MAS.m-1414. Cost Concepts, Classification and Segregation.mc

MAS.M-1414.Cost Concepts, Classification and Segregation.MC MULTIPLE CHOICE QUESTIONS Cost concepts and classification 1. Wages paid to factory machine operators of a manufacturing plant are an element of Prime Conversion cost cost A. No No B. No Yes C. Yes No D. Yes Yes 2. Direct materials are a Conversion Cost A. Yes B. Yes C. No D. No

Manufacturing Cost Yes Yes Yes No

Prime Cost No Yes Yes No

3. The cost of rent for a manufacturing plant is generally considered to be a: Prime Cost Product Cost A. No Yes B. No No C. Yes No D. Yes Yes 4. The salaries you could be earning by working rather than attending college are an example of A. Misplaced Cost B. Opportunity Cost C. Sunk Cost D. Outlay Cost 5. The corporate controller’s salary would be considered a(an) A. Administrative cost B. Manufacturing cost C. Selling expense D. Product cost 6. Inventoriable (product) costs are A. Manufacturing costs incurred to produce units of outputs. B. The costs of direct labor and all factory overhead costs. C. All costs associated with manufacturing other than direct labor costs and raw materials costs. D. Costs that are associated with marketing, shipping, warehousing, and billing activities. 7. 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 because it is a future cost that will not differ between alternatives under consideration. C. Relevant because this will probably change if the regional service is built. D. Irrelevant since another imputed cost for the same will be considered. 8. Cost of goods sold is a component of the income statement. In a merchandising establishement, this refers to purchases adjusted for changes in inventory. In a manufacturing company, what replaces purchases to arrive at cost of goods sold. A. Fixed mfg. overhead. B. WIP C. Finished Goods D. CGM 9. Sunk costs A. Are relevant to long-term decisions but not to short-term decisions B. Are relevant to decision making C. Are subtitles for opportunity costs D. In themselves are not relevant to decision making 10.The costs presented to management for an equipment replacement decision should be limited to A. Relevant Costs B. Standard Costs C. Controllable Costs D. Conversion Costs 11.Management accountants are concerned with incremental unit costs. These cost are similar to the following except: A. The cost to produce an additional unit B. The manufacturing cost C. The economic marginal cost D. The variable cost. 12. As a part of data presented in support of a proposal to increase the production of DVD, the sales manager of Laguna Suppliers reported the total additional cost required for the proposed increase in production level. The increase in total cost is known as A. Incremental Cost B. Out-of-pocket cost C. Opportunity cost D. Controllable cost

13. An opportunity cost is A. The difference in total costs which results from selecting one choice instead of another.

B. A cost that may be shifted to the future with little or no effect on current operations C. A cost that may be saved by not adopting an alternative D. The profit foregone by selecting one choice instead of another. 14.Controllable costs are A. Costs are likely to respond to the amount of attention devoted to them by a specified manager. B. Costs that are governed mainly by past decisions that established the present levels of operating and organizational capacity and that only charge slowly in response to small change in capacity C. Cost that fluctuate in total in response to small changes in rate of utilization capacity D. Costs that management decides to incur in the current period to enable the company to achieve objectives other than the filling orders placed by customers E. Costs that will be unaffected by current managerial decisions 15.An avoidable cost is A. The profit foregone by selecting one choice instead of another B. A cost that does not entail any peso outlay but is relevant in the decisionmaking process C. A cost that continues to be incurred even though there is no activity D. A cost that may be saved by not adopting an alternative E. A cost common to all choices in question and not clearly or practically allocable to all of them 16.The term “discretionary cost” refers to A. Costs are likely to respond to the amount of attention devoted to them by a specified manager. B. Costs that are governed mainly by past decisions that established the present levels of operating and organizational capacity and that only charge slowly in response to small change in capacity C. Amortization of costs that were capitalized in previous periods. D. Costs that management decides to incur in the current period to enable the company to achieve objectives other than the filling orders placed by customers E. Costs that will be unaffected by current managerial decisions 17.An imputed cost is A. A cost that may be shifted to the future with little or no effect on current operations B. A cost that cannot be avoided because it has already been incurred C. A cost that does not entail any peso outlay but which is relevant to the decision making process. D. The difference in total costs that results from selecting one choice instead of another. E. A cost that continues to be incurred even though there is no activity.

18.The term “committed costs” refers to A. Costs are likely to respond to the amount of attention devoted to them by a specified manager. B. Costs that are governed mainly by past decisions that established the present levels of operating and organizational capacity and that only charge slowly in response to small change in capacity C. Costs that management decides to incur in the current period to enable the company to achieve objectives other than the filling orders placed by customers D. Cost that fluctuate in total in response to small changes in rate of utilization capacity E. Amortization of costs that were capitalized in previous periods. 19.Common costs are those incurred A. To produce two or more inseparable products B. Routinary in the industry in which the company operates C. By every department in an organization D. To produce common products beyond their split-off point 20.Out-of pocket costs A. Are under the influence of a supervisor B. Require expenditure of cash C. Are not recoverable D. Are committed and unavoidable 21.Joint costs are those costs A. Of a product from a common process that has relatively little sales value and only a small effect on profit B. Of production that are combined in the overhead account C. Of products requiring the services of two or more processing departments D. That are incurred to produce two or more products, each of relatively significant value, from a common process 22.Differential costs A. Are avoidable by changing a course of action B. Include direct materials and direct labor but not factory overhead C. Vary with changes in operations D. Include direct labor and overhead but not direct materials 23.Salaries of accounts receivable clerks when one clerical worker is needed for every 750 accounts receivable is an example of A. Fixed cost B. A step-variable cost C. Mixed cost D. Curvilinear cost High-Low method 24.These are among the methods of segregating fixed cost and variable costs except:

A. B. C. D.

Simple regression analysis Scattergraph Breakeven method High-low method

25.Mat company estimated its material handling costs at two activity levels as follows: Kilos Handled Cost 80,000 P 160,000 60,000 132,000 What is Mat’s estimated cost of handling 75,000 kilos? A. B. C. D.

P P P P

150,000 153,000 157,500 132,000

26.Hungarian Sausage wishes to analyze the fixed and variable components of the semi-variable cost. The following information is available: Month Output Costs Month Output Costs (Units) (Units) 1 1,000 P 12,000 4 600 P 9,000 2 700 10,000 5 1,400 19,000 3 1,100 14,000 6 1,200 5,000 Using the high-low method, which one of the following is correct? A. Variable costs are P15 per unit B. Variable costs are P10 per unit C. Fixed costs are P1,500 per month D. Fixed costs are P 1,000 per month

Scattergraph Model 27.All of the following are assumptions underlying the validity of linear regression output except A. The errors are normally distributed and their mean is zero. B. Certainty. C. The variance of the errors is constant. D. The independent variables are not correlated with each other. (cma)

28.In determining the 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. B. C. D.

Graphic method. Hign-and-low-point method. Simple regression Multiple regressions. (cma)

29.Tom Company has developed a regression equation to analyze the behavior of its maintenance costs (Q) as a function of machine hours (Z). The following equation was developed by using 30 monthly observations with a related coefficient of determination of 0.90: If 1,000 machine hours are worked in one month, the related point of estimate of total maintenance costs would be A. B. C. D.

11, 250 10, 125 5,250 4,725

Questions 30 and 31 are based on the following information. The Mulvey Company derived the cost relationship from a regression analysis of its monthly manufacturing overhead cost C = P80, 000 + 12 M If: C = monthly manufacturing overhead cost M = machine hours The standard error of the estimate of the regression is 6, 000. The standard time required to manufacture one six unit case of Mulvey’s single product is 4 machine hours. Mulvey applies manufacturing overhead to production on the basis of machine hours, and its normal annual production is 50, 000 cases.

30.Mulvey’s estimated variable manufacturing overhead cost for a month in which scheduled overhead is 5, 000 cases will be A. 80, 000 B. 320, 000 C. 240, 000 D. 360, 000 (cma) 31.Mulvey’s predetermined fixed manufacturing overhead rate would be A. P1.60 per machine hour. B. P4.00 per machine hour. C. P1.20 per machine hour. D. P4.80 per machine hour. (cma)

32.Premised on the past experience, Hanks Corporation adopted the following budget formula for estimating its shipment expenses. The company’s shipments average is 12 kilos per shipment. Shipment costs = P 8, 000 + (0.25 x kgs. Shipped) Pertinent data for the current month are given below: Sales Shipments Units shipped Sales Total pound shipped Kgs. Shipped

Planned 800 800 8, 000 P 240, 000 9,400 4,364

Actual 780 820 9, 000 P 288, 000 12,800 5,591

The actual shipping costs for the month amounted to P 10,500. The appropriate monthly flexible budget allowance for shipping costs for purposes of performance evaluation would be A. P 10,250 B. P 11,075 C. P 10,340 D. P 10, 460 (rpcpa) 33.The segregation of fixed costs and variable costs is key to proper cost analysis. Regression analysis is a technique used for this purpose. Identify the appropriate statements below on regression analysis: 1. It assumes that a change in value of a dependent variable is related to the change in the value of an independent variable. 2. A linear relationship between direct cost and production volume can cause a problem when using accounting data for regression analysis. 3. It attempts to find an equation for the linear relationship among variable 4. It establishes a cause and effect relationship. A. All four statements are appropriate. B. Statements 1,3 and 4 only. C. Statements 1 and 3 only D. Statements 2 and 4 only 34.Simple regression analysis involves the use of Dependent variables Independent variables A. One None B. One One C. One Two D. None Two (cma/aicpa) 35.Regression analysis is A. Estimates the independent cost variable. B. Uses probability assumptions to determine total project costs. C. Estimated the dependent cost variable D. Ignores the coefficient of determination E. Encompasses factors outside the relevant range. 36.Multiple regression analysis

A. B. C. D.

Establishes a cause and effect relationship Is not a sampling technique Involves the of independent variable only Produces measures of probable error

37.Pyramid Company has the data relating total production costs to volume for each quarter during the past five years. During this period, production volume has varied substantially, the method of production has been relatively unchanged and the cost behavior has been complex. What is the most appropriate method for estimating future production cost? A. Linear programming B. Cost-volume-profit earnings approach C. Time-series or trend regression analysis D. Program evaluation review technique. (rpcpa) 38.When the relationship between the independent and dependent variable is not expected to remain constant, an appropriate method analysis is A. Cluster analysis B. Curvilinear regression C. Simple linear regression D. Simplex linear programming 39.A division uses a regression in which monthly advertising expenditures are used to predict monthly product sales (both in millions of dollars). The results show a regression coefficient for the independent variable equal to 0.8. This coefficient value indicates that A. The average monthly advertising expenditure in the sample of P800,000 B. When monthly advertising is at its average level, product sales will be P800,000 C. On average, for every additional dollar in advertising, sales increase by P.80 D. Advertising is not good predictor of sales because the coefficient is so small. 40.Quality control program employs many tools for problem definition and analysis. A scatter diagram is one of these tools. The objective of a scatter diagram is to A. Display a population of items for analysis. B. Show frequency distribution in graphic form C. Divide a universe of data into homogenous groups D. Show the vital trend and separate trivial items. (cia) Least-Squares method 41.The equation(s) for applying the least squares method of computation of fixed and variable production costs can be expressed as A. ∑xy = ax + b∑x² B. ∑y = na + b∑² C. b = a + bx D. ∑XY = a∑x + b∑x² E. ∑Y = na + b∑x (aicpa)

Questions 42 through 48 are based on the following information. Below is an examination of last year’s financial statements of Mackenzie Park Co., which manufactures and sells trivets. Labor hours and production cost for the last 4 months of the years, which are representative for the year, were as follows Labor Hours Total Production Cost September 2,500 P 20,000 October 3,500 25,000 November 4,500 30,000 December 3,500 25,000 Totals 14,000 100,000 Based upon the information given using the least squares method of computation with letters listed below, select the best answer for each question. If: a = Fixed variable per month b = Variable production cost per labor hour n = Number of months x = labor hours per month y = total monthly production costs ∑ = Summation 42. The cost function derived by the simple least squares method (aicpa) A. Is linear. B. Must be tested for minima and maxima. C. Is parabolic D. Indicates maximum costs at the function’s point of inflection. 43. Monthly production cost can be expressed A. Y = ax + b. B. Y = a + bx. C. Y = b + ax D. Y = ∑a + bx (aicpa) 44. Using the least squares method of computation the fixed monthly production cost of trivets is approximately. A. P 100, 000 B. P 25, 000 C. P 7, 500 D. P 20, 000 45. Carnation Company uses regression analysts to develop a model for predicting overhead costs. Two different cost drivers (machine hours and direct materials weight) are under consideration as the independent variable. Relevant data were run on a computer using one of the standard regression programs with the following results: Machine hours Y intercept b r2

Coefficient 2.500 5.0 0.70

DM weight Y intercept b r2

What regression equation should be used?

Coefficient 4.600 2.60 0.50

A. B. C. D.

Y = 2, 500 + 5.0x Y= 4, 600 + 2.6x Y = 2,500 + 3.5x Y = 4, 600 + 1.3x (aicpa)

Coefficient of correlation 46. In regression analysis, the coefficient of determination is a measure of A. The amount of variation in the dependent variable explained by the independent variables. B. The amount of variation in the dependent variable unexplained by the independent variables. C. The slope of the regression line. D. The predicted value of the independent variable. (cia) 47. Using the regression analysis, Thump Company graphed the following relationship of its cheapest product line’s sales with its customers’ income levels: Sales (P)

Income levels increasing If there is a strong statistical relationship between the sales and the customers’ income levels, which of the following equation bet represents the correlation coefficient for this relationship? A. -9.00 B. -0.93 C. +0.93 D. +9.00 (aicpa) 48. Omaha Company asked a CPA’s assistance in planning the use of multiple regression analysis to predict district sales. An equation has been estimated based upon historical data, and a standard of error has been computed. When regression analysis based upon past periods is used to predict for a future period, the standard of error associated with the predicted value, in relation to be standard error for the base equation, will be A. Smaller. B. Larger. C. The same. Larger or smaller, depending upon the circumstances. (aicpa)