Accounting 142

COAT CONCEPTS AND CLASSIFICATION

COST SEGREGATION AND ESTIMATION
MULTIPLE CHOICES. Read carefully the questions below and choose the best statement among the choices. Write only the letter of your answer
in CAPITAL FORM on the answer sheet provided with this questionnaire. Use of friction pens is STRICTLY not allowed. Erasures or
alterations of any kind will not be given points. God bless. 

1. Cost behavior analysis is a study of how a firm's costs D. The unit variable cost, also called the coefficient of the independent
A. relate to competitors' costs. variable.
B. relate to general price level changes.
C. respond to changes in activity levels within the company. 12. Simple regression is
D. respond to changes in the gross national product. A. a regression equation with more than one independent variable.
B. a regression equation with more than one dependent variable.
2. The term “relevant range” as used in cost accounting means the C. a regression equation with more than one independent and
range over which dependent variables.
A. costs may fluctuate D. a regression that considers all unknown factors.
B. production may vary
C. cost relationships are valid 13. Regression shows
D. relevant costs are incurred A. the proportion of the variation of dependent variable explained by
dependent variables.
3. If a predetermined overhead rate is not employed and the volume of B. the proportion of the variation of independent variable explained by
production is increased over the level planned, the cost per unit the independent variables.
would be expected to C. the proportion of the variation of dependent variable explained by
A. Decrease for fixed costs and remain unchanged for variable costs. the independent variables.
B. Remain unchanged for fixed costs and increase for variable costs. D. none of the above.
C. Decrease for fixed costs and increase for variable costs.
D. Increase for fixed costs and increase for variable costs. 14. In the method of least squares, the deviation is the difference
between the
4. Which of the following describes the behavior of the variable cost A. predicted and estimated costs.
per unit? Variable cost: C. predicted and average costs.
A. Varies in increasing proportion with changes in the activity level. B. predicted and actual costs.
B. Varies in increasing proportion with changes in the activity level. D. average and actual costs.
C. Remains constant with changes in the activity level.
D. Varies in direct proportion with the activity level. 15. The correlation coefficient or R-squared (R2) is interpreted as:
A. the minimum distance between the regression line and a single data
5. Royalties Company’s average cost per unit is the same at all levels point.
of volume. Which of the following is true? B. the measure of the linear relationship between two or more
A. ROYALTIES must have only variable costs. variables.
B. ROYALTIES must have only fixed costs. C. a determination of whether the data point is considered to be an
C. ROYALTIES must have some fixed costs and some variable costs. "outlier."
D. ROYALTIES’s cost structure cannot be determined from this D. the proportion of the variation in the dependent variable explained
information. by the independent variable.
6. Depreciation expense based on the number of units produced is 16. A cost-predicting equation determined through regression analysis
classified as what type of cost? A. always gives close predictions.
A. Out-of-pocket cost. B. will not work any better than one obtained using the high-low
C. Variable cost. method.
B. Marginal cost. C. can be used only for costs that vary with sales of production.
D. Fixed cost. D. could be severely affected by outliers.
7. When the number of units manufactured increases, the most 17. Regret Company is interested in the relationship between sales
significant change in unit cost will be reflected as a(n) (dependent variable) and occurrence of rain (independent variable).
A. increase in the fixed element. Using the proper formula, the coefficient of correlation (r) is
C. increase in the mixed element. computed as -0.98. What conclusion about the sales and rain
B. decrease in the variable element. occurrence could one make?
D. decrease in the fixed element. A. An increase in sales causes an increase in rain occurrence.
B. An increase in sales causes a decrease in rain occurrence.
8. For analysis purposes, the high-low method usually produces a(n) C. An increase in rain occurrence causes a decrease in sales.
A. reasonable estimate. D. An increase in rain occurrence causes an increase in sales.
C. overstated estimate.
B. precise estimate. 18. Multiple regression analysis
D. understated estimate. A. establishes and proves cause and effect relationship.
B. does not produce measures of probable error.
9. The high-low method may give unsatisfactory results if C. measures the change in one variable associated with the changes in
A. the data points all fall on a line. another variable.
C. the points are not representative. D. measures the change in one variable related to a change in two or
B. volume of activity is heavy. more other variables.
D. volume of activity is light.
19. Which of these correlation coefficients represents strongest
10. Regression analysis is better than the high-low method of cost relationship between two variables?
estimation because regression analysis: A. -0.02
A. is more mathematical. B. 1.80
C. fits its data into a mathematical equation. C. 0.50
B. uses all the data points, not just two. D. -0.70
D. takes more time to do.

11. In regression analysis, what does the variable "X" stand for in the 20. What is the appropriate range for the coefficient of determination
model Y = a + bX + e? (r2)
A. The amount of the dependent variable, the cost to be estimated. A. -1 to +1
B. The regression error, which is the distance between the regression B. -1 to 0
line and the data point. C. 0 to +1
C. The value for the independent variable, the cost driver for the cost D. 0 to infinity
to be estimated; there may be one or more cost drivers.
21. In the scattergraph method, the horizontal axis represents B. – 1.0
A. total activity cost C. 0
B. total activity outputs D. ±1
C. total activity inputs
D. none of the above 33. If the coefficient of correlation between two variables is zero, how
might a scatter diagram of these variables appear?
22. Which cost is most likely to be mixed for a manufacturer? A. Random points.
A. Raw materials B. A least squares line that slopes up to the right.
B. Direct labor C. A least squares line that slopes down to the right.
C. Manufacturing overhead D. Under this condition a scatter diagram could not be plotted on a
D. Insurance graph.

23. Which of the following statements is true? 34. The first to be undertaken in a simple regression analysis approach
A. The higher is the production within the relevant range, the higher is is
the fixed cost per unit. A. To calculate the coefficient correlation.
B. The higher is the production within the relevant range, the higher is B. To make the least squares computation.
the variable cost per unit. C. To plot two variables in a scatter diagram.
C. The lower is the production within the relevant range, the lower is D. To find the standard error of estimate.
the total fixed cost
D. The lower is the production within the relevant range, the lower is 35. Regression analysis is superior to other cost behavior techniques
the total variable cost. because it
A. Examines only one variable.
24. Which cost is not subtracted from selling price to calculate B. Proves a cause and effect relationship.
contribution margin per unit? C. Produces measures of probable error.
A. Variable manufacturing overhead D. Is not a sampling technique.
B. Variable selling expenses
C. Direct labor 36. Dolce Amore’s average cost per unit is the same at all levels of
D. Fixed manufacturing overhead volume. Which of the following is true?
A. Dolce Amore must have only variable costs.
25. Unit fixed costs B. Dolce Amore must have only fixed costs.
A. are constant per unit regardless of units produced or sold C. Dolce Amore must have some fixed costs and some variable costs.
B. are determined by dividing total fixed costs by a denominator such D. Dolce Amore’s cost structure cannot be determined from this
as production volume information.
C. vary directly with the activity level when started on a per unit basis
D. include both fixed and variable elements 37. Quantum, Inc.’s net sales in 2016 were 15% below the 2015 level.
Quantum’s semi-variable costs would
26. Fixed costs that cannot be reduced within a short period of time are A. Increase in total and increase as a percentage of net sales.
A. Committed B. Decrease in total and decrease as a percentage of net sales.
B. Variable C. Increase in total, but decrease as a percentage of net sales.
C. Avoidable D. Decrease in total, but increase as a percentage of net sales.
D. Unnecessary
38. Which of the following statements is false?
27. Factory supplies for a manufacturing are generally considered as A. At zero production level, variable costs are usually zero.
A. Sunk costs B. At zero production level, total costs equal total fixed costs.
B. Period costs C. At zero production level, fixed costs are positive.
C. Variable costs D. At zero production level, fixed costs is also zero.
D. Prime costs
39. R-squared is a measure of
28. Which of the following best describes a step cost? A. the spurious relationship between cost and activity
A. it varies less than proportionately with volume B. the fixed cost component
B. it varies more than proportionately with volume C. the variable cost per unit of activity
C. it is partly variable and partly fixed D. how well the regression line accounts for the changes in the
D. it increases abruptly outside the relevant range dependent variable

29. The major objective of preparing a scatter diagram is to 40. Dolce’s average cost per unit is the same at all level of volume.
A. derive an equation to predict future costs Which of the following is true?
B. perform regression analysis on the results A. Dolce must have only fixed costs
C. determine the relevant range B. Dolce must have some fixed costs and some variable costs
D. find the high and low points to use for the low-high method of C. Dolce must have only variable costs
estimating costs D. Dolce’s cost structure cannot be determined from this information

30. The principal advantage of scatter-diagram method over the high- 41. Costs that arise from periodic budgeting decisions that have no
low method of cost estimation is that the scatter-diagram method strong input-output relationship are commonly called
A. includes cost outside the relevance range A. Committed costs.
B. considers more than two points B. Discretionary costs.
C. can be used with more types of costs than the high-low method C. Opportunity costs.
D. gives a precise mathematical fit of the points to the line D. Differential costs.

31. How many of the following statements is/are true? 42. A new advertising agency serves a wide range of clients including
 In regression analysis, all the variables are independent of one manufacturers, restaurants, service businesses, department stores,
another and other retail establishments. The accounting system the
 In regression analysis, all the variables are dependent of one another advertising agency has most likely adopted for its record keeping in
 In regression analysis, one variable is dependent to one or more accumulating costs is
other variables A. Job-order costing.
 Regression analysis proves a cause and effect relationship B. Operation costing.
A. one C. Relevant costing.
B. two D. Process costing.
C. three
D. four 43. A shipbuilding company, employing 30 workers, constructs custom-
built yachts. Which of the following is an appropriate product-
32. The coefficient of correlation between production and unit fixed costing method for this operation?
cost is most likely close to A. Process costing.
A. + 1.0 B. Variable cost transfer pricing.
C. Job-order costing. C. Are expensed when products become part of finished goods
D. Step-down allocation of costs. inventory.
D. Are regarded as assets before the products are sold.
44. The manufacturing (work-in-process) account is
A. Neither a real nor a nominal account. 54. Committed costs are costs that
B. An inventory account indicating the beginning and ending inventory A. Were capitalized and amortized in prior periods.
of goods being processed. B. Management decides to incur in the current period that do not have
C. A hybrid account (both a real and a nominal account). a clear cause and effect relationship between inputs and outputs.
D. A nominal account to which indirect costs are charged as incurred C. Result from a clear measurable relationship between inputs and
and credited as these costs are charged to production. outputs.
D. Establish the current level of operating capacity and cannot be
45. Which of the following items is not included in (charged to) factory altered in the short run.
overhead?
A. Factory depreciation and supplies. 55. The difference between variable costs and fixed costs is
B. Costs of service departments. A. Variable costs per unit fluctuate and fixed costs per unit remain
C. Costs of maintenance departments. constant.
D. Costs of marketing departments. B. Variable costs per unit are fixed over the relevant range and fixed
costs per unit are variable.
46. Joint costs are useful for C. Total variable costs are variable over the relevant range and fixed in
A. Setting the selling price of a product, the long term, while fixed costs never change.
B. Determining whether to continue producing an item. D. Variable costs per unit change in varying increments, while fixed
C. Evaluating management by means of a responsibility reporting costs per unit change in equal increments.
system.
D. Determining inventory cost for accounting purposes. For numbers 56-61, refer to the following:

47. Cost objectives Huron Industries has recently developed two new products, a cleaning
A. May be intermediate if the costs charged are later reallocated to unit for laser discs and a tape duplicator for reproducing home movies
another cost objective. taken with a video camera. However, Huron has only enough plant
B. May be final if the cost objective is the job, product, or process capacity to introduce one of these products during the current year. The
itself. company controller has gathered the following data to assist management
C. Should be logically linked with the cost pool. in deciding which product should be selected for production.
D. All answers are correct.
Huron's fixed overhead includes rent and utilities, equipment
48. A computer company charges indirect manufacturing costs to a depreciation, and supervisory salaries. Selling and administrative
project at a fixed percentage of a cost pool. This project is covered expenses are not allocated to products.
by a cost-plus government contract. Which of the following is an
appropriate guideline for determining how costs are assigned to the Tape Cleaning
pool? Duplicator Unit
A. Establish separate pools for variable and fixed costs. Raw materials P 44.00 P 36.00
B. Assign prime costs and variable administrative costs to the same Machining @ P12/hr. 18.00 15.00
pool. Assembly @ P10/hr. 30.00 10.00
C. Establish a separate pool for each assembly line worker to account Variable overhead @ P8/hr. 36.00 18.00
for wages. Fixed overhead @ P4/hr. 18.00 9.00
D. Assign all manufacturing costs related to the project to the same Total cost P 146.00 P 88.00
pool.
Suggested selling price P 169.95 P 99.98
49. The allocation of general overhead costs to operating departments Actual research and
can be least justified in determining development costs P240,000 P175,000
A. Income of a product or functional unit. Proposed advertising and
B. Costs for making management's decisions. promotion costs P500,000 P350,000
C. Costs for the federal government's cost-plus contracts.
D. Income tax payable. 56. For Huron's tape duplicator, the unit costs for raw materials,
machining, and assembly represent
50. The terms direct cost and indirect cost are commonly used in A. Conversion costs.
accounting. A particular cost might be considered a direct cost of a B. Separable costs.
manufacturing department but an indirect cost of the product C. Committed costs.
produced in the manufacturing department. Classifying a cost as D. Prime costs.
either direct or indirect depends upon
A. The behavior of the cost in response to volume changes. 57. The difference between the P99.98 suggested selling price for
B. Whether the cost is expensed in the period in which it is incurred. Huron's laser disc cleaning unit and its total unit cost of P88.00
C. The cost objective to which the cost is being related. represents the unit's
D. Whether expenditure is unavoidable because it cannot be changed A. Contribution margin ratio.
regardless of any action taken. B. Gross profit.
C. Contribution.
51. Costs are allocated to cost objects in many ways and for many D. Gross profit margin ratio.
reasons. Which one of the following is a purpose of cost allocation?
A. Evaluating revenue center performance. 58. The total overhead cost of P27.00 for Huron's laser disc cleaning
B. Measuring income and assets for external reporting. unit is a
C. Budgeting cash and controlling expenditures. A. Carrying cost.
D. Aiding in variable costing for internal reporting. B. Discretionary cost.
C. Sunk cost.
52. In determining cost behavior in business, the cost function is often D. Mixed cost.
expressed as Y = a + bX. Which one of the following cost
estimation methods should not be used in estimating fixed and 59. Research and development costs for Huron's two new products are
variable costs for the equation? A. Conversion costs.
A. Graphic method. B. Sunk costs.
B. Simple regression. C. Relevant costs.
C. High and low point method. D. Avoidable costs.
D. Multiple regression.
60. The advertising and promotion costs for the product selected by
53. Inventoriable costs Huron will be
A. Include only the prime costs of manufacturing a product. A. Discretionary costs.
B. Include only the conversion costs of manufacturing a product. B. Opportunity costs.
C. Committed costs. 70. S1: Property taxes and insurance premiums paid on a factory
D. Incremental costs. building are examples of manufacturing overhead.
S2: Manufacturing overhead combined with direct materials is
61. The costs included in Huron's fixed overhead are known as conversion cost.
A. Joint costs. S3: If the ending inventory of finished goods is understated, net
B. Committed costs. income will be overstated.
C. Opportunity costs. S4: In a manufacturing company, goods available for sale equals the
D. Prime costs. sum of the cost of goods manufactured and the beginning finished
goods inventory.
62. Which one of the following is least likely to be an objective of a
cost accounting system? 71. S1: Variable costs are costs whose per unit costs vary as the activity
A. Product costing. level rises and falls.
B. Department efficiency. S2: On a per unit basis, a fixed cost varies inversely with the level
C. Inventory valuation. of activity.
D. Sales commission determination. S3: The following would typically be considered indirect costs of
manufacturing a particular Boeing 747 to be delivered to Singapore
63. Job-order costs are most useful for Airlines: electricity to run production equipment, the factory
A. Determining inventory valuation using LIFO. manager's salary, and the cost of the General Electric jet engines
B. Estimating the overhead costs included in transfer prices. installed on the aircraft.
C. Controlling indirect costs of future production. S4: The following costs should be considered direct costs of
D. Determining the cost of a specific project. providing delivery room services to a particular mother and her
baby: the costs of drugs administered in the operating room, the
64. An imputed cost is attending physician's fees, and a portion of the liability insurance
A. The difference in total costs which results from selecting one carried by the hospital to cover the delivery room.
alternative instead of another.
B. A cost that cannot be avoided because it has already been incurred. 72. The corporate controller’s salary would be considered a(n):
C. A cost that does not entail any dollar outlay but is relevant to the A. manufacturing cost.
decision-making process. B. product cost.
D. A cost that continues to be incurred even though there is no activity. C. administrative cost.
D. selling expense.
65. Committed costs are
A. Those management decides to incur in the current period to enable 73. The cost of fire insurance for a manufacturing plant is generally
the company to achieve objectives other than the filling of orders considered to be a:
placed by customers. A. product cost.
B. Likely to respond to the amount of attention devoted to them by a B. period cost.
specified manager. C. variable cost.
C. Governed mainly by past decisions that established the current D all of the above.
levels of operating and organizational capacity and that only change
slowly in response to small changes in capacity. 74. Which of the following would be considered a product cost for
D. Those that fluctuate in total in response to small changes in the rate external financial reporting purposes?
of use of capacity. A. Cost of a warehouse used to store finished goods.
B. Cost of guided public tours through the company's facilities.
66. Discretionary costs are C. Cost of travel necessary to sell the manufactured product.
A. Those management decides to incur in the current period to enable D. Cost of sand spread on the factory floor to absorb oil from
the company to achieve objectives other than the filling of orders manufacturing machines.
placed by customers.
B. Likely to respond to the amount of attention devoted to them by a 75. The salary of the president of a manufacturing company would be
specified manager. classified as which of the following?
C. Governed mainly by past decisions that established the current A. Product cost
levels of operating and organizational capacity and that only change B. Period cost
slowly in response to small changes in capacity. C. Manufacturing overhead
D. Unaffected by current managerial decisions. D. Direct labor

67. A cost that always can be physically traced to a cost objective is 76. Manufacturing overhead consists of:
A. A variable cost. A. all manufacturing costs.
B. An indirect cost. B. all manufacturing costs, except direct materials and direct labor.
C. A conversion cost. C. indirect materials but not indirect labor.
D. A prime cost. D. indirect labor but not indirect materials.

68. A cost that bears an observable and known relationship to a 77. Last month, when 10,000 units of a product were manufactured, the
quantifiable activity base is a(n) cost per unit was P60. At this level of activity, variable costs are
A. Engineered cost. 50% of total unit costs. If 10,500 units are manufactured next month
B. Indirect cost. and cost behavior patterns remain unchanged the:
C. Sunk cost. A. total variable cost will remain unchanged.
D. Target cost. B. fixed costs will increase in total.
C. variable cost per unit will increase.
For numbers 69-71, choose from the following choices: A B A D. total cost per unit will decrease.
A. Only one statement is true.
B. Only two statements are true. 78. An opportunity cost is:
C. Only one statement is false. A. the difference in total costs which results from selecting one
D. All statements are true. alternative instead of another.
B. the benefit forgone by selecting one alternative instead of another.
69. S1: All costs incurred in a merchandising firm are considered to be C. a cost which may be saved by not adopting an alternative.
period costs. D. a cost which may be shifted to the future with little or no effect on
S2: Depreciation is always considered a product cost for external current operations.
financial reporting purposes in a manufacturing firm.
S3: In external financial reports, factory utilities costs may be 79. Which of the following costs is often important in decision making,
included in an asset account on the balance sheet at the end of the but is omitted from conventional accounting records?
period. A. Fixed cost.
S4: Advertising costs are considered product costs for external B. Sunk cost.
financial reports since they are incurred in order to promote specific C. Opportunity cost.
products. D. Indirect cost.
80. Which one of the following costs should NOT be considered a 91. Which of the following is not a period cost?
direct cost of serving a particular customer who orders a customized A. Legal costs.
personal computer by phone directly from the manufacturer? B. Public relations costs.
A. the cost of the hard disk drive installed in the computer. C. Sales commissions.
B. the cost of shipping the computer to the customer. D. Wages of assembly-line workers.
C. the cost of leasing a machine on a monthly basis that automatically E. The salary of a company's chief financial officer (CFO).
tests hard disk drives before they are installed in computers.
D. the cost of packaging the computer for shipment. 92. Which of the following statements is true?
A. Product costs affect only the balance sheet.
81. Expense A is a fixed cost; expense B is a variable cost. During the B. Product costs affect only the income statement.
current year the activity level has increased, but is still within the C. Period costs affect only the balance sheet.
relevant range. In terms of cost per unit of activity, we would expect D. Period costs affect both the balance sheet and the income statement.
that: E. Product costs eventually affect both the balance sheet and the
A. expense A has remained unchanged. income statement.
B. expense B has decreased.
C. expense A has decreased. 93. Which of the following would likely be a cost driver for the amount
D. expense B has increased. of direct materials used?
A. The number of units sold.
82. The term "relevant range" means the range over which: B. The number of direct labor hours worked.
A. costs may fluctuate. C. The number of machine hours worked.
B. a particular cost formula is valid. D. The number of employees working in the factory.
C. production may vary. E. The number of units produced.
D. relevant costs are incurred.
94. Indirect costs:
83. An example of a discretionary fixed cost is: A. can be traced to a cost object.
A. insurance. B. cannot be traced to a particular cost object.
B. taxes on real estate. C. are not important.
C. management training. D. are always variable costs.
D. depreciation of buildings and equipment. E. may be indirect with respect to Disney World but direct with respect
to one its major components, Epcot Center.
84. Discretionary fixed costs: 95. The salary that is sacrificed by a college student who pursues a
A. vary directly and proportionately with the level of activity. degree full time is a(n):
B. have a long-term planning horizon, generally encompassing many A. sunk cost.
years. B. out-of-pocket cost.
C. are made up of plant, equipment, and basic organizational costs. C. opportunity cost.
D. none of the above. D. differential cost.
E. marginal cost.
85. In describing the cost formula equation Y = a + bX, which of the
following statements is correct? 96. The tuition that will be paid next semester by a college student who
A. "X" is the dependent variable. pursues a degree is a(n):
B. "a" is the fixed component. A. sunk cost.
C. In the high-low method, "b" equals change in activity divided by B. out-of-pocket cost.
change in costs. C. indirect cost.
D. As "X" increases "Y" decreases. D. average cost.
E. marginal cost.
86. An example of a cost that is variable with respect to the number of
units produced and sold is: 97. Which of the following costs should be ignored when choosing
A. insurance on the headquarters building. among alternatives?
B. power to run production equipment. A. Opportunity costs.
C. supervisory salaries. B. Sunk costs.
D. depreciation of factory facilities. C. Out-of-pocket costs.
D. Differential costs.
87. A cost driver is: E. None of the above.
A. the largest single category of cost in a company.
B. a fixed cost that cannot be avoided. 98. A non-value-adding activity
C. a factor that causes variations in a cost. A. cannot be a cost driver.
D. an indirect cost that is essential to the business. B. should be eliminated.
C. usually drives only variable costs.
88. Which of the following statements is true? D. cannot usually be observed by managers
A. The word "cost" has the same meaning in all situations in which it is
used. 99. A cost-predicting equation determined through regression analysis
B. Cost data, once classified and recorded for a specific application, A. always gives close predictions.
are appropriate for use in any application. B. will not work any better than one obtained using the high-low
C. Different cost concepts and classifications are used for different method.
purposes. C. can be used only for costs that vary with sales or production.
D. All organizations incur the same types of costs. D. could be severely affected by outliers.
E. Costs incurred in one year are always meaningful in the following
year. 100. A cost pool is
A. all of the costs of a particular department.
89. Product costs are: B. all costs in a group such as variable costs or discretionary fixed
A. expensed when incurred. costs.
B. inventoried. C. all costs related to a product or product line.
C. treated in the same manner as period costs. D. all costs that have the same driver.
D. treated in the same manner as advertising costs.
E. subtracted from cost of goods sold.

90. Which of the following would not be classified as a product cost?

A. Direct materials.
B. Direct labor.
C. Indirect materials.
D. Insurance on the manufacturing plant.
E. Sales commissions.