Accounting 142
COAT CONCEPTS AND CLASSIFICATION
COST SEGREGATION AND ESTIMATION
MULTIPLE CHOICES. Read carefully the questions below and choose the best statement among the choices. Write only the
letter of your answer in CAPITAL FORM on the answer sheet provided with this questionnaire. Use of friction pens is
STRICTLY not allowed. Erasures or alterations of any kind will not be given points. God bless. ☺
1. Cost behavior analysis is a study of how a firm's costs
A. relate to competitors' 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.
2. The term “relevant range” as used in cost accounting
means the range over which
A. costs may fluctuate
B. production may vary
C. cost relationships are valid
D. relevant costs are incurred
3. If a predetermined overhead rate is not employed and
the volume of production is increased over the level
planned, the cost per unit would be expected to
A. Decrease for fixed costs and remain unchanged for
variable costs.
B. Remain unchanged for fixed costs and increase for
variable costs.
C. Decrease for fixed costs and increase for variable costs.
D. Increase for fixed costs and increase for variable costs.
4. Which of the following describes the behavior of the
variable cost per unit? Variable cost:
A. Varies in increasing proportion with changes in the
activity level.
B. Varies in increasing proportion with changes in the
activity level.
C. Remains constant with changes in the activity level.
D. Varies in direct proportion with the activity level.
5. Royalties Company’s average cost per unit is the same
at all levels of volume. Which of the following is true?
A. ROYALTIES must have only variable costs.
B. ROYALTIES must have only fixed costs.
C. ROYALTIES must have some fixed costs and some
variable costs.
D. ROYALTIES’s cost structure cannot be determined from
this information.
6. Depreciation expense based on the number of units
produced is classified as what type of cost?
A. Out-of-pocket cost.
C. Variable cost.
B. Marginal cost.
D. Fixed cost.
7. When the number of units manufactured increases, the
most significant change in unit cost will be reflected as
a(n)
A. increase in the fixed element.
C. increase in the mixed element.
B. decrease in the variable element.
D. decrease in the fixed element.
8. For analysis purposes, the high-low method usually
produces a(n)
A. reasonable estimate.
C. overstated estimate.
B. precise estimate.
D. understated estimate.
9. The high-low method may give unsatisfactory results if
A. the data points all fall on a line.
C. the points are not representative.
B. volume of activity is heavy.
D. volume of activity is light.
10. Regression analysis is better than the high-low method of
cost estimation because regression analysis:
A. is more mathematical.
C. fits its data into a mathematical equation.
B. uses all the data points, not just two.
D. takes more time to do.
11. In regression analysis, what does the variable "X" stand
for in the model Y = a + bX + e?
A. The amount of the dependent variable, the cost to be
estimated.
B. The regression error, which is the distance between the
regression line and the data point.
C. The value for the independent variable, the cost driver
for the cost to be estimated; there may be one or more
cost drivers.
D. The unit variable cost, also called the coefficient of the
independent variable.
12. Simple regression is
A. a regression equation with more than one independent
variable.
B. a regression equation with more than one dependent
variable.
C. a regression equation with more than one independent
and dependent variables.
D. a regression that considers all unknown factors.
13. Regression shows
A. the proportion of the variation of dependent variable
explained by dependent variables.
B. the proportion of the variation of independent variable
explained by the independent variables.
C. the proportion of the variation of dependent variable
explained by the independent variables.
D. none of the above.
14. In the method of least squares, the deviation is the
difference between the
A. predicted and estimated costs.
C. predicted and average costs.
B. predicted and actual costs.
D. average and actual costs.
15. The correlation coefficient or R-squared (R2) is
interpreted as:
A. the minimum distance between the regression line and
a single data point.
B. the measure of the linear relationship between two or
more variables.
C. a determination of whether the data point is considered
to be an "outlier."
D. the proportion of the variation in the dependent
variable explained by the independent variable.
16. A cost-predicting equation determined through
regression analysis
A. always gives close predictions.
B. will not work any better than one obtained using the
high-low method.
C. can be used only for costs that vary with sales of
production.
D. could be severely affected by outliers.
17. Regret Company is interested in the relationship
between sales (dependent variable) and occurrence of
rain (independent variable). Using the proper formula,
the coefficient of correlation (r) is computed as -0.98.
What conclusion about the sales and rain occurrence
could one make?
A. An increase in sales causes an increase in rain 27. Factory supplies for a manufacturing are generally
occurrence. considered as
B. An increase in sales causes a decrease in rain A. Sunk costs
occurrence. B. Period costs
C. An increase in rain occurrence causes a decrease in C. Variable costs
sales. D. Prime costs
D. An increase in rain occurrence causes an increase in
sales. 28. Which of the following best describes a step cost?
A. it varies less than proportionately with volume
18.Multiple regression analysis B. it varies more than proportionately with volume
A. establishes and proves cause and effect relationship. C. it is partly variable and partly fixed
B. does not produce measures of probable error. D. it increases abruptly outside the relevant range
C. measures the change in one variable associated with
the changes in another variable. 29. The major objective of preparing a scatter diagram is to
D. measures the change in one variable related to a A. derive an equation to predict future costs
change in two or more other variables. B. perform regression analysis on the results
C. determine the relevant range
19. Which of these correlation coefficients represents D. find the high and low points to use for the low-high
strongest relationship between two variables? method of estimating costs
A. -0.02
B. 1.80 30. The principal advantage of scatter-diagram method
C. 0.50 over the high-low method of cost estimation is that the
D. -0.70 scatter-diagram method
A. includes cost outside the relevance range
20. What is the appropriate range for the coefficient of B. considers more than two points
determination (r2) C. can be used with more types of costs than the high-low
A. -1 to +1 method
B. -1 to 0 D. gives a precise mathematical fit of the points to the line
C. 0 to +1
D. 0 to infinity 31. How many of the following statements is/are true?
• In regression analysis, all the variables are independent
21. In the scattergraph method, the horizontal axis of one another
represents • In regression analysis, all the variables are dependent of
A. total activity cost one another
B. total activity outputs • In regression analysis, one variable is dependent to one
C. total activity inputs or more other variables
D. none of the above • Regression analysis proves a cause and effect
relationship
22. Which cost is most likely to be mixed for a A. one
manufacturer? B. two
A. Raw materials C. three
B. Direct labor D. four
C. Manufacturing overhead
D. Insurance 32. The coefficient of correlation between production and
unit fixed cost is most likely close to
23. Which of the following statements is true? A. + 1.0
A. The higher is the production within the relevant range, B. – 1.0
the higher is the fixed cost per unit. C. 0
B. The higher is the production within the relevant range, D. ± 1
the higher is the variable cost per unit.
C. The lower is the production within the relevant range, 33. If the coefficient of correlation between two variables is
the lower is the total fixed cost zero, how might a scatter diagram of these variables
D. The lower is the production within the relevant range, appear?
the lower is the total variable cost. A. Random points.
B. A least squares line that slopes up to the right.
24. Which cost is not subtracted from selling price to C. A least squares line that slopes down to the right.
calculate contribution margin per unit? D. Under this condition a scatter diagram could not be
A. Variable manufacturing overhead plotted on a graph.
B. Variable selling expenses
C. Direct labor 34. The first to be undertaken in a simple regression analysis
D. Fixed manufacturing overhead approach is
A. To calculate the coefficient correlation.
25. Unit fixed costs B. To make the least squares computation.
A. are constant per unit regardless of units produced or C. To plot two variables in a scatter diagram.
sold D. To find the standard error of estimate.
B. are determined by dividing total fixed costs by a
denominator such as production volume 35. Regression analysis is superior to other cost behavior
C. vary directly with the activity level when started on a per techniques because it
unit basis A. Examines only one variable.
D. include both fixed and variable elements B. Proves a cause and effect relationship.
C. Produces measures of probable error.
26. Fixed costs that cannot be reduced within a short period D. Is not a sampling technique.
of time are
A. Committed 36. Dolce Amore’s average cost per unit is the same at all
B. Variable levels of volume. Which of the following is true?
C. Avoidable A. Dolce Amore must have only variable costs.
D. Unnecessary B. Dolce Amore must have only fixed costs.
C. Dolce Amore must have some fixed costs and some
 variable costs.
D. Dolce Amore’s cost structure cannot be determined
from this information.
37. Quantum, Inc.’s net sales in 2016 were 15% below the
2015 level. Quantum’s semi-variable costs would
A. Increase in total and increase as a percentage of net
sales.
B. Decrease in total and decrease as a percentage of net
sales.
C. Increase in total, but decrease as a percentage of net
sales.
D. Decrease in total, but increase as a percentage of net
sales.
38. Which of the following statements is false?
A. At zero production level, variable costs are usually zero.
B. At zero production level, total costs equal total fixed
costs.
C. At zero production level, fixed costs are positive.
D. At zero production level, fixed costs is also zero.
39. R-squared is a measure of
A. the spurious relationship between cost and activity
B. the fixed cost component
C. the variable cost per unit of activity
D. how well the regression line accounts for the changes in
the dependent variable
40. Dolce’s average cost per unit is the same at all level of
volume. Which of the following is true?
A. Dolce must have only fixed costs
B. Dolce must have some fixed costs and some variable
costs
C. Dolce must have only variable costs
D. Dolce’s cost structure cannot be determined from this
information
41. Costs that arise from periodic budgeting decisions that
have no strong input-output relationship are commonly
called
A. Committed costs.
B. Discretionary costs.
C. Opportunity costs.
D. Differential costs.
42. A new advertising agency serves a wide range of clients
including manufacturers, restaurants, service businesses,
department stores, and other retail establishments. The
accounting system the advertising agency has most
likely adopted for its record keeping in accumulating
costs is
A. Job-order costing.
B. Operation costing.
C. Relevant costing.
D. Process costing.
43. A shipbuilding company, employing 30 workers,
constructs custom-built yachts. Which of the following is
an appropriate product-costing method for this
operation?
A. Process costing.
B. Variable cost transfer pricing.
C. Job-order costing.
D. Step-down allocation of costs.
44. The manufacturing (work-in-process) account is
A. Neither a real nor a nominal account.
B. An inventory account indicating the beginning and
ending inventory of goods being processed.
C. A hybrid account (both a real and a nominal account).
D. A nominal account to which indirect costs are charged
as incurred and credited as these costs are charged to
production.
45. Which of the following items is not included in (charged
to) factory overhead?
A. Factory depreciation and supplies.
B. Costs of service departments.
C. Costs of maintenance departments.
D. Costs of marketing departments.
46.Joint costs are useful for
A. Setting the selling price of a product,
B. Determining whether to continue producing an item.
C. Evaluating management by means of a responsibility
reporting system.
D. Determining inventory cost for accounting purposes.
47. Cost objectives
A. May be intermediate if the costs charged are later
reallocated to another cost objective.
B. May be final if the cost objective is the job, product, or
process itself.
C. Should be logically linked with the cost pool.
D. All answers are correct.
48. A computer company charges indirect manufacturing
costs to a project at a fixed percentage of a cost pool.
This project is covered by a cost-plus government
contract. Which of the following is an appropriate
guideline for determining how costs are assigned to the
pool?
A. Establish separate pools for variable and fixed costs.
B. Assign prime costs and variable administrative costs to
the same pool.
C. Establish a separate pool for each assembly line worker
to account for wages.
D. Assign all manufacturing costs related to the project to
the same pool.
49. The allocation of general overhead costs to operating
departments can be least justified in determining
A. Income of a product or functional unit.
B. Costs for making management's decisions.
C. Costs for the federal government's cost-plus contracts.
D. Income tax payable.
50. The terms direct cost and indirect cost are commonly
used in accounting. A particular cost might be
considered a direct cost of a manufacturing
department but an indirect cost of the product
produced in the manufacturing department. Classifying
a cost as either direct or indirect depends upon
A. The behavior of the cost in response to volume changes.
B. Whether the cost is expensed in the period in which it is
incurred.
C. The cost objective to which the cost is being related.
D. Whether expenditure is unavoidable because it cannot
be changed regardless of any action taken.
51. Costs are allocated to cost objects in many ways and
for many reasons. Which one of the following is a
purpose of cost allocation?
A. Evaluating revenue center performance.
B. Measuring income and assets for external reporting.
C. Budgeting cash and controlling expenditures.
D. Aiding in variable costing for internal reporting.
52. In determining cost behavior in business, the cost
function is often expressed as Y = a + bX. Which one of
the following cost estimation methods should not be
used in estimating fixed and variable costs for the
equation?
A. Graphic method.
B. Simple regression.
C. High and low point method.
D. Multiple regression.
53. Inventoriable costs
A. Include only the prime costs of manufacturing a
product.
B. Include only the conversion costs of manufacturing a
product.
C. Are expensed when products become part of finished
goods inventory.
D. Are regarded as assets before the products are sold. B. Sunk costs.
C. Relevant costs.
54. Committed costs are costs that D. Avoidable costs.
A. Were capitalized and amortized in prior periods.
B. Management decides to incur in the current period that 60. The advertising and promotion costs for the product
do not have a clear cause and effect relationship selected by Huron will be
between inputs and outputs. A. Discretionary costs.
C. Result from a clear measurable relationship between B. Opportunity costs.
inputs and outputs. C. Committed costs.
D. Establish the current level of operating capacity and D. Incremental costs.
cannot be altered in the short run.
61. The costs included in Huron's fixed overhead are
55. The difference between variable costs and fixed costs is A. Joint costs.
A. Variable costs per unit fluctuate and fixed costs per unit B. Committed costs.
remain constant. C. Opportunity costs.
B. Variable costs per unit are fixed over the relevant range D. Prime costs.
and fixed costs per unit are variable.
C. Total variable costs are variable over the relevant range 62. Which one of the following is least likely to be an
and fixed in the long term, while fixed costs never objective of a cost accounting system?
change. A. Product costing.
D. Variable costs per unit change in varying increments, B. Department efficiency.
while fixed costs per unit change in equal increments. C. Inventory valuation.
D. Sales commission determination.
For numbers 56-61, refer to the following:
63. Job-order costs are most useful for
Huron Industries has recently developed two new products, A. Determining inventory valuation using LIFO.
a cleaning unit for laser discs and a tape duplicator for B. Estimating the overhead costs included in transfer
reproducing home movies taken with a video camera. prices.
However, Huron has only enough plant capacity to C. Controlling indirect costs of future production.
introduce one of these products during the current year. The D. Determining the cost of a specific project.
company controller has gathered the following data to
assist management in deciding which product should be 64. An imputed cost is
selected for production. A. The difference in total costs which results from selecting
one alternative instead of another.
Huron's fixed overhead includes rent and utilities, equipment B. A cost that cannot be avoided because it has already
depreciation, and supervisory salaries. Selling and been incurred.
administrative expenses are not allocated to products. C. A cost that does not entail any dollar outlay but is
relevant to the decision-making process.
Tape Cleaning D. A cost that continues to be incurred even though there
Duplicator Unit is no activity.
Raw materials P 44.00 P 36.00
Machining @ P12/hr. 18.00 15.00 65. Committed costs are
Assembly @ P10/hr. 30.00 10.00 A. Those management decides to incur in the current
Variable overhead @ P8/hr. 36.00 18.00 period to enable the company to achieve objectives
Fixed overhead @ P4/hr. 18.00 9.00 other than the filling of orders placed by customers.
Total cost P 146.00 P 88.00 B. Likely to respond to the amount of attention devoted to
them by a specified manager.
Suggested selling price P 169.95 P 99.98 C. Governed mainly by past decisions that established the
Actual research and current levels of operating and organizational capacity
development costs P240,000 P175,000 and that only change slowly in response to small
Proposed advertising and changes in capacity.
promotion costs P500,000 P350,000 D. Those that fluctuate in total in response to small changes
in the rate of use of capacity.
56. For Huron's tape duplicator, the unit costs for raw
materials, machining, and assembly represent 66. Discretionary costs are
A. Conversion costs. A. Those management decides to incur in the current
B. Separable costs. period to enable the company to achieve objectives
C. Committed costs. other than the filling of orders placed by customers.
D. Prime costs. B. Likely to respond to the amount of attention devoted to
them by a specified manager.
57. The difference between the P99.98 suggested selling C. Governed mainly by past decisions that established the
price for Huron's laser disc cleaning unit and its total unit current levels of operating and organizational capacity
cost of P88.00 represents the unit's and that only change slowly in response to small
A. Contribution margin ratio. changes in capacity.
B. Gross profit. D. Unaffected by current managerial decisions.
C. Contribution.
D. Gross profit margin ratio. 67. A cost that always can be physically traced to a cost
objective is
58. The total overhead cost of P27.00 for Huron's laser disc A. A variable cost.
cleaning unit is a B. An indirect cost.
A. Carrying cost. C. A conversion cost.
B. Discretionary cost. D. A prime cost.
C. Sunk cost.
D. Mixed cost. 68. A cost that bears an observable and known relationship
to a quantifiable activity base is a(n)
59. Research and development costs for Huron's two new A. Engineered cost.
products are B. Indirect cost.
A. Conversion costs. C. Sunk cost.
D. Target cost.
For numbers 69-71, choose from the following choices: A B A
A. Only one statement is true.
B. Only two statements are true.
C. Only one statement is false.
D. All statements are true.
69. S1: All costs incurred in a merchandising firm are
considered to be period costs.
S2: Depreciation is always considered a product cost for
external financial reporting purposes in a manufacturing
firm.
S3: In external financial reports, factory utilities costs may
be included in an asset account on the balance sheet
at the end of the period.
S4: Advertising costs are considered product costs for
external financial reports since they are incurred in order
to promote specific products.
70. S1: Property taxes and insurance premiums paid on a
factory building are examples of manufacturing
overhead.
S2: Manufacturing overhead combined with direct
materials is known as conversion cost.
S3: If the ending inventory of finished goods is
understated, net income will be overstated.
S4: In a manufacturing company, goods available for
sale equals the sum of the cost of goods manufactured
and the beginning finished goods inventory.
71. S1: Variable costs are costs whose per unit costs vary as
the activity level rises and falls.
S2: On a per unit basis, a fixed cost varies inversely with
the level of activity.
S3: The following would typically be considered indirect
costs of manufacturing a particular Boeing 747 to be
delivered to Singapore Airlines: electricity to run
production equipment, the factory manager's salary,
and the cost of the General Electric jet engines installed
on the aircraft.
S4: The following costs should be considered direct costs
of providing delivery room services to a particular
mother and her baby: the costs of drugs administered in
the operating room, the attending physician's fees, and
a portion of the liability insurance carried by the hospital
to cover the delivery room.
72. The corporate controller’s salary would be considered
a(n):
A. manufacturing cost.
B. product cost.
C. administrative cost.
D. selling expense.
73. The cost of fire insurance for a manufacturing plant is
generally considered to be a:
A. product cost.
B. period cost.
C. variable cost.
D all of the above.
74. Which of the following would be considered a product
cost for external financial reporting purposes?
A. Cost of a warehouse used to store finished goods.
B. Cost of guided public tours through the company's
facilities.
C. Cost of travel necessary to sell the manufactured
product.
D. Cost of sand spread on the factory floor to absorb oil
from manufacturing machines.
75. The salary of the president of a manufacturing company
would be classified as which of the following?
A. Product cost
B. Period cost
C. Manufacturing overhead
D. Direct labor
76. Manufacturing overhead consists of:
A. all manufacturing costs.
B. all manufacturing costs, except direct materials and
direct labor.
C. indirect materials but not indirect labor.
D. indirect labor but not indirect materials.
77. Last month, when 10,000 units of a product were
manufactured, the cost per unit was P60. At this level of
activity, variable costs are 50% of total unit costs. If
10,500 units are manufactured next month and cost
behavior patterns remain unchanged the:
A. total variable cost will remain unchanged.
B. fixed costs will increase in total.
C. variable cost per unit will increase.
D. total cost per unit will decrease.
78. An opportunity cost is:
A. the difference in total costs which results from selecting
one alternative instead of another.
B. the benefit forgone by selecting one alternative instead
of another.
C. a cost which may be saved by not adopting an
alternative.
D. a cost which may be shifted to the future with little or no
effect on current operations.
79. Which of the following costs is often important in
decision making, but is omitted from conventional
accounting records?
A. Fixed cost.
B. Sunk cost.
C. Opportunity cost.
D. Indirect cost.
80. Which one of the following costs should NOT be
considered a direct cost of serving a particular customer
who orders a customized personal computer by phone
directly from the manufacturer?
A. the cost of the hard disk drive installed in the computer.
B. the cost of shipping the computer to the customer.
C. the cost of leasing a machine on a monthly basis that
automatically tests hard disk drives before they are
installed in computers.
D. the cost of packaging the computer for shipment.
81. Expense A is a fixed cost; expense B is a variable cost.
During the current year the activity level has increased,
but is still within the relevant range. In terms of cost per
unit of activity, we would expect that:
A. expense A has remained unchanged.
B. expense B has decreased.
C. expense A has decreased.
D. expense B has increased.
82. The term "relevant range" means the range over which:
A. costs may fluctuate.
B. a particular cost formula is valid.
C. production may vary.
D. relevant costs are incurred.
83. An example of a discretionary fixed cost is:
A. insurance.
B. taxes on real estate.
C. management training.
D. depreciation of buildings and equipment.
84. Discretionary fixed costs:
A. vary directly and proportionately with the level of
activity.
B. have a long-term planning horizon, generally
encompassing many years.
C. are made up of plant, equipment, and basic
organizational costs.
D. none of the above.
85. In describing the cost formula equation Y = a + bX, 95. The salary that is sacrificed by a college student who
which of the following statements is correct? pursues a degree full time is a(n):
A. "X" is the dependent variable. A. sunk cost.
B. "a" is the fixed component. B. out-of-pocket cost.
C. In the high-low method, "b" equals change in activity C. opportunity cost.
divided by change in costs. D. differential cost.
D. As "X" increases "Y" decreases. E. marginal cost.

86. An example of a cost that is variable with respect to the 96. The tuition that will be paid next semester by a college
number of units produced and sold is: student who pursues a degree is a(n):
A. insurance on the headquarters building. A. sunk cost.
B. power to run production equipment. B. out-of-pocket cost.
C. supervisory salaries. C. indirect cost.
D. depreciation of factory facilities. D. average cost.
E. marginal cost.
87. A cost driver is:
A. the largest single category of cost in a company. 97. Which of the following costs should be ignored when
B. a fixed cost that cannot be avoided. choosing among alternatives?
C. a factor that causes variations in a cost. A. Opportunity costs.
D. an indirect cost that is essential to the business. B. Sunk costs.
C. Out-of-pocket costs.
88. Which of the following statements is true? D. Differential costs.
A. The word "cost" has the same meaning in all situations in E. None of the above.
which it is used.
B. Cost data, once classified and recorded for a specific 98. A non-value-adding activity
application, are appropriate for use in any application. A. cannot be a cost driver.
C. Different cost concepts and classifications are used for B. should be eliminated.
different purposes. C. usually drives only variable costs.
D. All organizations incur the same types of costs. D. cannot usually be observed by managers
E. Costs incurred in one year are always meaningful in the
following year. 99. A cost-predicting equation determined through
regression analysis
89. Product costs are: A. always gives close predictions.
A. expensed when incurred. B. will not work any better than one obtained using the
B. inventoried. high-low method.
C. treated in the same manner as period costs. C. can be used only for costs that vary with sales or
D. treated in the same manner as advertising costs. production.
E. subtracted from cost of goods sold. D. could be severely affected by outliers.

90. Which of the following would not be classified as a 100. A cost pool is
product cost? A. all of the costs of a particular department.
A. Direct materials. B. all costs in a group such as variable costs or
B. Direct labor. discretionary fixed costs.
C. Indirect materials. C. all costs related to a product or product line.
D. Insurance on the manufacturing plant. D. all costs that have the same driver.
E. Sales commissions.

91. Which of the following is not a period cost?

A. Legal costs.
B. Public relations costs.
C. Sales commissions.
D. Wages of assembly-line workers.
E. The salary of a company's chief financial officer (CFO).

92. Which of the following statements is true?

A. Product costs affect only the balance sheet.
B. Product costs affect only the income statement.
C. Period costs affect only the balance sheet.
D. Period costs affect both the balance sheet and the
income statement.
E. Product costs eventually affect both the balance sheet
and the income statement.

93. Which of the following would likely be a cost driver for

the amount of direct materials used?
A. The number of units sold.
B. The number of direct labor hours worked.
C. The number of machine hours worked.
D. The number of employees working in the factory.
E. The number of units produced.

94. Indirect costs:

A. can be traced to a cost object.
B. cannot be traced to a particular cost object.
C. are not important.
D. are always variable costs.
E. may be indirect with respect to Disney World but direct
with respect to one its major components, Epcot Center.