RELEVANT COSTING QUIZZER

MARIA CRISTINA P. OBESO, CPA, MBA

1. Identify the best description for relevant costs in decision-making process.
a. Past costs that are expected to be different under each alternative
b. Past costs that are expected to be the same under each alternative
c. Future costs that are expected to be different under each alternative
d. Future costs that are expected to be the same under each alternative

2. A cost incurred in the past and hence irrelevant for current decision making is a:
a. Sunk cost c. Direct cost
b. Fixed cost d. Discretionary cost

3. Which of the following costs is generally considered irrelevant in decision-making

process?
a. Direct labor c. Fixed factory overhead
b. Direct materials d. Variable factory overhead

4. Which of the following cost classification schemes is most relevant to decision

making?
c. Fixed vs. variable c. Joint vs. common
d. Direct vs. common d. Avoidable vs. Unavoidable

5. A company has a space that it occupies to make a component. It could rent out the
same space to another company. The rent is a (an)
a. Sunk cost c. Opportunity cost
b. Joint cost d. Unavoidable cost

6. An opportunity cost is usually:

a. Relevant and part of traditional accounting records
b. Relevant, but not part of traditional accounting records
c. Irrelevant, but part of traditional accounting records
d. Irrelevant and not part of traditional accounting records

7. In a make-or-buy decision
a. Only variable costs are relevant
b. Only conversion costs are relevant
c. Fixed costs that can be avoided in the future are relevant
d. Fixed costs that will continue regardless of the decision are relevant

8. In a make-or-buy decision, the cost to buy is compared with the

a. Total cost to make c. Variable manufacturing costs
b. Relevant cost to make d. Variable selling & administrative expenses

9. What is the opportunity cost of making a component part in a factory given that
there is no alternative use of the capacity?
a. Zero c. Variable costs of the component
b. Fixed costs of the component d. Total manufacturing costs of the component

10. In an accept-or-reject decision, which cost is usually considered to be irrelevant?

a. Fixed cost of the product c. Direct fixed costs associated with the order
b. Variable cost of the product d. Opportunity costs of the temporary idle capacity

11.If there is an excess capacity, then the minimum acceptable price for a special order
must cover
a. Usual fixed manufacturing costs
 b. Variable and usual fixed manufacturing costs
c. Variable and incremental fixed costs associated with the special order
d. Variable manufacturing costs plus contribution margin foregone on lost regular units.

12. If a company is operating at maximum or full capacity, the minimum special-order

price must cover
a. Variable costs associated with the special order
b. Variable and incremental fixed costs associated with the special order
c. Variable and fixed manufacturing costs associated with the special order
d. Variable costs and incremental fixed costs associated with the special order plus contribution
margin foregone on regular units not produced.

13. If the margin lost by dropping a product line is higher than avoidable fixed costs,
then the product line
a. Operates at a loss c. Shall be continued
b. Shall be shutdown d. Has no impact on company profit

14. Assuming there is a material amount of shutdown costs, then the shutdown point
must be
a. Nil or zero c. Above its break-even point
b. Below its break-even point d. Equal to its break-even point

15. Which is usually considered irrelevant in `sell or process further' decision making?
a. Joint costs c. Sales value at the split-off point
b. Further processing costs d. Sales value after further processing

16. A company that has a limited number of labor hours and abundant machine hours
should produce first the product that has the highest
a. Demand in units c. Contribution margin per labor hour
b. Contribution margin per unit d. Contribution margin per machine hour

17. In the development of the accounting data for decision-making purposes, a

relevant cost is defined as:
a. Changes in variable cost under each alternative course of action.
b. Future costs which will differ under each alternative course of action.
c. Historical costs which are the best available basis for estimating future costs.
d. Standard costs which are developed by time-and-motion-study techniques
because of their relevance to managerial control.

18. In a decision analysis situation, which one of the following costs is generally NOT relevant to the decision?
B a. Incremental cost c. Avoidable cost
b. Differential cost d. Historical cost
19. The relevance of a particular cost to a decision is determined by the
a. Size of the cost c. Potential effects on the decision
b. Risk level of the decision d. Accuracy and verifiability of the cost
20. The kind of cost that can be ignored in short-term decision making is a(n):
a. Differential cost c. Sunk cost
b. Incremental cost d. Relevant cost

21. In determining whether to manufacture a part or buy it from an outside vendor, a cost that is
irrelevant to the short-run decision is
a. Prime costs
b. Variable overhead
c. Fixed overhead that will be avoided if the part is bought from an outside vendor
d. Fixed overhead that will continue even if the part is bought from an outside vendor
 22.In a make-or-buy decision, the relevant costs include variable
manufacturing costs as well as
a. Factory management costs c. Avoidable fixed costs
b. General office costs d. Depreciation costs

23. Turkey Technology manufactures a particular computer component. Currently, the costs
per unit are as follows: Direct materials, P 50; direct labor, P 500; variable overhead, P
250; fixed overhead, P 400.
Pakistan Inc. has obtained Turkey with an offer to sell 10,000 units of the component for P 1,100
per unit. If Turkey accepts the proposal, P 2,500,000 of the fixed overhead will be eliminated.
Should Turkey make or buy the component?
a. Make due to savings of P 3,000,000 c. Buy due to savings of P 1,000,000
b. Buy due to savings of P 2,500,000 d. Make due to savings of P 500,000

24. Saudi, Inc. is operating at 70% capacity and considers making Part A5 now being purchased from
outside suppliers for P 110 each, which is projected to increase in the near future. Saudi has the
equipment and labor force required to manufacture Part A5. The design engineer estimates that
each part requires P 40 of direct materials and P 30 of direct labor. The plant overhead is 200% of
direct labor peso cost, and 40% of the overhead is fixed cost. A decision to manufacture Part A5
will result in a gain or (loss) for each component of:
a. P 26 c. (P 20)
b. P 16 d. P 4
25. The Blade Division of Baghdad Corporation produces hardened steel blades. One-third of the Blade Division's
output is sold to the Lawn Products Division of Baghdad; the remainder is sold to outside customers. The Blade
Division's estimated sales and cost data for the fiscal year are as follows:
Lawn Products Outsiders
Sales P 15,000 P 40,000
Variable costs (10,000) (20,000)
Fixed costs (3,000)
(6,000) Profit P2,000
P14,000
Unit sales 10,000 units 20,000 units

The Lawn Products Division has an opportunity to purchase 10,000 identical quality blades from
an outside supplier at a cost of P 1.25 per unit. Assume that the Blade Division cannot sell any
additional products to outside customers. Should Baghdad allow its Lawn Products Division to
purchase the blades from the outside supplier?
a. Yes, because buying the blades would save Baghdad Company P 500
b. No, because making the blades would save Baghdad Company P 1,500
c. Yes, because buying the blades would save Baghdad Company P 2,500
d. No, because making the blades would save Baghdad Company P 2,500

26. Cairo Manufacturing uses 10 units of Part Number KJ45 each month in the production of radar
equipment. The unit cost to manufacture one unit of KJ45 is presented below.
Direct materials P 1,000
Materials handling (20% of direct material cost) 200
Direct labor 8,000
Manufacturing overhead (150% of direct labor) 12,000
Materials handling represents the direct variable costs of the Receiving Department that are
applied to direct materials and purchased components on their cost. This is a separate charge in
addition to manufacturing overhead. Cairo's annual manufacturing overhead budget is one-third
variable and two-thirds fixed. Egypt Suppliers, one of Cairo's reliable vendors, has offered to
supply Part KJ45 at a unit price of P 15,000. If Cairo purchases the KJ45 units from Scott, the
capacity Cairo used to manufacture these parts would be idle. Should Cairo decide to purchase
the parts from Egypt, the unit cost of KJ45 would:
a. Increase by P 4,800 c. Decrease by P 3,200
b. Decrease by P 6,200 d. Increase by P 1,800

27. Yemen Company manufactures 20,000 units of a certain component per year. This component is
used in the production of a main product. The following are the costs to make the component
per unit:
Direct materials P 11
Direct labor 14
Variable overhead 8
Fixed overhead 9
If Yemen buys the component from outside supplier the company can rent out the released
facilities for P 20,000 a year. The cost of the component per unit as quoted by the supplier is P
36. 60% of the fixed overhead applied in the manufacture of the component will continue
regardless of what decision is made. For all purchases made by the company, freight and
handling costs are applied at 1% of the purchase price. The direct materials cost is exclusive of
the freight and handling cost.
What is the economic advantage or disadvantage of buying the component? (NOTE: the relevant
cost to buy both DM and component must include 1% handling cost based on the purchase price)
a. P 24,800 advantage c. P 27,000 disadvantage
b. P 27,000 advantage d. P 63,000 advantage

28. Iran Company needs 20,000 of a certain part to use in its production cycle. The following
information is available: Cost to Iran to make the part:
Direct materials P4
Direct labor 16
Variable overhead 18
Fixed overhead applied 10
P 48
 Cost to buy the part from the Syria Company P 36
If Iran buys the part from Syria Co., Iran could not use the released facilities in another
manufacturing activity. 60% of the fixed overhead applied will continue regardless of what
decision is made. In deciding whether to make or buy the part, what are the total relevant costs
to make the part?
a. P 560,000 c. P 720,000
b. P 640,000 d. P 840,000

29. Accepting a special order will improve overall net operating income so long as revenue
from the order exceeds
a. The contribution margin on the order c. The variable costs associated with the
order
b. The sunk costs associated with the order d. The incremental costs associated with the order
 30. In considering a special-order situation that will enable a company to make use of its idle
capacity, which of the following costs would be irrelevant?
a. Materials c. Direct labor
b. Depreciation d. Variable overhead

31. Given the following target selling price for a unit of product:
Direct materials

P18 Direct labor

7
Overhead (20% variable) 15*
Cost of manufacture 40
Desired markup – 30% 12
Regular selling price P 52
* based on 25,000 units produced each year
A customer has offered to purchase 5,000 units at a special price of P 38 per unit. The company is
selling only 20,000 units per year so it has idle capacity. Variable selling costs associated with the
special order would be P 2 per unit. If the special order is accepted, what will be the effect on the
company's overall net income?
a. Increase by P 40,000 c. Increase by P 50,000
b. Decrease by P 10,000 d. Decrease by P 70,000

32. Iraq, Inc. sells a product for P 30. Variable cost is P 16. Iraq could accept a special order for 1,000
units at P 23. If Iraq accepted the order, how many units could it lose at the regular price before
the decision became unwise?
a. 1,000 c. 200
b. 500 d. 0
33. Abu Company sells Product B at a selling price of P 21 per unit. Abu's cost per unit based on the full
capacity of 200,000
units is as follows:
Direct materials P 4.00
Direct labor 5.00
Overhead (2/3 fixed)
6.00
P
15.00
A special order offering to buy 20,000 units was received from a foreign distributor. The only
selling cost that would be incurred for this order would be P 3 per unit for shipping. Abu has
sufficient existing capacity to manufacture the additional units. In negotiating the price for the
special order, Abu should consider that the minimum selling price per unit should be:
a. P 14 c. P 16
b. P 15 d. P 18

34. Delhi Co. operates at full capacity. The minimum selling price to be set for a special
order must cover
a. Fixed cost
b. Variable cost
c. Variable cost plus foregone contribution margin on lost regular sales
d. Fixed cost plus foregone contribution margin on lost regular sales

35. Mumbai Co. is a manufacturer of industrial components. One of their products used as a
subcomponent in manufacturing is KB-96. This product has the following financial structure per
unit:
Selling price P 150
Direct materials P 20
Direct labor 15
Variable manufacturing overhead 12
Fixed manufacturing overhead 30
 Shipping and handling 3
Fixed selling and administrative 10
Total costs P 90
Mumbai has received a special, one-time, order for 1,000 KB-96 parts. Assume that Mumbai is
operating at full capacity and that the contribution margin of the output that would be displaced
by the special order is P 10,000. The minimum price that is acceptable, using the original data, for
this one-time special order is in excess of
a. P 60 c. P 87
b. P 70 d. P 100

36. Dhabi Company's regular selling price for its product is P 10 per unit. Variable costs are P 6 per
unit. Fixed costs total P 1 per unit based on 100,000 units and remain constant within the
relevant range of 50,000 units to a total capacity of 200,000 units. After sales of 80,000 units
were projected for 2021, a special order was received for an additional 10,000 units. To increase
its operating income by a total of P 10,000, what price per unit should Dhabi charge for this
special order?
a. P 7.00 c. P 10.00
b. P 8.00 d. P 11.00
37. In deciding whether or not to eliminate a branch or division, which of the following is considered
relevant?
a. All variable costs of the branch c. All direct costs of the branch
b. All fixed costs of the branch d. All indirect costs of the branch

38. Lebanon plans to discontinue a division with a P 20,000 contribution margin. Overhead allocated to
the division is
P50,000, of which P 5,000 cannot be eliminated. What is the effect on Lebanon's pretax income by this
plan?
a. P 5,000 decrease c. P 25,000 increase
b. P 20,000 decrease d. P 30,000 increase

39.Baghdad Company produces and sells 8,000 units of Product X each year. Each unit of Product X
sells for P 10 and has a contribution margin of P 6. It is estimated that if Product X is
discontinued, P 50,000 of the P 60,000 in fixed costs charged to Product X could be eliminated.
These data indicate that if Product X is discontinued, overall company operating income should
a. Increase by P 2,000 per year c. Increase by P 38,000 per year
b. Decrease by P 2,000 per year d. Decrease by P 38,000 per year
40. Arab manages 5 upscale townhouses in Damascus. Shown below are the summary income statements for
each unit :
ONE TWO THREE FOUR FIVE
Rent Income P 10,000 P 12,100 P 23,470 P 18,780 P 10,650
Expenses 8,000 13,000 26,000 24,000 13,000
Profit P 2,000 (P 900) (P 2,530) (P 5,220) (P 2,350)
Included in the expenses is P 12,000 of corporate overhead allocated to the townhouses based on rental
income. The townhouse unit(s) that the company should consider selling is (are):
a. Two, Three, Four and Five c. Four and Five
b. Three, Four and Five d. Four

41. In analyzing whether to build another regional service office, the salary of the Chief Executive
Officer (CEO) at the corporate headquarters is:
a. Relevant because salaries are always relevant
b. Irrelevant since another imputed cost for the same will be considered
c. Relevant because this will probably change if the regional service office is built
d. Irrelevant because it is a future cost that will not differ between the alternatives under
consideration
42. The Uganda Company has two divisions – East and West. The divisions have the following revenues and
expenses:
East West
Sales P 720,000 P 350,000
Variable costs 370,000 240,000
Traceable fixed costs 130,000 80,000
Allocated common corporate 120,000 50,000
costs
Operating income (loss) P 100,000 (P 20,000)
 The management at Uganda is pondering the elimination of the West division since it has shown
an operating loss for the past several years. If the West division were eliminated, its traceable
fixed costs could be avoided. The total common corporate costs would be unaffected by this
decision. Given these data, the elimination of the West Division would result in an overall
company operating income of:
a. P 120,000 c. P 80,000
b. P 100,000 d. P 50,000

43. The income statement of product Pabigat, one of the products being sold by Palugi Company
is reproduced below:
Sales P 80,000
Costs and expenses
92,000 Net loss (P
12,000)
P 37,600 of the costs and expenses above are fixed, of which P 21,600 is unavoidable regardless of
whether the product will be dropped or not. What is the product elimination (shutdown) point?
a. P 16,000 c. P 54,400
b. P 50,000 d. P 70,400

44. Temple Corporation contemplates the temporary shutdown of its plant facilities in a provincial
area which are economically depressed due to natural disasters. Below are certain
manufacturing and selling expenses:
1) Depreciation 5) Sales commissions
2) Property tax 6) Security of premises
3) Interest expense 7) Delivery expenses
4) Insurance of facilities
Which of the above expenses will be considered in the computation of shutdown costs?
a. All expenses in the list c. Items 1, 2 and 3 only
b. All except items 5 & 7 d. All except item 5
 45. The indifference point is the level of volume at which a company
a. Earns the same profit under different operating schemes.
b. Earns no profit
c. Earns its target profit
d. Any of the above

46.Bible Production, Inc. owns and operates a chain of movie theaters. The theaters in the chain
vary from low volume, small town to high volume, big city/downtown theaters. Management is
considering installing machines that will make popcorn on the premises. This proposed feature
would be properly advertised and is intended to increase patronage at the company's theaters.
These machines are available in two different sizes with the following details:
Economy poppers Regular poppers
Annual capacity 50,000 boxes 120,000
boxes
Costs:
Annual machine rental P 80,000 P 110,000
Popcorn cost per box 1.30 1.30
Cost of each box 0.80 0.80
Other variable costs per box 2.20 1.40
What level of output at which the Economy and Regular Poppers would earn the same profit (loss)?
a. 50,000 boxes c. 37,500 boxes
b. 65,000 boxes d. 40,000 boxes

47. Desert Company produces three products from a joint process costing P 100,000. The following
information is available: Units Sales Price (Split-Off) Cost to
Process Further Sales Price (After Further)
A 10,000 P 35 P 60,000 P 40
B 20,000 P 40 20,000 P 45
C 30,000 P 20 90,000 P 25
Which products should be processed further?
a. A only c. B and C
b. A and B d. A, B and C

48. Aladdin Company has 100 units of obsolete part. The variable cost to produce them was P 40 per
unit. They could now be sold for P 30 each and it would cost P 60 to make them now. The parts
can be reworked for P 80 each and sold for P 170. What is the monetary advantage of reworking
the parts over the next-best action?
a. P 3,000 c. P 6,000
b. P 5,000 d. P 10,000

49. Middle East Corporation has 1,000 obsolete lanterns that are carried in inventory at a
manufacturing cost of P 20,000. If the lanterns are reworked for P 5,000, they could be sold for P
9,000. If the lanterns are scrapped, they could be sold for P 1,000. What alternative is more
desirable and what are the total relevant costs of the alternative?
a. Rework, P 5,000 c. Scrap, P 20,000
b. Rework, P 25,000 d. Neither, both options result to losses

50. When a multiproduct plant operates at full capacity, quite often decisions must be made as to
which products to emphasize. These decisions are frequently made with a short-run focus. In
making such decisions, managers should select products with the
a. Highest sales price per unit
b. Highest sales volume potential
c. Highest individual unit contribution margin
d. Highest contribution margin per unit of the constraining resource

51. Food Co. has a limited number of machine hours that it can use for manufacturing two products,
X and Y. Each product has a selling price of P 160 per unit but product X has 40% contribution
margin and product Y has 70% contribution margin. One unit of Y takes twice as many machine
hours to make as a unit of X. Assuming unlimited demand, which product(s) should the limited
machine hours be used for?
a. X c. Either X and Y
b. Both X and Y d. Y
 52. Data regarding four different products manufactured by an organization are presented
below. Direct material and direct labor are readily available from the respective resource
markets. However, the manufacturer is limited to a maximum of 3,000 machine hours per
month:
Product A Product B Product C Product D
Selling price per unit P 15 P 18 P 20 P 25
Variable cost per unit P7 P 11 P 10 P 16
Units produced per machine hour 3 4 2 3
What is the product that is the most profitable for the manufacturer in this situation?
a. Product A c. Product C
b. Product B d. Product D

53. If a cost has no influence on a decision, it

a. Is a sunk cost c. Cannot be a future cost
b. Is not a relevant cost d. Is merely a differential cost
54. A relevant cost is a cost that is
a. Optimal c. Important
b. Effective d. Pertinent to a decision

55. The salary you would otherwise earn by working rather than attending the CPA
review is a good example of
a. A sunk cost c. An incremental cost
b. An opportunity cost d. An out-of-pocket cost
56. Which type of cost is a vital part of decision-making process, but omitted from conventional
accounting records?
a. Sunk costs c. Opportunity costs
b. Direct costs d. Out-of-pocket costs

57. The role of sunk costs in decision-making can be summed up in which of the following
sayings?
a. No pain, no gain c. A penny saved is a penny earned
b. Bygones are bygones d. The love of money is the root of all evil

End.