STRACOS

MODULE 1 QUIZ
COST CONCEPTS
MULTIPLE CHOICE:
1. A cost accounting information system necessarily should accomplish all of the following except:
A. reflect the division of authority so that individual managers can be held accountable
B. provide management with information that facilitates prompt identification of activities needing attention
C. be more sophisticated than is required by legal, regulatory, and contractual requirements
D. be tailored to give the most efficient blend of sophistication and simplicity
E. focus management's attention

2. Cost classifications are based on the relationship of costs to all of the following except:
A. ledger accounts
B. accounting periods
C. products
D. volume of production
E. manufacturing departments

3. Direct materials and direct labor are considered to be:

A. selling expenses
B. prime costs
C. administrative expenses
D. conversion costs
E. factory overhead

4. Depreciation on factory buildings and equipment is classified as:

A. selling expense
B. administrative expense
C. direct labor
D. indirect materials
E. factory overhead

5. A typical marketing expense is:

A. freight out
B. indirect labor
C. audit fees
D. uncollectible accounts expense
E. direct labor

6. A typical indirect labor cost for a manufacturer is:

A. sales office salaries
B. freight out
C. factory insurance
D. sales commissions
E. materials handling

7. Usually, a cost easy to assign accurately to a specific operating department is a:

A. standard cost
B. common cost
C. fixed cost
D. variable cost
E. joint cost
8. An expense that is likely to contain both fixed and variable components is:
A. security guard wages
B. supplies
C. heat, light, and power
D. small tools
E. taxes on real estate

9. A type of employee whose wages are not a component of indirect labor is a(n):
A. inspector
B. supervisor
C. assembler
D. maintenance worker
E. shop clerk

10. Pilipino Company has a beginning inventory of direct materials on March 1 of P30,000 and an ending
inventory on March 31 of P36,000. The following additional manufacturing cost data were available for the
month of March:

Direct materials purchased P84,000

Direct labor 60,000
Factory overhead 80,000

During March, prime cost added to production was:

A. P140,000
B. P138,000
C. P144,000
D. P150,000
E. none of the above

11. The coordinated development of a company's organization with the cost and budgetary system will lead to
an approach to accounting and reporting called:
A. functional-teamwork system
B. responsibility accounting
C. line-staff organization
D. controllable segmentation
E. superior-subordinate relationship

12. The organizational group that advises or performs technical functions of an enterprise is the:
A. line
B. function
C. team
D. executive management
E. staff

13. The business function in the functional-teamwork concept of management that deals with activities such as
product design, research and development, purchasing, manufacturing, advertising, marketing, and billing is
the:
A. processes function
B. executive function
C. resources function
D. staff
E. human interrelations function

14. The plans that are sufficiently detailed to permit the preparation of budgeted financial statements for the
 entity as of a future date are:
A. strategic plans
B. medium-range plans
C. short-range plans
D. long-range plans
E. none of the above

15. Budgeting plays an important role in influencing individual and group behavior at all of the following stages
of the management process, except:
A. setting goals
B. motivating desired performance
C. evaluating performance
D. computing bonuses
E. suggesting when corrective action should be taken

16. The functional-teamwork concept of management is structured to emphasize all of the following except:
A. human interrelations
B. accountability
C. resources
D. processes
E. none of the above

17. All of the following are examples of non-value-added activities except:

A. retrieving
B. handling
C. expediting
D. reworking
E. assembling

18. The department that has the responsibility for the financial administration of a company is:
A. Tax
B. Controller's
C. Cost
D. Treasury
E. Internal Audit

19. The collection, presentation, and analysis of cost data should help management accomplish all of the
following tasks except:
A. control the physical quantities of inventory
B. determine company costs and profits for an accounting period
C. choose from among two or more alternatives that will increase revenues
D. conform to PFRS reporting requirements for pensions
E. establish costing methods and procedures that permit cost reductions

20. An organizational concept recognizing that all positions or functional divisions can be categorized into two
groups is:
A. functional-teamwork concept
B. processes function
C. line-staff concept
D. matching concept
E. resources function

21. Pipino Company has a beginning inventory of direct materials on March 1 of P30,000 and an ending inventory
on March 31 of P36,000. The following additional manufacturing cost data were available for the month of
March:
 Direct materials purchased P84,000
Direct labor 60,000
Factory overhead 80,000

During March, conversion cost added to production was:

A. P80,000
B. P144,000
C. P140,000
D. P138,000
E. none of the above

22. The term "variable costs" refers to:

A. all costs whose total amounts change in proportion to changes in activity within a relevant range
B. all costs that are likely to respond to the amount of attention devoted to them by a specified manager
C. all costs that are associated with marketing, shipping, warehousing, and billing activities
D. all costs that do not change in total for a given period and relevant range, but become progressively
smaller on a per-unit basis as volume increases
E. all manufacturing costs incurred to produce units of output

23. The following statement that best describes a fixed cost is:
A. it may change in total when such change depends on production within the relevant range
B. it increases on a per-unit basis as production increases
C. it decreases on a per-unit basis as production increases
D. it may change in total when such change is related to changes in production
E. it is constant per unit of production

24. The term "relevant range" as used in cost accounting means the range over which:
A. cost relationships are valid
B. production may vary
C. relevant costs are incurred
D. costs may fluctuate
E. none of the above

25. When the number of units manufactured increases, the most significant change in average unit cost will be
reflected as:
A. a decrease in the variable element
B. a decrease in the nonvariable element
C. an increase in the semivariable element
D. an increase in the variable element
E. an increase in the nonvariable element

26. Within a relevant range, the amount of variable cost per unit:
A. moves in the same direction as fixed cost per unit
B. differs at each production level
C. remains constant at each production level
D. increases as production increases
E. decreases as production increases

27. The term "prime costs" refers to:

A. the sum of direct labor costs and all factory overhead costs
B. the sum of direct materials costs and direct labor costs
C. manufacturing costs incurred to produce units of output
D. all costs associated with manufacturing other than direct labor and direct materials costs
E. cost standards that are predetermined and should be attained
28. The term "conversion costs" refers to:
A. costs that are associated with marketing, shipping, warehousing, and billing activities
B. the sum of direct labor costs and all factory overhead costs
C. the sum of direct materials costs and direct labor costs
D. manufacturing costs incurred to produce units of output
E. all costs associated with manufacturing other than direct labor costs and direct materials costs

29. Direct labor is a:

Conversion Cost Manufacturing Cost Prime Cost
A. Yes Yes Yes
B. No Yes Yes
C. No No No
D. No No Yes
E. Yes Yes No

30. A factory overhead cost:

A. is a direct cost
B. is a prime cost
C. can be a variable cost or a fixed cost
D. can only be a fixed cost
E. includes all factory labor

31. Prime cost and conversion cost share what common element of total cost?
A. direct labor
B. commercial expense
C. variable overhead
D. fixed overhead
E. direct materials

32. Factory overhead includes:

A. indirect materials but not indirect labor
B. indirect labor but not indirect materials
C. prime costs
D. all manufacturing costs
E. all manufacturing costs, except direct materials and direct labor

33. Indirect materials are a(n):

A. fixed cost
B. irrelevant cost
C. factory overhead cost
D. direct cost
E. prime cost

34. Wages of the security guard for a small plant are an example of:
Fixed Factory
Indirect Labor Overhead
A. No Yes
B. No No
C. Yes Yes
D. Yes No
E. none of the above

35. Wages paid to factory machine operators of a manufacturing plant are an element of:
Prime Cost Conversion Cost
A. Yes No
 B. Yes Yes
C. No No
D. No Yes
E. none of the above

36. Expenses that require a series of payments over a long period of time such as long-term debt and lease
rentals are frequently known as:
A. programmed fixed expenses
B. avoidable expenses
C. variable expenses
D. committed fixed expenses
E. normal capacity expenses

37. A mathematical technique used to fit a straight line to a set of plotted points is:
A. integral calculus
B. the EOQ model
C. the method of least squares
D. linear programming
E. PERT network analysis

38. One advantage of using multiple regression analysis is that:

A. computations are simplified
B. only two data points need be considered
C. a two-dimensional graph may be used to show cost relationships
D. costs may be grouped into one independent variable
E. the effects of several variables on costs may be analyzed

39. Hayyden Co. developed the following equation to predict certain components of its budget for the coming
period:

Costs = P50,000 + (P5 x direct labor hours)

The P5 would approximate:

A. total cost
B. direct labor rate per hour
C. fixed cost per direct labor hour
D. the coefficient of determination
E. variable costs per direct labor hour

40. When cost relationships are linear, total variable manufacturing costs will vary in proportion to changes in:
A. machine hours
B. direct labor hours
C. total material cost
D. total overhead cost
E. volume of production

41. The term "relevant range" as used in cost accounting means the range over which:
A. relevant costs are incurred
B. cost relationships are valid
C. costs may fluctuate
D. sales volume fluctuates
E. production may vary

42. Within a relevant range, the amount of fixed cost per unit:
 A. differs at each production level on a per-unit basis
B. remains constant in total
C. decreases as production increases on a per-unit basis
D. increases as production decreases on a per-unit basis
E. all of the above

43. The following relationships pertain to a year's budgeted activity for Blockeye Company:

High Low
Direct labor hours 400,000 300,000
Total costs P154,000 P129,000

What are the budgeted fixed costs for the year?

A. P100,000
B. P25,000
C. P54,000
D. P75,000
E. none of the above

44. Maintenance expenses of India Company are to be analyzed for purposes of constructing a flexible budget.
Examination of past records disclosed the following costs and volume measures:

High Low
Cost per month P39,200 P32,000
Machine hours 24,000 15,000

Using the high-low method of analysis, the estimated variable cost per machine hour is:
A. P12.50
B. P0.80
C. P0.08
D. P1.25
E. none of the above

45. Delta Company allocates its variable factory overhead based on direct labor hours. During the past three
months, the actual direct labor hours and the total factory overhead allocated were as follows:

October November December

Direct labor hours 2,500 3,000 5,000
Total factory
overhead allocated P80,000 P75,000 P100,000

Based upon this information, the estimated variable cost per direct labor hour was:
A. P0.125
B. P12.50
C. P0.08
D. P8.00
E. none of the above

46. The technique that can be used to determine the variable and fixed portions of a company's costs is:
A. scattergraph method
B. poisson analysis
C. linear programming
D. game theory
E. queuing theory

47. The number of variables used in simple regression analysis is:

 A. two
B. three
C. more than three
D. three or less
E. one

48. Multiple regression analysis:

A. is not a sampling technique
B. involves the use of independent variables only
C. assumes that the independent variables are not correlated
D. establishes a cause-and-effect relationship
E. all of the above

49. For a simple regression-analysis model that is used to allocate factory overhead, an internal auditor finds
that the intersection of the line of best fit for the overhead allocation on the y-axis is P50,000. The slope of
the trend line is 0.20. The independent variable, factory wages, amounts to P900,000 for the month. What is
the estimated amount of factory overhead to be allocated for the month?
A. P910,000
B. P950,000
C. P 50,000
D. P180,000
E. P230,000

50. As a result of analyzing the relationship of total factory overhead to changes in machine hours, the following
relationship was found:

y = P1,000 + P2X

This equation was probably found by using the mathematical techniques called:
A. simple regression analysis
B. dynamic programming
C. linear programming
D. multiple regression analysis
E. none of the above

51. As a result of analyzing the relationship of total factory overhead to changes in machine hours, the following
relationship was found:

y = P1,000 + P2X

The use of such a relationship of total factory overhead to changes in machine hours is said to be valid only
within the relevant range, which means:
A. within the range of reasonableness as judged by the department supervisor
B. within the budget allowance for overhead
C. within a reasonable peso amount for machine costs
D. within the range of observations of the analysis
E. none of the above

52. The quantitative method that will separate a semivariable cost into its fixed and variable components with
the highest degree of precision is:
A. simplex method
B. least squares method
C. scattergraph method
D. account analysis
 E. high-low method

53. Multiple regression analysis involves the use of:

Dependent Independent
Variables Variables
A. 1 none
B. 1> 1
C. 1> 1>
D. 1 1>

54. Omitting important variables from the multiple regression is referred to as a(n):
A. specification error
B. autocorrelation
C. confidence loss
D. homoscedastic error
E. heteroscedastic error

55. When two or more independent variables are correlated with one another, the condition is referred to as:
A. serial correlation
B. autocorrelation
C. heteroscedacity
D. homoscedacity
E. multicollinearity

56. The confidence interval represents:

A. the percentage of variance in the dependent variable as explained by the independent variable
B. the measure of the extent to which variables are related linearly
C. the standard deviation about the regression line
D. a range of values within which the dependent variable is expected to fall a certain percentage of the time
E. none of the above

57. Expenses that are fixed at management's discretion at a certain level for the period are referred to as:
A. committed fixed costs
B. mixed costs
C. opportunity costs
D. sunk costs
E. programmed fixed costs

58. The separation of fixed and variable costs is necessary for all of the following purposes except:
A. absorption costing and net income analysis
B. direct costing and contribution margin analysis
C. break-even and cost-volume-profit analysis
D. differential and comparative cost analysis
E. capital budgeting analysis

59. As a result of analyzing the relationship of total factory overhead to changes in machine hours, the following
relationship was found:

y = P1,000 + P2X

The P2 in the equation is an estimate of:

A. fixed costs per machine hour
B. total fixed costs
C. variable costs per machine hour
D. total variable costs
 E. none of the above

60. An organizational concept that groups business functions around resources, processes, and human
interrelations is the:
A. resources function
B. functional-teamwork concept
C. processes function
D. line-staff concept
E. matching concept

61. The measurement of performance and the control of costs is aided the most by:
A. organizational charts
B. continuous supervision
C. preparation for the future
D. planning
E. budgets and standards

62. The process of providing individuals with the authority to carry out their assigned responsibilities is referred
to as:
A. control circuit
B. objective setting
C. accountability
D. delegation
E. line-staff organization

63. The department that uses pertinent cost data to determine products that are most profitable and sales policies
is:
A. Marketing
B. Manufacturing
C. Treasury
D. Legal
E. Cost

64. Examples of nonroutine planning include all of the following, except:

A. responses to the appearance of new competition
B. estimating the collection of receivables during the next month for the purpose of making
investment/borrowing decisions
C. responses to a proposed government regulation of the industry
D. responses to a significant change in consumer tastes
E. none of the above

65. Common costs are:

A. costs that occur when the production of one product is possible only if one or more other products are
manufactured at the same time
B. intended to benefit future periods
C. variable in direct proportion to the level of production
D. chargeable directly to the product
E. costs of facilities or services employed by two or more operations

66. Joint costs are:

A. direct costs
B. costs of facilities or services employed by two or more operations
C. revenue expenditures
D. incurred when the production of one product is possible only if other products are produced at the same
 time
E. always variable

67. All of the following are examples of nonfinancial performance measures except:
A. the number of defective units produced
B. the gross margin on a product line income statement
C. hours of machine downtime
D. number of days on schedule
E. weight of scrap material produced

68. Reasons for the increased attention being given to nonfinancial performance measures include:
A. dissatisfaction with exclusive reliance on financial measures
B. dissatisfaction with financial measures of plant utilization
C. dissatisfaction with financial measures of processing efficiency
D. dissatisfaction with the slow pace at which a company's data processing system can modify traditional
financial measures
E. all of the above

69. Of the following items, a cost object is:

A. a unit of product
B. a customer order
C. a project
D. a division of the company
E. all of the above

70. General corporate-level costs, such as bond interest and taxes, would be readily traceable to:
A. each unit of product
B. each division of the company
C. each batch of production
D. all units of product ever produced
E. none of the above

71. A revenue expenditure is one that:

A. varies with the volume of production
B. is intended to benefit future periods
C. is reported as an asset
D. benefits the current period only
E. remains the same in total as production changes

72. An example of a cost that is irrelevant to a future decision is a(n):

A. differential cost
B. sunk cost
C. out-of-pocket cost
D. opportunity cost
E. variable cost

73. An example of a cost that is irrelevant to a future decision is a(n):

A. communicating plans
B. focusing attention
C. implementing strategy
D. monitoring progress toward strategic objectives
E. all of the above

74. As a result of analyzing the relationship of total factory overhead to changes in machine hours, the following
relationship was found:
 y = P1,000 + P2X

The y in the equation is an estimate of:

A. total factory overhead
B. total fixed costs
C. total machine costs
D. total variable costs
E. none of the above
THE END