MANAGEMENT ACCOUNTING

COST BEHAVIOR with REGRESSION ANALYSIS ACTIVITY 2

1. SAM Company has the following cost components for 100,000 units of product for the year:
Direct materials P 200,000
Direct labor 100,000
Manufacturing overhead 200,000
Selling and administrative expenses 150,000
All costs are variable, except for P 100,000 of manufacturing overhead and P 100,000 of selling and administrative
expenses. The total costs to produce and sell 110,000 units for the year are
B a. P 715,000 c. P 650,000
b. P 695,000 d. P 540,000
2. Which of the following is the best example of a variable cost?
C a. Property taxes c. Cost of raw material
b. Interest charges d. Corporate president’s salary
3. Which of the following categories of cost is most likely not considered a component of fixed factory overhead?
B a. Rent c. Depreciation
b. Power d. Property taxes
4. Which of the following statements is true?
D a. The higher is the production within the relevant range, the higher is the variable cost per unit
b. The higher is the production within the relevant range, the higher is the fixed 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
5. Within the relevant range, the amount of variable cost per unit
D a. Differs at each production level c. Decreases as production increases
b. Increases as production increases d. Remains constant at each production level
6. Which of the following best describes a fixed cost?
C a. It is constant per unit of changes in production.
b. It may change in total when such change is related to changes in production.
c. It may change in total when such change is unrelated to changes in production.
d. It may change in total when such change depends upon production or within the relevant range.
7. Committed fixed costs
C a. Can never be changed c. Are difficult to change in the short run
b. Can usually be changed in the short run d. Are the result of factors outside the organization
8. What would be an example of a discretionary fixed cost?
D a. Depreciation on equipment c. Salaries of top management
b. Rent on a factory building d. Research and development
9. A cost that is fixed over a short range of activity, then rises abruptly and remains fixed over another short range is called
A a. Step cost c. Mixed cost
b. Fixed cost d. Variable cost
10. Which of the following best describes a step cost?
D a. It is partly variable and partly fixed c. It increases proportionately with volume
b. It remains constant in all cases d. It increases abruptly outside the relevant range
11. Mixed costs or semi-variable costs
B a. Do not exist
b. Are part fixed and part variable
c. Are variable costs which increase gradually
d. Are ignored in cost analysis because they are difficult to interpret
12. The fixed cost of a semi-variable cost is comparable to the mathematical concept of
A a. Y-intercept c. Dependent variable
b. Slope of the line d. Independent variable
13. In describing the cost formula equation Y = a + bX, which of the following statements is correct?
D 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’ equals the change in cost (Y) divided by the change in activity (X)
14. Jups, Inc. applies the high-low method of cost estimation to customer order data for the first 3 months of 2022:
Month Orders Cost (P)
January 1,200 3,120
February 1,300 3,185
March 1,800 4,320
What is the estimated variable cost component per order?
A a. P 2.00 c. P 2.48
b. P 2.42 d. P 2.50
 15. VAN 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 the estimated cost for handling 75,000 kilos?
B a. P 150,000 c. P 157,500
b. P 153,000 d. P 165,000
16. In March, RONIE Company had electrical costs of P 225.00 when the total volume was 4,500 units. In April, electrical
costs were P 227.50 for 4,750 units. Using the high-low method, what is the estimated fixed cost of electricity per year?
D a. P 180 c. P 225
b. P 200 d. P 2,160
17. Sun Company uses 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 what was the low level of the activity?
D a. 800 machine-hours c. 1,000 machine-hours
b. 900 machine-hours d. 1,100 machine-hours
18. Earth Co. has an average unit cost of P 45 at 10,000 units and P 25 at 30,000 units. What is the unit variable cost?
B a. P 10.00
b. P 15.00 Average unit cost = Total Costs ÷ Number of units
c. P 20.00
d. An amount that cannot be determined without more information
19. Total production costs 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 9,000 16,000 35,000
Product X P 23,700 P 52,680 P 86,490 P 178,260
Product Y 47,280 141,840 252,160 551,600
What is the average cost per unit at a production level of 8,000 units for product X?
B a. P 7.90 c. P 5.85
b. P 5.98 d. P 4.83
20. Uranus, Inc. provides you with the following flexible budget of factory overhead at three different capacity levels:
Capacity Factory Overhead
60% P 98,000
70% 106,000
85% 118,000
What will be the flexible budget of factory overhead at 90% capacity?
B a. P 112,000 c. P 130,000
b. P 122,000 d. P 132,000
21. The high-low method may give unsatisfactory results if:
D a. Volume is low c. Data points all fall on a line
b. Volume is heavy d. Data points are unrepresentative
22. The method of cost analysis in which the accountant draws a straight line through plotted points, keeping as close as
possible to the majority of the points, is called:
B a. High-low method c. Simple regression approach
b. Graphic approach d. Multiple regression approach
23. A data point that falls far away from other data points in a scatter diagram is called a (an)
A a. Outlier c. Standard deviation
b. Margin of error d. Coefficient of determination
24. The major objective of preparing a scatter diagram is to
B a. Determine the relevant range
b. Derive an equation to predict future costs
c. Perform regression analysis on the results
d. Find the high and low points to use for the high-low method of estimating costs
25. The principal advantage of the scatter-diagram method over the high-low method is that the scatter-diagram method
A a. Considers more than two points
b. Includes cost outside the relevant range
c. Gives a precise mathematical fit of the points to the line
d. Can be used with more types of costs than the high-low method
26. Which is an equation required for applying least square method of computing fixed and variable costs?
C a. y = ax + bx2 c. y = na + bx
b. xy = na + bx d. xy = na + b x2
27. An analysis of maintenance cost at four levels of plant operations is shown below:
Hours Cost Hours x cost Hours Squared
40 P 1,000 40,000 1,600
30 900 27,000 900
60 1,300 78,000 3,600
50 1,150 57,500 2,500
180 P 4,350 202,500 8,600
Under the least-squares regressions method, how much is the fixed cost of the maintenance?
A a. P 480 c. P 520
b. P 500 d. P 600
 28. The following cost data are made available by Pluts 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?
C a. P 26.50 c. P 318.00
b. P 35.00 d. P 420.00
29. Multiple regression analysis involves
B a. One dependent variable and one independent variable
b. One dependent variable and many independent variables
c. Many dependent variables and one independent variable
d. Many dependent variables and many independent variables
30. In determining cost behavior, the cost function is often expressed as Y = a+ bX. Which of the following cost estimation
methods should not be used in estimating fixed and variable costs for the equation?
D a. Graphic method c. High and low point
b. Simple regression d. Multiple regression
31. A scatter diagram that manifests a regression line sloping down to the right would most likely show a correlation
coefficient (r) of
C a. + 0.95 c. - 0.95
b. + 9.50 d. - 9.50
32. If coefficient of correlation (r) between two variables is zero, how might a scatter diagram of these variables appear?
A a. Random points
b. A least squares line that slopes up to the right
c. A least squares line that slopes down to the right
d. Under this condition, a scatter diagram could not be plotted on a graph.
33. R-squared (r2) is a measure of
D a. The fixed cost component
b. The variable cost per unit of activity
c. The spurious relationship between cost and activity
d. How well the regression line accounts for the changes in the dependent variable
34. After constructing a scatter chart, the internal auditor of Madagascar Company provided you with the following
information:
Independent variable: 1,000,000
Slope of the line: 0.25
Y-axis intercept: 7,500
Based on the above data, what is the estimated cost?
B a. P 250,500 c. P 1,000,000
b. P 257,500 d. P 1,007,500
35. Nips Company uses regression analysis 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:
Coefficient Coefficient
MACHINE HOURS DIRECT MATERIALS WEIGHT
Y-intercept 2,500 Y-intercept 4,600
B 5.0 B 2.6
r2 = 0.70 r2 = 0.50
What regression equation should be used?
A a. Y = 2,500 + 5.0X c. Y = 4,600 + 2.6X
b. Y = 2,500 + 3.5X d. Y = 4,600 + 1.3X
36. The statistician of Galax Company has developed the following cost-prediction equation, using observations from 12,000
to 30,000 machine hours:
• Y = P 236,837 + 3.7625X
• R-squared = 0.81
• Standard error = P 24,363
• Several ‘outliers’ are noted within tolerable limits
• Y (dependent variable) = total maintenance cost
• X (independent variable) = machine hours
36A) What percentage of the variation in maintenance costs is explained by the independent variable?
C a. 95% c. 81%
b. 90% d. 66%
NOTE: R-squared (r2) or the coefficient of determination is a statistical measure of fit that indicates how much variation
of a dependent variable is explained by the independent variable(s) in a regression model. See item no. 33.
36B) Compute the estimated maintenance cost at 20,000 machine hours.
C a. P 252,790 c. P 312,087
b. P 287,724 d. P 336,450
NOTE: Y = 236,837 + 3.7625 (20,000). In estimating costs using line functions, standard error is ignored.