COST ACCOUNTING & COST MANAGEMENT PRELIMINARY EXAMINATION

1. ABC Company has estimated the following cost formulas for overhead: 8. Which of the following best describes a step cost?
Cost Formula a. it varies less than proportionately with volume
Lubricants P 1,500 plus P 0.50 per machine-hour b. it varies more than proportionately with volume
Utilities P 2,000 plus P 0.60 per machine hour c. it is partly variable and partly fixed
Depreciation P 1,000 d. it increases abruptly outside the relevant range
Maintenance P 200 plus P 0.10 per machine-hour
Machine setup P 0.30 per machine-hour 9. In describing the cost formula equation, Y=a+bX, which of the following
Based on these cost formulas, the total overhead cost expected at a level of 300 statements is correct?
machine hours is a. „Y‟ is the independent variable
a. P 4,700 c. P 5,000 b. „a‟ is the variable rate
b. P 4,950 d. P 5,150 c. „a‟ and „b‟ are valid for all levels of activity
d. In the high-low method, „b‟ is equals the change in cost divided by change in
2. Which of the following statements is true? activity
a. the higher is the production within the relevant range, the higher is the fixed
cost per unit 10. The fixed cost of a semi-variable cost is comparable to the mathematical concept
b. the higher is the production within the relevant range, the higher is the of
variable cost per unit a. Y-intercept c. Dependent variable
c. the lower is the production within the relevant range, the lower is the total b. Slope of the line d. Independent variable
fixed cost
d. the lower is the production within the relevant range, the lower is the total 11. Which of the following is not a method of splitting semi-variable cost?
variable cost a. high and low point c. scatter chart
b. method of least squares d. linear programming
3. As volume increases,
a. total fixed costs remain constant and per-unit fixed costs increase 12. James Mail Order Co. applied high-low method of cost estimation to customer
b. total fixed costs remain constant and per-unit fixed costs decrease order data for the first four months of 2010. What is the estimated variable filing
c. total fixed costs remain constant and per-unit fixed costs remain constant cost component per order?
d. total fixed costs increase and per-unit fixed costs increase Month Orders Cost (P)
January 1,200 3,120
4. Within the relevant range, the amount variable cost per unit February 1,300 3,185
a. differs at each production level March 1,800 4,320
b. increases as production increases April 1,700 3,895
c. decreases as production decreases What is the estimated variable filing cost component per order?
d. remains constant at each production level a. P 2.00 c. P 2.48
b. P 2.42 d. P 2.50
5. Which of the following best describes a fixed cost?
a. it may change in total when such change is unrelated to changes in production 13. Bond Company estimated its materials handling cost at two activity levels as
b. it may change in total when such change is related to changes in production follows:
c. it is constant per unit of changes in production Kilos Handled Cost
d. it may change in total when such change depends upon production or within 80,000 160,000
the relevant range 60,000 132,000
What is Bond‟s estimated cost for handling 75,000 kilos?
6. Fixed costs that cannot be reduced within a short period of time are a. P 150,000 c. P 157,500
a. Committed c. avoidable b. P 153,000 d. P 165,000
b. Variable d. unnecessary
14. In March, Quantum express had electrical costs of P 225.000 when the total
7. An example of a discretionary fixed cost would be volume was 4,500 cups of coffee served. In April, electrical costs were P 227.50
a. depreciation on equipment c. salaries of top management for 4,750 cups of coffee. Using the high-low method, what is the estimated fixed
b. rent on factory building d. research and development cost of electricity per year?
COST ACCOUNTING & COST MANAGEMENT PRELIMINARY EXAMINATION

a. P 200 c. P 225 20. The major objective of preparing a scatter diagram is to

b. P 180 d. P 2,160 a. derive an equation to predict future costs
b. perform regression analysis on the results
15. Royale Inc. used the high-low method to derive the cost formula for electrical c. determine the relevant range
power cost. According to the cost formula, the variable cost per unit of activity is P d. find the high and low points to use for the high-low method of estimating costs
3 per machine hour. Total electrical power cost at the high level of activity was P
7,600 and the low level of activity was P 7,300. if the high level of activity was 21. The principal advantage of the scatter- diagram method over the high-low method
1,200 machine-hours, then the low level of the activity was: of cost estimation is that scatter-diagram method
a. 800 machine-hours c. 1,000 machine-hours a. includes cost outside the relevant range
b. 900 machine-hours d. 1,100 machine-hours b. considers more than two points
c. can be used with more types of costs than the high-low method
16. Craig Co. has an average unit cost of p 45 at P 1,000 units and P 25 at 30,000 d. gives a precise mathematical fit of points to the line
units. What is the variable cost per unit?
a. P 10.00 22. Which is an equation required for applying least square method of computing fixed
b. P 15.00 and variable costs?
c. P 20.00 a. ∑y=a∑x + b∑x2
d. An amount that cannot be determined without more information b. ∑xy = na + b∑x
c. ∑y = na + b∑x
17. Total production costs of prior periods for a company are listed below. Assume d. ∑xy = na + b∑x2
that the same cost behavior patterns can be extended linearly over the range of
3,000 to 35,000 units and that the cost driver for each product is the number of 23. Direct material costs are
units produced. a. prime and conversion costs
b. prime and manufacturing costs
Production per month (units) 3,000 9,000 16,000 35,000 c. conversion and manufacturing costs
Product X P 23,700 P 52,680 P 86,490 P 178,260 d. prime, conversion and manufacturing costs
Product Y 47,280 141,840 252,160 551,600
24. utilities expense incurred in production facilities (e.g., water, heat and light) is
What is the average cost per unit at a production level of 8,000 units for product classified as
X? a. factory overhead c. prime cost
a. P 5.98 c. P 7.90 b. period cost d. administrative overhead
b. P 5.85 d. P 4.83
25. Wage paid to factory superintendent are
18. When unit production decreases, the average product cost per unit increases. This a. conversion costs c. prime costs
increase in the average cost per unit is due to the b. manufacturing costs d. conversion and manufacturing costs
a. increase in the total variable costs c. increase in the unit variable cost
b. increase in the total fixed costs d. increase in the unit fixed cost 26. Property taxes on a manufacturing plant are generally considered as
a. non-manufacturing cost c. semi-variable cost
19. White Manufacturers provided you with the following flexible budget of factory b. period cost d. conversion cost
overhead at three different capacity levels:
27. 1st statement: Job order costing is the best cost accumulation procedure to use
Capacity Overhead when many batches, each differing as to product specification, are produced
60% P 98,000
70% 106,000 2nd statement: Process costing is the best accumulation procedure to use when
85% 118,000 there is a continuous mass production of like units
What will be the flexible budget of factory overhead at 90% capacity?
a. P 112,000 c. P 130,000 3rd statement: Job order costing uses job order sheet; process costing uses a
b. P 122,000 d. P 132,000 cost of production report
COST ACCOUNTING & COST MANAGEMENT PRELIMINARY EXAMINATION

a. true, true, true c. false, true, true 36. Which of the following statements is false?
b. true, false, true d. false, false, true a. management accounting is synonymous to managerial accounting
b. management accounting has no externally imposed standards while financial
28. Actual, normal and standard cost systems may be used in conjunction with accounting has to follow the Generally Accepted Accounting Principles
a. process costing only c. either job order or process costing c. financial accounting deals with information that is primarily reported to
b. job order costing only d. neither job order nor process costing individuals outside the organization
d. cost accounting reports refer to accounting for the annual cost of operating a
29. A non-manufacturing organization may use business
a. process costing only c. either job order or process costing
b. job order costing only d. neither job order nor process costing 37. Which of the following statements is true?
a. financial accounting is a subset of cost accounting
30. In a job order costing system, direct labor costs usually are recorded initially as an b. management accounting is a subset of cost accounting
increase in c. cost accounting is a subset of both management and financial accounting
a. factory overhead applied c. finished goods d. management accounting is a subset of both cost and financial accounting
b. factory overhead control d. work in process
38. Cost accounting system is usually utilized for
31. In a job order costing, what account is debited when issuing indirect materials to a. internal and external reporting that may be used in making non-routine
production decisions and in developing plans and policies
a. materials control c. manufacturing overhead control b. external reporting to government, various outside parties and shareholders
b. work in process control d. manufacturing overhead applied c. internal reporting for use in management planning and control, and external
reporting to the extent its product-costing function satisfies external reporting
32. In job order costing, the application of FOH would be reflected in the general requirements
ledger as increase in d. internal reporting for use in planning and controlling routine operations
a. factory overhead control c. work in process
b. finished goods d. cost of goods sold 39. Management accounting is used by an organization‟s management for a multitude
of purposes that do not include
33. Under-applied factory overhead results when a. Marketing c. evaluation
a. a plant is operated at less than its normal capacity b. Control d. reporting
b. factory overhead costs incurred are greater than the cost charged to
production Items 40- 41 are based on the following:
c. factory overhead costs are less than the cost charged to production The factory ledger of DIAMOND Corporation contains the following cost data for the year
d. factory overhead costs incurred are unreasonably low relative to the units ended December 31, 2010:
produced Raw materials P 150,000 P 170,000
Work in process 160,000 60,000
34. The appropriate method for the disposition of under-applied or over-applied Finished goods 180,000 220,000
factory overhead Raw materials used 652,000
a. is to cost of goods sold only
b. is to finished goods inventory only Total manufacturing costs charged to closing production during the year (including raw
c. is apportioned to cost of goods sold and fini9shed goods inventory materials, direct labor, and factory overhead applied at the rate of 50% of direct labor
d. depends on the significance of the amount cost), P 1,372,000.

35. Managerial accounting 40. The cost of direct labor charged to production during the year amounted to
a. is governed by generally accepted accounting principles a. P 240,000 c. P 480,000
b. is concerned only with monetary information b. P 368,000 d. P 720,000
c. is discretionary rather than mandatory
d. is focused on the business as a whole rather than on segments of the business 41. The total cost of raw materials purchased during the year amounted to
a. P 632,000 c. P 802,000
b. P 672,000 d. P 822,000
COST ACCOUNTING & COST MANAGEMENT PRELIMINARY EXAMINATION

42. The following cost data for different hours of operations are made available to you “What a disaster,” cried Clark. “And the worst part is that we have no records to use in
by Florida Manufacturing Company for your analysis: filing an insurance claim.”
Number of months 10 “I know”, replied Leah. “I was in the plant when the explosion occurred, and I managed to
Sum of hours 350 grab only this brief summary sheet that contains information on one or two of our costs. It
Sum of costs 1,000 says that our direct labor cost this year has totaled P180,000 and that we have purchased
Sum of hours x costs 39,200 P290,000 in raw materials. But I‟m afraid that doesn‟t help much, the rest of our records
Sum of hours squared 14,250 are just ashes.”
How much is the fixed cost per year?
a. P 26.50 c. P 318.00 “Well not completely,” said Clark. “I was working on the year-to-date income statement
b. P 35.00 d. P 420.00 when the explosion knocked me out of my chair. I instinctively held onto the page I was
working on, and from what I can make out, our sales to date this year have totaled
Items 43-45 are based on the following information: P1,200,000 and our gross margin rate has been 40% of sales. Also, I can see that our
For fiscal year 2007, Advanced Plans Solution would incur total overhead costs of goods available for sale to customers has totaled P810,000 at cost.”
P1,200,000 and work 40,000 machine hours. During January 2007, the company worked
exclusively on one job, Job#458. It incurred January costs as follows: “Maybe were not so bad after all,” exclaimed Leah. “My sheet says that prime cost has
Direct materials usage P121,000 totaled P410,000 so far this year and the manufacturing overhead is 70% of conversion
Direct labor(1,400 hrs) 30,800 cost. Now if we just had some information on our beginning inventories.”
Manufacturing overhead
 Rent P11,200 “Hey, look at this,” cried Clark. “It‟s a copy of last year‟s annual report, and it shows what
 Utilities 15,200 our inventories were when this year started. Let‟s see, raw materials was P18,000, work in
 Insurance 32,100 process was P65,000, and finished goods was P45,000.
 Labor 15,500
 Depreciation 23,700 “ACHIEVE!” yelled Leah. “Let‟s go to work.”…”PUSH”…
 Maintenance 10,800
To file an insurance claim, the company must determine the amount of cost of inventories
Total Overhead 108,500
as of the date of fire.
Total Manufacturing Costs P260,300
Machine hours worked in January 3,400
As the company‟s accountant, you are asked to compute for the following:
43. Assuming the company uses an actual cost system, compute the January costs 46. Conversion cost
assigned to Job#458. 47. Factory Overhead
a. 253,800 c. 260,300 48. Work in process ending inventory
b. 251,800 d. 265,000 49. Gross profit
50. Cost of Sales
44. Assuming the company uses a normal cost system, compute the January costs 51. Total cost of work placed in process
assigned to Job#458. 52. Total manufacturing cost
a. 253,800 c. 260,300 53. Raw materials used
b. 251,800 d. 265,000 54. Raw materials available for use
55. Raw material destroyed by fire
45. Compute the under (over) applied overhead: ________________

Items 46 to 55 are based on the following information: End of examination

Jigs Magtoto, a careless employee, left some combustible materials near an open flame in Jdr-120610
On the Wings of Love Company‟s plant. The resulting explosion and fire destroyed the
entire plant and administrative offices. Clark Medina, the company‟s controller, and Leah
Olivar, the operations manager, were able to save only a few bits of information as they
escaped from the roaring blaze. Blessed is the man that trusteth in the LORD, and whose hope the LORD is. Jeremiah 17:7