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- Financial Statement Analysis
- MAS Basic Concepts - Bobadilla
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THEORIES:

1. Cost behavior analysis is a study of how a firm's costs

A. relate to competitors' costs.

B. relate to general price level changes.

C. respond to changes in activity levels within the company.

D. respond to changes in the gross national product.

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2. The term relevant range as used in cost accounting means the range over which

A. costs may fluctuate

C. production may vary

B. cost relationships are valid

D. relevant costs are incurred

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3. Most operating decisions by management focus on a narrow range of activity which is called the:

A. relevant range of production.

C. optimal level of production.

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B. strategic level of production.

D. tactical operating level of production.

4. An item or event that has a cause-effect relationship with the incurrence of a variable cost is called a

A. mixed cost.

C. direct cost.

B. predictor.

D. cost driver.

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5. If a predetermined overhead rate is not employed and the volume of production is increased over the level planned, the

cost per unit would be expected to

A. Decrease for fixed costs and remain unchanged for variable costs.

B. Remain unchanged for fixed costs and increase for variable costs.

C. Decrease for fixed costs and increase for variable costs.

D. Increase for fixed costs and increase for variable costs.

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6. Which of the following describes the behavior of the variable cost per unit? Variable cost:

A. Varies in increasing proportion with changes in the activity level.

B. Varies in increasing proportion with changes in the activity level.

C. Remains constant with changes in the activity level.

D. Varies in direct proportion with the activity level.

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7. A cost that remains constant on a per unit basis in a given period despite changes in the level of activity should be

considered a(an):

A. variable cost.

C. fixed cost.

B. prime cost.

D. overhead cost.

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8. Malayan Companys average cost per unit is the same at all levels of volume. Which of the following is true?

A. MALAYAN must have only variable costs.

B. MALAYAN must have only fixed costs.

C. MALAYAN must have some fixed costs and some variable costs.

D. MALAYANs cost structure cannot be determined from this information.

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9. Depreciation expense based on the number of units produced is classified as what type of cost?

A. Out-of-pocket cost.

C. Variable cost.

B. Marginal cost.

D. Fixed cost.

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10. When production increases, variable manufacturing costs react in which of the following ways?

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A.

B.

C.

D.

Total variable cost

decreases

decreases

remains same

Increases

remains same

decreases

increases

Increases

11. When the number of units manufactured increases, the most significant change in unit cost will be reflected as a(n)

A. increase in the fixed element.

C. increase in the mixed element.

B. decrease in the variable element.

D. decrease in the fixed element. Bobadilla

12. As volume increases,

A. total fixed costs remain constant and per-unit fixed costs increase.

B. total fixed costs remain constant and per-unit fixed costs decrease.

C. total fixed costs remain constant and per-unit fixed costs remain constant.

D. total fixed costs increase and per-unit fixed costs increase.

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A. It may change in total when such change is unrelated to changes in production.

B. It may change in total when such change is related to changes in production.

C. It is constant per unit of change in production.

D. It may change in total when such change depends on production within the relevant range.

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14. If activity increases, which of the following statements about cost behavior is true? Bobadilla

A. Fixed cost per unit will increase

C. Fixed cost per unit will decrease

B. Variable cost per unit will increase

D. Variable cost per unit will decrease

15. An increase in the activity level within the relevant range results in:

A. an increase in fixed cost per unit.

B. a proportionate increase in total fixed costs.

C. an unchanged fixed cost per unit.

D. a decrease in fixed cost per unit.

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16. A cost that remains constant in total but varies on a per-unit basis with changes in activity is called a(n)

A. expired cost.

C. variable cost.

B. fixed cost.

D. mixed cost.

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17. Which of the following statements regarding fixed costs is incorrect?

A. Expressing fixed costs on a per unit basis usually is the best approach for decision-making process.

B. Fixed costs expressed on a per unit basis will react inversely with changes in activity.

C. Assumptions by accountants regarding the behavior of fixed costs rest heavily on the concept of the relevant range.

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D. Fixed costs frequently represent long-term investments in property, plant, and equipment.

18. Lamang Company changed its cost structure by increasing fixed costs and decreasing its per-unit variable costs. The

change:

A. Increases risk and increases potential profit.

B. Increases risk and decreases potential profit.

C. Decreases risk and decreases potential profit.

D. Decreases risk and increases potential profit.

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19. A managements preference for a very low degree of operating leverage might indicate that:

A. an increase in sales volume is expected.

B. a decrease in sales volume is expected.

C. the firm is very unprofitable.

D. the firm has very high fixed costs.

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20. Management is considering replacing its existing sales commission compensation plan with a fixed salary plan. If the

change is adopted, the companys

A. Breakeven point must increase.

C. Operating leverage must increase.

B. Margin of safety must decrease.

D. Profit must increase.

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21. The indifference point is the level of volume at which a company

A. earns the same profit under different operating scheme.

B. earns no profit.

C. earns its target profit.

D. any of the above.

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A. revenues earned and manufacturing costs

B. fixed and variable costs.

C. high-volume and low-volume products.

D. manufacturing costs and period costs.

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23. The increased use of automation and less use of the work force in companies has caused a trend towards an increase

in

A. both variable and fixed costs.

B. fixed costs and a decrease in variable costs.

C. variable costs and a decrease in fixed costs.

D. variable costs and no change in fixed costs.

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24. If fixed costs decrease while variable cost per unit remains constant, the contribution margin will be

A. Unchanged

C. Higher

B. Lower

D. Indeterminate

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25. Costs that increase as the volume of activity decreases within the relevant range are

A. Average cost per unit.

C. Total fixed costs.

B. Average variable cost per unit.

D. Total variable costs.

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26. Which costs will change with an increase in activity within the relevant range?

A. Total fixed costs and total variable cost.

B. Per unit fixed costs and total variable cost.

C. Per unit variable cost and per unit fixed cost.

D. Per unit fixed cost and total fixed cost.

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27. Which of the following best describes the relationship between fixed costs per unit and variable costs per unit, as total

volume increases?

A. Fixed cost per unit stays the same and variable cost per unit stays the same.

B. Fixed cost per unit stays the same and variable cost per unit increases.

C. Fixed cost per unit increases and variable cost per unit increases.

D. Fixed cost per unit decreases and variable cost per unit stays the same.

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28. Within the relevant range, the difference between variable costs and fixed costs is:

A. variable costs per unit fluctuate and fixed cost per unit remains constant.

B. variable cost per unit is constant and fixed cost per unit fluctuates.

C. both total variable cost and total fixed cost are constant.

D. both total variable cost and total fixed cost fluctuate.

29. The learning curve in cost estimation is a good example of:

A. non-linear cost behavior.

C. simple regression.

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B. machine-intensive production.

D. a random variable.

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A. estimating the relationship between costs and the cost drivers that cause those costs.

B. documenting costs in terms of direct and indirect costs.

C. summarizing past costs into fixed and variable components.

D. all of the above.

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31. Which of the following methods is used to estimate costs?

A. Account analysis

C. Engineering method

B. High-low method

D. All of the above

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32. For analysis purposes, the high-low method usually produces a(n)

A. reasonable estimate.

C. overstated estimate.

B. precise estimate.

D. understated estimate.

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A. is not a graphical method.

B. is a mathematical method.

C. ignores much of the available data by concentrating on only the extreme points.

D. does not provide reasonable estimates.

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34. The high-low method may give unsatisfactory results if

A. the data points all fall on a line.

C. the points are not representative.

B. volume of activity is heavy.

D. volume of activity is light.

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35. The equation(s) required for applying the least squares method in the computation of fixed and variable production costs

could be expressed as

A. xy = ax + b x2

C. y = na + b x

2

B. y = a + bx

D. xy = ax + b x2

xy = na + b x

y = na + bx

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36. Weaknesses of the high-low method include all of the following except

A. Only two observations are used to develop the cost function.

B. The high and low activity levels may not be representative.

C. the method does not detect if the cost behavior is nonlinear.

D. the mathematical calculations are relatively complex.

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37. Which of the following methods estimates costs by identifying costs as variable or fixed based on qualitative analysis?

A. Regression analysis

C. Engineering method

B. Account analysis

D. High-low method

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38. Account analysis as compared to the engineering method

A. relies on past data.

B. relies on present and future data.

C. measures the work involved in the activities that go into a product.

D. a and c.

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39. Which of the following methods may be used to estimate costs by using time-and-motion studies to approximate labor

time?

A. Regression analysis

C. Engineering method

B. Account analysis

D. High-low method

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40. The cost estimation method that gives the most mathematically precise cost prediction equation is

A. the high-low method

C. the scatter-diagram method

B. the contribution margin method

D. regression analysis

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41. Regression analysis is better than the high-low method of cost estimation because regression analysis:

A. is more mathematical.

C. fits its data into a mathematical equation.

B. uses all the data points, not just two.

D. takes more time to do.

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42. In regression analysis, what does the variable "X" stand for in the model Y = a + bX + e?

A. The amount of the dependent variable, the cost to be estimated.

B. The regression error, which is the distance between the regression line and the data point.

C. The value for the independent variable, the cost driver for the cost to be estimated; there may be one or more cost

drivers.

D. The unit variable cost, also called the coefficient of the independent variable.

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43. Simple regression is

A. a regression equation with more than one independent variable.

B. a regression equation with more than one dependent variable.

C. a regression equation with more than one independent and dependent variables.

D. a regression that considers all unknown factors.

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44. Regression shows

A. the proportion of the variation of dependent variable explained by dependent variables.

B. the proportion of the variation of independent variable explained by the independent variables.

C. the proportion of the variation of dependent variable explained by the independent variables.

D. none of the above.

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45. In the method of least squares, the deviation is the difference between the

A. predicted and estimated costs.

C. predicted and average costs.

B. predicted and actual costs.

D. average and actual costs.

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A. always gives close predictions.

B. will not work any better than one obtained using the high-low method.

C. can be used only for costs that vary with sales of production.

D. could be severely affected by outliers.

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A. total fixed costs.

C. unit variable cost.

B. total variable costs.

D. activity units.

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48. Which of the following methods would be best for estimating costs for totally new activities?

A. Engineering method

C. Scattergraph method

B. Account analysis method

D. High-Low method

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49. The engineering method of estimating costs:

A. can be used to estimate costs for totally new activities.

B. can detail each step required to perform an operation.

C. sometimes can be quite expensive to use.

D. all of the above are true.

50. The correlation coefficient or R-squared (R2) is interpreted as:

A. the minimum distance between the regression line and a single data point.

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C. a determination of whether the data point is considered to be an "outlier."

D. the proportion of the variation in the dependent variable explained by the independent variable.

51. The closeness of the relationship between the cost and the activity is called

A. correlation

C. spurious

B. regression analysis

D. manufacturing overhead

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A. the spurious relationship between cost and activity

B. the fixed cost component

C. the variable cost per unit of activity

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D. how well the regression line accounts for the changes in the dependent variable

53. The principal advantage of the scatter-diagram method over the high-low method of cost estimation is that the scatterdiagram method

A. includes cost outside the relevant range.

B. considers more than two points.

C. can be used with more types of costs than the high-low method.

D. gives a precise mathematical fit of the points to the line.

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54. The major objective of preparing a scatter-diagram is to

A. develop an equation to predict future costs.

B. perform regression analysis on the results.

C. determine the relevant range.

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D. find the high and low points to use for the high-low method of estimating costs.

55. Advantages of the method of least squares over the high-low method include all of the following except

A. a statistical method is used to mathematically derive the cost function

B. only two points are used to develop the cost function

C. the squared differences between actual observations and the line (cost function) are minimized

D. all the observations have an effect on the cost function

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56. The scatter diagram method of cost estimation

A. is influenced by extreme observations

B. requires the use of judgment

C. uses the least-squares method

D. is superior to other methods in its ability to distinguish between discretionary and committed fixed costs

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PROBLEMS:

i

Nite Corporation has developed the following flexible budget formula for annual indirect labor costs:

Total Cost = P480,000 + P5.00 per machine hour

Operating budgets for the current month are based upon 20,000 machine hours of planned machine time. Indirect labor

costs included in this planning budget are:

A. P 48,333

C. P580,000

B. P100,000

D. P140,000

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ii

Harem Company uses an annual cost formula for overhead of P72,000 + P1.60 for each direct labor hour worked. For

the upcoming month Karla plans to manufacture 96,000 units. Each unit requires five minutes of direct labor. Harem

Companys budgeted overhead for the month is

A. P 12,800

B. P 18,800

C. P 84,800

D. P774,000

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iii

. Total production costs for Jordan, Inc. are budgeted at P2,300,000 and P2,800,000 for 50,000 and 60,000 units of

budgeted output, respectively. Because of the need for additional facilities, budgeted fixed costs for 60,000 units are 25

percent more than budgeted fixed costs for 50,000 units. How much is Jordans budgeted variable cost per unit of

output?

A. P 7.50

C. P30.00

B. P16.00

D. P62.50

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iv

. Deakin Company is preparing a flexible budget for the coming year and the following maximum capacity estimates for

Department OZ are available:

Direct labor hours

60,000

Variable factory overhead

P150,000

Fixed factory overhead

P240,000

Assume that Deakins normal capacity is 80% of maximum capacity. What would be the total factory overhead rate,

based on direct labors, in a flexible budget at normal capacity?

A. P6.00

C. P6.50

B. P7.50

D. P8.13

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Irma Company manufactures office furniture. During the most productive month of the year, 3,500 desks were

manufactured at a total cost of P84,400. In its slowest month, the company made 1,100 desks at a cost of P46,000.

Using the high-low method of cost estimation, total fixed costs in August are:

A. P56,000

C. P17,600

B. P28,400

D. P38,400

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vi

. Palm, Inc. has a total of 2,000 rooms in its nationwide chain of hotels. On the average, 70 percent of the rooms are

occupied each day. The companys operating cost is P21 per occupied room per day at this occupancy level, assuming

a 30-day month. This P21 figure contains both variable and fixed cost elements. During October, the occupancy dropped

to only 45 percent. A total of P792,000 in operating costs were incurred during the month.

What would be the expected operating costs, assuming that the occupancy rate increases to 60 percent during

November?

A. P1,056,000

C. P 756,000

B. P 846,000

D. P 829,500

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vii

. The controller of Jema Company has requested a quick estimate of the manufacturing supplies that it needs for

the month of July when the expected production are 470,000 units. Below are the actual data from the prior

three months of operations.

Production in units

Manufacturing supplies

March

450,000

P723,060

April

540,000

853,560

May

480,000

766,560

Using these data and the high-low method, what is the reasonable estimate of the cost of manufacturing supplies that

would be needed for July? (Assume that this activity is within the relevant range.)

A. P 805,284

C. P 755,196

B. P1,188,756

D. P 752,060

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viii

.The following activity and cost data that were provided by Hoist Corporation would help in estimating its future

maintenance costs:Units

Maintenance Cost

3

P450

7

P530

11

P640

15

P700

Using the least-squares regression method to estimate the cost formula, the expected total cost for an activity level of 10

units would be closest to:

A. P612.50.

C. P595.84.

B. P581.82.

D. P601.50.

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ix

.Given the cost formula Y = P17,500 + P4X, at what level of activity will total cost be P42,500?A.

C. 6,250 units.

B. 4,375 units.

D. 5,250 units.

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Prior Year

.Balsy Company has

provided the following data

for maintenance cost:

Machine hours

12,500

Maintenance cost

P27,000

The best estimate of the cost formula for maintenance would be:

A. P21,625 per year plus P0.625 per machine hour.

B. P 7,000 per year plus P0.625 per machine hour.

C. P 7,000 per year plus P1.60 per machine hour.

D. P27,000 per year plus P1.60 per machine hour.

x

Current Year

15,000

P31,000

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Maintenance Costs

.Almond

Company

wishes to determine the

fixed portion of its

maintenance expense (a

semi-variable expense), as

measured against direct

labor hours for the first

Malayan three months of

the year. The inspection

costs are fixed; however,

the

adjustments

necessitated by errors

found during inspection

account for the variable

portion of the maintenance

costs. Information for the

first Malayan quarter is as

follows:

January

34,000

P61,000

February

31,000

58,500

March

34,000

61,000

What is the fixed portion of Almond Companys maintenance expense, rounded to the nearest pesos?

A. P28,330

C. P37,200

B. P32,677

D. P40,800

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xi

xii

the following experience

regarding power

costs:Month

Jan.

Machine hours

Power cost

300

P680

10,625

units.

Feb.

600

720

Mar.

400

695

Apr.

200

640

Assume that management expects 500 machine hours in May. Using the high-low method, calculate Clone's power cost

using machine hours as the basis for prediction.

A. P 700

C. P 710

B. P 705

D. P1,320

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xiii

.In the equation Y = P4,000 + P3X; Y is the cost of workers' compensation insurance and X is direct labor hours.

According to this equation, a 100-hour change in total direct labor hours will change the cost of workers

compensation insurance byA.

P4,000. C.

P4,300.

B. P 300.

D. none of the above amounts.

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xiv

.Using multiple regression, you have identified P12,000 of unit level costs for 3,000 units, P1,000 of product level

costs for 40 products, and P3,500 of customer-level costs for ten customers. The cost of Job 002 which used 800

unit level activities, 4 product level activities, and one customer-level activities amounts toA.

P3,650 C.

P3,050

B. P3,250

D. P2,950

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xv

.It takes a worker 10 minutes to assemble a toy. With a learning curve of 70% as production doubles, the average time

(per unit) needed to make 8 units would beA. 4.90 minutes C.

3.33 minutes

B. 3.43 minutes

D. 3.23 minutes

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xvi

.The cost to rebuild a race car engine is P1,500, and a buyer offers to buy four engines for P6,000. Assuming a

cumulative learning curve of 90% as production doubles, the incremental cost of the third and fourth items will beA.

P 0 C.

P2,160

B. P 600

D. P1,250

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xvii

.At a sales level of P300,000, Jamaica Company's gross margin is P15,000 less than its contribution margin, its net

income is P50,000, and its selling and administrative expenses total P120,000. At this sales level, its contribution

margin would be:A.

P250,000. C.

P170,000.

B. P155,000.

D. P185,000.

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Activity

Cost

.The Shepherd

Companys president

would like to know the

estimated fixed and

variable components of a

particular cost. Actual data

for this cost for four recent

periods appear below.

Period 1

24

P174

Period 2

25

179

Period 3

20

165

Period 4

22

169

Using the least-squares regression method, what is the cost formula for this cost?

A. Y = P 0.00 + P7.55X

C. Y = P103.38 + P3.00X

B. Y = P110.44 + P2.70X

D. Y = P113.35 + P0.89X

xviii

xix

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.Sams Company. wants to develop a single predetermined overhead rate. The company's expected annual fixed

overhead is P340,000 and its variable overhead cost per machine hour is P2. The company's relevant range is from

200,000 to 600,000 machine hours. Sams Company expects to operate at 425,000 machine hours for the coming

year. The plant's theoretical capacity is 850,000. The predetermined overhead rate per machine hour should beA.

P2.40.

C.

P2.80.

B. P2.57.

D. P2.85.

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Electricity Cost

Direct Labor Hours

.The Overland Company

wants to develop a cost

estimating equation for its

monthly cost of electricity.

It has the following

data:Month

January

P6,750

1,500

April

7,500

1,700

July

8,500

2,000

October

7,250

1,600

Using the high-low method, what is the best equation?

A. Y = P 750 + P5.00X

C. Y = P 750 + P3.50X

B. Y = P1,500 + P3.50X

D. Y = P1,500 + P5.00X

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xx

xxi

.During the month of June, Behold Corporation produced 12,000 units and sold them for P20 per unit. Total fixed costs

for the period were P154,000, and the operating profit was P26,000. Based on the foregoing information, the variable

cost per unit for the month of June was

A. P4.50

C. P6.00

B. P5.00

D. P7.17

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xxii

.Data to be used in applying the high-low method shows the highest cost of P69,000 and the lowest cost of P52,000.

The data shows P148,000 as the highest level of sales and P97,000 as the lowest level. What is the variable cost

per peso sales?A.

P0.33.

C.

P0.54.

B. P0.47.

D. P3.00

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Production Volume

Maintenance Costs

.The following

information is available for

maintenance costs:Month

June

150,000

P500,000

July

230,000

620,000

August

380,000

800,000

September

120,000

480,000

October

270,000

710,000

Using the least squares, the estimate of the fixed portion of maintenance costs (rounded to thousand pesos) is

A. P131,000

C. P332,000

B. P321,000

D. P115,000

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xxiii

xxiv

just been appointed

chairperson of the

Accountancy

Department of ADEB

College. In reviewing

the departments cost

records, Tomas has

found the following

total cost associated

with MAS Part 2

Total Cost

several

terms:Semester/Term

AY2004, First Semester

4

P10,000

AY2004, Second Semester

6

14,000

AY2004, Summer

2

7,000

AY2005, First Semester

5

13,000

AY2005, Second Semester

3

9,500

Tomas knows that there are some variable costs, such as amounts paid to student assistants, associated with the

course. He would like to have variable and fixed cost components separated for planning purposes.

Using the least-squares method, what is the variable cost per section of MAS?

A. P1,750

C. P1,200

B. P1,500

D. P 900

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xxv

.At a sales level of P300,000, Java Company's gross margin is P15,000 less than its contribution margin, its net

income is P50,000, and its selling and administrative expenses total P120,000. At this sales level, its contribution

margin would be:A.

P250,000. C.

P170,000.

B. P155,000.

D. P185,000.

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Question Nos. 26 and 27 are based on the following information:

SERAL Company is a manufacturing entity whose total factory overhead costs fluctuate considerably from year to year

according to increases and decrease in the number of direct labor hours worked in the plant. Total factory overhead costs at

high and low levels of activity for recent years follow:

Low

High

Direct labor hours

50,000

75,000

Total factory overhead costs

P14,250,000

P17,625,000

The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these

costs at the 50,000-hour level of activity as follows:

Indirect materials (V)

P 5,000,000

Rent (F)

6,000,000

Maintenance (M)

3,250,000

Total factory overhead costs

P14,250,000

V = variable; F = fixed; M = mixed

xxvi

.How much of the P17,625,000 factory overhead cost at the high level of activity consist of maintenance cost?A.

P4,125,000

C.

P4,450,000

B. P4,220,000

D. P4,525,000

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xxvii

.What total factory overhead costs would you expect the company to incur at an operating level of 70,000 direct labor

hours?A.

P16,950,000

C.

P13,000,000

B. P13,950,000

D. P10,950,000

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Question Nos. 28 and 29 will be answered using the following data:

The Bora Hotels guest-days of occupancy and custodial supplies expense over the last seven months were:

Month

Guest-Days of Occupancy

Custodial Supplies Expense

March

40,000

P 75,000

April

65,000

82,500

May

80,000

105,000

June

105,000

120,000

July

120,000

135,000

August

September

90,000

75,000

107,500

97,500

xxviii

.Using the high-low method, what is the estimated monthly fixed cost for custodial supplies?A.

P42,500

B. P45,000

D. P40,000

Bobadilla

P67,500 C.

xxix

.Using the high-low method in calculating the cost formula for custodial supplies, what amount of this expense would

you expect to be incurred at an occupancy level of 110,000 guests?A. P 92,500C.

P110,000

B. P 98,750

D. P127,500

Bobadilla

Question Nos. 30 through 32 are based on the following:

St John Hospital contains 450 beds. The average occupancy rate is 80 percent per month. In other words, on average, 80

percent of the hospitals beds are occupied by patients. At this level of occupancy, the hospitals operating costs are P32 per

occupied bed per day, assuming a 30-day month. This P32 figure contains both variable and fixed cost components.

During the month of June, the hospitals occupancy rate was only 60 percent. A total of P326,700 in operating cost was

incurred during that month.

xxx

.Using the high-low method, the amount of variable cost per occupied bed per cay isA.

P 7.00 C.

B. P 9.00

D. P15.00

Bobadilla

P12.00

xxxi

.Using the variable cost as determined in number 36, the total fixed operating costs per month are:A. P240,000

C. P290,000

B. P270,000

D. P300,000

Bobadilla

xxxii

.Assuming an occupancy rate of 75 percent in a particular month, what amount of total operating costs would you

expect the hospital to incur?A.

P310,000 C.

P340,875

B. P315,500

D. P375,500

Bobadilla

Question Nos. 33 through 35 are based on the following:

In the Omara Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were P223,000. Of

this amount, utilities were P48,000 (all variable) and depreciation was P60,000 (all fixed). The balance of the overhead cost

consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were P130,000.

Assume that all of the activity levels mentioned in this problem are within the relevant range.

xxxiii

B. P1.44.

D. P1.35.

P1.30. C.

xxxiv

C.

B. P130,000.

D. P 55,000.

P0.75.

Bobadilla

P 60,000.

Bobadilla

xxxv

.If 110,000 machine hours of activity are projected for the next period, total expected overhead cost would be:A.

P256,000. C.

P306,625.

B. P263,500.

D. P242,500.

Bobadilla

xxxvi

were compiled from the

records of Cabral

Company:Month

Jan.

Usage

Cost

600

P750

Feb.

650

775

Mar.

420

550

Apr.

500

650

May

450

570

Using the high-low method, what is the fixed cost element (to the nearest peso)?

A. P225

C. P411

B. P138

D. P364

Bobadilla

xxxvii

.The following information was taken from a computer printout generated with the least squares method for use

in estimating overhead costs:Slope

90

Intercept

11400

Correlation coefficient

0.6

Activity variable

Direct labor hours

The cost formula is

A. Overhead = P11,400 P90X

C. Overhead = P11,400 + P90X

B. Overhead = P11,400 + (P45 x .6)

D. Overhead = P11,400 x .6

Bobadilla

xxxviii

.The following information pertains to data that have been gathered in the process of estimating a simple least

squares regression:Mean value of the dependent variable

30

Mean value of the independent variable

10

Coefficient of the independent variable

3

Number of observations

12

What is the "a" value for the least squares regression model?

A. 20

B. 6

C. 0

D. The intercept term cannot be computed from the information given.

Bobadilla

xxxix

.TransEx Company operates a fleet of delivery trucks in Luzon. The company has determined that if a truck is driven

105,000 kilometers during a year, the average operating cost is P11.40 per kilometer. If a truck is driven only 70,000

kilometers during a year, the average operating cost increases to P13.40 per kilometer. Assuming that in a given

year, a truck were driven 80,000 kilometers, what total cost would you expect to be incurred?A.

P1,012,000

C. P1,225,143

B. P1,407,000

D. P1,072,000

Bobadilla

Question Nos. 40 through 41 are based on the following:

The House of TROPS Company is a large retailer of sports equipment. An income statement for the companys Ski

Department for a recent quarter is presented as follows:

The House of TROPS Company

Income Statement

For the Quarter Ended March 31

Sales

Less cost of goods sold

Gross margin

Less operating expenses:

Selling expenses

Administrative expenses

Net income

P1,500,000

900,000

600,000

P300,000

100,000

400,000

P 200,000

Skis sell, on the average, for P7,500. Variable selling expenses are P500 per pair of skis sold. The remaining selling

expenses are fixed. The administrative expenses are 20 percent variable and 80 percent fixed. The company does not

manufacture its own skis; it purchases them from a supplier for P4,500 per pair.

xl

B. P 920,000

D. P1,020,000

P1,000,000

Bobadilla

xli

.Given the cost formula Y = P30,000 + P5X, total cost at an activity level of 16,000 units would be:A. P

C. P 80,000.

B. P 46,000.

D. P110,000.

Bobadilla

30,000.

A local church wants to rent a hall for P3,000 a day to hold a Bingo fundraiser. Every session of bingo requires a caller for

P200. There are supplies that are needed that cost P3 per person playing bingo. On an average each bingo player spends

P20 and 1,000 people attend each session. P10,000 in prizes are awarded each session.

xlii

.Total costs

for 1 session

can be

classified

as:Bobadilla

Fixed Costs

Variable Costs

A.

B.

C.

D.

P13,200

P3

P 3,000

P13,200

P13,200

P 3,000

P10,000

P 3,200

xliii

.The church conducts 1 Bingo session per month. Over the course of the year, which cost would not act as a variable

cost based on just holding one more session?A.

Hall rental.

C.

Caller salary.

B. Cost of supplies.

D. Prize money.

Bobadilla

xliv

.If the church conducts 12 sessions and 1,000 people attend each session, the average cost per session is?A.P

9,600.

C. P15,200.

B. P14,700.

D. P16,200.

Bobadilla

xlv

.The church is thinking of holding 2 Bingo sessions per day with 1,000 people attending each session. If they hold the

2 sessions, the average cost per session is?A. P 9,600.

C.

P15,200.

B. P14,700.

D. P16,200.

Bobadilla

Use the following Information to answer Question Nos. 46 through 51.

Units Sold @ P60/each

1,000

2,000

Salary

P20,000

P30,000

Cost of Goods Sold

15,000

30,000

Cost/Unit of Depreciation

300

150

Rent

20,000

20,000

3,000

P40,000

45,000

100

20,000

xlvi

Rent.

B. Salary.

D. Depreciation.

C.

xlvii

B. Salary.

D. Depreciation.

Bobadilla

xlviii

C.

Rent.

B. Salary.

D. Depreciation.

Bobadilla

Bobadilla

xlix

B. P105,000.

D. P180,000.

P 75,000.

P60,100.

B. P60,000.

P50,000. C.

D. P90,000.

C.

P135,000.

li

.Given the following information, choose the cost and activity that would be used as the high data point in high-low

cost estimation: Costs

Activity (hours)

P51,000

40,000

P50,000

41,000

P58,000

42,000

P56,000

43,000

A. P58,000 and 42,000 hours

C. P56,000 and 43,000 hours

B. P58,000 and 43,000 hours

D. P56,000 and 42,000 hours

Use the following simple regression results based on the data from the Madrigal Corporation to answer Question Nos. 52

and 53.

Dependent variable Machine maintenance costs

Independent variable Machine hours

Computed values

Intercept

P3,500

Coefficient on independent variable

P 3.50

Coefficient of correlation

0.856

R2

0.733

lii

.What percentage of the variation in maintenance costs is explained by the independent variable?A.

47.3%

B. 95.2%

D. 73.3%

85.6% C.

liii

P73,500 C.

.What is the total maintenance cost for an estimated activity level of 20,000 machine hours?A.

P82,300

B. P78,400

D. P84,750

Variable 20,000 x 5

Total

P 40,000

100,000

P140,000

ii

P 6,000

Variable cost based on actual units:

Number of hours allowed

(96,000 x 5/60)= 8,000 hours

Variable cost: 8,000 x 1.60

Budgeted overhead cost

12,800

P18,800

a = y bX

(P2,300,000 50,000X)1.25 = P2,800,000 60,000X

2,875,000 62,500X = 2,800,000 60,000X

2,500X = 75,000

X = P30

Fixed overhead [240,000/(60,000 x 0.80)

Total rate

P2.50

5.00

P7.50

Note: Variable rate per activity unit is constant. Fixed overhead per unit behaves inversely with the activity-unit level.

= (P84,000 P46,000)/(3,500 1,100)

= P16.00

Fixed cost a = y bx

a = P46,000 (1,100 x 16)

a = P28,400

70% -- 2,000 x 30 days x 0.7

45% -- 2,000 x 30 days x 0.45

42,000

27,000

P6.00

Fixed costs: 792,000 (27,000 x 6)

Cost at 60% rate:

P630,000

Variable:

2,000 x 30 x 0.6 x P6

Fixed

Total

P216,000

630,000

P846,000

130,500 90,000

viii

ix

x

xi

xii

xiii

xiv

xv

xvi

xvii

xviii

xix

xx

xxi

xxii

xxiii

xxiv

xxv

xxvi

xxvii

xxviii

P 1.45

xxix

xxx

xxxi

xxxii

xxxiii

xxxiv

xxxv

xxxvi

xxxvii

xxxviii

xxxix

xl

xli

xlii

xliii

xliv

xlv

xlvi

xlvii

xlviii

xlix

l

li

lii

liii

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