Chapter 2: Cost Classification and Estimation
Which of the following is a product cost:
E. Both C and D. Freight in and Rent on Factory.
A cost that will not be affected by later decisions is termed an opportunity cost.
False.
A direct materials cost that varies with the number of units produced is an example of fixed cost.
False.
All costs in a merchandising company are period costs.
False.
As activity increases within the relevant range, fixed costs remain constant on a per unit basis.
False.
Capital expenditures are costs that are directly charged as an expense because it benefit only the current period.
False.
Committed fixed costs are costs that may be altered, reduced or eliminated in the short term.
False.
Cost accounting is the process of arranging the components of cost in logical groups having regard to their nature and purpose.
False.
Cost behavior refers to the methods used to estimate cost for use in cost accounting.
False.
Direct labor or direct materials are examples of direct expenses.
False.
High-low method is generally more accurate than the least square regression method in analyzing cost behavior.
False.
Imputed cost involves cash outlay.
False.
Indirect costs can be specifically identified to cost object.
False.
Indirect labor and indirect materials are examples of indirect expenses.
False.
Indirect material is not a component of manufacturing overhead.
False.
Manufacturing costs are expensed when incurred.
False.
Opportunity cost is the amount of increase or decrease in cost that would result from the best available alternative to the proposed use of cash.
False.
Period costs are costs which are not associated with production. They are treated as inventories.
False.
Relevant range is the range of activity were a company achieves its maximum efficiency.
False.
Selling expenses include all executive and clerical expenses associated with the general administration of the company.
False.
Sunk cost can be changed by any decision in the future.
False.
The cost of materials entering directly into the production process is classified as factory overhead.
False.
The following are examples of committed fixed cost: depreciation on building; advertising; insurance; and management development and training.
False.
The least squares regression method relies on only two data points.
False.
The rebates, trade discounts, refunds, returns, VAT are added to determine the cost of the material.
False.
The sum of all costs of manufacturing costs except direct materials is called factory overhead.
False.
The wages paid to carpenters would be classified as factory overhead cost.
False.
Thread used in the production of the T-shirt is classified as direct materials.
False.
Total fixed costs changes as the level of activity changes.
False.
Work in process inventory is ordinarily held for sale by a manufacturing company.
False.
Indirect labor costs are costs paid to workers who are directly involved in the production of goods or services.
False. It should be Direct Labor Costs.
The relationship between cost and activity is termed as:
C. Cost behavior
A production manager salary is an example of a variable cost.
False.
A security guard wages at the factory would be an example of:
Indirect Labor FOH B. Yes Yes
Click Company is considering replacing equipment which originally cost P50,000 and which has P46,000 accumulated depreciation to date. A new machine will cost P79,000. How much is the sunk cost?
B. 50,000
As production increases, what would you expect to happen to fixed cost per unit?
B. Decrease
Committed fixed costs have a short term planning horizon - usually one year.
False.
Period cost can be found in the balance sheet or in the income statement.
False.
Factory overhead cost is also known as factory burden cost.
True.
Indirect expenses are expenses which cannot be conveniently and directly allocated a particular product call center or unit of service.
True.
Indirect labor is a component of manufacturing overhead.
True.
Non-manufacturing costs are classified into two categories: selling and administrative.
True.
One characteristic of committed fixed cost is that it can't be significantly reduced even for a short period of time.
True.
Period cost is also known as commercial cost.
True.
Product costs are also known as inventoriable costs.
True.
The cost of a manufactured product generally consists of direct materials cost, directly labor cost and factory overhead cost.
True.
The cost of wages paid to employees directly involved in converting materials to finished goods is classified as direct labor cost.
True.
The fixed cost per unit varies with changes in the level of activity.
True.
The indirect departmental charge is costs that are later allocated or transferred to other departments.
True.
The labor cost may be classified as direct or indirect labor.
True.
The material cost may be classified as direct or indirect material.
True.
FX Company is studying marketing cost and sales volume, and has generated the following information by use of scatter diagram and least square regression analysis: The company is now preparing an estimate for monthly sales of 18,000 units. On the basis of the data presented, compute the most accurate sales forecast possible.
A. 164,900
A partial listing of costs incurred at John Corporation during October appears below: Administrative salaries 931,500 Advertising 1,552,500 Depreciation of administrative equipment 345,000 Depreciation of production equipment 230,000 Direct labor 1,483,000 Direct materials 1,299,500 Indirect labor 287,500 Sales commissions 552,000 Utilities factory 57,500 Total product costs are:
A. 3,358,000
The accounting records of Text Corporation revealed the following costs: direct materials used, P750,000; direct labor, P1,275,000; factory overhead, P1,125,000; and selling and administrative expenses, P660,000. Text's product costs total: Total period costs are:
A. 660,000
The following production and average cost data for a month's operation have been supplied by a company that produces a single product. Production volume 1,000 units; 2,000 units DM P4.00 per unit; P4.00 per unit DL P3.50 per unit; P3.50 per unit FOH P10.00 per unit; P6.20 per unit The total fixed manufacturing cost and the variable manufacturing cost per unit are as follows:
A. 7,600;9.90
The least squares regression method:
A. Fits a regression line by minimizing the sum of squared errors from the regression line.
The following graph shows the different behavior of costs. Graph A --------- Total units produced Graph B / / / / Total units produced Graph C / / / / Total units produced Graph D --- --- --- Total units produced Which of the graph illustrates the behavior of total fixed cost?
A. Graph A
The lost revenue from the Cavite branches given up can best be described as a (n):
A. Opportunity cost
The accounting records of Text Corporation revealed the following costs: direct materials used, P750,000; direct labor, P1,275,000; factory overhead, P1,125,000; and selling and administrative expenses, P660,000. Text's product costs total:
A. P2,490,000
Which of the following workers or employees would not be classified as indirect labor cost?
A. Salesperson salary
In the standard cost formula y = a + bx, what does "b" represent?
A. Variable Cost per unit
Calamansi Company recently conducted a least squares regression analysis to predict selling expenses. The company has constructed to the following regression equation: Y = P500,000 + 8X. Which of the following statements is incorrect of the primary cost driver is the number of units sold?
A. X represents the number of hours worked during the period.
A partial listing of costs incurred at John Corporation during October appears below: Administrative salaries 931,500 Advertising 1,552,500 Depreciation of administrative equipment 345,000 Depreciation of production equipment 230,000 Direct labor 1,483,000 Direct materials 1,299,500 Indirect labor 287,500 Sales commissions 552,000 Utilities factory 57,500 Total period costs are:
B. 3,381,000
A partial listing of costs incurred at John Corporation during October appears below: Administrative salaries 931,500 Advertising 1,552,500 Depreciation of administrative equipment 345,000 Depreciation of production equipment 230,000 Direct labor 1,483,000 Direct materials 1,299,500 Indirect labor 287,500 Sales commissions 552,000 Utilities factory 57,500 Total factory overhead costs are:
B. 575,000
Oppo Corporation has determined that the number of machine hours worked (MH) drives the amount of manufacturing overhead incurred (MOH). On he basis of this relationship, a staff analyst has constructed the following regression equation: MOH = 240,000 + 8MH Which of the choices correctly depicts the nature of Oppo Corporation's variable?
B. Dependent = MOH, Independent = MH
The wage costs of the additional employees that will have to be hired for the Laguna branch operations' can best be described as a (n):
B. Differential cost
The cost that could be classified as part of both prime and conversion cost would be:
B. Direct Labor.
The following graph shows the different behavior of costs. Graph A --------- Total units produced Graph B / / / / Total units produced Graph C / / / / Total units produced Graph D --- --- --- Total units produced Which of the graph illustrates the behavior of total variable cost?
B. Graph B
Which of the following cost estimation method realize only to two data points?
B. High-low method.
Which of the following costs is a mixed cost?
B. Rental cost of P10,000 per month plus P2 per machine hour
Which of the following would not be classified as product cost?
B. Salesman commisions
Which of the following is not an example of a cost that varies in total as the number units produced changes?
B. Straight line depreciation on factory equipment
Which of the following statement is true?
B. The different costs concepts and classifications are used for different purposes.
What type of cost exhibits the behavior that follows? Manufacturing units 10,000 20,000 Cost per unit P2.00 P2.00
B. Variable Cost
Ivan Company manufactures and sells commercial air conditioners. Because of current trends, it expects to increase sales by 15 percent next year. If this expected level of production and sales occurs and plant expansion is not needed, how should this increase affect next year's total amounts for the following costs?
B. Variable Cost, Increase; Fixed Cost, No Change; Mixed Cost, Increase
The accounting records of Text Corporation revealed the following costs: direct materials used, P750,000; direct labor, P1,275,000; factory overhead, P1,125,000; and selling and administrative expenses, P660,000. Text's product costs total: Total conversion costs:
C. 2,400,000
All of the following are examples of product costs, except:
C. Depreciation of finished goods warehouse.
Which of the following is a weakness of scattergraph method of analyzing mixed cost?
C. Different people will have different answers even though they are analyzing the same data.
Which of the following is an example of a cost that varies in total as the number if units produced changes?
C. Direct material cost
Materials used in the operation of a factory, such as cleaning supplies, that are not an integral part of the final product should be classified as:
C. Factory Overhead
Which of the following is not a factory overhead?
C. Factory equipment.
Which of the following statements is true regarding fixed and variable costs?
C. Fixed costs are constant in total, and variable costs are constant per unit
The following graph shows the different behavior of costs. Graph A --------- Total units produced Graph B / / / / Total units produced Graph C / / / / Total units produced Graph D --- --- --- Total units produced Which of the graph illustrates the behavior of total mixed cost?
C. Graph C
Product costs are:
C. Inventoried
Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?
C. Salary of production manager
Mixed cost is also known as:
C. Semi-variable cost.
A banking business is considering whether to give up its Cavite branches or to expand its operation in Laguna. In this decision, the original cost of any of the branches that is currently owned in Cavite can best be described as a (n):
C. Sunk cost
The variable cost graph appears as:
D. A diagonal line that slopes upward to the right.
The amount of increase or decrease in cost that is expected from a particular course of action compared with an alternative is termed:
D. Differential cost.
Which of the following statements about the visual fit method is (are) correct?
D. I, II, III
The three most common cost behavior classifications are:
D. Mixed cost, variable cost and fixed cost
The salary that is sacrificed by a college student who pursues a degree full time is a(n):
D. Opportunity cost
Costs that are expensed when incurred are called?
D. Period Costs
Which of the following statements is correct?
D. Product cost affect both balance sheet and the income statement.
Fixed costs are costs that
D. Remain constant as activity changes.
Variable costs are costs that:
D. Remain constant on a per unit basis as activity changes.
In the standard cost formula y = a + bx, what does "y" represent?
D. Total cost
In the standard cost formula y = a + bx, what does "x" represent?
D. Units of activity
Which of the following statement is correct?
D. Variable costs are constant on a per unit basis and changes in total as activity changes.
Variable cost changes in direct proportion to change in the activity level.
True.
Within the relevant range, a change in activity results in a change in total variable cost and the per unit fixed cost.
True.
A cost that will not be affected by later decisions is termed a sunk cost.
True.
A major problem with the high-low method of cost estimation is that some data are omitted from the analysis.
True.
A mixed cost has characteristics of both a variable and fixed cost.
True.
A variable cost is constant if expressed in a per unit basis, but the total dollar mount changes as the number of units increases or decreases.
True.
Abnormal costs are costs that arise from flood, riots, accidents, earthquake, fire, and shut down of machinery.
True.
All of the following are examples of opportunity costs: salary given up to start a business; rental income given up when you live in a house you own; interest income that could be earned on money spent in a car.
True.
Conversion cost is the sum of direct labor and factory overhead.
True.
Cost behavior refers to the manner in which a cost change as the related activity changes.
True.
Cost is the monetary value spent by the company to create an offer a product or service.
True.
Cost object is often a product or a department for which costs are accumulated or measured.
True.
Direct expenses are also known as chargeable expenses.
True.
Direct expenses are expenses which can be directly allocated to a particular product cost center or unit of service.
True.
Direct material and direct labor costs are examples of variable costs of production.
True.
Direct materials are raw materials which become an integral part of the finished products or services which are economically and easily traceable or identified to it.
True.
Finished goods inventory is ordinarily held for sale by a manufacturing company.
True.
Historical cost is a cost incurred in the past and is generally recorded in the books of accounts of the company.
True.
If the cost of materials is not a significant portion of total product cost, the materials may be classified as part of the factory overhead cost.
True.
Imputed cost is also known as hypothetical cost.
True.
In regression analysis, the variable that is being predicted is known as the slope of the line.
True.
Product costs include direct materials, direct labor and factory overhead.
True.
Sunk costs are always results of decisions taken in the past.
True.
The relevant range is useful for analyzing the cost behavior for management decision making purposes.
True.
The time frame in which discretionary fixed costs are controllable is usually much shorter than the time frame for committed fixed costs.
True.
Unit variable cost does not change as the number of units of activity changes.
True.