

lr. ITEMS 123 to 124 ARE BASED ON THE FOLLOWING INFORMATION:

ls. T. Formaloza Corp. has used a traditional cost accounting system to apply quality
control costs uniformly to all products at a rate of P20 per direct labor hours for its main
products are 9,600 hours.

lt. Trisha wants to shift ABC system in order to allocate quality control costs to its
products in more equitable manner. To start with, process value analysis was conducted.
Quality control activities were determined, as well as the appropriate cost drivers and
cost driver rates. The analysis yielded the following:
lu. Activit lv. Cost lx. Rate ly. Quanti
y lw. Driver ty for
Main
Produ
ct
lz. Inspec ma. mb. mc.20
tion of Classes of P500 per classe
materi materi class s
als als
deliveri
es
md. me. mf. P10pe mg.
Inspection Number of r unit 12,000
of units units
goods
in
proces
s
mh. mi. Numb mj. 200 mk.100
Final er of per order
inspect orders order
ion
before
deliver
y of
finishe
d
goods
 ml.

123. The quality control cost that would be assigned to the main product using the
traditional costing system is
a. P240,000
b. P150,000
c. P120.000
d. P192.000
mm.
124. The quality control cost that would be assigned to the main product using ABC
costing system is
a. P240.000
b. P150,000
c. P120,000
d. P192,000

mn. ITEMS 125 to 126 ARE BASED ON THE FOLLOWING INFORMATION:

mo. The cost accountant of L. Rosales, Inc. is considering to use the ABC costing
system in determining the cost of its products.

mp. At the present, the company uses the traditional costing system wherein factory
overhead costs are allocated based on direct labor hours. The cost accountant believes
that the present accounting system may be providing misleading cost information,
hence, the plan to change the ABC system.

mq. For the coming period, the company is planning to use 5,000 direct labor hours,
and its total budgeted factory overhead amounts to P90,000, broken down as follows:
 mr. Activ ms.Cost mt. Bud mu.
ity drive gete Budgete
r d d
Activ Cost
ity
mv. 1. mw. mx.40 my. P20,
Setu Number 000
p of
Cost setu
s ps
mz.2. na. Num nb. 20 nc. 40,0
Prod ber 00
uctio of
n batc
moni hes
torin
g
nd. 3. ne. Num nf. 1,00 ng. 30,0
Qual ber 0 00
ity of
contr insp
ol ectio
ns
nh. Total ni. nj. nk. P90,
overhead cost 000
 nl.

nm. Projected data for one company’s products, Product X, for the coming period are
as follows:

nn. Production end sales 1,000 units

no. Direct labor hours 2,000 hours

np. Units per batch 500

nq. Number of setups 4

nr. Number of inspections 200

ns. Direct materials cost P10 per unit

nt. Direct labor rate P20 per hour

nu.

125. If the company will use the traditional full cost system, the cost per unit of product X
for the coming period will be
a. P36
b. P50
c. P86
d. P68
nv.
126. If the company will use the ABC system, the cost per unit of product X for the coming
year will be
a. P62
b. P50
c. P86
d. P12

nw. ITEMS 125 to 126 ARE BASED ON THE FOLLOWING INFORMATION:

nx. Jarred Pereña operates Daddy’s Nursery which provides baby-sitting services for
children between 2 to 5 years old. Working mothers leave their children at 8:00 am and
pick them up after hours.

ny. Jarred converted his house into a nursery home where children are provided with
sleeping areas, play pen, and study areas, as well as meals, milk, and snacks. Nursery
fee is computed by adding a markup to the total cost of service provided to each child.

nz. At present, Jarred uses the traditional costing system in computing the cost of
service per child, where the total cost is divided by the number of child served.
oa. During the previous month, the nursery served 100 children, for which the
company incurred P50,000 total cost of service. Jarred observed, however, that it is not
right to just divide the total cost by the number of children because incurrence of some
costs may vary depending on some factors. For example, children between 2 to 3 years
old need more attention and are provided more services than those above 3 years old.

ob. Considering this, Jarred pans to apply ABC system in determining the cost of
service per child. He conducted a study of the previous month’s operations, and the
following results came out:

oc.

od. Cost oe. Cost of. Cost og. Cost

Cate Driv Driv
gory er er
Qua
ntity
oh. Meal oi. P20, oj. Num ok. 100
s, 000 ber child
snac of ren
ks, child
supp ren
lies
ol. Care om. on. Staff oo. 1,20
givin P30,000 hour 0
g s hour
(nurs s
ing
assis
tanc
e
and
tutori
als)
hour
s
op.

oq. Children or. Number of os. Staff Hours

Category Children
ot. Babies (2-3 ou. 60 ov. 1,000
years old)
ow. Kiddies (above ox. 40 oy. 200
3 years old)
 oz.

127. If the traditional costing system were used and nursery fee was computed at 300% of
the cost of service per child, Daddy’s Nursery could have charged each child a fee of
a. P1,500
b. P500
c. P166.67
d. P650
pa.
128. If the ABC system were used, nursery fee per child should have been
a. P1,850 for the babies, P975 for the kiddies
b. P616,.67 for the babies, P325 for the kiddies
c. P1,500 for both the babies and kiddies
d. P1,412.50 for both the babies and kiddies
pb.
129. The Activity-Based Costing System is one means of avoiding what has been called
Peanut-butter costing. Inaccurately averaging or spreading costs like peanut-butter
over products of service units that use different amounts of resources results in
cross-subsidization of product costs. Cross-subsidization
a. describes the condition in which the miscasting of one product causes the
miscasting of other products
b. involves a determination of which activities that use resources are value-adding
or non-value-adding and how the latter may be reduced or eliminated
c. is the linkage of product costing and continuous improvement of process, it
encompasses driver analysis, activity analysis, and performance measurement
d. is a hybrid of job order costing and process costing that emphasizes physical
processes or operations for cost management and control purposes
pc.
130. Mich Roxa Corp. produces and sells two products, A and B. Data about the two
products are as follows:

pd. pe. Product A pf. Product B

pg. Budgeted production ph. 3,000 units pi. 3,000 units
pj. Direct labor hours pk. 9,000 hours pl. 15,000 hours
pm. Number of setups pn. 4 po. 6
pp. Cost per setup pq. P1,800 pr.
 ps.
pt. If Mich applies the setup cost on the basis of direct labor hours, the cross subsidy
per unit arising from the peanut-butter costing approach is
a. P0.15
b. P1.20
c. P3.00
d. P1.50
pu.
131. Costs that are common to many different activities within an organization are known as
______ costs.
a. product-or process level
b. unit level
c. organizational level
d. batch-level
pv.
132. Setup time is
pw.

px. a batch cost py. a value- pz. a production

added cost cost
a. No qa. No qb. Yes
b. Yes qc. Yes qd. No
c. Yes qe. Yes qf. Yes
d. Yes qg. No qh. Yes
 qi.
133. In allocating variable costs to products,
a. a company should never use more than one driver
b. a volume-based cost driver should be used
c. a company should always use the same allocation base that it uses for fixed
costs
d. direct labor hours should always be used as the allocation base
qj.
134. Traditional overhead allocations results in which of the following allocations?
a. High–volume products are assigned too much overhead, and low-volume
products are assigned too little overhead.
b. Low-volume products are assigned too much, and high-volume products are
assigned too little overhead.
c. Overhead costs are assigned as period costs to manufacturing operations.
d. The resulting allocations cannot be used for financial reports.
qk.
135. Traditionally, overhead has been assigned based on direct labor hours or machine
hours. What effect does this have on the cost of a high-volume product?
a. under-costs the product
b. over-costs the product
c. has no effect on the product cost
d. cost per unit is unaffected by product volume
ql.
136. Relative to traditional product costing, activity-based costing differs in the way costs
are
a. incurred
b. benchmarked
c. allocated
d. processed
qm.
137. In allocating fixed costs to products in activity-based costing,
a. direct labor hours should always be used as allocation base.
b. a company should use the same allocation base that it uses for variable costs.
c. a cost driver that is not volume related should be used.
d. machine hours should always be used.
qn.
138. Of the following, which is the best reason in using activity-based costing?
a. to assign indirect overhead costs to different over head pools
b. to better assign overhead costs to products
c. to keep better track of overhead costs
d. to more accurately assign overhead costs to cost pools so that these costs are
better controlled
qo.
139. These activities are needed to support an entire product line regardless of the number of
units and batches produced.
a. Batch-level Activities
b. Unit-level Activities
c. Facility-level Activities
d. Product-level Activities
qp.
140. Setup, receiving and inspection, are examples of:
a. Batch-level Activities
b. Unit-level Activities
c. Facility-level Activities
d. Product-level Activities
qq.
qr.
qs.

qt.

qu.

qv.

qw.

qx.

qy.

qz.

ra.

rb.

rc.

rd.

re.

rf.

rg.

rh.

ri.

rj.

rk.

rl.

rm.

rn.