Costs Classification and Accumulation

Chapter 4 – Costs in Management Accounting: Concepts, Classifications, Accumulation
MULTIPLE CHOICE:
1. Cost is the monetary measure of the amount of resources given up in obtaining goods
and services. Costs 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
b. depreciation expense for factory equipment
c. cost of goods sold
d. salary of the company president
2. An activity that causes resources to be consumed is called a

a. non-value-added activity
b. cost driver
c. just-in-time activity
d. extracurricular activity
3. It refers to anything (a product, product line, a business segment) for which cost is
computed.
a. Cost object
b. Cost driver
c. Cost control
d. Cost variance
4. It is a grouping of individual cost items, or an account in which a variety of similar costs

are accumulated.
a. Cost driver
b. Cost variance
c. Income statement
d. Cost pool
5. It is an event, action, transaction, task, or unit of work that consumes resources and
with a specified purpose.
a. Cost object
b. Activity
c. Cost driver
d. Direct labor
6. An activity that adds costs to the product or service, but does not make such product
or service more valuable to customers is called
a. non-value-added activity
b. value-adding activity
c. costly activity
d. valuable activity
7. Which of the following statement is correct?

a. A cost driver is an accounting technique used to control costs.
b. A cost driver is a measure of activity, such as direct labor hours, machine
hours, beds occupied, computer time, etc.,
c. A cost driver is an accounting measurement used to evaluate whether or not
performance is proceeding according to plan.
d. A cost driver is a mechanical basis used to assign costs to activities.
8. Product costs or inventoriable costs

a. are charged to expense when products become part of the finished goods
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 the products.
9. Which of the following costs is not a product cost?

a. Wages paid to workers for rework on defective products.
b. Wages paid to truck loaders who load finished goods onto outgoing
delivery trucks.
c. Fringe benefits paid to factory workers.
d. Wages paid to workers for idle time due to machine breakdown in a production
department.
10. 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 they are
incurred.
ITEMS 11 and 12 ARE BASED ON THE FOLLOWING INFORMATION:
Following are costs incurred by Abtina Manufacturing Corporation during the previous month:
Direct materials P 5,000
Indirect materials 2,000
Direct labor 6,000
Indirect labor 1,000
Factory utilities 4,000
Advertising costs 8,000

Sales commissions 12,000
Depreciation on administration building 3,000
Salaries of administrative personnel 20,000
Depreciation – delivery equipment 2,000
Overtime pay – factory workers 1,500
Rework cost on defective products discovered during quality inspection 2,500
11. Total products costs:

a. P67,000
b. P45,000
c. P22,000
d. P18,000
12. Total period costs:

a. P67,000
b. P45,000
c. P49,000
d. P22,000
13. 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.
14. Direct labor cost is a

a. prime cost.
b. conversion cost.
c. product cost
d. all of the above
ITEMS 15 to 21 ARE BASED ON THE FOLLOWING INFORMATION:
Data about Maritz Company’s production and inventories for the month of June are as follows:
Purchases – direct materials P143,440
Freight in 5,000
Purchase returns and allowances 2,440

Direct labor 175,000
Actual factory overhead 120,000
Inventories: June 1 June 30
Finished goods P68,000 P56,000
Work in process 110,000 135,000
Direct materials 52,000 44,000
Maritz Company applies factory overhead to production at 80% of direct labor cost. Over- or
underapplied overhead is closed to cost of goods sold at year-end. The company’s accounting
period is on the calendar year basis.
15. Maritz Company’s prime cost for June was

a. P154,000
b. P329,000
c. P198,000
d. . P315,000
16. Maritz Company’s conversion cost for June was

a. P315,000
b. P295,000
c. P329,000
d. P444,000
17. For the month of June, Maritz Company’s total manufacturing cost was
a. P469,000
b. P444,000
c. P644,000
d. P449,000
18. For June, Maritz Company’s cost of goods transferred to the finished goods inventory
account was
a. P579,000
b. P461,000
c. P469,000
d. P444,000
19. Maritz Company’s cost of goods sold for June was

a. P441,000
b. P481,000
c. P456,000
d. P444,000
20. The amount of over/underapplied inventory overhead factory for the month of June
was
a. P140,000 overappplied
b. P120,000 underapplied
c. P20,000 overappplied
d. P20,000 underapplied
21. The cost of goods sold for the month of June should be increased (decreased) by the
amount of over/under-applied factory overhead of
a. P20,000
b. (P20,000)
c. (P120,000)
d. P0
22. For product costing purposes, an indirect factory cost

a. Is not directly chargeable to the company
b. Is chargeable to prime costs
c. Is chargeable to conversion costs
d. Is never included in the computation of product cost
23. 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 product
c. fees of the Board of Directors when the cost object is the Production Department
d. the rental cost of the finished good warehouse when the cost object is the
Accounting Department
24. Indirect materials and indirect labor are

Prime Cost Conversion Cost Manufacturing Cost
a. Yes Yes Yes
b. No No Yes
c. No Yes Yes
d. Yes No No
25. 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 the factory equipment
d. Salesman’s commission
26. 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
27. 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
28. For decision-making purposes, relevant costs are

a. variable past costs
b. all fixed and variable costs
c. anticipated future costs that will differ among various alternatives
d. costs incurred within the relevant range of production
29. Differential costs

a. are variable costs
b. are anticipated future costs that will differ among various alternatives
c. are the differences in costs between any two alternative courses of action
d. are costs that differ under alternatives
30. An income or benefit that is give up when one alternative is selected over another is
called
a. loss
b. opportunity cost
c. relevant cost
d. differential cost
31. Sunk costs
a. are relevant costs
b. are anticipated future costs that will differ among various alternatives
c. are irrelevant for decision-making purposes
d. are decreases in costs from one alternative to another
32. Which of the following costs would be considered relevant in short-term decision-
making?
a. Production costs of goods available for sale
b. Incremental fixed costs
c. Acquisition costs of idle asset to be used in a proposed project
d. Variable costs
33. Which of the following statements about cost behavior is correct?

a. Within the relevant range, total variable costs may vary directly with
activity, while total fixed costs remain unchanged for a given period
despite fluctuations in activity.
b. Within the relevant range, variable cost per unit varies directly with activity, while
fixed cost per unit remains unchanged for a given period despite fluctuations in
activity.
c. Within the relevant range, fixed cost per unit varies directly with activity, while
variable cost per unit remains unchanged for a given period despite fluctuation in
activity.
d. Within the relevant range, total variable costs may vary inversely with activity,
while total fixed costs remain unchanged for a given period despite fluctuations in
activity.
34. In cost accounting, the term relevant range refers to the range over which
a. relevant costs are incurred
b. production should be confined
c. total fixed costs fluctuate
d. cost relationships are valid
35. Depreciation computed using the straight-line method is classified as

a. variable cost
b. fixed cost
c. relevant cost
d. opportunity cost
36. Within the relevant range, unit variable costs

a. are constant per unit, regardless of units produced or sold
b. vary directly with the activity level
c. vary inversely with the activity level
d. are at the minimum
37. 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
b. increase in fixed cost per unit
c. increase in total variable costs
d. increase in total fixed costs
38. Consider Line AB in each of the following graphs:

Graph 1 Graph 2 Graph 3
B
B
A
COST
COST
COST
A B
A
UNITS UNITS UNITS

Line AB is the
Graph 1 Graph 2 Graph 3
a. total sales line fixed cost per unit line total variable cost line
b. variable cost per line total variable cost line total fixed cost line
c. total variable cost line total fixed cost line total cost line
d. break-even line parallel line total sales line
39. When activity changes, this cost shifts upward or downward by a certain interval.
a. Step cost
b. Cost interval
c. Shifting cost
d. Incremental cost
40. These costs are long-term in nature and cannot be eliminated even for short periods of
time without affecting the probability or long-term goals of the firm.
a. Avoidable costs
b. Committed fixed costs
c. Variable costs
d. Controllable costs
41. This type of fixed costs usually arises from periodic decisions by management to
spend in certain fixed costs area. They may be changed by management from period
to period or even within the period if circumstances demand such change.
a. Period costs
b. Committed fixed costs
c. Variable costs
d. Discretionary fixed costs
42. Mixed costs are costs that have

a. variable and fixed costs components
b. manufacturing and administrative costs component
c. selling and administrative costs component
d. direct and indirect costs component
43. In cost behavior analysis, the linearity assumption states that

a. in all cases, there is strict linear relationship between the cost and cost driver
b. within the relevant range, there is a strict relationship between the cost and the
cost driver
c. within the relevant range, there is a strict linear relationship between the
cost and the cost driver
d. within the relevant range, all costs are fixed and may be drawn graphically as
straight lines
44. The fixed and variable components of mixed costs may be separated by using any of
the following methods, excepts
a. High-low method
b. Scattergraph method
c. Least squares method
d. Weighted-average method
45. The following data were collected from the records of the Receiving Department of a
company:
Month Number of Items Received Receiving and Handling costs
January 2,800 P17,500
February 2,000 12,500
March 1,190 7,450
April 5,200 32,500
May 4,410 27,600
June 4,016 25,100
The receiving and handling cost is most likely to be a
a. step cost
b. variable cost
c. fixed costs
d. semi-variable cost
Charity Company wants to analyze the behavior of its selling costs for budgeting
purposes. Cost drivers (activity measures) and costs incurred in the first quarter and the
first month of the second quarter are as follows:
January February March April
Selling costs:
Sales salaries P42,500 P42,500 P42,500 P51,000
Commissions 15,000 17,500 14,000 16,000
Shipping costs 34,000 38,000 32,400 35,600
Advertising 20,000 20,000 25,000 20,000
Cost drivers:
Peso sales P300,000 P350,000 P280,000 P320,000
Sales in units 30,000 35,000 28,000 32,000
Sales orders 150 175 140 160

The sales staff are paid monthly salaries plus commission. Advertising expenses are
charged subject to the discretion of management. The increase in sales salaries in April
is due to the increase in the sales staff, from five to six persons.
46. In relation to the appropriate cost drivers, how should the company’s selling costs be
classified?
Sales Salaries Commissions Shipping costs Advertising

a. Variable Variable Variable Variable
b. Fixed Variable Variable Fixed
c. Fixed Variable Mixed Fixed
d. Mixed Variable Mixed Fixed
47. Using the high-low method and the algebraic equation y = a + bx (where y equals total
shipping costs; a equals total fixed costs; b equals variable shipping cost per unit; and
x is the number of units sold), the cost formula for the shipping costs may be
expressed as
a. y = 10,000 + 0.80x
b. y = 0.80 + 10,000
c. y = 10,000 + 0.80
d. y = 10,000 + 5,600
48. If the company plans to sell 36,000 units in May and fixed costs will remain at the April
level, the total selling costs for May would be
a. P122,600
b. P125,800
c. P127,800
d. P 81,000
Maco Corporation’s Research and Development Department was able to develop a new
product – a flashlight powered by solar energy. After reviewing the data prepared by the
company’s controller, Maco’s management is confident that the new product will
contribute profit to the company.
The data prepared by the controller are as follows:
Suggested selling price P200
Costs: Materials P 60
Parts fabrication (P10 per hour) 40
Assembly (P6 per hour) 18
Variable overhead (P4 per hour) 28
Fixed overhead (P3 per hour) 21
Total cost P167
The total research and development cost incurred to develop the new product amounted
to P200,000. The company is planning to spend half of this amount for promotion and
advertising.
The company’s fixed overhead includes rent, equipment depreciation, and salaries of
factory supervisors.
49. For Maco’s new flashlight, total prime costs amount to

a. P118
b. P167
c. P146
d. P107
50. The difference between the flashlight’s suggested selling price of P200 and the total
cost of P167 represents each flashlight’s
a. gross profit
b. contribution margin
c. net profit
d. operating income
51. The total overhead cost of P49 per unit is a

a. prime cost
b. variable cost
c. mixed cost
d. fixed cost
52. The total research and development costs of P200,000 incurred to develop the new
product is a(n)
a. relevant cost
b. sunk cost
c. avoidable cost
d. postponable cost
53. The costs included in Maco’s fixed overhead are

a. prime costs
b. discretionary costs
c. committed costs
d. variable costs
54. the planned spending on promotion and advertising for the flashlight is a
a. variable cost
b. discretionary cost
c. sunk cost
d. past cost
55. The least exact method for separating the variable and fixed cost components of a
mixed cost is
a. matrix algebra
b. the high-low method
c. the least squares method
d. computer simulation
Meng Company is preparing a flexible budget for 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
January P15,500 1,800
February 10,720 1,230
March 15,100 1,740
April 15,840 2,190
May 14,800 1,602
June 10,600 1,590
56. If Meng Company uses the high-low method of analysis, the estimated variable rate of
maintenance cost per machine hour is
a. P7.23
b. P8.73
c. P5.46
d. P5.33
57. The average annual fixed maintenance cost amounts to

a. P4,160
b. P8,320
c. P49,920
d. P5,120
58. What is the average rate per hour at a level of P1,500 machine hours?
a. P5.33
b. P8.11
c. P7.23
d. P5.46
59. The manager of the mixing department of Ali Van Company wants to determine the
fixed variable components of the department’s costs. He collected information on total
cost and the number of kilos mixed for the past 12 months. He wants more accurate
results, so he is planning to use a sophisticated method for cost separation. The
manage should use
a. high-low method
b. regression analysis
c. game theory
d. queuing theory
60. The usual formula of regression (least squares) equation is:

y = a + bx + e.
Considering such equation, which of the following is incorrect?
a. the dependent variable is x, while the independent variable is y.
b. the y-axis intercept is a
c. the slope of the line is b
d. the error term is e
61. Multiple regression analysis involves the use of

Dependent Variable(s) Independent Variable(s)
a. None One
b. One One
c. One Two or more
d. Two or more One
Frances Corporation conducted a regression analysis of its factory overhead costs. The
analysis yielded the following cost relationship:
Total factory overhead cost = P50,000 per month + 5H*

*H = number of direct labor hours, the selected cost driver for overhead costs.
Each unit of product requires 6 direct labor hours. The company’s normal production is
20,000 units of product per year.
62. The total overhead cost for a month’s production of 2,000 units is
a. P60.000
b. P50,000
c. P110,000
d. P0
63. The predetermined fixed overhead rate per hour is

a. P6.00
b. P5.00
c. P2.50
d. 0.42
64. The total predetermined factory overhead rate per hour is
a. P5.00
b. P7.50
c. P10.00
d. P35.00
The management of a hotel is interested in the relationship between room cleaning costs
and guest-days in its hotel. Using regression analysis on room cleaning costs and guest-
days collected over 12 months, the relationship was shown graphically as follows:
65. The estimated monthly fixed room cleaning cost is

a. P25,000
b. P30,000
c. P10,000
d. P0
66. The estimated increase in the room cleaning cost for each additional guest-day is
a. P26.27
b. P10.00
c. P60,000
d. P25,000
67. The cost formula for the cleaning costs may be expressed as
a. Cost = P25,000 + guest-days
b. Cost = P25,000
c. Cost = P25,000 + P10
d. Cost = P25,000 + P10 (guest days)
68. If the relevant range is from 0 to 2,000 guest-days, how much is the total room
cleaning cost for 2,200 guest-days?
a. P47,000
b. P22,000
c. P25,000
d. Cannot be determined from the given information
M. Munda Company produces and sells rattan baskets. The number of units produced
and the corresponding total production costs for six months, which are representatives
for the year, are as follows:
Month Units Produces Production Costs
April 500 P4,000
May 700 8,000
June 900 6,000
July 600 7,500
August 800 8,500
September 550 7,250
Based on the given information and using the least squares method of computation, `
select the best answer for each question, where:
y = total monthly productions costs
x = number of units produced per month
a = fixed production cost per month
b = variable production cost per unit
n = number of months
∑ = summation
69. If the least squares method is to be used to segregate the variable and fixed cost
components of the total production costs, the equation(s) required to express the
relationship between the fixed and variable costs are
a. ∑y = na + b∑x and ∑xy = a∑x + b∑x2
b. ∑xy = a∑x + b∑x2
c. ∑y = na + b∑x
d. y = a + b∑x2 and ∑y = na + b∑x
70. The cost function derived by the simple least squares method
a. is linear
b. is curvilinear
c. is parabolic
d. must be tested for minimum and maximum points
71. The monthly production costs can be expressed as

a. y = a + bx
b. y = b + ax
c. y = ax + b
d. x = a + by
72. Using the least squares method, the variable production cost per unit is approximately
a. P5
b. P10
c. 0.27
d. 3.74
73. Using the least squares method, the monthly fixed production cost is approximately
a. P1,500
b. P18,000
c. P4,350
d. P52,200
74. If the high-low points method is used, the results when compared with those under the
method of least squares, are
Variable Cost Per Unit Total fixed Costs
a. Equal Equal
b. Higher by P1.26 Lower by P2,850
c. Lower by P1.26 Higher by P2,850
d. Higher by P5 Lower by P1,500
The cost accountant of Ginatemple Corporation has complied the actuals costs for six
different levels of activity. The data shown in the table and graph below:
Observation Units Produced Actual Costs
A 40 P100,000
B 80 100,000
C 120 300,000
D 160 400,000
E 200 500,000
F 200 600,000
75. In the graph, line segment ACDE is known as the line of

a. segregation
b. average cost
c. regression
d. standard deviation
76. If only the pints that lie on the line are to be considered, a cost analysis will show that
such costs are
a. variable costs
b. fixed costs
c. mixed costs
d. step costs
77. If points B and F will not be considered in the computation, a cost function for the given
data will be expressed as
a. y = a + bx
b. y = a
c. y = bx
d. y = a + b
As part of cost study, the cost accountant of Shinly Corporation has recorded the cost of
operations at seven different levels of materials usage. The records show the following:
Kilos of Materials Costs of Operation

80 P800
60 480
20 320
120 1,200
140 1,280
40 480
100 1,040
Sum of the kilos (∑x) 560
Sum of the costs (∑y) P5,600
Sum of the kilos multiplied by the costs (∑xy) P545,600
Sum of the kilos squared (∑x2) 56,000
78. Using the high-low points method, the variable cost of operations per kilo of materials
used is
a. P8.00
b. P9.14
c. P16
d. 10
79. Using the same high-low points method, the fixed cost of operations is
a. P320
b. P103
c. P160
d. P206
80. Using the least squares method, the average rate of variability per kilo of materials
used is
a. P8.00
b. P0.11
c. P10.00
d. P8.71
81. Using the least squares method, the fixed portion of the cost is
a. P320
b. P103
c. P160
d. P206
82. The projected cost of operations for 90 kilos of materials is

a. P886.90 if the high-low points method is used
b. P880.00 if the method of least squares method is used
c. P886.90 if the method of least squares method is used
d. P880.00 regardless of the methods used
83. The cost accountant of Trisha Company conducted an analysis of total costs in relation
to the number of labor hours uses and came up with the function for a relevant range
of 50,000 labor hours to 400,000 labor hours, as follows:
Total cost = P400,000 + 20x*
*x = number of direct labor hours
How much is the total cost for 40,000 direct labor hours?
a. P1,200,000
b. P800,000
c. P400,000
d. Cannot be determined from the given information
84. It is the measure of the co-variation between the dependent and independent
variables.
a. correlation
b. ratio
c. standard error
d. variance
85. Correlation is a term frequently used in conjunction with regression analysis and is
measured by the valued of the coefficient of correlation r. The value of r
a. is always positive
b. is always negative
c. is a measure of the relative relationship between two variables
d. ranges in size from negative one to zero
86. The coefficient of correlation that indicates the strongest linear association between
the dependent and independent variables is
a. -0.08
b. 0.40
c. -0.80
d. 0.04
87. What coefficient of correlation results from the following data?

X Y
2 4
4 8
6 12
8 16
10 20
a. -1
b. +1
c. 0
d. Cannot be determined from the given data
88. A scatter diagram is a tool which may be used to demonstrate correlations. The scatter
diagram’s objective is to
a. show frequency distribution in graphic form
b. display a population of items for analysis
c. indicate the critical path
d. divide a universe of data into homogenous groups
89. If the coefficient of correlation between two variables is -0.95, how might a scatter
diagram of these variables appear?
a. A least squares line that slopes up to the right
b. A least squares line that slopes down to the right
c. Random points
d. A least squares line that slopes to the left
90. Using regression analysis, Melody the accountant of Lacuata Company graphed the
following relationship of its most expensive product line’s sales with its customer’s
income levels:
If there is a strong statistical relationship between the sales and customers’ income levels,
which of the following best represents the correlation coefficient for this relationships?
a. 0
b. -0.96
c. +0.96
d. +9.6
91. In regression analysis, the coefficient of determination is a measure of

a. the estimated value of the dependent variable
b. the slope of the line of regression
c. the amount of variation in the dependent variable that cannot be explained by the
independent variable
d. the amount of variation in the dependent variable that can be explained by
the independent variable
92. Verfermin Company uses regression analysis to develop a cost formula for predicting
productions costs. The company’s accountant is considering two different cost drivers
(units produced and direct labor hours) as the independent variable [x]. The analysis
showed the following results”
Independent Variable Y-intercept Slope (b) r r2
Units produced P30,000 12 0.85 0.72
Direct labor hours 50,000 8 0.95 0.90
Which cost formula should be used?
a. Cost = 30,000
b. Cost = 50,000 + 8x
c. Cost = 30,000 + 0.85x
d. Cost = 50,000 + 7.60x
93. Consider the following graph:
If the regression analysis is applied to the data on the graph, the coefficients of
correlation (r) and determination (r2) will indicate the existence of a
a. high direct linear relationship, high explained variation ratio
b. low direct linear relationship, low explained variation ratio
c. high inverse linear relationship, high explained variation ratio
d. low inverse linear relationship, low explained variation ratio
94. Odessa, the auditor of Sta. Maria Appliance Center has developed a multiple
regression model that has been used for a number of years to estimate the amount of
installment sales from credit applicants’ income levels. During the current year,
Odessa applied the model and discovered that the r2 value decreased dramatically
although the model seems to be working well. Which conclusion is justified by the
change?
a. Regression analysis is no longer an appropriate technique to estimate installment
sales.
b. Some new factors, not included in the model, are causing installment sales
to change.
c. The model is no longer reliable.
d. The decrease in the value of r2 should not be considered in the model.
95. It is a part of the accounting system that measures costs for decision-making and
financial purposes.
a. Financial accounting
b. Cost accounting
c. Responsibility accounting
d. Segment accounting
96. Traditional cost accounting may best be described by

a. all the journals, ledgers, records, and financial statements used by an entity to
record, classify, summarize, and report the economic activities of such entity
b. the entire general and subsidiary ledges of a merchandising firm
c. the general ledger and subsidiary accounts and related records used by an
entity to accumulate the costs of goods or services that it provides
d. the subsidiary ledgers used to record the economic activities of the firm
97. A cost accounting system has internal and external reporting objectives. Some
objectives include the following, except
a. income determination
b. product costing and inventory valuation
c. planning, evaluating, and controlling operations
d. determination of sales commission
98. Which of the following statements is correct?

a. The accounting system is part of cost accounting that measures costs for
decision-making and financial reporting purposes.
b. Cost accumulation involves collecting costs by natural classification, such
as materials or labor.
c. Cost allocation or cost assignment involves tracing and assigning costs to cost
drivers, such as direct labor hours or number of units.
d. Cost and managerial accounting are goods in the economic sense and, as such,
their costs must exceed their benefits.
99. The method of averaging costs and providing management with unit cost data used by
companies may depend on the type of products being produced – whether
homogenous or heterogeneous products. The appropriate costing methods for such
types of products are
Homogeneous Products Heterogeneous Products
a. Process Costing Job-order costing
b. Process Costing Process Costing
c. Job-order costing Job-order costing
d. Job-order costing Process Costing
100. Which of the following statements is correct?

a. Standard costing is a method that uses predetermined factors, such as
quantity and price, to compute the standard cost of the manufacturing cost
elements.
b. Standard costing may be used with job-order costing, but not with process
costing.
c. Standard costing may be used with process costing, but not with job-order
costing.
d. Backflush costing is a cost accounting method that keeps track (in detail) of the
flow of cost of work in process.
101. This costing system is a hybrid of job-order and process costing systems wherein
materials are allocated on the basis of batches of production.
a. job-process costing system
b. pro-job costing system
c. operation costing system
d. backflush costing system
102. An operation costing system is

a. the master control program that governs the operation of a computer system
b. the same as a process costing system, except that conversion costs are charged
specifically to products or batches as In job-order costing system
c. identical to a process costing system, except that the actual cost is used for
direct labor
d. the same as a process costing system, except that direct materials costs
are charged specifically to products or batches of production
103. Within accounting system, cost accounting

a. is a combination of managerial accounting and financial accounting since
its purpose can be to provide internal reports for use in management
planning, control and decision-making, and because its product costing
function satisfies external reporting requirements
b. is concerned only with internal reporting that aids management in decision-
making
c. can best be defined as external reporting to government, stockholders, and other
interested parties
d. is a combination of managerial accounting and responsibility accounting
104. Which of the following alternatives does not correctly classify the business
application to appropriate costing system?
Process Costing System Job Order Costing System
a. Car repair shop Paint manufacturer
b. Softdrinks manufacturer Public accounting firm
c. Wallpaper manufacturer Print shop
d. Pen manufacturer Renovation job contractors
105. Operation costing system is a hybrid process and job-order costing systems. It is
used by companies that produce goods that undergo some similar and some
dissimilar processes. Which of the following would most likely use the operation
costing system?
a. movie production
b. clothing manufacturing
c. paper manufacturing
d. custom printing
106. It is a costing method that delays much of the accounting for production cost until the
completion of production even the sale of goods. It is most appropriate when
inventories are low or when the change in inventories is minimal, that is, when most
production costs for a period flow into cost of goods sold. This costing method is
called
a. standard costing
b. process costing
c. job-order costing
d. backflush costing
107. Backflush costing is most likely to be used when

a. the company carries significant amount of inventory
b. the company wants sequential tracking of costs
c. a just-in-time production philosophy has been adopted by the company
d. when the change in inventories is significant
108. A company changed from a traditional manufacturing operation with a job-order
costing system to a JIT operation with a backflush costing system. How will this
change affect the company’s inspection costs and recording detail of costs tracjed to
jobs processes?
Inspection Costs Detail of Costs Tracked to Jobs
a. Increase Increase
b. No effect No effect
c. Decrease Decrease
d. Increase Decrease
Duque Corporation uses backflush costing in accounting for the cost of its product.
During the period, the following the following data were recorded:
Production 20,000 units
Sales 18,000 units
Direct materials purchased P562,800
Direct materials used P560,000
Conversion costs incurred P300,000
109. The journal entry to record the purchase of direct materials is

a. Finished goods inventory 562,800
Accounts payable 562,800
b. Materials 562,800
Accounts payable 562,800
c. Finished goods 560,000

Materials 560,000
d. No entry
110. The journal entry to record usage of direct materials in production is

a. Work in process 560,000
Materials 560,000
b. Finished goods 560,000

Materials 560,000
c. Materials inventory 2,800

Materials 2,800
d. No entry
111. The journal entry to record the incurrence of conversion costs is
Conversion costs 300,000
b. Conversion costs control 300,000

Cash, Accounts payable, Other credits 300,000

d. No entry
112. The journal entry to charge conversion costs to production is

Conversion costs control 300,000
b. Work in process 300,000

Conversion costs inventory 300,000

d. No entry
113. The journal entry to record the completion and sale of finished goods is
a. Finished good 86,000
Cost of goods sold 774,000
Materials 560,000
b. Finished good 86,280

Materials 562,800

work in process 860,000
d. No entry
114. In this costing system, the various activities performed in business segment or in the
entire organization are identified, costs are collected on the basis of underlying nature
and extent of such activities, and then assigned to the products or services based on
consumption of such activities by the products or services.
a. Operation costing system
b. Activity-based costing system
c. Job-order costing system
d. Process costing system
A company produces and sells two types of products. It classifies its costs as belonging
to four functions – production, marketing, distribution, and customer services. For
purposes of setting selling prices for products, all company costs are assigned to the two
products. The direct costs of the four functions are traced directly to the products. The
indirect costs, on the other hand, are accumulated into four separate cost pools and then
assigned to the two products using appropriate allocation bases.
115. The allocation base that would most likely be the best for allocating indirect costs of
the marketing function is
a. number of shipments
b. number of sales persons
c. number of customer phone calls
d. direct labor hours
116. The allocation base that would most likely be the best for allocating the indirect costs
of the distribution function is
c. direct labor hours
d. machine hours
117. The allocation base that would most likely be the best for allocating the indirect costs
of the customer services function is
c. number of customer phone calls
d. number of units produced
118. It is comprehensive understanding of how an organization generates its output. It

involves the determination of which activities are value-adding or non-value-adding
and how the latter may be reduced or eliminated. It is a key component of ABC
Management that links product costing and continuous improvement.
a. ABC System
b. Process value analysis
c. Backflush costing
d. JIT system
119. Which of the following statements is not correct?

a. ABC tends to increase the number of cost pools and cost drivers used.
b. ABC’s philosophy is to accumulate heterogeneous cost pools.
c. In ABC system, homogenizing cost pools minimizes broad averaging of costs
that have different drivers
d. Design of an ABC system that starts with process value analysis, a
comprehensive understanding of how an organization generates its output.
120. In ABC system, costs are grouped in cost pools and then allocated by common
allocation base, which ordinarily is the cost’s cost driver. Such allocation base is the
common denominator for systematically correlating indirect costs and a cost object.
In a homogeneous cost pool, the allocation base should
a. be a non-financial measure so that the allocation may be more objective

b. be a financial measure so that the allocation may be more objective
c. have a cause-and-effect relationship with the cost items in the cost pool
d. assign the costs in the pool uniformly to cost objects even if the cost objects do
not use resources uniformly
121. Which of the following statements is false?

a. Under ABC, a product is allocated only those costs that pertain to its production,
hence, the products are not cross-subsidized
b. In ABC, the activities determined serve as cost objects. Costs for each activity
are accumulated in a cost pool and then allocated using the appropriate activity
base or cost driver.
c. If a firm manufactures only one product, rather than multiple products,
ABC is more likely to result in major differences from traditional costing
system.
d. ABC is useful for allocating production costs, as well as marketing and
distribution costs.
122. ABC differs from traditional product costing because it uses multiple allocation bases
and therefore, allocates costs (such as overhead costs) more accurately. This
normally results in
a. equalizing setup costs for all product lines
b. lower setup costs being charged to low volume products
c. decreased unit costs for low-volume products than is reported by traditional
product costing systems
d. substantially greater unit costs for low-volume products than is reported
by traditional product costing systems
T. Formaloza Corp. has used a traditional cost accounting system to apply quality
control costs uniformly to all products at a rate of P20 per direct labor hours for its main
products are 9,600 hours.
Trisha wants to shift ABC system in order to allocate quality control costs to its products
in more equitable manner. To start with, process value analysis was conducted. Quality
control activities were determined, as well as the appropriate cost drivers and cost driver
rates. The analysis yielded the following:
Activity Cost Rate Quantity for Main

Driver Product
Inspection of Classes of P500 per class 20 classes
materials deliveries materials
Inspection of goods Number of units P10per unit 12,000 units
in process
Final inspection Number of orders 200 per order 100 order
before delivery of
finished goods
123. The quality control cost that would be assigned to the main product using the
traditional costing system is
a. P240,000
b. P150,000
c. P120.000
d. P192.000
124. The quality control cost that would be assigned to the main product using ABC
costing system is
a. P240.000
b. P150,000
c. P120,000
d. P192,000
The cost accountant of L. Rosales, Inc. is considering to use the ABC costing system in
determining the cost of its products.
At the present, the company uses the traditional costing system wherein factory
overhead costs are allocated based on direct labor hours. The cost accountant believes
that the present accounting system may be providing misleading cost information,
hence, the plan to change the ABC system.
For the coming period, the company is planning to use 5,000 direct labor hours, and its
total budgeted factory overhead amounts to P90,000, broken down as follows:
Activity Cost driver Budgeted Activity Budgeted Cost

1. Setup Costs Number of setups 40 P20,000
2. Production Number of batches 20 40,000
monitoring
3. Quality control Number of 1,000 30,000
inspections
Total overhead P90,000
cost
Projected data for one company’s products, Product X, for the coming period are as
follows:
Production end sales 1,000 units
Direct labor hours 2,000 hours
Units per batch 500
Number of setups 4
Number of inspections 200
Direct materials cost P10 per unit
Direct labor rate P20 per hour
125. If the company will use the traditional full cost system, the cost per unit of product X
for the coming period will be
a. P36
b. P50
c. P86
d. P68
126. If the company will use the ABC system, the cost per unit of product X for the coming
year will be
a. P62
b. P50
c. P86
d. P12

Jarred Pereña operates Daddy’s Nursery which provides baby-sitting services for
children between 2 to 5 years old. Working mothers leave their children at 8:00 am and
pick them up after hours.
Jarred converted his house into a nursery home where children are provided with
sleeping areas, play pen, and study areas, as well as meals, milk, and snacks. Nursery
fee is computed by adding a markup to the total cost of service provided to each child.
At present, Jarred uses the traditional costing system in computing the cost of service
per child, where the total cost is divided by the number of child served.
During the previous month, the nursery served 100 children, for which the company
incurred P50,000 total cost of service. Jarred observed, however, that it is not right to
just divide the total cost by the number of children because incurrence of some costs
may vary depending on some factors. For example, children between 2 to 3 years old
need more attention and are provided more services than those above 3 years old.
Considering this, Jarred pans to apply ABC system in determining the cost of service per
child. He conducted a study of the previous month’s operations, and the following results
came out:
Cost Category Cost Cost Driver Cost Driver

Quantity
Meals, snacks, P20,000 Number of children 100 children
supplies
Caregiving (nursing P30,000 Staff hours 1,200 hours
assistance and
tutorials) hours
Children Category Number of Children Staff Hours

Babies (2-3 years old) 60 1,000
Kiddies (above 3 years old) 40 200
127. If the traditional costing system were used and nursery fee was computed at 300% of
the cost of service per child, Daddy’s Nursery could have charged each child a fee of
a. P1,500
b. P500
c. P166.67
d. P650
128. If the ABC system were used, nursery fee per child should have been
a. P1,850 for the babies, P975 for the kiddies
b. P616,.67 for the babies, P325 for the kiddies
c. P1,500 for both the babies and kiddies
d. P1,412.50 for both the babies and kiddies
129. The Activity-Based Costing System is one means of avoiding what has been called
Peanut-butter costing. Inaccurately averaging or spreading costs like peanut-butter
over products of service units that use different amounts of resources results in
cross-subsidization of product costs. Cross-subsidization
a. describes the condition in which the miscasting of one product causes the
miscasting of other products
b. involves a determination of which activities that use resources are value-adding
or non-value-adding and how the latter may be reduced or eliminated
c. is the linkage of product costing and continuous improvement of process, it
encompasses driver analysis, activity analysis, and performance measurement
d. is a hybrid of job order costing and process costing that emphasizes physical
processes or operations for cost management and control purposes
130. Mich Roxa Corp. produces and sells two products, A and B. Data about the two
products are as follows:
Product A Product B
Budgeted production 3,000 units 3,000 units
Direct labor hours 9,000 hours 15,000 hours
Number of setups 4 6
Cost per setup P1,800
If Mich applies the setup cost on the basis of direct labor hours, the cross subsidy
per unit arising from the peanut-butter costing approach is
a. P0.15
b. P1.20
c. P3.00
d. P1.50
131. Costs that are common to many different activities within an organization are known as
______ costs.
a. product-or process level
b. unit level
c. organizational level
d. batch-level
132. Setup time is
a batch cost a value-added cost a production cost

a. No No Yes
b. Yes Yes No
c. Yes Yes Yes
d. Yes No Yes
133. In allocating variable costs to products,

a. a company should never use more than one driver
b. a volume-based cost driver should be used
c. a company should always use the same allocation base that it uses for fixed
costs
d. direct labor hours should always be used as the allocation base
134. Traditional overhead allocations results in which of the following allocations?

a. High–volume products are assigned too much overhead, and low-volume
products are assigned too little overhead.
b. Low-volume products are assigned too much, and high-volume products are
assigned too little overhead.
c. Overhead costs are assigned as period costs to manufacturing operations.
d. The resulting allocations cannot be used for financial reports.
135. Traditionally, overhead has been assigned based on direct labor hours or machine
hours. What effect does this have on the cost of a high-volume product?
a. under-costs the product
b. over-costs the product
c. has no effect on the product cost
d. cost per unit is unaffected by product volume
136. Relative to traditional product costing, activity-based costing differs in the way costs
are
a. incurred
b. benchmarked
c. allocated
d. processed
137. In allocating fixed costs to products in activity-based costing,

a. direct labor hours should always be used as allocation base.
b. a company should use the same allocation base that it uses for variable costs.
c. a cost driver that is not volume related should be used.
d. machine hours should always be used.
138. Of the following, which is the best reason in using activity-based costing?
a. to assign indirect overhead costs to different over head pools
b. to better assign overhead costs to products
c. to keep better track of overhead costs
d. to more accurately assign overhead costs to cost pools so that these costs are
better controlled
139. These activities are needed to support an entire product line regardless of the number
of units and batches produced.
a. Batch-level Activities
b. Unit-level Activities
c. Facility-level Activities
d. Product-level Activities
140. Setup, receiving and inspection, are examples of:

a. Batch-level Activities
b. Unit-level Activities
c. Facility-level Activities
d. Product-level Activities

Costs Classification and Accumulation

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Costs Classification and Accumulation

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Chapter 4 – Costs in Management Accounting: Concepts, Classifications, Accumulation

2. An activity that causes resources to be consumed is called a

4. It is a grouping of individual cost items, or an account in which a variety of similar costs

7. Which of the following statement is correct?

8. Product costs or inventoriable costs

9. Which of the following costs is not a product cost?

10. Product costs

ITEMS 11 and 12 ARE BASED ON THE FOLLOWING INFORMATION:

Direct materials P 5,000

Indirect materials 2,000

Direct labor 6,000

Indirect labor 1,000

Factory utilities 4,000

Advertising costs 8,000

Depreciation on administration building 3,000

Salaries of administrative personnel 20,000

Depreciation – delivery equipment 2,000

Overtime pay – factory workers 1,500

Rework cost on defective products discovered during quality inspection 2,500

11. Total products costs:

12. Total period costs:

13. Manufacturing costs do not include

14. Direct labor cost is a

ITEMS 15 to 21 ARE BASED ON THE FOLLOWING INFORMATION:

Purchases – direct materials P143,440

Purchase returns and allowances 2,440

Actual factory overhead 120,000

Inventories: June 1 June 30

Finished goods P68,000 P56,000

Work in process 110,000 135,000

Direct materials 52,000 44,000

15. Maritz Company’s prime cost for June was

16. Maritz Company’s conversion cost for June was

19. Maritz Company’s cost of goods sold for June was

22. For product costing purposes, an indirect factory cost

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

24. Indirect materials and indirect labor are

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

28. For decision-making purposes, relevant costs are

29. Differential costs

33. Which of the following statements about cost behavior is correct?

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

36. Within the relevant range, unit variable costs

38. Consider Line AB in each of the following graphs:

UNITS UNITS UNITS

Graph 1 Graph 2 Graph 3

42. Mixed costs are costs that have

43. In cost behavior analysis, the linearity assumption states that

The receiving and handling cost is most likely to be a

ITEMS 46 to 48 ARE BASED ON THE FOLLOWING INFORMATION:

January February March April

Sales salaries P42,500 P42,500 P42,500 P51,000

Commissions 15,000 17,500 14,000 16,000

Shipping costs 34,000 38,000 32,400 35,600

Advertising 20,000 20,000 25,000 20,000

Peso sales P300,000 P350,000 P280,000 P320,000

Sales in units 30,000 35,000 28,000 32,000

Sales orders 150 175 140 160

Sales Salaries Commissions Shipping costs Advertising

ITEMS 49 to 54 ARE BASED ON THE FOLLOWING INFORMATION:

The data prepared by the controller are as follows:

Suggested selling price P200

Parts fabrication (P10 per hour) 40