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ACCOUNTANCY DEPARTMENT
COLUMBAN COLLEGE, INC
No. 1 Mt. Apo Street, East Tapinac
Olongapo City, Philippines

QUIZ in RELEVANT COSTING

Last Name:______________________________Schedule :________________________________________

First Name:______________________________Professor :________________________________________

TABLE OF SPECIFICATION (TOS)

Theories Problems Solving

Topics/Contents Knowledge & Analysis & Synthe Evalua Items
Comprehension Application sis tion
1. Relevant Costing 30 0 0 0 30
2. Xxxx 0 0 0 0 0
3. Xxxx 0 0 0 0 0
4. Xxxx 0 0 0 0 0
5. Xxxx 0 0 0 0 0
6. Xxxx 0 0 0 0 0
7. Xxxx 0 0 0 0 0
8. Xxxx 0 0 0 0 0
Total 30 0 0 0 30

Distribution of the Examination Score Equiv

No. of Items
%age
Part 1. Theories-Multiple Choice 21 0 0 0 0 0 0 0 21
Part 2. Easy/Average Problems Solving - MC 0 0 0 0 0 0 0 0 0
Part 3. Difficult Problems Solving - NMC 9 0 0 0 0 0 0 0 0
Total 30 0 0 0 0 0 0 0 30

Prepared by: Noted by:

Prof. Laarni D. Bingcang, CPA Dr. Peter O. Tulio, CPA

BSA Faculty Chairperson

ANSWER SHEET
- SHADE THE LETTER OF YOUR CHOICE -
PART 1 PART 3
Theories-Multiple Choice
1 [a] [b] [c] [d] 21 [a] [b] [c] [d] 1
2 [a] [b] [c] [d] 2
3 [a] [b] [c] [d] 3
4 [a] [b] [c] [d] 4
5 [a] [b] [c] [d] 5
6 [a] [b] [c] [d] 6
7 [a] [b] [c] [d] 7
8 [a] [b] [c] [d] 8
9 [a] [b] [c] [d] 9
10 [a] [b] [c] [d]
11 [a] [b] [c] [d]
12 [a] [b] [c] [d]
13 [a] [b] [c] [d]
14 [a] [b] [c] [d]
15 [a] [b] [c] [d]
16 [a] [b] [c] [d]
17 [a] [b] [c] [d]
18 [a] [b] [c] [d]
19 [a] [b] [c] [d]
20 [a] [b] [c] [d]
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PART 1

1. The salary or wage that you could be earning while you are taking this test is
a. an opportunity cost.
b. a sunk cost.
c. an incremental cost.
d. a joint cost.

2. The kind of cost that can be ignored in short-term decision making is

a. a differential cost.
b. an opportunity cost.
c. a relevant cost.
d. a sunk cost.

3. Allocated costs are

a. generally separable.
b. generally variable.
c. generally common.
d. especially important in deciding whether to drop a segment.

4. A major factor in evaluating a special order is

a. the expected contribution margin on the order.
b. the possible effects on sales at regular prices.
c. the availability of capacity to produce the additional units.
d. all of the above.

5. A manufacturing process that invariably produces two or more products

a. is a complementary process.
b. is a joint process.
c. normally has only fixed costs.
d. usually has primarily variable costs.

6. A company has space that it uses to make a component. It could rent the space to another company. The rent is
a. a sunk cost.
b. an opportunity cost.
c. a joint cost.
d. an avoidable cost.

7. A sunk cost is
a. not avoidable.
b. avoidable under one alternative but not under another.
c. joint or common.
d. direct to a segment.

8. Differential costs are costs that are

a. not avoidable.
b. avoidable under one alternative but not under another.
c. joint or common.
d. not direct to a segment.

9. A common cost
a. relates to a process that produces more than one product.
b. should be allocated to the segments of a company.
c. can usually be avoided in its entirety by dropping a segment.
d. none of the above.

10. Which of the following cost-classification schemes is most relevant to decision making?
a. Fixed--variable.
b. Joint--common
c. Avoidable--unavoidable.
d. Direct--common.

11. Which of the following is NOT a short-term decision?

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a. Accept a special order.
b. Make-or-buy a component.
c. Replace a machine.
d. Sell a joint product at split-off or process it further.

12. The variable cost of a unit of product made yesterday is

a. an incremental cost.
b. an opportunity cost.
c. a differential cost.
d. a sunk cost.

13. Which of the following is a short-term decision in which opportunity costs are not relevant?
a. Make-or-buy decision.
b. Special-order decision.
c. Drop-a-segment decision.
d. None of the above.

14. Which of the following is NOT relevant to a decision about whether to drop a segment?
a. The contribution margin expected to be produced by the segment.
b. The avoidable fixed costs direct to that segment.
c. The complementary effects of dropping the segment.
d. "None of the above" is the best answer because all of the above are relevant.

15. A product should be dropped if

a. it has a negative incremental profit.
b. it has a negative contribution margin.
c. dropping it will increase the total profit of the company.
d. it is not essential to the company's product line.

16. From its refining process an oil company obtains three products, one of which can be processed further into a
different product, the other two of which can be sold after further refining. The refining process is

a. a joint process.
b. a mixed cost process.
c. an unavoidable process.
d. a process whose costs should be allocated to the resulting products.

17. A major factor in evaluating a special order is

a. the expected contribution margin on the order.
b. the possible effects on sales at regular prices.
c. the availability of capacity to produce the additional units.
d. all of the above.

18. In a make-or-buy decision, which of the following is true?

a. Variable costs are the only relevant costs.
b. Allocated fixed costs are relevant.
c. Alternative uses of space and machinery are relevant.
d. Making is the correct decision when there is idle capacity.

19. The most profitable use of a resource that has limited capacity and is needed in the production of more than one
product is a function of which of the following?
a. The number of units of each product the company can sell.
b. The contribution margin of each product.
c. The amount of resource-use required for each unit of each product.
d. All of the above

20. Which of the following is true for a make-or-buy decision?

a. The reliability of the outside supplier of the component is important to the decision.
b. Depreciation on equipment used in making the component and having no other use is the critical factor in the
decision.
c. Opportunity costs are irrelevant.
d. The company should make the component if the purchase price is less than the per-unit variable cost to make
the component.

21. The salary or wage that you could be earning while you are taking this test is
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a. an opportunity cost.
b. a sunk cost.
c. an incremental cost.
d. a joint cost.

PART 2 N/A

PART 3

I. Wilson Company expects the following results, without considering any of the changes described
below.
Product A Product B Total
--------- --------- -----
Sales $100 $300 $400
Variable costs 40 100 140
---- ---- ----
Contribution margin $ 60 $200 $260
Fixed costs - avoidable (20) (30) (50)
- unavoidable (50) (100) (150)
---- ---- ----
Profit (loss) $(10) $ 70 $ 60
===== ==== ====

The unavoidable costs are allocated based on unit sales of 1,000 A and 2,000 B. CONSIDER EACH
QUESTION INDEPENDENTLY UNLESS TOLD OTHERWISE.

1. Compute Wilson's income if product A is dropped.

2. If product A were dropped and the unit sales of product B increased by 30%, what would the company's
income be?

3. Product A can be dropped and replaced with a new product, C, which would have avoidable fixed costs
of $50. Product C would sell for $0.60, have variable costs of $0.20, and expected volume of 400 units.
Compute Wilson's income if A were replaced by C.

4. Suppose now that products A and B are joint products that are being sold at split-off. All of the costs
shown on the income statement are the materials, labor, and overhead of the joint process. Find income if
product B were processed further at additional costs of $90 and sold for $350.

a. Wilson's income: $20 ($200 CM from B - $30 - $150)

b. Wilson's income: $80 ($260 CM from B - $30 - $150)

c. Wilson's income: $130 [$20 + 400($0.60 - $0.20) - $50]

d. Wilson's income: $20 ($60 CM from A + $50 incremental revenue –

$90 incremental cost)

II. Arapahoe Corp. can make three products from a joint process. The monthly cost of the joint process is
$10,000. Following are data about the three products.

Sales Value Sales Value Costs of

at if Further Additional
Product Split-off Point Processed Processing
------- --------------- ----------- ----------
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A $ 8,000 $12,000 $2,500
B $ 9,000 $10,000 $2,000
C $ 0 $ 2,500 $1,000

5. Which product(s) should be sold at the split-off point?

6. Arapahoe is currently processing all three products rather than selling any of them at the split-off point.
Find its current income.

a. Product B should be sold at split-off.

b. Income: $9,000 ($12,000 + $10,000 + $2,500 - $2,500 - $2,000 - $1,000 - $10,000)

III. Madison Co. operates a joint process. Three products, B, C, and D emerge from that process, each of
which can be sold immediately or processed further. Monthly output is 50,000 gallons; 50% is B, 30% is C,
and 20% is D. You have the following information.
B C D
------- ------- -------
Per-gallon split-off price $8 $9 $6
Per-gallon price after further
processing $13 $15 $12
Per-gallon variable cost of
further processing $4 $2 $4
Avoidable direct fixed costs of
further processing, per month $35,000 $45,000 $18,000
Unavoidable direct fixed costs
of further processing, per month $18,000 $40,000 $ 7,000

7. Which product(s), if any, should be sold at split-off?

B should be sold at split-off.

B: [50,000 x 50%] x [$13 - $8 - $4] - $35,000 = -$10,000
C: [50,000 x 30%] x [$15 - $9 - $2] - $45,000 = $15,000
D: [50,000 x 20%] x [$12 - $6 - $4] - $18,000 = $2,000

IV. Mays Company manufactures 200,000 units of part XYZ annually. The following information has been
collected:

Materials $200,000
Direct labor 110,000
Variable overhead 50,000
Fixed overhead 100,000
--------
Total costs $460,000
========

Clemens Company has offered to provide part XYZ for $2 per unit. Assume no other productive use of the
space exists.

8. What would be the dollar impact if Mays accepted the offer?

9. What is the maximum price Mays is willing to pay for the part?

a. $40,000 less profits ($360,000 make - $400,000 buy)

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Cost to buy the part: 200,000 x $2 = $240,000

Cost to make the part: $200,000 + 110,000 + 50,000 = $360,000

b. $1.80 ($360,000/200,000)

Try not to become a man of success but rather to become a man of value.
Albert Einstein

END OF QUIZ– GODBLESS FOR THE RESULTS! 