ANGELES UNIVERSITY FOUNDATION

COLLEGE OF BUSINESS AND ACCOUNTANCY

Angeles City
MANAGEMENT ACCOUNTING
Quiz on Cost Concepts, Classification, and Segregation

Name: ___________________________ Section: _____ Score: __ / 55

I. TRUE OR FALSE. Write “T” If your answer is True and “F” if it is otherwise. (10 points)
1. Fixed cost per unit increases as activity decreases and decreases as activity increases.
2. A cost formula may not be valid outside the relevant range of activity.
3. The planning horizons for committed fixed costs and discretionary fixed costs are generally the
same.
4. The fact that the high-low method uses only two data points is a major defect of the method.
5. Advertising is a product cost as long as it promotes specific products.
6. Direct material cost combined with manufacturing overhead cost is known as conversion cost.
7. Although depreciation is always a period cost in a merchandising firm, it can be a product cost in
a manufacturing firm.
8. Differential costs can be either fixed or variable.
9. A fixed cost is constant per unit of product.
10. Costs that result from an organization's ownership or use of facilities and its basic organizational
structure are termed as committed fixed cost

II. MULTIPLE CHOICES. Write the capital letter of your chosen answer. (20 points)
1. Which of the following best describes an opportunity cost?
a. It is usually relevant, but is not part of the traditional accounting records
b. It is usually not relevant, but is part of the traditional accounting records
c. It is usually relevant and is part of the traditional accounting records
d. It is neither relevant nor part of the traditional accounting records

2. Expense A is a fixed cost; expense B is a variable cost. During the current year the activity level
has increased, but is still within the relevant range. In terms of cost per unit of activity, we
would expect that:
a. Expense A has remained unchanged. c. Expense A has decreased.
b. Expense B has decreased. d. Expense B has increased.

3. The slope of the line of regression is:

a. The rate at which the independent variable varies c. The level of the fixed costs
b. The rate at which the dependent variable varies d. The level of the total variable costs

4. Which of the following employees of a boutique hotel would be classified as direct labor?
a. Hotel Supervisor c. Hotel Security Guard
b. Sales representative d. Plant Supervisor

5. When the level of activity increases within the relevant range, how does each of the following
change? D

6. The relationship between cost and activity is termed:

a. cost estimation. b. cost prediction. c. cost behavior. d. cost analysis.

7. A mixed cost is often known as a:

a. semivariable cost b. step-fixed cost c. variable cost d. curvilinear cost
8. Which costs will change with a decrease in activity within the relevant range?
a. Total fixed costs and total variable cost. c. Unit variable cost and unit fixed cost.
b. Unit fixed costs and total variable cost. d. Unit fixed cost and total fixed cost.

9. The linear equation Y = a + bX is often used to express cost formulas. In this equation:
a. b represents variable cost per unit of activity. c. a represents variable cost in total.
b. X represents total cost. d. Y represents total fixed cost.

10. Shipping expense is P9,000 for 8,000 pounds shipped and P11,250 for 11,000 pounds shipped.
Assuming that this activity is within the relevant range, if the company ships 9,000 pounds, its
expected shipping expense is closest to:
a. 10,125 b. 8,583 c. 9,972 d. 9,750

11. Which of the following are examples of a mixed cost?

I. A building that is used for both manufacturing and sales activities.
II. An employee's compensation, which consists of a flat salary plus a commission.
III. Depreciation that relates to five different machines.
IV. Maintenance cost that must be split between sales and administrative offices.

a. I only. b. II only. c. I and III. d. I, III, and IV.

For questions 12-14 are based on the following information: Management Accountants are
frequently asked to analyze various decision situations including the following:
I. The cost of a special device that is necessary if a special order is accepted.
II. The cost proposed annually for the plant service for the grounds at corporate
headquarters
III. Joint production cost incurred, to be considered in a sell-at-split versus a process-further
decision
IV. The cost of alternative use of plant space to be considered in a make-or-buy decision
V. The cost of obsolete inventory acquired several years ago, to be considered in a keep-
versus-disposal decision.
12. The costs described in situations I and IV are:
a. Prime Costs b. Discretionary Costs c. Relevant Costs d. Differential Costs

13. The costs described in situations III and V are:

a. Prime Costs b. Sunk Costs c. Discretionary Costs d. Relevant Costs

14. The cost described in situation II is a:

a. Prime Costs b. Discretionary Costs c. Relevant Costs d. Differential Costs

15. The assumption of relevant range is synonymous with:

a. Long-run b. Short-run c. Valid range d. Applicable range

16. In the cost function Y = a + bX, “Y ÷ X” may increase or decrease due to the changes in:
a. Unit fixed cost b. Unit variable cost c. Total fixed cost d. Total variable cost

17. Which of the following is an example of nonlinear-cost function?

a. Fixed per unit b. Step-cost c. Both a and b d. Neither a nor b

18. Outlay cost is also termed as, except:

a. Explicit cost b. Accounting cost c. Out-of-pocket cost d. Relevant cost

19. These costs cannot be conveniently or economically traced to a cost object. Instead, these costs
are allocated to a cost object in a rational and systematic manner:
a. Non-traceable costs c. Indirect costs
b. Non-controllable costs d. All of these
 20. The cost estimation method that gives the most mathematically precise cost production
equation is:
a. The high-low method c. The scatter-graph method
b. Linear programming d. The regression analysis

III. PROBLEM SOLVING. PLEASE SHOW THE SOLUTIONS and ENCIRCLE your FINAL ANSWERS. (20points)
1. The management of PALAKPAK Corporation would like to have a better understanding of the
behavior of its inspection costs. The company has provided the following data:

Management believes that inspection cost is a mixed cost that depends on direct labor-hours.

*** Required: Estimate the variable cost per direct labor-hour and the fixed cost per month
using the high-low method. (5 points) 8.55 and 17,105.70

2. HIYAW Parcel, Inc., operates a local parcel delivery service. The company keeps detailed records
relating to operating costs of trucks, and has found that if a truck is driven 110,000 miles per
year the operating cost is 7.5 cents per mile. This cost increases to 8.75 cents per mile if a truck
is driven 60,000 miles per year.

***Required: Estimate the cost formula for truck operating costs using the high-low method. (5
points) y =1,650 + 0.06x

3. At an activity level of 2,400 units, SIGAW Corporation's total variable cost is P118,008 and its
total fixed cost is P9,000. Required: For the activity level of 2,500 units, Compute: (a) the total
variable cost; (b) the total fixed cost; (c) the total cost; (d) the average variable cost per unit; (e)
the average fixed cost per unit; and (f) the average total cost per unit. Assume that this activity
level is within the relevant range. (6 points) 122,925/9,000/131,925/49.17/3.60/52.77

4. ISANGBAGSAK Company's average cost per unit is P1.425 at the 16,000 unit level of activity and
P1.38 at the 20,000 unit level of activity. Assume that all of the activity levels mentioned in this
problem are within the relevant range. (3 points)
***Required: Predict the following items
a. Variable cost per unit. 1.20
b. Total fixed cost per period. 3,600
c. Total expected costs at the 18,000 unit level of activity 25,200

5. “My variable costs are P2.00 per unit. If I want to increase production from 100,000 units to
150,000 units, my costs should go up by P100,000.” Comment on the statement given. (6 points)
The statement will only be true if both the 100,000 and 150,000 units are within the
relevant range which makes the variable cost constant on a per unit basis.

---Goodluck and God bless---

Prepared by:

Patrick R. Cura, MICB, CB, RCA, CAT, CPA, RBP, CTT, FRIAcc
Instructor