COST ACCOUNTING

Basic Concepts & Cost Behavior Analysis

Cost - is cash or cash equivalent necessary to attain an objective such as acquiring goods or services, performing a function
or producing and distributing a product.

Cost Accounting - is an expanded phase of financial accounting which informs management promptly with the cost of
rendering a particular service, buying and selling a product, and producing a product. It is the field of accounting that
measures, records and reports information about costs.

Cost of Sales, Operating Expenses and Losses

- Cost of sales or costs of goods sold are those production costs incurred related to the units sold.
- Expenses are those incurred in selling goods, distributing goods and managing a business (operating expenses).
- Both costs and expenses give benefits to the business.
- Losses do not give any benefit to the business.

Different Costs for different purposes (Classifications of Costs)

A. As to type
1. Product Costs – costs incurred to manufacture the product. Product costs of the units sold are recognized as
expense (COGS) while product costs of the unsold units become the costs of inventory.
2. Period Costs – non-manufacturing costs that include selling, administrative and research and development costs.
These costs are expensed in the period of incurrence and do not become part of the cost of inventory.

B. As to function
1. Manufacturing Costs
2. Non-manufacturing Costs

C. As to traceability
1. Direct Costs – related to a particular cost object and can economically and effectively be traced to that object.
(Direct Materials and Direct Labor)
2. Indirect Costs – related to a cost object, but cannot practically, economically and effectively be traced to such cost
object. Cost assignment is done by allocating the indirect cost to the related cost objects.

D. For decision-making
1. Relevant Costs – future costs that will differ under alternative courses of action.
2. Differential Costs – difference in costs between any two alternative courses of action.
a. Incremental Cost – increase in cost from one alternative to another.
b. Decremental Cost – decrease in cost from one alternative to another.
3. Opportunity Costs – income or benefit given up when one alternative is selected over another.
4. Sunk, Past or Historical Costs – already incurred and cannot be changed by any decision made now or to be made in
the future.

E. As to relation to an accounting period:

1. Capital Expenditure
2. Revenue Expenditure

F. As to behavior (Reaction to changes in Cost Driver)

1. Variable Cost
2. Fixed Cost
a. Committed Fixed Cost
b. Discretionary Fixed Cost
3. Mixed Cost

Cost Behavior - refers to the way costs change with respect to a change in the activity level, such as production or sales
volume, labor or machine hours, etc. There are costs which remain constant, some change directly or proportionately with
the activity level, and others change in different patterns.

Types of Cost Total amount Amount per unit

1. FIXED Constant Decreases as production increases
2. VARIABLE Increases as production increases Constant
3. MIXED Increases less proportionately (vs. total Decreases less proportionately (vs. fixed cost per
variable costs) as production increases unit) as production increases
Cost Behavior Assumptions

A. Relevant Range Assumption

Relevant range refers to the range of activity within which the cost behavior patterns are valid. Any level of activity
outside this range may show a different cost behavior pattern.

B. Time Assumption
The cost behavior patterns identified are true only over a specified period of time. Beyond this, the cost may show a
different cost behavior pattern.

C. Linearity Assumption
The cost is assumed to manifest a linear relationship over a relevant range despite its tendency to show otherwise
over the long run.

Equation “Y = a + bX”

Y = total costs (dependent variable)

a = total fixed costs (y-intercept-vertical axis-intercept)
b = variable cost per unit (slope of the line)
X = activity or cost driver (independent variable)

Illustration: Variable, Fixed and Mixed Costs

Problem I:

Cleveland Manufacturing Company has the following information available regarding costs at various levels of monthly
production:

Production Volume
14,000 units 20,000 units
Direct materials P 70,000 P 100,000
Direct labor 56,000 80,000
Indirect materials 21,000 30,000
Supervisor’s salaries 12,000 12,000
Depreciation on plant assets 10,000 10,000
Maintenance 32,000 44,000
Utilities 15,000 21,000
Insurance on plant assets 1,600 1,600
Property taxes on plant assets 2,000 2,000
Totals P 219,600 P 300,600

Required:
1. Identify each cost as being variable, fixed or mixed cost.
2. Determine the variable cost per unit and the fixed cost per month.
3. Predict the total cost for a monthly production volume of 16,000 units.

Problem II:

Chicago Co. manufactures and sells a single product. A partially completed schedule of the company’s total and per unit costs
over a relevant range of 60 to 100 units produced and sold each year is given below:

Units produced and sold

60 80 100
Total costs:
Variable P120
Fixed 600
Total
Cost per unit:
Variable
Fixed

Required: Based on the above data,

1. Complete the schedule on total and unit costs (Fill in the blanks).
2. Identify two specific costs that remain constant over the relevant range.
 3. Identify two specific costs that are directly related with unit production.
4. Identify the specific cost that is inversely related with unit production.
5. Express the cost formula based on the line equation for “Y = a + bX”.
6. If the company produces 90 units, then the total cost is expected to be P .

Cost Estimation: Segregation of Mixed Costs into Fixed and Variable Elements
1. High-Low Method 4. Engineering Method
2. Least-Squares Method 5. Account Analysis Method
3. Scattergraph (Scatter Diagram) Method

High-Low Method
The fixed and variable elements of the mixed costs are computed from two sampled data points – the highest and
lowest points as to activity level or cost driver. For analysis purposes, the high-low method usually produces a reasonable,
not precise estimate. However, this method is criticized because it ignores much of the available data by concentrating on
only the extreme points.

Illustration: Separation of the Fixed and Variable Components of Mixed Costs

Problem I:

Machine hours and electricity costs for Indiana Industries for 2014 were as follows:

Month Machine Hours Utility Costs

January 2,500 P 36,800
February 2,900 42,000
March 1,900 27,000
April 3,100 46,000
May 3,800 56,500
June 3,300 44,000
July 4,100 49,500
August 3,500 45,500
September 2,000 31,000
October 3,700 52,000
November 4,700 62,000
December 4,200 55,500

Required: Using the high-low method;

1. Compute for the variable cost per machine hour.
2. Compute the total variable cost at the highest and lowest level of activity.
3. Determine the fixed cost at each level of activity.
4. Develop an equation to determine the total cost at any level of activity.

Problem II:

Los Angeles Company wants to conduct an analysis of the behavior of the maintenance cost of its factory equipment in
relation to the number of units produced using such equipment. Historical cost and production data were gathered for the
past 10 months.

Month Maintenance Cost Units Produced

March P 2,750 450
April 2,250 200
May 5,000 700
June 3,500 700
July 4,000 600
August 3,250 400
September 4,500 800
October 125 25
November 2,500 350
December 3,000 300

Required: Compute for the variable maintenance cost per unit and monthly fixed cost using high-low method.
Least-Squares Method
Least-squares method is a statistical technique that investigates the association between dependent and
independent variables. This method determines the line of best fit for a set of observations by minimizing the sum of the
squares of the vertical deviations between actual points and the regression line.
• If there is only one independent variable, the analysis is known as SIMPLE REGRESSION.
• If the analysis involves multiple independent variables, it is known as MULTIPLE REGRESSION.

In the method of least squares, the deviation is the difference between the predicted and actual costs.

Formula:
∑y = na + b∑x
∑xy = a∑x + b ∑x²

Illustration: Least-Squares Method

The following activity and cost data that were provided by Liz Quer Corp. would help in estimating its future maintenance
costs:
Units Maintenance Cost
3 P 450
7 530
11 640
15 700
Using the least-squares regression method, the expected total cost for an activity level of 10 units would be:

Illustration: High-Low vs. Least-Squares Method

Green Company’s total overhead costs at various levels of activity are presented below:
Month Machine Hours Total Overhead Costs
March 500 P 970
April 400 851
May 600 1,089
June 700 1,208

The breakdown of the overhead costs in April at 400 machine hour level of activity is as follows:
Supplies (variable) P 260
Salaries (fixed) 300
Utilities (mixed) 291
Total P 851

Required:
1. Determine how much of June’s overhead cost of P1,208 consisted of utilities cost.
2. Using high-low method, determine the cost function for utilities cost.
3. Using high-low method, determine the cost function for total overhead cost.
4. Using least squares method, determine the cost function for total overhead costs.
5. What would be the total overhead costs if operating level is at 450 machine hours?

Scattergraph (Scatter Diagram) Method

All observed costs at various activity levels are plotted on a graph. Based on sound judgment, a regression line is
then fitted to the plotted points to represent the line function. Its principal advantage over the high-low method is that it
considers more than two points. The major objective of this method is to develop an equation to predict future costs.

Engineering Method
This method is best used for estimating costs for totally new activities. It can detail each step required to perform an
operation and sometimes can be quite expensive to use.

Account Analysis Method

Each account is classified as either fixed or variable based on experience and judgment of accounting and other
qualified personnel in the organization.

Conference Method
Costs are classified based on opinions from various company departments such as purchasing, process engineering,
manufacturing, employee relations and so on.
 REVIEW QUESTIONS

1. Cost is the monetary measure of the amount of resources given up in obtaining goods and services. Cost may be
classified as unexpired or expired. Which of the following costs is not always considered to be expired immediately
upon being recognized?
a. Salesmen’s commission c. Cost of goods sold
b. Depreciation expense for factory equipment d. Salary of the company president

2. Product costs or inventoriable costs

a. are charged to expense when products become part of the FG inventory.
b. include only the prime costs of producing a product.
c. are treated as assets before the products are sold.
d. include only the conversion costs of producing products.

3. Product costs
a. are always expensed in the same period in which they are incurred.
b. are inventoriable costs.
c. vary directly with changes in the cost driver.
d. are always charged to an asset account in the same period in which thy are incurred.

4. Manufacturing costs do not include

a. prime costs
b. conversion costs
c. indirect materials
d. salary of the company president, under whom is the vice president for production

5. Direct labor cost is a

a. prime cost b. conversion cost c. product cost d. all of the above

6. A fixed cost that would be considered a direct cost is

a. salary of the sales manager when the cost object is the sales department.
b. salary of the controller when the cost object is a unit of product.
c. fees of the board of directors when the cost object is the production department.
d. the rental cost of the finished goods warehouse when the cost object is the accounting department.

7. Which of the following is a direct product cost?

a. Wood in a furniture factory.
b. Salary of the foreman in the assembly division of an automobile company.
c. Depreciation of factory equipment.
d. Salesmen’s commission

8. The variable portion of the semi-variable cost of electricity for a manufacturing plant is a
Product Cost Prime Cost Conversion Cost
a. No No Yes
b. Yes Yes No
c. Yes Yes Yes
d. Yes No Yes

9. Depreciation computed using the straight-line method is classified as

a. variable cost b. fixed cost c. relevant cost d. opportunity cost

10. These costs are long-term in nature and cannot be eliminated even for short periods of time without affecting the
profitability or long-term goals of the firm.
a. Avoidable costs b. Committed fixed costs c. Variable costs d. Controllable costs

Items 11 to 13 are based on the following information:

Kratos Company is preparing a budget for the next year and requires a breakdown of the factory maintenance cost
into the fixed and variable elements.

The maintenance costs and machine hours (the selected cost driver) for the past six months are as follows:
 Maintenance Costs Machine Hours
Jan P 15,500 1,800
Feb 10,720 1,230
Mar 15,100 1,740
Apr 15,840 2,190
May 14,800 1,602
June 10,600 1,590

Using the high-low method, compute for the following:

11. Variable rate of maintenance cost per machine hour

12. Average annual fixed maintenance cost
13. Average rate per hour at a level of P1,500 machine hours

14. When production (in units) decreases, the average cost per unit of product increases. This increase in the average
cost per unit is due to the
a. increase in variable cost per unit c. increase in total variable costs
b. increase in fixed cost per unit d. increase in total fixed costs

15. The salaries of the factory janitorial and maintenance staff should be classified as
a. direct labor cost b. period cost c. prime cost d. factory overhead cost

16. Which of the following items is typically an example of an indirect cost of a cost object?
a. courier charges for shipment delivery c. direct labor
b. Manufacturing plant electricity d. wood used for furniture manufacturer

17. Which one of the following is a variable cost in an insurance company?

a. Rent b. sales commissions c. president’s salary d. property taxes

18. All of the following statements are correct, except

a. costs may be indirect and variable c. costs may be direct and variable
b. costs may not be indirect and fixed d. costs may be direct and fixed

19. Which of the following statements would be incorrect in a manufacturing plant?

a. completed goods are included in the finished goods inventory
b. partially completed goods are part of the work in process category
c. work in process may also be called goods in process
d. materials put into product are included in the direct materials category

20. Selling and administrative costs are classified as

a. period costs b. product costs c. conversion costs d. prime costs

QUIZZER

Basic Concepts:

1. Management and financial accounting are used for which of the following purposes?
Management accounting Financial accounting
a. internal external
b. external internal
c. internal internal
d. external external

2. One major difference between financial and management accounting is that

a. financial accounting reports are prepared primarily for users external to the company.
b. management accounting is not under the jurisdiction of the Securities and Exchange Commission.
c. government regulations do not apply to management accounting.
d. all of the above are true.

3. Which of the following statements about management or financial accounting is false?

a. Financial accounting must follow GAAP.
b. Management accounting is not subject to regulatory reporting standards.
c. Both management and financial accounting are subject to mandatory recordkeeping requirements.
d. Management accounting should be flexible.
4. Management accounting
a. is more concerned with the future than is financial accounting.
b. is less concerned with segments of a company than is financial accounting.
c. is more constrained by rules and regulations than is financial accounting.
d. all of the above are true.

5. Modern management accounting can be characterized by its

a. flexibility b. standardization c. complexity d. precision

6. Broadly speaking, cost accounting can be defined as a(n)

a. external reporting system that is based on activity-based costs.
b. system used for providing the government and creditors with information about a company’s internal operations.
c. internal reporting system that provides product costing and other information used by managers in performing
their functions.
d. internal reporting system needed by manufacturers to be in compliance with Cost Accounting Standards Board
pronouncements.

7. Cost accounting is directed toward the needs of

a. regulatory agencies b. external users c. internal users d. stockholders

8. Cost accounting standards

a. are legal standards set by the Institute of Management Accountants for use in all manufacturing and professional
businesses.
b. are set by the Cost Accounting Standards Board and are legally binding on all manufacturers, but not service
organizations.
c. do not exist except for those legal pronouncements for companies bidding or pricing cost-related contracts with
the government.
d. are developed by the Cost Accounting Standards Board, issued by the Institute of Management Accountants, and
are legally binding on CMAs.

9. Financial accounting
a. is primarily concerned with internal reporting.
b. is more concerned with verifiable, historical information than is cost accounting.
c. focuses on the parts of the organization rather than the whole.
d. is specifically directed at management decision-making needs.

10. Financial accounting and cost accounting are both highly concerned with
a. preparing budgets.
b. determining product cost.
c. providing managers with information necessary for control purposes.
d. determining performance standards.

11. Which of the following topics is of more concern to management accounting than to cost accounting?

a. generally accepted accounting principles

b. inventory valuation
c. cost of goods sold valuation
d. impact of economic conditions on company operations

12. Cost and management accounting

a. require an entirely separate group of accounts than financial accounting uses.

b. focus solely on determining how much it costs to manufacture a product or provide a service.
c. provide product/service cost information as well as information for internal decision making.
d. are required for business recordkeeping as are financial and tax accounting.

Cost Concepts & Cost Behavior Analysis:

13. The relationship between cost and activity is termed:

a. cost estimation.
b. cost prediction.
c. cost behavior.
d. cost analysis.
e. cost approximation.
14. Which of the following costs changes in direct proportion to a change in the activity level?
a. Variable cost d. Step-variable cost
b. Fixed cost e. Step-fixed cost
c. Semi-variable cost

15. Montgomery Company has a variable selling cost. If sales volume increases, how will the total variable cost and the
variable cost per unit behave?
Total Variable Cost Variable Cost Per Unit
a. Increase Increase
b. Increase Remain constant
c. Increase Decrease
d. Remain constant Decrease
e. Decrease Increase

16. What type of cost exhibits the behavior that follows?

Manufacturing
Volume (Units) Cost Per Unit
50,000 P1.95
70,000 1.95
a. Variable cost d. Discretionary fixed cost
b. Fixed cost e. Step-fixed cost
c. Semi-variable cost

17. Plaza Corporation observed that when 25,000 units were sold, a particular cost amounted to P70,000, or P2.80 per
unit. When volume increased by 15%, the cost totaled P80,500 (i.e., P2.80 per unit). The cost that Plaza is
studying can best be described as a:
a. variable cost d. discretionary fixed cost
b. fixed cost e. step-fixed cost
c. semi-variable cost

18. A company observed a decrease in the cost per unit. All other things being equal, which of the following is probably
true?
a. The company is studying a variable cost, and total volume has increased.
b. The company is studying a variable cost, and total volume has decreased.
c. The company is studying a fixed cost, and total volume has increased.
d. The company is studying a fixed cost, and total volume has decreased.
e. The company is studying a fixed cost, and total volume has remained constant.

19. Webster has the following budgeted costs at its anticipated production level (expressed in hours): variable overhead,
P150,000; fixed overhead, P240,000. If Webster now revises its anticipated production slightly downward, it would
expect:
a. total fixed overhead of P240,000 and a lower hourly rate for variable overhead.
b. total fixed overhead of P240,000 and the same hourly rate for variable overhead.
c. total fixed overhead of P240,000 and a higher hourly rate for variable overhead.
d. total variable overhead of less than P150,000 and a lower hourly rate for variable overhead.
e. total variable overhead of less than P150,000 and a higher hourly rate for variable overhead.

20. What type of cost exhibits the behavior that follows?

Manufacturing Total Cost
Volume (Units) Cost Per Unit
50,000 P150,000 P3.00
80,000 150,000 1.88

a. Variable cost b. Fixed cost c. Semi-variable cost d. Step-variable cost

21. When graphed, a typical variable cost appears as:

a. a horizontal line
b. a vertical line
c. a u-shaped line
d. a diagonal line that slopes downward to the right
e. a diagonal line that slopes upward to the right

22. Norman Company pays a sales commission of 5% on each unit sold. If a graph is prepared, with the vertical axis
representing per-unit cost and the horizontal axis representing units sold, how would a line that depicts sales
commissions be drawn?
a. As a straight diagonal line, sloping upward to the right.
 b. As a straight diagonal line, sloping downward to the right.
c. As a horizontal line.
d. As a vertical line.
e. As a curvilinear line.

23. When graphed, a typical fixed cost appears as:

a. a horizontal line.
b. a vertical line.
c. a u-shaped line.
d. a diagonal line that slopes downward to the right.
e. a diagonal line that slopes upward to the right.

24. Costs that remain the same over a wide range of activity, but jump to a different amount outside that range, are
termed:
a. step-fixed costs b. step-variable costs c. semi-variable costs d. curvilinear costs

25. Straight-line depreciation is a typical example of a:

a. variable cost b. step-variable cost c. fixed cost d. mixed cost

26. Which of the following choices denotes the typical cost behavior of advertising and sales commissions?
Advertising Sales Commissions
a. Variable Variable
b. Variable Fixed
c. Fixed Variable
d. Fixed Fixed
e. Semi-variable Variable

27. Douglas Corporation recently produced and sold 100,000 units. Fixed costs at this level of activity amounted to
P50,000; variable costs were P100,000. How much cost would the company anticipate if during the next period it
produced and sold 102,000 units?
a. P150,000 b. P151,000 c. P152,000 d. P153,000

28. Extron, Inc., has only variable costs and fixed costs. A review of the company's records disclosed that when
100,000 units were produced, fixed manufacturing costs amounted to P200,000 and the cost per unit manufactured
totaled P5. On the basis of this information, how much cost would the firm anticipate at an activity level of 97,000
units?
a. P485,000 b. P491,000 c. P494,000 d. P500,000

29. A review of Parry Corporation's accounting records found that at a volume of 90,000 units, the variable and fixed
cost per unit amounted to P8 and P4, respectively. On the basis of this information, what amount of total cost would
Parry anticipate at a volume of 85,000 units?
a. P1,020,000 b. P1,040,000 c. P1,060,000 d. P1,080,000

30. Each of Davidson's production managers (annual salary cost, P45,000) can oversee 60,000 machine hours of
manufacturing activity. Thus, if the company has 50,000 hours of manufacturing activity, one manager is needed;
for 75,000 hours, two managers are needed; for 125,000 hours, three managers are needed; and so forth.
Davidson's salary cost can best be described as a:
a. variable cost d. fixed cost
b. semi-variable cost e. step-fixed cost
c. step-variable cost

31. A cost that has both fixed and variable component is termed a:
a. step-fixed cost b. step-variable cost c. semi-variable cost d. curvilinear cost

32. A mixed cost is often known as a:

a. semi-variable cost d. curvilinear cost
b. step-fixed cost e. discretionary cost
c. variable cost

33. Richard Hamilton has a fast-food franchise and must pay a franchise fee of P350,000 plus 3% of gross sales. In
terms of cost behavior, the fee is a:
a. variable cost b. fixed cost c. step-fixed cost d. semi-variable cost

34. 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 d. I, III, and IV

b. II only e. I, II, III, and IV
c. I and III

35. Which of the following costs exhibits both decreasing and increasing marginal costs over a specific range of activity?
a. Semi-variable cost.
b. Curvilinear cost.
c. Step-fixed cost.
d. Step-variable cost.

36. The relevant range is that range of activity:

a. where a company achieves its maximum efficiency.
b. where units produced equal units sold.
c. where management expects the firm to operate.
d. where the firm will earn a profit.
e. where expected results are abnormally high.

37. Within the relevant range of activity, costs:

a. can be estimated with reasonable accuracy.
b. can be expected to change radically.
c. exhibit decreasing marginal cost patterns.
d. exhibit increasing marginal cost patterns.
e. cannot be estimated satisfactorily.

38. Within the relevant range, a curvilinear cost function can sometimes be graphed as a:
a. straight line b. vertical line c. curved line d. horizontal line

39. As a firm begins to operate outside the relevant range, the accuracy of cost estimates for fixed and variable costs:
Fixed Variable
a. increases increases
b. increases decreases
c. decreases increases
d. decreases decreases
e. decreases remains unchanged

40. Property taxes are an example of a(n):

a. committed fixed cost c. discretionary fixed cost
b. committed variable cost d. discretionary variable cost

41. Which of the following is not an example of a committed fixed cost?

a. Property taxes d. Outlays for advertising programs
b. Depreciation on buildings e. Equipment rental costs
c. Salaries of management personnel

42. Committed fixed costs would include:

a. advertising d. contributions to charitable organizations
b. research and development e. expenditures for direct labor
c. depreciation on buildings and equipment

43. Amounts spent for charitable contributions are an example of a(n):

a. committed fixed cost.
b. committed variable cost.
c. discretionary fixed cost.
d. discretionary variable cost.
e. engineered cost.

44. Which of the following would not typically be classified as a discretionary fixed cost?
a. Equipment depreciation.
b. Employee development (education) programs.
c. Advertising.
d. Outlays for research and development.
e. Charitable contributions.
45. Which of the following choices correctly classifies a committed fixed cost and a discretionary fixed cost?
Committed Discretionary
a. Promotion Management salaries
b. Building depreciation Charitable contributions
c. Management training Property taxes
d. Equipment rentals Equipment depreciation
e. Research and development Advertising

46. Which type of fixed cost (1) tends to be more long-term in nature and (2) can be cut back more easily in bad
economic times without doing serious harm to organizational goals and objectives?
Long Term in Can be Cut Back More Easily In
Nature Bad Economic Times
a. Committed Committed
b. Committed Discretionary
c. Discretionary Committed
d. Discretionary Discretionary
e. Committed No difference between
committed and discretionary

47. High-tech automation combined with a downsizing of a company's hourly labor force often results in:
a. increased fixed costs and increased variable costs.
b. increased fixed costs and reduced variable costs.
c. reduced fixed costs and increased variable costs.
d. reduced fixed costs and reduced variable costs.
e. increased discretionary fixed costs and reduced committed fixed costs.

48. Which of the following techniques is not used to analyze cost behavior?
a. Least-squares regression d. Linear programming
b. High-low method e. Multiple regression
c. Visual-fit method

49. The high-low method and least-squares regression are used by accountants to:
a. evaluate divisional managers for purposes of raises and promotions.
b. choose among alternative courses of action.
c. maximize output.
d. estimate costs.
e. control operations.

50. Which of the following methods of cost estimation relies on only two data points?
a. Least-squares regression c. Account analysis
b. The high-low method d. Multiple regression

Use the following to answer questions 51 and 52:

Swanson and Associates presently leases a copy machine under an agreement that calls for a fixed fee each month
and a charge for each copy made. Swanson made 7,000 copies and paid a total of P360 in March; in May, the firm
paid P280 for 5,000 copies. The company uses the high-low method to analyze costs.

51. Swanson's variable cost per copy is:

a. P0.040 b. P0.051 c. P0.053 d. P0.056

52. Swanson's monthly fixed fee is:

a. P80 b. P102 c. P106 d. P112

Use the following to answer questions 53 to 55:

Atlanta, Inc., which uses the high-low method to analyze cost behavior, has determined that machine hours best
explain the company's utilities cost. The company's relevant range of activity varies from a low of 600 machine
hours to a high of 1,100 machine hours, with the following data being available for the first six months of the year:

Month Utilities Machine Hours

January P8,700 800
February 8,360 720
March 8,950 810
 April 9,360 920
May 9,625 950
June 9,150 900

53. The variable utilities cost per machine hour is:

a. P0.18 b. P4.50 c. P5.00 d. P5.50

54. The fixed utilities cost per month is:

a. P3,764 b. P4,400 c. P4,760 d. P5,100

55. Using the high-low method, the utilities cost associated with 980 machine hours would be:
a. P9,510 b. P9,660 c. P9,700 d. P9,790

56. Hitchcock, Inc., uses the high-low method to analyze cost behavior. The company observed that at 12,000 machine
hours of activity, total maintenance costs averaged P7.00 per hour. When activity jumped to 15,000 machine hours,
which was still within the relevant range, the average cost per machine hour totaled P6.40. On the basis of this
information, the variable cost per machine hour was:
a. P4.00 b. P6.40 c. P6.70 d. P7.00

57. Northridge, Inc., uses the high-low method to analyze cost behavior. The company observed that at 20,000
machine hours of activity, total maintenance costs averaged P10.50 per hour. When activity jumped to 24,000
machine hours, which was still within the relevant range, the average cost per machine hour totaled P9.75. On the
basis of this information, the company's fixed maintenance costs were:
a. P24,000 b. P90,000 c. P210,00 d. P234,000

58. The following data relate to the Hodges Company for May and August of the current year:

May August
Maintenance hours 10,000 12,000
Maintenance cost P260,000 P300,000

May and August were the lowest and highest activity levels, and Hodges uses the high-low method to analyze cost
behavior. Which of the following statements is true?
a. The variable maintenance cost is P25 per hour.
b. The variable maintenance cost is P25.50 per hour.
c. The variable maintenance cost is P26 per hour.
d. The fixed maintenance cost is P60,000 per month.

Use the following to answer questions 59 to 61:

Yang Manufacturing, which uses the high-low method, makes a product called Yin. The company incurs three
different cost types (A, B, and C) and has a relevant range of operation between 2,500 units and 10,000 units per
month. Per-unit costs at two different activity levels for each cost type are presented below.
Type A Type B Type C Total
5,000 units P4 P9 P4 P17
7,500 units P4 P6 P3 P13

59. The cost types shown above are identified by behavior as:
Type A Type B Type C
a. Fixed Variable Semivariable
b. Fixed Semivariable Variable
c. Variable Semivariable Fixed
d. Variable Fixed Semivariable
e. Semivariable Variable Fixed

60. If Yang produces 10,000 units, the total cost would be:
a. P90,000 b. P100,000 c. P110,000 d. P125,000

61. The cost formula that expresses the behavior of Yang's total cost is:
a. Y = P20,000 + P13X b. Y = P40,000 + P9X c. Y = P45,000 + P4X d. Y = P60,000 + P5X

62. In regression analysis, the variable that is being predicted is known as the:
a. independent variable. d. interdependent variable.
b. dependent variable. e. functional variable.
c. explanatory variable.
63. Mohawk Products has determined that the number of machine hours worked (MH) drives the amount of
manufacturing overhead incurred (MOH). On the 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 Mohawk's variables?

Dependent Independent
a. MOH MOH
b. MOH MH
c. MH MOH
d. MH MH
e. 8 240,000

64. Checkers Corporation, which uses least-squares regression analysis, has derived the following regression equation
for estimates of manufacturing overhead: Y = 495,000 + 5.65X. Which of the following statements is true if the
primary cost driver is machine hours?
a. Total manufacturing overhead is represented by the variable "X."
b. The company anticipates P495,000 of fixed manufacturing overhead.
c. "X" is commonly known as the dependent variable.
d. "X" represents the number of machine hours.
e. Both "B" and "D" are true.

65. Boulder, Inc., recently conducted a least-squares regression analysis to predict selling expenses. The company has
constructed the following regression equation: Y = 329,000 + 7.80X. Which of the following statements is false if
the primary cost driver is number of units sold?
a. The company anticipates P329,000 of fixed selling expenses.
b. "Y" represents total selling expenses.
c. The company expects both variable and fixed selling expenses.
d. For each unit sold, total selling expenses will increase by P7.80.
e. "X" represents the number of hours worked during the period.

66. Tempe, Inc., is studying marketing cost and sales volume, and has generated the following information by use of a
scatter diagram and a least-squares regression analysis:
Scatter Diagram Regression Analysis
Variable cost per unit sold P6.50 P6.80
Total monthly fixed cost P45,000 P42,500

Tempe 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. P159,500 b. P162,000 c. P164,900 d. P167,400

67. Waller Enterprises has determined that three variables play a key role in determining company revenues. To arrive
at an objective forecast of revenues for the next accounting period, Waller should use:
a. simple regression b. multiple regression c. a scatter diagram d. high-low method