PRELIM EXAMINATION

Part 1 30pts
I. SQUID Shirt Shop manufacturers T-shirts and decorates them with custom designs
for retail sale on the premises. Several costs incurred by the company are listed
below. For each cost, indicate which of the following classifications best describes
the cost. More than one classification may apply to the same cost item.
Cost Classifications
a. Variable
b. Fixed
c. Period
d. Product
e. Administrative
f. Selling
g. Manufacturing
h. Research and development
i. Direct Material
j. Direct Labor
k. Manufacturing overhead
Cost Items
1. Cost of fabric used in T-shirts
2. Wages of shirt makers
3. Cost of new sign in front of retail T-shirt shop
4. Wages of the employee who repairs the firms sewing machine
5. Cost of electricity used in the sewing department
6. Wages of T-shirts designers and painters
7. Wages of sales personnel
8. Depreciation on sewing machines
9. Rent on the building. Part of the building’s first floor is used to make and paint t-shirts.
Part of it is used for the retail sales shop. The second floor is used for administrative
offices and storage of raw materials and finished goods.
10. Cost of daily advertisements in local media
11. Wages of designers who experiment with new fabrics, paints, and t-shirt design
12. Cost of hiring a pilot to fly along the beach pulling a banner advertising the shop
13. Salary of the owner’s secretary
14. Cost of repairing the gas furnace
15. Cost of insurance for the production employees.

II. The following terms are used to describe various economic characteristics of costs.
Opportunity cost
Out-of-pocket cost
Sunk cost
Differential cost
Marginal cost
Average cost

Required: Choose one of the terms listed above to characterize each of the amounts described
below.
1. The cost of including one extra child in a day-care center.
2. The cost of merchandise inventory purchased two years ago, which is now obsolete.
3. Th cost of feeding 500 children in a public-school cafeteria is P800 per day, or P1.60 per
child per day. What economic term describes this P1.60 cost?
4. The management of high-rise office building uses 2,500 square feet of space in the
building for its own management functions. This space could be rented for P250,000.
What economic term describes this P250,000 in lost rental revenue.
5. The cost of building an automated assembly line in a factory is P800,000. The cost of
building a manually operated assembly line is P375,000. What economic term is used to
describe the difference between these two amounts?
6. Referring to the preceding question, what economic term is used to described the
P800,000 cost of building the automate assembly line?
Part 2 MULTIPLE CHOICE 20pts
1. Fixed cost
a. May include either direct or indirect costs
b. Vary with production or sales volumes
c. Include parts and materials used to manufacture a product
d. Can be adjusted in the short run to meet actual demands.
2. Which one of the following is a variable cost in an insurance company?
a. Rent
b. President’s salary
c. Sales commissions
d. Property taxes
3. Which statement is true?
a. All variable costs are direct cost
b. Because of a cost-benefit trade-off, some direct costs may be treated as indirect
costs
c. All fixed costs are indirect costs
d. All direct costs are variable costs
4. Service sector companies report
a. Only merchandise inventory
b. Only finished goods inventory
c. Direct materials inventory, work-in-process inventory, finished goods inventory
accounts
d. No inventory accounts.
The following information applies to question 5-8
The Coco Company manufactures several different products. Unit cost associated with
Product ABC are as follows:
Direct materials P 60
Direct manufacturing labor 10
Variable manufacturing overhead 18
Fixed manufacturing overhead 32
Sales commissions (2% of sales) 4
Administrative salaries 16
Total P140
5. What are the variable cost per unit associated with Product ABC?
a. P18
b. P22
c. P88
d. P92
6. What are the fixed costs per unit associated with Product ABC?
a. P102
b. P48
c. P52
d. P32
7. What are the inventoriable costs per unit associated with Product ABC?
a. P120
b. P140
c. P50
d. P88
8. What are the period cost per unit associated with product ABC?
a. P4
b. P16
c. P20
d. P52
9. All of the cost categories listed below are usually found in a company’s accounting
records, except for;
a. Sunk cost
b. Inventoriable cost
c. Opportunity cost
d. Marketing costs
 10. Buffy Company rents out a small unused portion of its factory to another company
for P1,000 per month. The rental agreement will expire next month, and rather
than renew the agreement Buffy Company is thinking about using the space itself
to store materials. The term to describe the P1,000 per month is:
a. Sunk cost
b. Period cost
c. Opportunity cost
d. Variable cost
Part 3 30pts
Problem 1
The following information has been taken form the accounting records of HEHE Corporation for
the last year:
Selling expenses P 70,000
Raw materials inventory January 1 45,000
Raw materials inventory, December 31 30,000
Work in process inventory, January 1 90,000
Work in process inventory December 31 50,000
Finished goods inventory, January 1 130,000’
Finished good s inventory, December 31, 105,000
Utilities factory 18,00
Direct labor cost 75,000
Depreciation, factory 81,000
Purchases of raw materials 375,000
Sales 1,250,000
Insurance, factory 20,000
Supplies, factory 7,000
Administrative expenses 135,000
Indirect labor 150,000
Maintenance, factory 43,500
Management wants these data organized in a better format so that financial statements can be
prepared for the year.

Require:
1. Prepare a schedule of cost of goods manufactured
2. Compute the cost of goods sold
3. Prepare an income statement