Far Eastern University- Makati

QUIZ NO.1 COST ACCOUNTING

Name: Date: Score:

Section:

1. The principal advantage of the scatter-diagram method over the high-low method of cost estimation is that the scatter-diagram
method
a. includes costs 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 the points to the line.

2. 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.

3. The cost estimation method that gives the most mathematically precise cost prediction equation is
a. the high-low method.
b. the scatter-diagram method.
c. the contribution margin method.
d. regression analysis.

4. Which cost is most likely to be mixed for a manufacturer?

a. Raw materials.
b. Direct labor.
c. Manufacturing overhead.
d. Insurance.

5. Which combinations of object of cost and classification of cost is most reasonable?

Object of Cost Classification of Cost
--------------- ----------------------
a. Materials used to make products Discretionary fixed cost
b. Advertising cost Discretionary fixed cost
c. Straight-line depreciation Variable cost
d. President's salary Avoidable fixed cost

6. Fixed costs that cannot be reduced within a short period of time are
a. committed.
b. variable.
c. avoidable.
d. unnecessary.

7. Which cost is most likely to be committed?

a. Repairs and maintenance.
b. Sum-of-the-years'-digits depreciation on the factory building.
c. Fee for a consultant on the company's long-range planning.
d. Advertising.

8. Raul's average cost per unit is the same at all levels of volume. Which of the following is true?
a. RAUL must have only variable costs.
b. RAUL must have only fixed costs.
c. RAUL must have some fixed costs and some variable costs.
d. RAUL's cost structure cannot be determined from this information.

9. A mixed cost
a. increases in steps as volume increases.
 b. contains a fixed component and a variable component.
c. varies with more than one measure of volume.
d. cannot be accurately predicted.

10. 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 or production.
d. could be severely affected by outliers.

11. The components of manufacturing cost are

a. variable costs, fixed costs, and overhead costs.
b. materials, direct labor, and overhead.
c. purchases, wages, and manufacturing overhead.
d. wages and salaries, maintenance and repairs, utilities, and depreciation.

12. Which statement is true for a manufacturer?

a. It cannot use the contribution-margin format of the income statement.
b. Many costs vary with production activities, not with sales.
c. The concepts of fixed and variable costs do not apply.
d. Cost-volume-profit analysis is not appropriate.

13. Fixed costs that managers can change on short notice are
a. value-adding costs.
b. variable costs.
c. unavoidable costs.
d. discretionary costs.

14. Identifying cost drivers

a. is not necessary with regression analysis.
b. is the same as identifying cost pools.
c. is an important part of cost management.
d. is useful only with step-variable costs.

15. As volume increases,

a. total fixed costs remain constant and per-unit fixed costs increase.
b. total fixed costs remain constant and per-unit fixed costs decrease.
c. total fixed costs remain constant and per-unit fixed costs remain constant.
d. total fixed costs increase and per-unit fixed costs increase.

16. A committed fixed cost

a. can never be eliminated.
b. can be eliminated in the short-term and in the long-term.
c. can be eliminated in the long-term, but not in the short-term.
d. can be eliminated in the short-term, but not in the long-term.

17. Harry Company had Php300,000 overhead cost at 20,000 machine hours, Php320,000 overhead cost at 25,000 hours.
Variable overhead cost per machine hour is

18. Hagrid Company had Php400,000 overhead cost at 50,000 machine hours and Php460,000 overhead cost at 60,000 hours
Total fixed overhead is

19. Product costs may refer to

a. inventoriable costs for external reporting.
b. design costs plus manufacturing costs for government contracts.
c. all costs incurred along the value chain for pricing decisions.
d. all of the above refer to product costs, it varies.
20. Which cost is LEAST likely to be direct to a particular product?
a. Salaries of salespeople who sell all of the company's products.
b. Advertising of the product.
c. License fees paid to the designer of the product.
d. Cost of materials used to make the product.

21. DSP Company earned Php100,000 on sales of Php1,000,000. It earned Php130,000 on sales of Php1,100,000. Total fixed
costs are

22. Looking at the following scatter diagrams we can conclude that

Php Php
| ** | **
| * ** | ** *
| *** * | * *
| * * | **
| |
| |
|__________________ |__________________
activity activity
Cost A Cost B

a. cost A will be easier to predict than cost B.

b. cost B will be easier to predict than cost A.
c. cost A is out-of-control.
d. cost B has no fixed component.

Ron Company incurred Php 170,000 in overhead costs making 12,000 units in March. It made 15,000 units and incurred
Php188,000 in overhead costs in April.

23. Compute the variable component of overhead cost.

24. Find the fixed factor of overhead cost.

25. The statistician of Hermione, Inc. has developed the following cost-prediction equation, using observations from 12,000 to
30,000 machine hours.

Y = Php236,837 + Php3.7625X,
r-squared = .81
standard error = Php24,363

Y = total maintenance cost, X = machine hours

Find the predicted maintenance cost at 25,000 machine hours.

Neville Company incurred Php475,000 in overhead costs making 40,000 units in August. It made 30,000 units and incurred
Php447,000 in overhead costs in September.

26. Compute the variable component of overhead cost.

27. Find the fixed factor of overhead cost.

The Chochang Company manufactures several different products. Unit costs associated with Product Cedric are as follows:
Direct materials Php 40
Direct manufacturing labor 8
Variable manufacturing overhead 12
Fixed manufacturing overhead 23
Sales commissions (2% of sales) 6
Administrative salaries 9
Total Php98

28. What are the variable costs per unit associated with Product CEDRIC?
29. What are the fixed costs per unit associated with Product CEDRIC?
30. What are the inventoriable costs per unit associated with Product CEDRIC?
31. What are the period costs per unit associated with Product CEDRIC?

Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per unit data apply for sales to regular
customers:

Direct materials Php200

Direct manufacturing labor 30
Variable manufacturing overhead 60
Fixed manufacturing overhead 40
Total manufacturing costs Php330

The plant has capacity for 2,000 axles.

Required:

32. What is the total cost of producing 1,000 axles?

33. What is the total cost of producing 1,500 axles?
34. What is the per unit cost when producing 1,500 axles?

Weasley Sporting Goods Company manufactured 100,000 units in 2016 and reported the following costs:

Sandpaper Php 32,000 Leasing costs - plant Php 384,000

Materials handling 320,000 Depreciation - equipment 224,000
Coolants & lubricants 22,400 Property taxes - equipment 32,000
Indirect manufacturing labor 275,200 Fire insurance - equipment 16,000
Direct manufacturing labor 2,176,000 Sales revenue 12,800,000
Direct materials used 384,000 Sales salaries 576,000
Advertising costs 480,000 Sales commissions 640,000
Administration costs 800,000

Required:

35. What is the amount of direct material?

36. What is the amount of direct labor?
37. What is amount of manufacturing overhead?
38. What is amount of selling expense?
39. What is the amount of administration expense?

40. Albus Dumbledore is paid Php10 an hour for straight-time and Php15 an hour for overtime. One week she worked 42 hours,
which included 2 hours of overtime. How much compensation would be reported as direct labor and manufacturing
overhead?

41. Tire and Spoke Manufacturing currently produces 1,000 bicycles per month. The following per unit data apply for sales to
regular customers:
 Direct materials Php50
Direct manufacturing labor 5
Variable manufacturing overhead 14
Fixed manufacturing overhead 10
Total manufacturing costs Php79

The plant has capacity for 3,000 bicycles and is considering expanding production to 2,000 bicycles. What is the per unit
cost of producing 2,000 bicycles?

42. Arlo's T-shirt Shop only has three costs: T-shirt cost, rent cost on the shop, and utilities cost. Arlo's sells the T-shirt for
Php14.50 each. Management has prepared the following estimated cost information for next month:

At 8,000 At 10,000
T-shirts T-shirts
T-shirt cost Php48,000 Php60,000
Rent cost Php3,600 Php3,600
Utilities cost Php6,800 Php8,300

Assume that all of the activity levels mentioned in this problem are within the relevant range. Calculate what Arlo's should
expect for total variable cost if 9,000 T-shirts are sold next month.

Items 43-45 SomethingNew is a small one-person company that provides elaborate and imaginative wedding cakes to order for
very large wedding receptions. The owner of the company would like to understand the cost structure of the company and has
compiled the following records of activity and costs incurred. The owner believes that the number of weddings catered is the best
measure of activity.

Wedding Costs
Month s Incurred
January 3 Php3,800
Februar
y 2 Php3,600
March 6 Php4,000
April 9 Php4,300
May 12 Php4,500
June 20 Php5,200

43. Using the high-low method, estimate the variable cost per wedding and the total fixed cost per month. (Round off the variable
cost per wedding to the nearest cent and the total fixed cost to the nearest dollar.)

44. Using the least-squares regression method, estimate the variable cost per wedding and the total fixed cost per month.
(Round off the variable cost per wedding to the nearest cent and the total fixed cost to the nearest dollar.)

45. Using least square, how much would be the total cost when there are 26 wedding for the month of July?

46. One major difference between financial and management accounting is that
a. financial accounting reports are prepared primarily for users external to the company.
b. management accounting is not under the jurisdiction of the Securities and Exchange Commission.
c. government regulations do not apply to management accounting.
d. all of the above are true.

Given the following information for Gryffindor Corporation, prepare the necessary journal entries, assuming that the Raw Material
Inventory account contains both direct and indirect material.

47. Purchased raw material on account Php28,500.

48. Put material into production: Php15,000 of direct material and Php3,000 of indirect material.
49. Accrued payroll of Php90,000, of which 70 percent was direct and the remainder was indirect.
50. Incurred and paid other overhead items of Php36,000.
51. Transferred items costing Php86,500 to finished goods.
52. Sold goods costing Php71,300 on account for Php124,700.
53. Conversion of inputs to outputs is recorded in the
a. Work in Process Inventory account.
b. Finished Goods Inventory account.
c. Raw Material Inventory account.
d. both a and b.

54.In a perpetual inventory system, the sale of items for cash consists of two entries. One entry is a debit to Cash and a credit to
Sales. The other entry is a debit to

a. Work in Process Inventory and a credit to Finished Goods Inventory.

b. Finished Goods Inventory and a credit to Cost of Goods Sold.
c. Cost of Goods Sold and a credit to Finished Goods Inventory.
d. Finished Goods Inventory and a credit to Work in Process Inventory.

55. The three primary inventory accounts in a manufacturing company are

a. Merchandise Inventory, Supplies Inventory, and Finished Goods Inventory.
b. Merchandise Inventory, Work in Process Inventory, and Finished Goods Inventory.
c. Supplies Inventory, Work in Process Inventory, and Finished Goods Inventory.
d. Raw Material Inventory, Work in Process Inventory, and Finished Goods Inventory.

56. A(n) ________ cost increases or decreases in intervals as activity changes.

a. historical cost
b. fixed cost
c. step cost
d. budgeted cost

57. The indirect costs of converting raw material into finished goods are called
a. period costs.
b. prime costs.
c. overhead costs.
d. conversion costs.

58. The term "relevant range" as used in cost accounting means the range over which
costs may fluctuate.
cost relationships are valid.
production may vary.
relevant costs are incurred.

59. Which of the following defines variable cost behavior?

Total cost reaction Cost per unit reaction

to increase in activity to increase in activity

remains constant remains constant

remains constant increases
increases increases
increases remains constant

60. When cost relationships are linear, total variable prime costs will vary in proportion to changes in
direct labor hours.
total material cost.
total overhead cost.
production volume.