Chapter 4 Roque PDF

Preview

Summary

Chapter 4 – Costs in Management Accounting: Concepts, Classifications, AccumulationMULTIPLE CHOICE: Cost is the monetary measure of the amount of resources given up in obtaining goods and services. Costs may be classified as unexpired or expired. Which of the following costs is not always considered...

Description

Chapter 4 – Costs in Management Accounting: Concepts, Classifications, Accumulation MULTIPLE CHOICE: 1. Cost is the monetary measure of the amount of resources given up in obtaining goods and services. Costs may be classified as unexpired or expired. Which of the following costs is not always considered to be expired immediately upon being recognized? a. salesmen’s commission b. depreciation expense for factory equipment c. cost of goods sold d. salary of the company president 2. An activity that causes resources to be consumed is called a a. non-value-added activity b. cost driver c. just-in-time activity d. extracurricular activity 3. It refers to anything (a product, product line, a business segment) for which cost is computed. a. Cost object b. Cost driver c. Cost control d. Cost variance 4. It is a grouping of individual cost items, or an account in which a variety of similar costs are accumulated. a. Cost driver b. Cost variance c. Income statement d. Cost pool 5. It is an event, action, transaction, task, or unit of work that consumes resources and with a specified purpose. a. Cost object b. Activity c. Cost driver d. Direct labor 6. An activity that adds costs to the product or service, but does not make such product or service more valuable to customers is called a. non-value-added activity b. value-adding activity

c. costly activity d. valuable activity 7. Which of the following statement is correct? a. A cost driver is an accounting technique used to control costs. b. A cost driver is a measure of activity, such as direct labor hours, machine hours, beds occupied, computer time, etc., c. A cost driver is an accounting measurement used to evaluate whether or not performance is proceeding according to plan. d. A cost driver is a mechanical basis used to assign costs to activities. 8. Product costs or inventoriable costs a. are charged to expense when products become part of the finished goods inventory. b. include only the prime costs of producing a product. c. are treated as assets before the products are sold. d. Include only the conversion costs of producing the products. 9. Which of the following costs is not a product cost? a. Wages paid to workers for rework on defective products. b. Wages paid to truck loaders who load finished goods onto outgoing delivery trucks. c. Fringe benefits paid to factory workers. d. Wages paid to workers for idle time due to machine breakdown in a production department. 10. Product costs a. are always expensed in the same period in which they are incurred. b. are inventoriable costs. c. vary directly with changes in the cost driver. d. are always charged to an asset account in the same period in which they are incurred. ITEMS 11 and 12 ARE BASED ON THE FOLLOWING INFORMATION: Following are costs incurred by Abtina Manufacturing Corporation during the previous month: Direct materials 5,000 Indirect materials 2,000 Direct labor 6,000 Indirect labor

P

1,000 Factory utilities 4,000 Advertising costs 8,000 Sales commissions 12,000 Depreciation on administration building 3,000 Salaries of administrative personnel 20,000 Depreciation – delivery equipment 2,000 Overtime pay – factory workers 1,500 Rework cost on defective products discovered during quality inspection 2,500

11. Total products costs: a. P67,000 b. P45,000 c. P22,000 d. P18,000 12. Total period costs: a. P67,000 b. P45,000 c. P49,000 d. P22,000 13. Manufacturing costs do not include a. prime costs. b. conversion costs. c. indirect materials d. salary of the company president, under whom is the vice president for production. 14. Direct labor cost is a a. prime cost.

b. conversion cost. c. product cost d. all of the above

ITEMS 15 to 21 ARE BASED ON THE FOLLOWING INFORMATION: Data about Maritz Company’s production and inventories for the month of June are as follows: Purchases – direct materials

P143,440

Freight in

5,000

Purchase returns and allowances

2,440

Direct labor

175,000

Actual factory overhead

120,000

Inventories:

June 1

June 30

Finished goods

P68,000

P56,000

Work in process

110,000

135,000

Direct materials

52,000

44,000

Maritz Company applies factory overhead to production at 80% of direct labor cost. Over- or underapplied overhead is closed to cost of goods sold at year-end. The company’s accounting period is on the calendar year basis. 15. Maritz Company’s prime cost for June was a. P154,000 b. P329,000 c. P198,000 d. . P315,000 16. Maritz Company’s conversion cost for June was a. P315,000 b. P295,000 c. P329,000 d. P444,000 17. For the month of June, Maritz Company’s total manufacturing cost was a. P469,000 b. P444,000 c. P644,000 d. P449,000 18. For June, Maritz Company’s cost of goods transferred to the finished goods inventory account was a. P579,000 b. P461,000 c. P469,000 d. P444,000 19. Maritz Company’s cost of goods sold for June was a. P441,000 b. P481,000 c. P456,000 d. P444,000

20. The amount of over/underapplied inventory overhead factory for the month of June was a. P140,000 overappplied b. P120,000 underapplied c. P20,000 overappplied d. P20,000 underapplied 21. The cost of goods sold for the month of June should be increased (decreased) by the amount of over/under-applied factory overhead of a. P20,000 b. (P20,000) c. (P120,000) d. P0 22. For product costing purposes, an indirect factory cost a. Is not directly chargeable to the company b. Is chargeable to prime costs c. Is chargeable to conversion costs d. Is never included in the computation of product cost 23. A fixed cost that would be considered a direct cost is a. salary of the sales manager when the cost object is the sales department b. salary of the controller when the cost object is a unit product c. fees of the Board of Directors when the cost object is the Production Department d. the rental cost of the finished good warehouse when the cost object is the Accounting Department 24. Indirect materials and indirect labor are Prime Cost Conversion Cost a. Yes Yes b. No No c. No Yes d. Yes No

Manufacturing Cost Yes Yes Yes No

25. Which of the following is a direct product cost? a. Wood in a furniture factory b. Salary of the foreman in the assembly division of an automobile company c. Depreciation of the factory equipment d. Salesman’s commission 26. The variable portion of the semi-variable cost of electricity for a manufacturing plant is a Product Cost Prime Cost Conversion Cost a. No No Yes

b. Yes c. Yes d. Yes

Yes Yes No

No Yes Yes

27. The salaries of the factory janitorial and maintenance staff should be classified as a. direct labor cost b. period cost c. prime cost d. factory overhead cost 28. For decision-making purposes, relevant costs are a. variable past costs b. all fixed and variable costs c. anticipated future costs that will differ among various alternatives d. costs incurred within the relevant range of production 29. Differential costs a. are variable costs b. are anticipated future costs that will differ among various alternatives c. are the differences in costs between any two alternative courses of action d. are costs that differ under alternatives 30. An income or benefit that is give up when one alternative is selected over another is called a. loss b. opportunity cost c. relevant cost d. differential cost 31. Sunk costs a. are relevant costs b. are anticipated future costs that will differ among various alternatives c. are irrelevant for decision-making purposes d. are decreases in costs from one alternative to another 32. Which of the following costs would be considered relevant in short-term decisionmaking? a. Production costs of goods available for sale b. Incremental fixed costs c. Acquisition costs of idle asset to be used in a proposed project d. Variable costs 33. Which of the following statements about cost behavior is correct?

a. Within the relevant range, total variable costs may vary directly with activity, while total fixed costs remain unchanged for a given period despite fluctuations in activity. b. Within the relevant range, variable cost per unit varies directly with activity, while fixed cost per unit remains unchanged for a given period despite fluctuations in activity. c. Within the relevant range, fixed cost per unit varies directly with activity, while variable cost per unit remains unchanged for a given period despite fluctuation in activity. d. Within the relevant range, total variable costs may vary inversely with activity, while total fixed costs remain unchanged for a given period despite fluctuations in activity. 34. In cost accounting, the term relevant range refers to the range over which a. relevant costs are incurred b. production should be confined c. total fixed costs fluctuate d. cost relationships are valid 35. Depreciation computed using the straight-line method is classified as a. variable cost b. fixed cost c. relevant cost d. opportunity cost 36. Within the relevant range, unit variable costs a. are constant per unit, regardless of units produced or sold b. vary directly with the activity level c. vary inversely with the activity level d. are at the minimum 37. When production (in units) decreases, the average cost per unit of product increases. This increase in the average cost per unit is due to the a. increase in variable cost per unit b. increase in fixed cost per unit c. increase in total variable costs d. increase in total fixed costs 38. Consider Line AB in each of the following graphs: Graph 1 Graph 2

Graph 3

B

B B

COST A

COST A UNITS

UNITS

COST

A

UNITS

Line AB is the

a. b. c. d.

Graph 1

Graph 2

Graph 3

total sales line variable cost per line total variable cost line break-even line

fixed cost per unit line total variable cost line total fixed cost line parallel line

total variable cost line total fixed cost line total cost line total sales line

39. When activity changes, this cost shifts upward or downward by a certain interval. a. Step cost b. Cost interval c. Shifting cost d. Incremental cost 40. These costs are long-term in nature and cannot be eliminated even for short periods of time without affecting the probability or long-term goals of the firm. a. Avoidable costs b. Committed fixed costs c. Variable costs d. Controllable costs 41. This type of fixed costs usually arises from periodic decisions by management to spend in certain fixed costs area. They may be changed by management from period to period or even within the period if circumstances demand such change. a. Period costs b. Committed fixed costs c. Variable costs d. Discretionary fixed costs 42. Mixed costs are costs that have a. variable and fixed costs components b. manufacturing and administrative costs component c. selling and administrative costs component d. direct and indirect costs component 43. In cost behavior analysis, the linearity assumption states that a. in all cases, there is strict linear relationship between the cost and cost driver b. within the relevant range, there is a strict relationship between the cost and the cost driver c. within the relevant range, there is a strict linear relationship between the cost and the cost driver d. within the relevant range, all costs are fixed and may be drawn graphically as straight lines

44. The fixed and variable components of mixed costs may be separated by using any of the following methods, excepts a. High-low method b. Scattergraph method c. Least squares method d. Weighted-average method 45. The following data were collected from the records of the Receiving Department of a company: Month Number of Items Received Receiving and Handling costs January 2,800 P17,500 February 2,000 12,500 March 1,190 7,450 April 5,200 32,500 May 4,410 27,600 June 4,016 25,100 The receiving and handling cost is most likely to be a a. b. c. d.

step cost variable cost fixed costs semi-variable cost

ITEMS 46 to 48 ARE BASED ON THE FOLLOWING INFORMATION: Charity Company wants to analyze the behavior of its selling costs for budgeting purposes. Cost drivers (activity measures) and costs incurred in the first quarter and the first month of the second quarter are as follows: January

February

March

April

Sales salaries

P42,500

P42,500

P42,500

P51,000

Commissions

15,000

17,500

14,000

16,000

Shipping costs

34,000

38,000

32,400

35,600

Advertising

20,000

20,000

25,000

20,000

P300,000

P350,000

P280,000

P320,000

30,000

35,000

28,000

32,000

150

175

140

160

Selling costs:

Cost drivers: Peso sales Sales in units Sales orders

The sales staff are paid monthly salaries plus commission. Advertising expenses are charged subject to the discretion of management. The increase in sales salaries in April is due to the increase in the sales staff, from five to six persons. 46. In relation to the appropriate cost drivers, how should the company’s selling costs be classified?

a. b. c. d.

Sales Salaries Variable Fixed Fixed Mixed

Commissions

Shipping costs

Advertising

Variable Variable Variable Variable

Variable Variable Mixed Mixed

Variable Fixed Fixed Fixed

47. Using the high-low method and the algebraic equation y = a + bx (where y equals total shipping costs; a equals total fixed costs; b equals variable shipping cost per unit; and x is the number of units sold), the cost formula for the shipping costs may be expressed as a. y = 10,000 + 0.80x b. y = 0.80 + 10,000 c. y = 10,000 + 0.80 d. y = 10,000 + 5,600 48. If the company plans to sell 36,000 units in May and fixed costs will remain at the April level, the total selling costs for May would be a. P122,600 b. P125,800 c. P127,800 d. P 81,000 ITEMS 49 to 54 ARE BASED ON THE FOLLOWING INFORMATION: Maco Corporation’s Research and Development Department was able to develop a new product – a flashlight powered by solar energy. After reviewing the data prepared by the company’s controller, Maco’s management is confident that the new product will contribute profit to the company. The data prepared by the controller are as follows: Suggested selling price

P200

Costs: Materials

P 60

Parts fabrication (P10 per hour)

40

Assembly (P6 per hour)

18

Variable overhead (P4 per hour)

28

Fixed overhead (P3 per hour)

21

Total cost

P167

The total research and development cost incurred to develop the new product amounted to P200,000. The company is planning to spend half of this amount for promotion and advertising. The company’s fixed overhead includes rent, equipment depreciation, and salaries of factory supervisors. 49. For Maco’s new flashlight, total prime costs amount to a. P118 b. P167

c. P146 d. P107 50. The difference between the flashlight’s suggested selling price of P200 and the total cost of P167 represents each flashlight’s a. gross profit b. contribution margin c. net profit d. operating income 51. The total overhead cost of P49 per unit is a a. prime cost b. variable cost c. mixed cost d. fixed cost 52. The total research and development costs of P200,000 incurred to develop the new product is a(n) a. relevant cost b. sunk cost c. avoidable cost d. postponable cost 53. The costs included in Maco’s fixed overhead are a. prime costs b. discretionary costs c. committed costs d. variable costs 54. the planned spending on promotion and advertising for the flashlight is a a. variable cost b. discretionary cost c. sunk cost d. past cost 55. The least exact method for separating the variable and fixed cost components of a mixed cost is a. matrix algebra b. the high-low method c. the least squares method d. computer simulation ITEMS 56 to 58 ARE BASED ON THE FOLLOWING INFORMATION: Meng Company is preparing a flexible budget for next year and requires a breakdown of the factory maintenance cost into the fixed and variable elements.

The maintenance costs and machine hours (the selected cost driver) for the past six months are as follows: Maintenance Costs

Machine Hours

January

P15,500

1,800

February

10,720

1,230

March

15,100

1,740

April

15,840

2,190

May

14,800

1,602

June

10,600

1,590

56. If Meng Company uses the high-low method of analysis, the estimated variable rate of maintenance cost per machine hour is a. P7.23 b. P8.73 c. P5.46 d. P5.33 57. The average annual fixed maintenance cost amounts to a. P4,160 b. P8,320 c. P49,920 d. P5,120 58. What is the average rate per hour at a level of P1,500 machine hours? a. P5.33 b. P8.11 c. P7.23 d. P5.46 59. The manager of the mixing department of Ali Van Company wants to determine the fixed variable components of the department’s costs. He collected information on total cost and the number of kilos mixed for the past 12 months. He wants more accurate results, so he is planning to use a sophisticated method for cost separation. The manage should use a. high-low method b. regression analysis c. game theory d. queuing theory 60. The usual formula of regression (least squares) equation is:

y = a + bx + e. Considering such equation, which of the following is incorrect? a. the dependent variable is x, while the independent variable is y. b. the y-axis intercept is a c. the slope of the line is b d. the error term is e 61. Multiple regression analysis involves the use of Dependent Variable(s) Independent Variable(s) a. None One b. One One c. One Two or more d. Two or more One ITEMS 62 to 64 ARE BASED ON THE FOLLOWING INFORMATION: Frances Corporation conducted a regression analysis of its factory overhead costs. The analysis yielded the following cost relationship: Total factory overhead cost = P50,000 per month + 5H* *H = number of direct labor hours, the selected cost driver for overhead costs.

Each unit of product requires 6 direct labor hours. The company’s normal production is 20,000 units of product per year. 62. The total overhead cost for a month’s production of 2,000 units is a. P60.000 b. P50,000 c. P110,000 d. P0 63. The predetermined fixed overhead rate per hour is a. P6.00 b. P5.00 c. P2.50 d. 0.42 64. The total predetermined factory overhead rate per hour is a. P5.00 b. P7.50 c. P10.00 d. P35.00 ITEMS 62 to 65 ARE BASED ON THE FOLLOWING INFORMATION:

The management of a hotel is interested in the relationship between room cleaning costs and guest-days in its hotel. Using regression analysis on room cleaning costs and guestdays collected over 12 months, the relationship was shown graphically as follows:

65. The estimated monthly fixed room cleaning cost is a. P25,000 b. P30,000 c. P10,000 d. P0 66. The estimated increase in the room cleaning cost for each additional guest-day is a. P26.27 b. P10.00 c. P60,000 d. P25,000 67. The cost formula for the cleaning costs may be expressed as a. Cost = P25,000 + guest-days b. Cost = P25,000 c. Cost = P25,000 + P10 d. Cost = P25,000 + P10 (guest days) 68. If the relevant range is from ...