Cost Concepts

BALIUAG UNIVERSITYCPA REVIEW 2013-14MANAGEMENT ADVISORY MANAGEMENT JACF

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COST CONCEPTS

1. The measurable value of alternative use of resources is referred to as a (an):a. Opportunity costb. Imputed costc. Differential costd. Sunk cost

2. Which of the following is a useful technique in determining the fixed and variable elements of a semi-variable expense?

a. Linear programming b. Queuing theoryc. Program Evaluation and Review Techniqued. Simple regression analysis

3. Which of the following quantitative techniques is used to determine to fixed and variable element of semi-variable cost?

a. Queuing theoryb. Linear programmingc. Simplex methodd. Least squares

4. Internal reports prepared under the responsibility-accounting approach should be limited to which of the following costs?

a. Only variable cost of productionb. Only conversion cost c. Only controllable costd. Only costs properly allocable to the cost center under generally accepted accounting

5. Each of the following is a method by which to allocate joint cost except:a. Relative sales valueb. Relative profitability c. Relative weight, volume, or linear measured. Average unit cost

6. Normal spoilage is properly classified as a (an):a. Extraordinary itemb. Period costc. Product costd. Deferred cost

7. The minimum return that a project must earn for a company in order to leave the value of the company unchanged is the:

a. Current borrowing rateb. Discount ratec. Cost of capitald. Capitalization rate

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of 17 By perseverance the snail reached the ark. – Charles Spurgeon


__________________________________________________________________________________________________8. Which of the following quantitative methods will separate a semi-variable cost into its fixed and variable

components with the highest degree of precision under all circumstances?a. High-low methodb. Simplex methodc. Least squares methodd. Scattergraph method

9. Joint cost are most frequently allocated based upon relative:a. Profitabilityb. Conversion costc. Sales valued. Prime cost

10. Which of the following components of production are allocable as joint costs when a single manufacturing process produces several salable products?

a. Materials, labor, overheadb. Materials and labor onlyc. Labor and overhead onlyd. Overhead and materials only

11. Which of the following item of cost could be the least likely to appear in a performance report based on responsibility accounting techniques for the supervisor of an assembly line a large manufacturing situation?

a. Supervisor’s salaryb. Materialsc. Repairs and maintenanced. Direct labor

12. In deciding whether to manufacture a part or buy it from an outside vendor, a cost that is irrelevant to the short-run decision is:

a. Direct laborb. Variable overheadc. Fixed overhead that will be avoided if the part is bought from an outside vendord. Fixed overhead that will continue even if the part is bought from an outside vendor

13. One of the accepted methods of accounting for a by-product is to recognized the of the by-product as it is produced. Under this method, inventory cost for the by-product would be based on:

a. An allocation of some portion of joint cost but not any subsequent processing costsb. Neither an allocation of some portion of joint cost not any subsequent processing costsc. Subsequent processing cost less an allocation of some portion of joint costsd. An allocation of some portion of joint cost plus any subsequent processing costs

14. If the amount of spoilage in a manufacturing process is abnormal, it should be classified as a:a. Deferred chargeb. Joint costsc. Period costsd. Product costs

15. Factory overhead includes:

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__________________________________________________________________________________________________a. All manufacturing costb. All manufacturing cost, except direct material and direct laborc. Indirect materials but not indirect labord. Indirect labor but not indirect materials

16. Simple regression analysis involves the use:a. One variableb. Two variablesc. Three variablesd. More than three variables

17. Which is the best cost accumulation procedure to use when there is a continuous mass production of like units?a. Actualb. Standardc. Job orderd. Process

18. In job order costing, the basis document to accumulate the cost of each order is the:a. Invoiceb. Purchase orderc. Requisition sheetd. Job cost sheet

19. Joint product costs generally are allocated using the:a. Relative sales value at split-offb. Additional costs after split-offc. Relative profitabilityd. Direct labor hours

20. In a make-or-buy decision:a. Only variable cost are relevantb. Fixed costs that can be avoided in the future are relevantc. Fixed costs that will continue regardless of the decision are relevantd. Only conversion costs are relevant

21. Regression analysis is superior to other cost behavior analysis techniques because it:a. Produces measures of probable errorb. Examines only one variablec. Proves a cause and effect relationshipd. Is not a sampling technique

22. Within a relevant range, the amount of variable cost per unit:a. Differs at each production levelb. Remains constant at each production levelc. Increases as production increasesd. Decreases as production increases

23. The use of the graphic method as a means for solving linear programming problems:

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__________________________________________________________________________________________________a. Can be used when there are more than two restrictions (constraints)b. Is limited to situations where there are two restrictions (constraints)c. Is limited to situation where there is one restriction (constraint)d. Cannot be used if there are any restrictions (constraints)

24. The type of costs presented to management for an equipment replacement decision should be limited to:a. Relevant costsb. Standard costsc. Controllable costsd. Conversion

25. Normal spoilage and abnormal should be classified as:Normal Abnormal

a. Period Cost Period Costb. Product Cost Period Costc. Period Cost Product Costd. Product Cost Product Cost

26. Which of the following methods can be used to determine the fixed and variable elements of a semi-variable expense?

a. Statistical scattergraph methodb. Linear programmingc. Input-output analysisd. Program evaluation review multiple

27. The absolute minimum cost that would be possible under the best conceivable operating conditions is a description of which type of standard cost?

a. Currently attainable (expected)b. Theoretical c. Normald. Practical

28. Indirect materials are a (an): a. Prime costb. Fixed costc. Irrelevant costd. Factory overhead cost

29. Factory overhead a. Is a prime costb. Can be a variable cost or a fixed costc. Can only be a fixed costd. Includes all factory labor

30. Direct materials are a:Conversion Cost Manufacturing Cost Prime Costa. Yes Yes Nob. Yes Yes Yesc. No Yes Yes

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__________________________________________________________________________________________________d. No No No

31. Controllable costs for responsibility accounting purposes are those costs that are directly influenced by:a. A given manager within a given period of timeb. A change in activityc. Production volume d. Sales volume

32. In a program evaluation review technique system (PERT), reducing total time can be accomplished only by:a. Shortening a slack pathb. Shortening the critical pathc. Working overtimed. Using sensitivity analysis

33. In job order costing, what journal entry should be made for the return to the storekeeper of direct materials previously issued to the factory for use on a particular job?

a. Debit materials credit factory overheadb. Debit materials and credit work in process c. Debit purchase returns and credit work in processd. Debit work in process and credit materials

34. When using graphic method of solving a linear-programming problem, which of the following would be depicted on the graph?

a. Coefficient of correlationb. Line of best fitc. Critical pathd. Constraint

35. An actual cost system may be used in:a. Neither process costing nor job order costingb. Process costing but not job order costingc. Job order costing but not process costingd. Both job order costing and process costing.

36. Wages of the security guard for a small plant would be an example of:Indirect Labor Fixed factory overhead a. No Nob. Yes Yesc. Yes Nod. No Yes

37. Relative sales value at split-off is used to allocate:Cost beyond Split-off Fixed factory overheada. Yes Yesb. Yes Noc. No Yesd. No No

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__________________________________________________________________________________________________38. When using a flexible budget, what will occur to fixed costs (on a per unit basis) as production increases within the

relevant range?a. Fixed costs are not considered in flexible budgetingb. Fixed costs per unit will decreasec. Fixed costs per unit will increased. Fixed costs per unit will remained unchanged

39. Multiple regression analysis:a. Establishes a cause and effect relationship b. Does not produce measures of probable error c. Measures the change in one other variable associated with the change in one other variable.d. Measures the change in one variable associated with the change in more than other variable.

40. For external reporting purposes, it is appropriate to use estimated gross profit rates to determine the cost of goods sold for:

Interim Financial Reporting Year-end Financial Reporting a. Yes Yesb. Yes Noc. No Yesd. No No

41. Wages paid to factory machine operators of a manufacturing plant are an element of:Prime Cost Conversion Costa. No Nob. No Yesc. Yes Nod. Yes Yes

42. Property taxes on a manufacturing plant are an element of:Conversion Cost Period Costa. Yes Nob. Yes Yesc. No Yesd. No No

43. Factory supplies for a manufacturing plant are generally:a. Prime costb. Period costc. Variable costd. Excluded from product costs

44. Accounting for factory overhead costs involves averaging inJob order costing Process Costinga. Yes Nob. Yes Yesc. No Yesd. No No

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__________________________________________________________________________________________________45. In a job order cost system, the incurrence of indirect labor costs would usually be include in the general ledger as a

charge to:a. Factory department overhead controlb. Factory overhead appliedc. Work in process controld. Accrued payroll

46. Which of the following is an element of prime cost?Direct Materials Indirect Materials

a. Yes Nob. Yes Yesc. No Yesd. No No

47. Wages paid to a timekeeper in a factory are a:Prime Cost Conversion Costa. No Nob. No Yesc. Yes Nod. Yes Yes

48. The fixed portion of the semi-variable cost of electricity for a manufacturing plant is aConversion Cost Product Costa. No Nob. No Yesc. Yes Nod. Yes Yes

49. A flexible budget is appropriate for asDirect-labor Budget Marketing Budgeta. No Nob. No Yesc. Yes Nod. Yes Yes

50. A standard cost system may be used in:a. Job order costing but not a process costingb. Either job order costing or process costingc. Process costing but not job order costingd. Neither process costing nor job costing

PROBLEMS:1. The following cost data were taken from the records of a manufacturing company:

Depreciation on factory equipment P1,000Depreciation on sales office 500Advertising 7,000Freight-in (shipping) 3,000Wages of production workers 28,000Raw materials used 47,000Sales salaries and commissions 10,000

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__________________________________________________________________________________________________Factory rent 2,000Factory insurance 500Material handling 1,500Administrative salaries 2,000

Based upon the above information, the manufacturing costs incurred during the was:a. P78,500b. P80,000c. P80,500d. P83,000

2. G Company has the following data pertaining to the year ended December 31:Purchases P450,000Beginning inventory P170,000Ending Inventory P210,000Freight-in P 50,000Freight-out P 75,000

How much is the cost of goods sold for the year?a. P385,000b. P460,000c. P485,000d. P540,000

3. What is the nature of the manufacturing or work-in-process account:a. Inventoryb. Cost of goodsc. Productivityd. Nominal

4. If BWIP is P90, and P100 of direct labor cost, P200 of overhead cost, and P250 of material costs are incurred during period, what is the cost of goods manufactured if EWIP is P50?

a. P440b. P540c. P590d. P640

5. Given that the total of the debits to the manufacturing account (including BWIP) was P740 during the period and the cost of goods manufactured was P630, what was the cost of incomplete goods (EWIP) at the end of the period?

a. P0b. P110c. P240d. P1,370

6. P Company has a recent gross profit history of 40% of net sales. The following data are available from P’s accounting records for the three months ended March 31:

Inventory at January 1 P 650,000Purchases P3,200,000Net Sales P4,500,000Purchases returns P 75,000Freight in P 50,000Using the gross profit method, the estimated cost of goods sold for the three months ended March 31 should be:

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__________________________________________________________________________________________________a. P1,800,000b. P2,700,000c. P3,775,000d. P3,825,000

Questions 7 through 9 are based on the following data pertaining to L Co.’s manufacturing operations:Inventories 4/1 4/30Direct materials P18,000 P15,000Work-in-process P 9,000 P 6,000Finished goods 27,000 36,000

Additional information for the month of April:Direct materials purchased P42,000Direct labor payroll 30,000Direct labor rate per hour 7.50Factory overhead rate per direct labor hour 10.00

7. For the month of April, prime cost incurred wasa. P75,000b. P69,000c. P45,000d. P39,000

8. For the month of April, conversion cost incurred wasa. P30,000b. P40,000c. P70,000d. P72,000

9. For the month of April, cost of goods incurred wasa. P118,000b. P115,000c. P112,000d. P109,000

Questions 10 and 11 are based on K Corp., which has two divisions – A and B. Ace has a job cost system and manufactures machinery on special order for unrelated customers. B has a process cost system and manufactures Product E, which is sold to A as well as to unrelated companies. A’s work-in-process account at April 30 comprised the following:

Balance, April 1 P24,000Direct Materials (including transferred-in-cost) 80,000Direct Labor 60,000Factory Overhead 54,000Transferred to finished Goods (200,000)

A applies factory overhead at 90% of direct labor hours. Job No. 125, which was the only job in process at April 30, has been charged with factory overhead of P4,500. B’s cost to manufactures Product E is P3.00 per unit, which is sold to A for P5.00 per unit and to unrelated customers for P6.00 per unit.

10. Direct materials (including transferred-in-cost)charged to Job No. 125 amounted to:a. P5,000b. P8,500c. P13,500d. P18,000

11. How much is the transfer price for Product E?a. P2.00

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__________________________________________________________________________________________________b. P3.00c. P5.00d. P6.00

12. The work-in-process of Prot Corporation increased P11,500 from the beginning to the labor end of November. Costs incurred during November were material P12,000, labor P63,000, and overhead P21,000. What was the cost of goods manufactured during November?

a. P93,500b. P84,500c. P126,000d. P132,000

13. If the CGS for the Coole Manufacturing Co. is P105,000 and FG inventory decreased by P9,000 during the year-end CGM?

a. P96,000b. P105,000c. P114,000d. P124,000

14. L Co.’s year-end manufacturing costs were as follows:Direct materials and direct labor P500,000Depreciation of manufacturing equipment P 70,000Depreciation of factory building P 40,000Janitor’s wages for cleaning factory premises P 15,000

How much of these costs should be inventoried for external reporting purposes?a. P625,000b. P610,000c. P585,000d. P500,000

Question 15 and 16 are based on Blue Corp. which manufactures plastic coated metal clips.

The ff. information was among Blum’s year-end manufacturing costs.WagesMachine operators P200,000Maintenance workers 30,000 Factory foremen 90,000

Materials UsedMetal wire P500,000Lubricant for oiling machinery 10,000Plastic Coating 380,000

15. Blue’s year-end direct labor amounted to:a. P200,000b. P230,000c. P290,000d. P320,000

16. Blue’s year-end direct materials amounted to:________________________________________________________________________________________



__________________________________________________________________________________________________a. P890,000b. P880,000c. P510,000d. P500,000

Questions 17 through 21 are based on selected cost data (in thousands) concerning the past fiscal year’s operations of the Tels Manufacturing Company, which are presented below.

Beginning Inventories EndingRaw materials P75 P85Work-in-process 80 30 Finished Goods 90 110Raw materials P326Total manufacturing costs charged to production

during the year (including raw materials, directlabor, and factory overhead applied at a rate of 60% of direct labor cost P686

Cost of goods available for sale P826 Selling and general expenses 25

17. The cost of raw materials purchased during the year amounted toa. P411b. P360c. P316d. P336e. None of these

18. Direct labor cost charged to production during the year amounteda. P135b. P225c. P360d. P216e. None of these

19. The cost of goods manufactured during the year wasa. P636b. P766c. P736d. P716e. None of these

20. The cost of goods sold during the year wasa. P736b. P716c. P691d. P801e. None of these

21. The selling and general expenses of P25,000 are a. Considered period costs since they are expensed as incurred

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__________________________________________________________________________________________________b. Incorporated into overhead and charged to productionc. Charged directly to finished goods upon completion of products. They are not included as labor, materials,

or overheadd. Not relevant to the past fiscal year’s operations.

Questions 22 and 23 are based on the Haton Company, which uses job order costing. Factory overhead is applied to production at a predetermined rate of 150% of direct labor cost. Any over-or under-applied factory overhead is closed to the closed to the cost of goods sold account at the end of each month. Additional information is available as follows.

Job 101 was the only job in process at January 31, with accumulated cost as follows:Direct materials P4,000Direct labor P2,000Applied Factory Overhead P3,000

P9,000Jobs 102, 103, and 104 were started during February.Direct materials requisitions for February totaled P26,000.Direct labor cost of P20,000 was incurred for February.Actual factory overhead was P32,000 for February.

The only job still in process on February 28 was Job 104, with costs of P2,800 for direct materials and P1,800 for direct labor.

22. The cost of goods manufactured for February wasa. P77,700b. P78,000c. P79,700d. P85,000

23. Over-or-underapplied factory overhead should be closed to the cost of goods sold account at February 28 in the amount of

a. P700 overappliedb. P1,000 overappliedc. P1,700 underapliedd. P2,000 underapplied

Questions 24 and 25 are based on the ff. data. Pard Company budgets on an annual basis for its fiscal year. The ff. beginning and ending inventory levels (in units) are planned for the fiscal year of July 1 through June 30.

July 1 June 30Raw materials* 40,000 50,000Work-in-process 10,000 10,000Finished Goods 80,000 50,000*Two (2) units of raw material are needed to produce each unit of finished product.

24. If Pard Company plans to sell 480,000 units during the fiscal year, the number of units it would have to manufacture during the year would be

a. 440,000 unitsb. 480,000 unitsc. 510,000 unitsd. 450,000 unitse. Some amount other than those given above.

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__________________________________________________________________________________________________25. If 500,000 finished units were to be manufactured during the fiscal year by Pard Company, the units of raw materials

needed to pursed would bea. 1,000,000 units b. 1,020,000 units c. 1,010,000 units d. 990,000 units e. Some amount other than those given above.

26. A company manufactures pipes and uses a job order costing system. During May, the following jobs were started (no other jobs were in process) and the following costs were incurred:

Job X Job Y Job Z Total

Materials requisitioned P10,000 P20,000 P15,000 P45,000 Direct labor 5,000 4,000 2,500 11,500

P15,000 P24,000 P17,500 P56,500

In addition, estimated overhead of P300,000 and direct labor costs of P150,000 were estimated to be incurred during the year. Actual overhead of P24,000 was incurred in May; overhead is applied on the basis of direct labor pesos. If only Job X and Job Z were completed during the month, the appropriate entry to be record the initiation of all jobs would be:

a. Work-in-process 79,500Direct material 45,000Direct Labor 11,500Applied factory overhead 23,000

b. Work-in-process 80,500Direct material 45,000Direct Labor 11,500Applied factory overhead 24,000

c. Work-in-process 80,500Direct material 45,000Direct Labor 11,500Applied factory overhead 24,000

d. Direct labor 11,500Direct materials 45,000

Work-in-process 56,500

Questions 27 through 29 are based on the following information.TASTEE-TREAT COMPANY prepares, packages, and distributes six frozen vegetables in two different sized containers. The different vegetables and different sizes are prepared in large batches. The company employs a normal cost job order costing systems. Manufacturing overhead is assigned to batches by a predetermined rate on the basis of direct labor hours.

The manufacturing overhead costs incurred by the company during two recent years (adjusted for changes using current prices and wages rates) are presented below.

1995 1996 Direct labor hours worked 2,760,000 2,160,000

Manufacturing overhead costs incurred (adjustedfor changes in current prices and wage rates):

Indirect labor P11,040,000 P8,640,000Employee benefits 4,140,000 3,240,000Supplies 2,760,000 2,160,000Power 2,208,000 1,728,000

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__________________________________________________________________________________________________Heat and light 552,000 552,000Supervision 2,865,000 2,625,000Depreciation 7,930,000 7,930,000Property taxes and insurance 3,005,000 3,005,000

Total overhead costs P34,500,000 P29,880,000

27. What is the variable overhead rate?a. P7.20 b. P5.40 c. P6.30 d. P7.70

28. What will the total overhead rate be for a 2,300,000 direct labor hour level of activity in 1996?a. P7.70 b. P13.46 c. P5.76 d. P12.52

29. Which of the following is a false statement about evaluating product pricing decisions?a. Prices are based on a company’s cost rather than market factors.b. There is little product differentiation possible because of the highly competitive market.c. Short-term prices should cover at least variable cost.d. Long-term prices are designed to cover total overhead cost taking into consideration container sizes.

Questions 30 through 32 are based on the ff. information Farber Company employs a normal (nonstandard) absorption cost system. The information in the next column is form the financial records of the company for December 31 of the year just ended.

*total manufacturing costs were P2,500,000*cost of goods manufactured was P2,425,000*applied factory overhead was 30% of total manufacturing costs.*factory overhead was applied to production at a rate of 80% of direct labor cost.*work-in-process inventory at January 1 was of work-in-process inventory at December 31.

30. Farber Company’s total direct labor cost for the year wasa. P750,000b. P600,000c. P900,000d. P937,000e. Some amount other than those given above.

31. Total cost direct material used by Farber Company for the year wasa. P750,000b. P812,500c. P850,000d. P1,150,000e. Some amount other than those given above.

32. The carrying amount of Farber’ Company’s work-in-process inventory at December 31, is:a. P300,000b. P225,000c. P100,000d. P75,000e. Some amount other than those given above.

Questions 33 through 37 are based on the following information.________________________________________________________________________________________



__________________________________________________________________________________________________Helper Corporation manufactures one product and accounts for costs by a job order cost system. You have obtained the following information for the year ended December 31 from the Corporation’s book and records:

*total manufacturing cost added during the year was P1,000,000 based on actual direct materials, actual direct labor, and factory overhead applied based on the actual direct labor pesos.*cost of goods manufactured was P970,000 also based on actual material, actual labor, and applied factory overhead.*factory overhead was applied to work-in-process at 75% of direct labor pesos. Applied factory overhead for the year was 27% of the total manufacturing cost.*beginning work-in-process inventory, January 1, was 80% of ending work-in-process inventory, December 31.

33. How is the amount of overhead applied determined by cost personnel at Helper Corporation given no direct labor cost figure?a. Multiply 27% by total manufacturing cost.b. Multiply 27% by cost of goods manufactured.c. Multiply 75% by direct labor cost.d. Multiply 75% by total labor cost.

34. If factory overhead applied id P270,00, how much direct labor was incurred?a. P360,000 b. P385,000 c. P346,150 d. P350,000

35. Total manufacturing costs for the year plus beginning work-in-process inventory equals:a. Cost of goods manufacturedb. Ending work-in-processc. Manufacturing costs to account ford. Goods available for sale

36. What is the ending work-in-process inventory?a. P120,000 b. P150,000 c. P30,000 d. P140,000

37. What are the total manufacturing costs to account for?a. P1,150,000 b. P1,140,000 c. P1,120,000 d. P1,130,00

38. If total warehousing cost for the year amounts to P500,000, and 30% of the warehousing activity is associated with direct materials, and 70% with finished goods, then how much of the cost would be charged as a product costa. P350,000 b. P500,000 c. P150,000 d. P0

Use the following information to answer questions 39 1nd 40:Beginning merchandise inventory P110,000Ending merchandise inventory 90,000Merchandise purchases 300,000

39. What is cost of goods available for sale?a. P390,000 b. P410,000 c. P300,000 d. P320,000

40. What is cost of goods sold?a. P390,000 b. P410,000 c. P300,000 d. P320,000

41. Prime cost is the sum of:a. Direct materials and manufacturing overhead

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__________________________________________________________________________________________________b. Direct labor and manufacturing overheadc. Direct materials, direct labor, and manufacturing overheadd. Direct materials and direct labor

42. Conversion cost is sum of:a. Direct materials and manufacturing overheadb. Direct labor and manufacturing overheadc. Direct materials, direct labor, and manufacturing overheadd. Direct materials and direct labor

43. The cost of units completed during a period is called:a. Cost of goods soldb. Cost of goods manufacturedc. Total manufacturing costd. Finished goods inventory

Use the following information to answer question 44 through 47.Beginning direct materials inventory P30,000Ending direct materials inventory 40,000Beginning work-in-process inventory 90,000Ending work-in-process inventory 85,000

Beginning finished goods inventory 70,000Ending finished goods inventory 80,000Direct materials purchases 95,000Total manufacturing costs 150,000

44. Direct materials used is:a. P65,000 b. P145,000 c. P85,000 d.P115,000

45. Costs of goods manufactured is:a. P65,000 b. P145,000 c. P85,000 d.P115,000

46. Cost of goods sold is:a. P65,000 b. P145,000 c. P85,000 d.P115,000

47. Conversion costs are:a. P65,000 b. P145,000 c. P85,000 d.P115,000

48. Assume that a company’s year production costs are:

Total costs of goods manufactured P400,000Total units started and completed 100,000

Assume furthermore that of the 100,000 units that were started and completed and 80,000 were sold to customers, leaving 20,000 in the finished goods inventory. What is cost of goods sold?a. P400,000 b. P320,000 c. P500,000 d. P100,000

Use the following information to answer questions 49 through 51:Beginning direct materials inventory P100,000Purchases of direct materials 250,000

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__________________________________________________________________________________________________Ending direct materials inventory 80,000Beginning work in process inventory 200,000Direct labor used 250,000Manufacturing overhead 175,000Ending work in process inventory 210,000

49. The amount of direct materials used is:a. P350,000 b. P695,000 c. P685,000 d. P270,000

50. The manufacturing costs are:a. P350,000 b. P695,000 c. P685,000 d. P270,000

51. Cost of goods manufactured is:a. P350,000 b. P695,000 c. P685,000 d. P270,000

END

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