COST ACCOUNTING & COST MANAGEMENT
1. ABC Company has estimated the following cost formulas for overhead:
Cost Formula
Lubricants
P 1,500 plus P 0.50 per machine-hour
Utilities
P 2,000 plus P 0.60 per machine hour
Depreciation
P 1,000
Maintenance
P 200 plus P 0.10 per machine-hour
Machine setup
P 0.30 per machine-hour
Based on these cost formulas, the total overhead cost expected at a level of 300
machine hours is
a. P 4,700
c. P 5,000
b. P 4,950
d. P 5,150
2. Which of the following statements is true?
a. the higher is the production within the relevant range, the higher is the fixed
cost per unit
b. the higher is the production within the relevant range, the higher is the
variable cost per unit
c. the lower is the production within the relevant range, the lower is the total
fixed cost
d. the lower is the production within the relevant range, the lower is the total
variable cost
3. As
a.
b.
c.
d.
volume increases,
total fixed costs remain constant and per-unit fixed costs increase
total fixed costs remain constant and per-unit fixed costs decrease
total fixed costs remain constant and per-unit fixed costs remain constant
total fixed costs increase and per-unit fixed costs increase
4. Within the relevant range, the amount variable cost per unit
a. differs at each production level
b. increases as production increases
c. decreases as production decreases
d. remains constant at each production level
5. Which of the following best describes a fixed cost?
a. it may change in total when such change is unrelated to changes in production
b. it may change in total when such change is related to changes in production
c. it is constant per unit of changes in production
d. it may change in total when such change depends upon production or within
the relevant range
6. Fixed costs that cannot be reduced within a short period of time are
a. Committed
c. avoidable
b. Variable
d. unnecessary
7. An example of a discretionary fixed cost would be
a. depreciation on equipment
c. salaries of top management
b. rent on factory building
d. research and development
PRELIMINARY EXAMINATION
8. Which of the following best describes a step cost?
a. it varies less than proportionately with volume
b. it varies more than proportionately with volume
c. it is partly variable and partly fixed
d. it increases abruptly outside the relevant range
9. In describing the cost formula equation, Y=a+bX, which of the following
statements is correct?
a. „Y‟ is the independent variable
b. „a‟ is the variable rate
c. „a‟ and „b‟ are valid for all levels of activity
d. In the high-low method, „b‟ is equals the change in cost divided by change in
activity
10. The fixed cost of a semi-variable cost is comparable to the mathematical concept
of
a. Y-intercept
c. Dependent variable
b. Slope of the line
d. Independent variable
11. Which of the following is not a method of splitting semi-variable cost?
a. high and low point
c. scatter chart
b. method of least squares
d. linear programming
12. James Mail Order Co. applied high-low method of cost estimation to customer
order data for the first four months of 2010. What is the estimated variable filing
cost component per order?
Month
Orders
Cost (P)
January
1,200
3,120
February
1,300
3,185
March
1,800
4,320
April
1,700
3,895
What is the estimated variable filing cost component per order?
a. P 2.00
c. P 2.48
b. P 2.42
d. P 2.50
13. Bond Company estimated its materials handling cost at two activity levels as
follows:
Kilos Handled
Cost
80,000
160,000
60,000
132,000
What is Bond‟s estimated cost for handling 75,000 kilos?
a. P 150,000
c. P 157,500
b. P 153,000
d. P 165,000
14. In March, Quantum express had electrical costs of P 225.000 when the total
volume was 4,500 cups of coffee served. In April, electrical costs were P 227.50
for 4,750 cups of coffee. Using the high-low method, what is the estimated fixed
cost of electricity per year?
COST ACCOUNTING & COST MANAGEMENT
a.
b.
P 200
P 180
PRELIMINARY EXAMINATION
c. P 225
d. P 2,160
15. Royale Inc. used the high-low method to derive the cost formula for electrical
power cost. According to the cost formula, the variable cost per unit of activity is P
3 per machine hour. Total electrical power cost at the high level of activity was P
7,600 and the low level of activity was P 7,300. if the high level of activity was
1,200 machine-hours, then the low level of the activity was:
a. 800 machine-hours
c. 1,000 machine-hours
b. 900 machine-hours
d. 1,100 machine-hours
16. Craig Co. has an average unit cost of p 45 at P 1,000 units and P 25 at 30,000
units. What is the variable cost per unit?
a. P 10.00
b. P 15.00
c. P 20.00
d. An amount that cannot be determined without more information
17. Total production costs of prior periods for a company are listed below. Assume
that the same cost behavior patterns can be extended linearly over the range of
3,000 to 35,000 units and that the cost driver for each product is the number of
units produced.
Production per month (units) 3,000
Product X
P 23,700
Product Y
47,280
9,000
P 52,680
141,840
16,000
P 86,490
252,160
35,000
P 178,260
551,600
What is the average cost per unit at a production level of 8,000 units for product
X?
a.
b.
P 5.98
P 5.85
18. When unit production decreases, the average
increase in the average cost per unit is due to
a. increase in the total variable costs
b. increase in the total fixed costs
c. P 7.90
d. P 4.83
product cost per unit increases. This
the
c. increase in the unit variable cost
d. increase in the unit fixed cost
19. White Manufacturers provided you with the following flexible budget of factory
overhead at three different capacity levels:
Capacity
Overhead
60%
P 98,000
70%
106,000
85%
118,000
What will be the flexible budget of factory overhead at 90% capacity?
a. P 112,000
c. P 130,000
b. P 122,000
d. P 132,000
20. The major objective of preparing a scatter diagram is to
a. derive an equation to predict future costs
b. perform regression analysis on the results
c. determine the relevant range
d. find the high and low points to use for the high-low method of estimating costs
21. The principal advantage of the scatter- diagram method over the high-low method
of cost estimation is that scatter-diagram method
a. includes cost outside the relevant range
b. considers more than two points
c. can be used with more types of costs than the high-low method
d. gives a precise mathematical fit of points to the line
22. Which is an equation required for applying least square method of computing fixed
and variable costs?
a. ∑y=a∑x + b∑x2
b. ∑xy = na + b∑x
c. ∑y = na + b∑x
d. ∑xy = na + b∑x2
23. Direct material costs are
a. prime and conversion costs
b. prime and manufacturing costs
c. conversion and manufacturing costs
d. prime, conversion and manufacturing costs
24. utilities expense incurred in production facilities (e.g., water, heat and light) is
classified as
a. factory overhead
c. prime cost
b. period cost
d. administrative overhead
25. Wage paid to factory superintendent are
a. conversion costs
c. prime costs
b. manufacturing costs
d. conversion and manufacturing costs
26. Property taxes on a manufacturing plant are generally considered as
a. non-manufacturing cost
c. semi-variable cost
b. period cost
d. conversion cost
27. 1st statement: Job order costing is the best cost accumulation procedure to use
when many batches, each differing as to product specification, are produced
2nd statement: Process costing is the best accumulation procedure to use when
there is a continuous mass production of like units
3rd statement: Job order costing uses job order sheet; process costing uses a
cost of production report
COST ACCOUNTING & COST MANAGEMENT
a.
b.
true, true, true
true, false, true
PRELIMINARY EXAMINATION
c. false, true, true
d. false, false, true
28. Actual, normal and standard cost systems may be used in conjunction with
a. process costing only
c. either job order or process costing
b. job order costing only
d. neither job order nor process costing
29. A non-manufacturing organization may use
a. process costing only
c. either job order or process costing
b. job order costing only
d. neither job order nor process costing
30. In a job order costing system, direct labor costs usually are recorded initially as an
increase in
a. factory overhead applied
c. finished goods
b. factory overhead control
d. work in process
31. In a job order costing, what account is debited when issuing indirect materials to
production
a. materials control
c. manufacturing overhead control
b. work in process control
d. manufacturing overhead applied
32. In job order costing, the application of FOH would be reflected in the general
ledger as increase in
a. factory overhead control
c. work in process
b. finished goods
d. cost of goods sold
33. Under-applied factory overhead results when
a. a plant is operated at less than its normal capacity
b. factory overhead costs incurred are greater than the cost charged to
production
c. factory overhead costs are less than the cost charged to production
d. factory overhead costs incurred are unreasonably low relative to the units
produced
34. The appropriate method for the disposition of under-applied or over-applied
factory overhead
a. is to cost of goods sold only
b. is to finished goods inventory only
c. is apportioned to cost of goods sold and fini9shed goods inventory
d. depends on the significance of the amount
35. Managerial accounting
a. is governed by generally accepted accounting principles
b. is concerned only with monetary information
c. is discretionary rather than mandatory
d. is focused on the business as a whole rather than on segments of the business
36. Which of the following statements is false?
a. management accounting is synonymous to managerial accounting
b. management accounting has no externally imposed standards while financial
accounting has to follow the Generally Accepted Accounting Principles
c. financial accounting deals with information that is primarily reported to
individuals outside the organization
d. cost accounting reports refer to accounting for the annual cost of operating a
business
37. Which of the following statements is true?
a. financial accounting is a subset of cost accounting
b. management accounting is a subset of cost accounting
c. cost accounting is a subset of both management and financial accounting
d. management accounting is a subset of both cost and financial accounting
38. Cost accounting system is usually utilized for
a. internal and external reporting that may be used in making non-routine
decisions and in developing plans and policies
b. external reporting to government, various outside parties and shareholders
c. internal reporting for use in management planning and control, and external
reporting to the extent its product-costing function satisfies external reporting
requirements
d. internal reporting for use in planning and controlling routine operations
39. Management accounting is used by an organization‟s management for a multitude
of purposes that do not include
a. Marketing
c. evaluation
b. Control
d. reporting
Items 40- 41 are based on the following:
The factory ledger of DIAMOND Corporation contains the following cost data for the year
ended December 31, 2010:
Raw materials
P 150,000
P 170,000
Work in process
160,000
60,000
Finished goods
180,000
220,000
Raw materials used
652,000
Total manufacturing costs charged to closing production during the year (including raw
materials, direct labor, and factory overhead applied at the rate of 50% of direct labor
cost), P 1,372,000.
40. The cost of direct labor charged to production during the year amounted to
a. P 240,000
c. P 480,000
b. P 368,000
d. P 720,000
41. The total cost of raw materials purchased during the year amounted to
a. P 632,000
c. P 802,000
b. P 672,000
d. P 822,000
COST ACCOUNTING & COST MANAGEMENT
42. The following cost data for different hours of operations are made available to you
by Florida Manufacturing Company for your analysis:
Number of months
10
Sum of hours
350
Sum of costs
1,000
Sum of hours x costs
39,200
Sum of hours squared
14,250
How much is the fixed cost per year?
a. P 26.50
c. P 318.00
b. P 35.00
d. P 420.00
Items 43-45 are based on the following information:
For fiscal year 2007, Advanced Plans Solution would incur total overhead costs of
P1,200,000 and work 40,000 machine hours. During January 2007, the company worked
exclusively on one job, Job#458. It incurred January costs as follows:
Direct materials usage
P121,000
Direct labor(1,400 hrs)
30,800
Manufacturing overhead

Rent
P11,200

Utilities
15,200

Insurance
32,100

Labor
15,500

Depreciation
23,700

Maintenance
10,800
Total Overhead
108,500
Total Manufacturing Costs
P260,300
Machine hours worked in January
3,400
43. Assuming the company uses an actual cost system, compute the January costs
assigned to Job#458.
a. 253,800
c. 260,300
b. 251,800
d. 265,000
44. Assuming the company uses a normal cost system, compute the January costs
assigned to Job#458.
a. 253,800
c. 260,300
b. 251,800
d. 265,000
45. Compute the under (over) applied overhead: ________________
Items 46 to 55 are based on the following information:
Jigs Magtoto, a careless employee, left some combustible materials near an open flame in
On the Wings of Love Company‟s plant. The resulting explosion and fire destroyed the
entire plant and administrative offices. Clark Medina, the company‟s controller, and Leah
Olivar, the operations manager, were able to save only a few bits of information as they
escaped from the roaring blaze.
PRELIMINARY EXAMINATION
“What a disaster,” cried Clark. “And the worst part is that we have no records to use in
filing an insurance claim.”
“I know”, replied Leah. “I was in the plant when the explosion occurred, and I managed to
grab only this brief summary sheet that contains information on one or two of our costs. It
says that our direct labor cost this year has totaled P180,000 and that we have purchased
P290,000 in raw materials. But I‟m afraid that doesn‟t help much, the rest of our records
are just ashes.”
“Well not completely,” said Clark. “I was working on the year-to-date income statement
when the explosion knocked me out of my chair. I instinctively held onto the page I was
working on, and from what I can make out, our sales to date this year have totaled
P1,200,000 and our gross margin rate has been 40% of sales. Also, I can see that our
goods available for sale to customers has totaled P810,000 at cost.”
“Maybe were not so bad after all,” exclaimed Leah. “My sheet says that prime cost has
totaled P410,000 so far this year and the manufacturing overhead is 70% of conversion
cost. Now if we just had some information on our beginning inventories.”
“Hey, look at this,” cried Clark. “It‟s a copy of last year‟s annual report, and it shows what
our inventories were when this year started. Let‟s see, raw materials was P18,000, work in
process was P65,000, and finished goods was P45,000.
“ACHIEVE!” yelled Leah. “Let‟s go to work.”…”PUSH”…
To file an insurance claim, the company must determine the amount of cost of inventories
as of the date of fire.
As the company‟s accountant, you are asked to compute for the following:
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
Conversion cost
Factory Overhead
Work in process ending inventory
Gross profit
Cost of Sales
Total cost of work placed in process
Total manufacturing cost
Raw materials used
Raw materials available for use
Raw material destroyed by fire
End of examination
Jdr-120610
Blessed is the man that trusteth in the LORD, and whose hope the LORD is. Jeremiah 17:7