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 Manufacturing Cost Prime Cost
A. Yes Yes No
B. Yes Yes Yes
C. No Yes Yes
D. No No 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 controllers 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 decision-
making 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. Simple regression analysis
B. Scattergraph
C. Breakeven method
D. 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 Mats estimated cost of handling 75,000 kilos?
A. P 150,000
B. P 153,000
C. P 157,500
D. P 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. Graphic method.
B. Hign-and-low-point method.
C. Simple regression
D. 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. 11, 250
B. 10, 125
C. 5,250
D. 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 Mulveys 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.Mulveys 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.Mulveys 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 companys
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:
Planned Actual
Sales 800 780
Shipments 800 820
Units shipped 8, 000 9, 000
Sales P 240, 000 P 288, 000
Total pound shipped 9,400 12,800
Kgs. Shipped 4,364 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. Establishes a cause and effect relationship
B. Is not a sampling technique
C. Involves the of independent variable only
D. 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 + bx
B. y = na + b
C. b = a + bx
D. XY = ax + bx
E. Y = na + bx (aicpa)
Questions 42 through 48 are based on the following information. Below is an
examination of last years 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 functions 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 Coefficient DM weight Coefficient

Y intercept 2.500 Y intercept 4.600
b 5.0 b 2.60
r2 0.70 r2 0.50

What regression equation should be used?

 A. Y = 2, 500 + 5.0x
B. Y= 4, 600 + 2.6x
C. Y = 2,500 + 3.5x
D. 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 lines 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 CPAs 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)