Chapter 3 ication and Segregation = MULTIPLE CHOICE QUESTIONS Costs classification 1. The teTm relevant cost applies to all the following decision situations except the ‘A. Acceptance of a special order. Be Determination of a product price. C. Replacement of equipment. D. Addition or deletion of a product line. (cma) oe 2° Asituation where the term relevant cost does not apply. {Q Relevant costs are those used in making decision, These costs have two characteristics - differential costs and future costs. The term relevant costs applies to the acceptance or rejection of a special sales order, replacement or retention of equipment, addition or deletion of a product e, and even in the determination of a product price. Among the choices given, however, choice-letter “b” is the best answer because relevant cost is least applied in the determination of regular selling price. 2. A decision-making concept, described as “the contribution to income that is foregone oy not using a limited source for its best alternative use,” is called A. Marginal Cost. C., Potential Cost. B._ Incremental Cost. _& Opportunity Cost (cma) 200 2. The term used to describe the contribution to income that is foregcre by not using a limited source for its best alternative use. (2 The benefit foregone or sacrificed for not using a limited resource for its best alternative use is called an opportunity cost, hence, choice-letter “d” is correct, Choice-letter “a” is incorrect ., because marginal cost is the increase in cost per unit of product. Choice-letter “b” is incorrect because incremental cost is the total increase in cost from an alternative to another. Choice- letter “c” is incorrect because potential cost may refer to future cost that may arise if an alternative is chosen. é 3, Ina decision analysis situation, which one of the following costs is not likely to contain a variable cost component? No A. Labor 4. Depreciation B. Overhead D. Selling. (cma) c The cost that is not likely to contain a variable cost component. Choice-letter “c” is the correct answer. Depreciation expense, if the problem is silent, is a fixed cost, and therefore, not variable neither would contain a variable component. Choice-ietter "2", labor is academically treated as 2 variable cost. Choice-letter “b”, overhead, has both the variable and fixed cost components. Choice-letter “d”, selling expense, also has hoth the variable and fixed cost components. ByChapter 3 Cost Concepts, Classification and Segregation 60 ? The term that refers to costs incurred in the past that are not relevant to future decision is A. Full absorption cost. Sunk Cost. B. Under-allocated indirect cost. D. Incurred marginal cost. (oma) c The term that refers to costs incurred in the past that are not relevant to a future decision. Choice-letter “c” is the correct choice. Sunk costs are those already incurred, cannot be avoided, refer to the past, and are therefore, irrelevant in making decisions. Choice-letter “a”, full absorption cast refers to the total costs of production without regard to whether fixed or variable as long as the costs are necessary in the manufacture of a product. Choice-ietter “b” is incorrect because under-allocated indirect cost relates to the amount of allocation and not to the period of time, either past or otherwise. Choice-letter “d” is an inferior choice because incurred marginal cost although a past cost and, therefore, not relevant to future decisions is only an example of the more generic term sunk cost which aptly describes the phrase to be completed. Questions 5 to 7 are based on the following information. Management accountants are frequently asked to analyze various decision situations including the following: |. The cost of a special device that is necessary if a special order is accepted. Ul, The cost proposed annually for the plant service for the grounds at corporate headquarters. lil, Joint production cost incurred, to be considered in a sell-at-split Versus a process-further decision. ae IV, The cost of alternative use of plant space to be considered in a make-or-buy deci V. The cost of obsolete inventory acquired several years ago, to be considered in a k disposal decision. a The costs described in situations | and IV are A. Prime costs, G6 Relevant costs. B. Discretionary costs. D. Differential costs. (ema) c The costs described in situations | and lV. The costs described in situations | and IV are relevant costs, choice-letter “c” is the best answer. Item |, the cost of a special device that is necessary if a special order is accepted is an incremental cost of accepting the order and is a relevant cost. item IV, the cost of alternative use of plant space to be considered in a make-or-buy decision, is an opportunity cost and, is relevant in making decision. ‘The costs described in situations it! and V are A. Prime costs. C. Discretionary costs. B. Sunk costs. D. Relevant costs. > (ema) 8 : ‘The costs described in situations I!! and V. |MULTIPLE CHOICE QUESTIONS}[MULTIPLE CHOICE QUESTIONS| 61 Cost Concepts, Classification and Segregation Chapter 3 Item Ill, joint production cost already incurred, and item V would no longer be avoided whether ___ the products are sold at split-off point or not. The cost of obsolete inventory acquired several Years ago in relation to the decision whether to keep or dispose the inventory is already incurred, a sunk cost. In both situations, the costs described are sunk costs and are irrelevant in decision- making, Hence, choice-letter “b” is correct. 7. The cost described in situation It is a A. Prime costs. C. Relevant costs. BE Discretionary costs. D. Differential costs. (cma) 7 2 The cost described in situation Il { The cost described in situation il is more accurately a discretionary cost, choice-letter b is correct. Choice-letter “a” is incorrect because prime costs refer to direct materials and direct labor. Choice-letter “c” is incorrect because relevant costs are determined when decisions are to be made, and not merely a proposal, which may be decided to be incurred or not. Choice-letter “d" is also incorrect because differential cost is a quality of a retevant cost which is determinable only ata time a decision is to be made. 8. Management accountants are concerned with incremental unit costs. These costs are similar to the following, except : A. The economic marginal cost. C. The cost to produce an additional unit. B. The variable cost. _B! The manufacturing unit cost. (racpa) 8. D 2 The cost that is not similar to incremental unit costs. {L) The best choice among the given should be choice-letter “d”. A manufacturing unit cost may include a fixed cost that is not incremental in nature. Choice-letter “a” is incorrect because marginal cost is the increase in cost per unit of increase in production and is similar to incremental costs that also indicate an increase. Choice-letter "b” is incorrect because variable cost normally is an incremental cost. Choice-letter “c” is also incorrect because the cost to produce an additional unit is the same as the marginal cost, Technically speaking, incremental costs are the total increase in costs from one production level to another, from an option to another,-or from an event to another. 9. Opportunity costs are A. Costs irrevocably incurred by past actions B. The difference between actual and standard costs Not recorded in the accounting records B. Partly fixed costs and partly variable costs (rpcpa) oC 2? The best statement about opportunity costs.Chapter 3 Cost Concepts, Classification and Segregation 62 a 10. 1. 12. Opportunity costs are those benefits foregone in favor of the alternative chosen. They are sacrificed benefits, not incurred but is implied, and not recorded in the accounting books because they are theoretical. Hence, choice-letter “c” is correct. Choice-letter “a” is incorrect because costs incurred by past actions are past cost or sunk costs. Choice-letter “b” is incorrect because the difference between actual and standard cost is called a cost variance. Choice-letter “d” i incorrect because costs that are partly fixed and partly variable are called mixed costs. Cost of goods sold is 2 component of the income statement. In a merchandising establishment, this refers to purchases adjusted for changes in inventory. In a manufacturing company, what replaced purchases to arrive at cost of good sold? A. Finished goods. C. Work in process inventory. 8. Fixed manufacturing overhead. "Cost of good manufactured. (rpcpa) D The account that replaces purchases to arrive at cost of goods sold in 2 manufacturing company. Choice-letter “a” is correct. In the computation of cost of goods sold, net purchases is replaced by the cost of goods manufactured (CGM) in a manufacturing company. Just like merchandise Purchases, CGM is added to finished goods-beginning and then finished goods-ending is deducted to get the cost of goods sold. Choice-letter “a” is incorrect because finished goods inventories are added to or deducted from CGM to arrive at CGS. Choice-letter “b” is incorrect because fixed manufacturing overhead is directly used in the computation of total factory costs. Choice-letter “c” is incorrect because work-in-process inventory is used in the computation of CGM, not in CGS. The salaries you could be earning by working rather than attending college is an exarnple of A. Outlay costs. C. Sunk costs B. Misplaced costs. AB. Opportunity costs (rpcpa) D The classification of the salaries you could be earnings by working rather than attending college. The salaries that should have been earned by working rather than attending college is an example of an opportunity cost. It is @ profit, savings, or benefit foregone in favor of the alternative chosen, Choice-letter “a” is incorrect because outlay costs may refer to the amount of fund used to finance an acquisition or operations. Choice-letter “b” is incorrect because a misplaced cost is an irregular description of costs and has not found great usage and acceptance in the management accounting literature. Choice-letter “c” is incorrect because sunk costs are those that are already incurred in the past and can no longer be’changed, and are always irrelevant, In analyzing whether to build another regional service office, the salary of the Chief Executive Officer (CEO) at the corporate headquarters is A. Relevant because salaries are always relevant. B. Relevant because this will probably change if the regional service office is built. MULTIPLE CHOICE QUESTIONSQUESTIONS! IMULTIPLE cH 63 Cost Concepts, Classification and Segregation = Chapter 3 ZX Inrelevant because it is future cost that will not differ between the alternatives under consideration. 7 . D. Irrelevant since cther imputed costs for the same will be considered. {rpcpa} a30c 2 The treatment of the salary of the Chief Executive Officer (CEO) at the corporate headquarter in deciding whether to build another regional office or not. {Qin deciding on whether to build another regional office or not, the salary of the CEO does rot change and, therefore, is irrelevant although itis a future costs (choice-letter “eis correct) S cost te be relevant in decision-making must differ from one alternative 10 another {differential costs) and must deal with the future (future cost). Both conditions must be met. A cost may be relevant in one decision-making exercise but is relevant in the other. 13. Sunk costs A. Are substitutes for opportunity costs. 3. Are relevant to long-term decisions but not to short-term decisions. Are relevant to decision making. [DY in themselves are not relevant to decision making. i (rpcpa} B.D 2 Acorrect description of sunk costs. ‘ £2 Sunk costs ave past costs, historical, already incurred, and can na longer be changed or affected by future decisions. These costs are always irrelevant in making a decision (choice-letter “dt is correct. Cholee-letter “3” is incorrect because sunk costs are not, and would never be substitutes for opportunity costs. Sunk costs are recorded in the accounting books while opportunity costs are not recorded in the accounting books. Choice-letters "b” and “c” are incorrect because sunk costs are never relevant to decision-making, both long-term and short-term decisions. * 14, When all manufacturing cost used in production are attached to the products, whether direct, or indirect, variable of fixed, this is called 5 A. Processcosting . | C. Variable costing: : Je Absorption costing. D. Joborder costing. (rpcpa) 16.8 2 Acosting system that includes all manufacturing costs used in the production as product cosis, whether direct or indirect, variable or fixed. [i Choice-letter “b", absorption costing, is the correct answer. Absorption costing includes alt manufacturing costs whether direct or indirect, variable or fixed, in the determination of product costs. This is the traditional concept of cost determination, is in accordance with the generaily ‘accepted accounting principles, and includes all manufacturing costs as inventoriable costs because they are all relevant expenditures in the manufacturing process. Choice-letter “2", process costing, is incorrect -bécause it relates to the mode! of accumulating production costs by following the. departmentalized transfer ‘of units in the production process. Choice-letter “c”, variable costing, is incorrect because it assigns only variableChapter 3 Cost Concepts, Classification and Segregation # production cost as product cost, Choice letter “d”, job order costing, is incorrect because it refers to the model of accumulating production per order made by customers. High-low method 45. Mine and Yours Company uses a regression equation to analyze the behavior of its transportation costs (T) as a function of travel-time (H). They developed the following equation using two years’ observation with a related coefficient of determination of .85. T= 100,000 + PSOH If $00 hours of travel time were logged in one period, the related point estimate of total transportation costs would be A. P110,000 ©, P106,250 : B.. P121,250 De, P125,000 (rpcpa) 15. D 2? The related point estimate of transportation costs £2 Total costs equal fixed costs plus variable costs. The fixed costs and the variable rate per hour are given. Therefore, Fixed costs 100,000 Variable costs’ (PSO x 500 hours) 25,000 Total costs i P125,000 16, These are among the methods of segregating fixed cost and variable costs except XX Breakeven method, C. Scattergraph method. B. Simple regression analysis. D. High-low method (rpcpa) ? is not used in segregating fixed and variable costs, The methods used in separating the fixed and variable costs elements are: practical method {e.g., historical records), simple average high-low method, weighted average high-low method, scattergraph method, and least-squares method. Choice-letter “a” is the correct choice. The breakeven method is not used in segregating fixed into variable costs but is instead used in analyzing the potential profitability and areas of sensitivity in.controlling profit. 17. Jackson, Inc., is preparing a flexible budget tor next year and requires a breakdown of the cost of «steam used in its factory into the fixed and variable elements. The following data on the cost of steam used and diréct labor hours worked are available for the last 6 months of this yeer. Direct . Month Cost of Steam Labor Hours July P 15,850 3,000 August 13,400 2,050 September 16,370 2,900 October 19,800 3,650 November 17,600 2,670 [MULTIPLE CHOICE QUESTIONS}IMULTIPLE CHOICE QUESTIONS} 65 Cost Concepts, Classification and Segregation Chapter 3 December 18,500 2,650 ’ Total PHOLS20 16,920 7 Assuming that Jackson uses the high-low method of analysis, the estimated variable cost of steam per direct labor hour is. AX P4o0 C. P5.82 B. PS5.42 D. P6.00 17. A 2 Using the high-low method, (HLM), the estimated variable cost of steam per direct labor hour. {DQ The high-low method relates to range analysis where in 2 (ange there is the highest point and the lowest point. The high-low method identifies the highest observation and the lowest. observation and getting their differences both in units and in-amount. The highest observation is the month of October while the lowest observatin is the month of August. Tabulating the data of the highest and the lowest occurrences, we have: Direct labor hours Cost Highest (October) 3,650 19,800 Lowest (August) 2,050 13,400 : Difference 1.600 P6400 VCR = A inCosts/ A in Units = P6,400/ 1,600 = Pa ADLH * Under the HLM, the variable cost rate is equal to the change in costs over thé change in units. This high-low method of computing the variable cost per unit rests on the principle that a change in cost is attributed to variable, since total fixed cost remains unchanged. ‘The HLM is used when there is 2 positive relationship between costs and units. That is, if total unit increases, total cost also increases and if total-unit decreases, total costs also decreases. Otherwise, HLM is not applicable, and the scattergraph method and least squares method are to be used in segregating the variable costs from the fixed'costs. 18. in the Timbugan County, Inc., a maintenance cost is partly fixed and partly variable in.nature. At the low level of activity (150 direct labor hours), maintenance costs total P2,100. At high level of activity (270 direct labor hours), maintenance costs are P3,000. Using the high-low method, what is the variable maintenance cost per unit and the total fixed maintenance cost? Variable Fixed Maintenance Cost Maintenance Cost P 7.50 P 975 P 7.50 _ P2100 P10.00 P 600 10.00 2,100 18. A The variable cost per unit and the total fixed costs using the high-low method. Q Variable cost per unit may be determined by dividing the change in costs over the change in units. The change in costs i P900 (i.e., P3,000 ~ P2,100) and the change in units is 120 {ue,, 275 ~150)- The variable castyate is P7.50 (i.e., P900/120).Chapter 3 Cost Concepts, Classification and Segregation «& ‘The fixed cost is the difference between total costs and variable costs, as follows: @27001H = @ 150DLH Total costs P 3,000 P 2,100 - Variable costs (P7.50 x DLH) 2,025 1,125 Fixed costs p_975 P9725 19, Mat Company estimates its material handling costs at two activity levels as follows: Kilos handled Cost 80,000 P 160,000 60,000 132,000 What is Mats estimated cost of handling 75,000 kilos? © Ped gf Nanak) A. P 150,000 c. P157,500 AZ P253,000 D. P132,000 (rpcpa) 19. 8 2 The estimated costs of handling 75,000 kilos. {The estimated costs of handling 75,000 kilograms is composed of variable costs and fixed costs. The variable cost is determined by first establishing the variable cost rate. The variable cost rate is computed as follows: Variable cost rate ‘in Costs / A in Sales (P:160,000 — P132,000) / (80,000 - 60,000) 28,000 / 20,000 P,40/ke Given the variable cost rate, the fixed cost is calculated as: 80,000 kgs. 60,000 kgs. Total costs . P160,000 P132,000 ~ Variable costs (80,000 x P1.40) 112,000 84,000 (60,000 x P1.40) Fixed costs 2.48000 P-48,000 Given the variable cost rate and the fixed costs, the estimated cost of handling 75,000 kilograms shall be: ‘Variable cost (75,000 kgs. x P1.40) 105,000 Fixed costs 48,000 Total estimated costs at 75,000 kes. 153,000 20. The total production cost for 20,000 units was P21,000 and the total production cost for making 50,000 units was P34,000. Once préduction exceeds 25,000 units, additional fixed costs of P4000 were incurred. The full production cost per unit for making 30,000 units AL P030 c. P04 3. PO6B e Pr Poss. (rpcpa) OD 2 The full production cost per unit for making 30,000 units. [MULTIPLE cHoIcE QUESTIONS}(MULTIPLE CHOICE QUESTIONS! a Cost Concepts, Classification and Segregation Chapter 3 {Qi The full production cost per unit is composed of the unit variable cost and unit fixed cost. The unit variable cost is determined as follows: .e in Fixed costs) / Ain Sales Unit variable cost {din Costs — Increast {(P34,000 ~ 21,000) ~ P4,000} / (50,000 ~ 20,000) = p9,000/30,000 = P0.80 be determined at 50,000 units since the cost of per unit to be vat 50,000 units the increase in fixed costs of P4,000 is already variable cost. Therefore, the total fixed cost is P19,000 34,000 ~ ($0,000 x PO.30)}. Finally, the unit cost at 30,000 units shall be: Unit variable costs (constant) 0.30 Unit fixed costs (P19,000/30,000 units) 0.63 Unit cost (at 30,000 units) 0,93 The total fixed costs should computed is at 30,000 units. included. Fixed cost is total cost less 21, Hungarian Sausage’ wishes to analyze the fixed anc variable components of the semi-variable cost. The following information fs available: Output Output Month (Units) Costs. Month (Units) Costs 1 1,000? 12,000 4 800 P11,000 2 700 30,000 5 1,400 18,750 3 1,100 14,000 6 1,200 ~—15,000 Using the high-low method, which one of the following is correct? A. Variable costs are P15 per unit. [Fixed costs are P1,250 per month. B. Variable costs are P10 ner unit, D. Fixed costs are 71,000 per month. nC ? Using the high-tow method, the correct expression of cost rate. [22 Using the high-low method, the variable cost rate is computed by first identifying the highest lervation and the lowest observation. And then divide che difference in cost by the difference vvnits, Based on the given, the highest observation is the fifth month and the lowest observation Is the second month, with the corresponding changes in the data tabulated 25 follows: y Costs Output Highest 718,750 1,400 lowest 10,000 100 Difference P8750 790 The variable cost rate and the fixed cost shall bé: Variable cost rate = P8,750/ 700 = P1250 Total fixed costs = 1P18,750-(1,400xP22.50)] = P1250 22. The controller of james Company has requesteo a quick éstintate of the manufacturing supPlcs needed for the Morton Plant for the month of Julywhen production fs expected to be 470,00¢3 bec Pa ae Chapter 3 Cost Concepts, Classification and Segregation 23. 23, 2 a 68 units to meet the ending inventory requirements and sales of 475,000 units. James Company's budget analyst has the following actual data for the last 3 months: Production Manufacturing Month in units supplies March 450,000 723,060 April 540,000 853,560 May 480,000 766,560 Using these data and the high-low method to develop a cost accounting equation, the estimate of needed manufacturing supplies for July would be A. 652,500 Cc. P749,180 B. 681,500 B® 752,060 (rpcpa) D ‘The estimated cost of manufacturing supplies for July using the high-low method. The estimated cost of manufacturing supplies is composed of variable costs and fixed costs. The variable cost rate is determined by dividing the change in costs aver the change in units. The highest observation is the month of April and the lowest observation is the month of March. The change in costs is P130,00 {i.e., P853.560 - P723,060), and the change in units is 90,000 (j.e., 540,000 ~ 450,000). The variable cost:rate is P1.45 (i.e., P130,500/90,000 units). Given the variable cost rate, the fixed cost shall be P70,560 [i.e:, 853,560 ~ (540,000 x P1.45)}. ‘Since production in July is expected to reach 470,000 units, then the total estimated costs shall be: Variable costs (470,000 x P1.45) 681,500 Fixed costs 70,560 Total estimated costs 752,060 For the six months of the year, the highest level of activity for LOP Corporation was for 18,000 full units of production with maintenance cost at P114,000 and its lowest level of activity for the same period was at 14,000 full units of production with maintenance cost at P94,000. What amount of maintenance cost should LPQ expect in a month in which it was-scheduled 16,000 equivalent full units of production? A. P 24,000 c. P 80,000 4 P104,000 D. P114,000 (rcpa) 8 The expected amount of maintenance costs at 16,000 units of production, ‘The amount of maintenance cost is composed of fixed costs and variable costs. The problem gives two levels of activities with their corresponding total costs. The variable cost rate could be determined using the high-low method of costs segregation. Once the variable cost rate is determined, the total fixed costs is computed by deducting the variable costs from the total fixes costs. Using the high-low method (HLM), we have: IMULTIPLE CHOICE QUESTIONS}IMULTIPLE CHOICE QUESTIONS} 69 Cost Concepts, Classification and Segregation Chapter 3 Units Total costs Variable costs* ‘Fixed costs** High 18,000 114,000 90,000 24,000 y tow 14,000 94,000 70,000 24,000 Difference 4,000 20,000 * Var. Costs (18,000 units x P5) 90,000 * Var. Costs (14,000 units x PS) 70,000 ** Fixed Costs =Total Costs - Variable Costs ‘The variable cost rate (VCR) is: Change in total costs / Change in units * = P20,000 / 4,000 units = P5,00/ unit { ‘Therefore, the total maintenance costs at 16,000 units is: Variable costs (16,000 units x PS) P 80,000 Fixed costs _24,000 Total costs {at 16,000 units) 2104,000 y { Regression analysis | a line of regression, which is fitted toa 24, Simple regression analysis provides the means to evaluate plot of data and represents ‘A. The way costs change with respect to the 5. The way costs change with respect to both independent The variability expense with pesos of production. (De The way costs change with respect to the independent v dependent varial and dependent variables. ariable. (rpcpa) 24.0 > + statement that represents the simple regression line. {DA simple regression line represents the way the dependent variable ("Y", normally described in pesos) varies with respect to the changes in the independent variable +x", normally presented in units). ; ‘Choice-letiers “a” and "b” are incorrect because costs change with respect to independent variable, not with dependent variable or both. Choice-letter “c” is incorrect because the variability of expenses is related to units of measurement and not normally in terms of pesos of production. 25, The slope of the line of regression is DC The rate at which the independent variable varies. B. The rate at which the dependent variable varies. C. The level of the fixed costs. 1D. The level of the total variable costs. (rocpa) 25. A 2. Adescription about the stone of the line of regression.Chapter 3 Cost Concepts, Classification and Segregation * U1} The slope is the “b” in the regression line Y = a + bx. Applying this equation to costs, we have: Total costs = fixed costs + variable costs, The “b” (or slope) represents the variable cost rate or the rate at which the independent variable varies (choice-letter “a” is correct) Choice-letter “b” is incorrect because the rate at which the dependent variable (¥) vary depends on the value “x”, the independent variable. Choice letter “c” is incorrect because fixed costs are not the same as the slope or variable cost rate. Choice-letter “d” is incorrect because the level of the total variable costs (e.g., “bx”) is the total of slope (e.g., “b”) multiplied by the independent variable (e.g.,“«"). 26. Regression analysis A. Estimates the independent cost variable. B. Uses probability assumptions to determine total project costs. Ge Estimates the dependent cost variable. D. Ignores the coefficient of determination. (cma) 26.¢ 2 Acorrect statement regarding regression analysis. G2 Choice-letter “c” is correct because regression analysis determines the estimated value of “Y”, the dependent variable. Choice-letter “a” is incorrect because it is the dependent variable that is estimated and not thé independent variable “x”. Choice ‘etter “b” is incorrect because regression analysis uses statistical procedures and not probability assumptions. Choice-letter “d” is incorrect because regression analysis, as a statistical equation, considers the coefficient of determination in establishing the correlation of variables “x” and “y” 27. The segregation of fixed costs and variable costs is key to proper cost analysis. Regression analysis is a technique used for this purpose. Identify the appropriate statements below on regression analysis: ———— It assumes that a change in value of a dependent variable is related to the change in the value of an independent variable 2. Alinear relationship between direct cost and production volume can cause 2 problem when using accounting data for regression analysis. 3. It attempts to find an equation for the linear.celationship among variable. 4, ttestablishes a cause and affect relationship. A, Allfour statements are appropriate,s€~ Statements 1 and 3 only. 8, Statements 1, 3 and 4 only. D. Statements 2 and 4 only. Identify the appropriate statements on regression analysis. Statements 1 and 3 are correct with respect to regression analysis. Regression analysis formulates a linear equation with the end-in-view of estimating the value of "Y”, the dependent variable. Statement 2 is false because a linear relationship between direct cost and production volume does not cause a problem but rather complement accounting data for regression analysis, Bvs IMULTIPLE CHOICE QUESTIONS}MULTIPLE CHOICE QUESTIONS} 7 Cost Concepts, Classification and Segregation Chapter 3 Statement 4 is also false because a regression line does not establish a cause and affect relationship but rather a correlation between independent and dependent variables. 8. Simple regression differs from multiple regression in thus A. Multiple regression uses all available data to estimate the cost function whereas simple regression only uses simple data. B. Simple regression uses only one dependent variable and muitiple regression uses more than ‘one dependent variable. €. Simple regression is limited to the use of only the independent variables and multiple regression can use both dependent and independent variables. Je Simple regression uses only one independent variable and multiple regression use more thar ‘one independent variable. (recpa) 28. 0 2 The statement describing the difference between simple regression and multiple regression. {2 Choice-letter “d" is correct. The simple regression line ¥ = a + bx has one dependent variable (¥), 2 point of origin or point of intercept (a), a slope (b), and an independent variable (x). A multiple regression line Y = a + b,x, + b)X:+..# b,%, has also a point of origin, has two or more independent variables (Le, x1, X2, %, etc.), and two or more slopes (i.e., by, by, etc.) Choice-letter “a” is incorrect because both simple and multipie regression analyses use all available data to estimate the cost function. Choice-letter “b” is incorrect because both simple and multiple regression analyses have only one dependent variable, and both use the dependent and independent variables. 29. For the month just ended, the cost components to make Product FX was SO per unit plus fixed costs of P250,000. One thousand units were produced. For the current month, the cost to make the product will be PSS per unit plus fixed cost of P250,000. Fifteen hundred units are expected to be produced. The estimates of the underlying, but unknown intercept and slope coefficient for the current month are ‘A. P250,000 and PSO. C._ P50 and P250,000. B. P55 and P250,000. 2B 250,000 and PSS. (rpcpa) 29.0 2? The unknown intercept and slope coefficient for the currentmonth. {i The intercept or point of origin is the fixed costs; while the slope coefficient is the variable cost rate, The fixed costs for the current month is P250,000 and the variable cost rate is P55 per unit. Choice-letter “d” is correct 30. Simple regression analysis involves the use of Dependent independent Dependent Independent Variables Variables Variables Variables A One None c One Two a one One D. None Twe {aicya) 30 8Chapter 3 ? Qa 31. 31. ? fre] 32. 32. 2 a 33, Cost Concepts, Classification and Segregation a ‘The number of each variable included in the simple regression analysis. Simple regression analysis estimates the value of Y and is mathematically expressed as Y = a+ bX. In this equation, there is only one dependent variable (ie,, ¥) and also one independent variable (i.e., X}, Multiple regression analysis involves the use of Dependent Independent Dependent Independent Variables Variables Variables . Variables ‘One More than one C. More than one One 8. More than one More than one D. One One A The number of each variable included in the multiple regression analysis. Multiple regression analysis resembles a curvilinear relationship of variables “x” and "Y". It is represented by the equation ¥ =a + byx, + b,x, +... +b,x,. In this equation, there is only one dependent variable “Y” and more than one independent variables “x”. Choice-letter “a” is the correct answer. Multiple regression analysis A. Establishes a cause and effect relationship. B. Is nota sampling technique. C.__ Involves the use of independent variabie only. “D. Produces measures of probabie error, D Correct statement regarding multiple regression analysis Choice-letter “d” is the, correct choice. Multiple regression analysis, using statistical principles and procedures, is subject to a standard error of estimate. Hence, it produces measures of probable error. Choice-letter “a” is incorrect because statistics does not establish a cause and effect relationship but rather a correlation of two or more variables. Choice-letter “b” is incorrect because as a statisticd! technique, it involves the application of a sampling technique. Choice~ letter “c” is incorrect because multiple regression analysis involves the use of two or more independent variables Which of the following may be used to estimate how both the number of shipments and the weight of materials handled affect inventory warehouse costs? A. Economic order quantity analysis“. Correlation analysis. B. Probability analysis. ZE Multiple regression analysis . The technique used to estimate the inventory warenouse costs. The inventory warehouse cost is affected by two independent variables, the number of shipments and the weight of materials handled. Hence, the quantitative technique to be used should be the multiple regression anaiysis, choice-letier “d” is correct. MULTIPLE CHOICE QUESTIONS}7) B ‘Cost Concepts, Classification and Segregation Chapter 3 Choice-letter “a” is incorrect because economic order quantity is used in determining the optimum order size, Choice-letter “b” is incorrect because probability analysis is used when variables under consideration are subject to uncertainties, which in this case is not present Choice-letter “c” is incorrect because correlation analysis relates to establishing the relationship of the independent and dependent variables. 34. Anon-linear cost function Ac Does not effectively describe the behawior.of costs all the time. + "B._ Never describes the behavior of costs in relation to the cost driver. C. Has two constants and single slope. D. Always describes the behavior of costs in relation to the driver. A A statement regarding a non-linear function. : Choice-letter “a” is correct because a non-linear function does not effectively describe the behavior of costs at all times but rather depicts the behavior of costs given a varying levels of production. Choice-letter “b” is incorrect because a non-linear cost function basically states that all costs are variable in the long-run. Choice-letter “c” is-incorrect because a non-linear cost function has a point of origin, therefore, a constant factor, and several slopes. Choice-letter “d” is incorrect because a non-linear cost function does not always describe the behavior of costs in relation to the driver within a relevant range but rather describes a cost relationship to different cost drivers applicable in various relevant ranges over the long-pull. Bye 35. Pyramid Company has data relating total production costs to volume for each quarter during the past five years. During this period, production volume has varied substantially. The method of production has been relatively unchanged and the cost behavior has been complex. What is the most appropriate method for estimating future production cost? A. Linear programming. SX Time-series or trend regression analysis. B. Cost-volume-earnings approach. “D. Program evaluation review technique. _(rpcpa) IMULTIPLE CHOICE QUESTIONS} 35. € : The most appropriate method for estimating future production cost. {2 Choice-letter “c’ is correct. Time-series regression analysis is the most appropriate method to be” used in estimating the behavior of production costs in relation to period of time such asin terms of quarter in this case. . Choice-letter “a” is incorrect because linear programming applies to the determination of optimum use of scarce resources. Choice-letter “b” is incorrect because cost-volume-earnings approach relates to predicting profit given the changes in volume, sales price, and costs. Choice- letter “d” is incorrect because it relates to the technique of establishing and monitoring the completion time of a project. Questions 36 to,38 are based on the following: In preparing the anita profit plan for he conving year. Darna Company wants to determine the cost behavior pattern of the maintenance costs. Darna has decided to use linear regression by employing the equation Y = a + bx for maintenanceChapter 3 Cost Concepts. Classification and Segregation ae 36. a7. 37. 38, costs. Thé prior year’s data regarding maintenance hours and cots and the results of the regression analysis are given below, Average cost pr hour P 9.00 a 684.65, b 7.2884 Standard error of a 49.515, Standard error of b 12126 Standard error of the estimate 34.469 e 99724 In the standard regression equation Y = a + bx, the letter b is best described as a(n): A. Independent variable. A= Constant coefficient. B, Dependent variable. D. Variable coefficient. ic ‘The description of letter “b” in the regression equation. in the regression equation Y = a + bx, variable “b” refers to the constant coefficient of the variable cost, choice-letter “c” is the correct answer. Choice-letter “a” is incorrect because independent variable refers to “x”. Choice-letter “b” is incorrect because dependent variable refers "Y". Choice-letter “d” is incorrect because variable coefficient is not used in the’equations Y =a + bx ‘The letter “x” in the standard regression equation is best described as a (an) Independent variable. CC. Constant coefficient. B. Dependent variable. + D. Coefficient of determination. A The description of the variable “x” in the regression equation. in the regression equation ¥ = a + bx, the letter “x” is the independent variable, choice-letter “a” ig correct. Choicedetier “b" is incorrect because the dependent variable is the "V”. Choice-letter i ig incorrect because the constant coefficient is “b”. Choice-letter “a” is incorrect because the coefficient of determination is “r Based upon the data described from the regression analysis, 420 maintenance hours in a month would mean the maintenance costs (rounded to the nearest peso) would be budgeted at A P3,780 Cc. P3,790 B, 3,600 PE P3,746 (cma) D ‘The estimated maintenance costs given a 420 maintenance hours. Based on the data given, the regression equation Is Y = 684.65 + 7.2884x. If "x" is 420 hours, then the value of Y shall be P3,746 [i.e., Y= 684.65 + 7.2884(420)} MULTIPLE CHOICE QUESTIONS}rr IMLILTIPLE CHOIGE QUESTIONS} 39. Cost Concepts, Classification and Segregation Chapter 3 ‘Marina Company has developed a regression equation to analyze the behavior of its maintenance costs (Q) as a function of machine hours (2). The following equation wes developed by using 39 monthly observations with a related coefficient of determination of 0.90: Q = P6,000 + P5.252 1¥ 1,000 machine hoyrs are worked in one month, the related point of estimate of total maintenance costs would be : A 11,250 CP 5,250 8. P10,125 9. P 4,725 30. 2 TheTelated point of estimate of total maintenance costs. 2) ifthere are 1,000 machine hours (Z) in a month, and using the equation Q = P6,000 + P5.252, ther the value of Q shall be P12,250 jie, Q = P6,000 + (P5.25 x 1,000)], 40. Premised on past experience, Harry Corporation adopted the following budget formula for estimating its shipment exvenses. The company’s shipments average 's 12 kilos per shipment. Shipments costs = P 8,000 + (PO.25 x kgs. Shipped) Pertinent data for the current month are given below: Planned Actual Sales / 800 780 Shipments 300 £20 Units shippe” 3,000 9,000 Sales 240,000 P288,000 Total pound shipped 9,400 12,800 kgs. shipped 4,364 5,591 Tie actital shipping costs for the month amounted to P10,500. The appropriate monthly flexible a for shipping costs for purposes of performance evaluation would be 72,39 €. P10,340 6. P1075 9. 10,460 40. A : 2 The appropriate monthly flexible budget allowance for shipping costs. 12 The appropriate flexible budget allowance for shipping costs shall be the standard shipping costs. Standard shipping cost is actual units (e.g., kilograms) multiplied by the standard rate per unit plus the fixed component thereof. Variable costs (5,591 kes. x PO.25) 1,397.75 Fixed costs 8,900.09 Flexible budget allowance 23,397.25 41 kwing Company uses regression analysis to develop modél for predicting cverhead costs. Two different cost Crivers (machine hours and direct materials weight) are under considerations as theChapter 3 Cost Concepts, 41. ? Pa 42, Classification and Segregation independent variable. Relevant d: regression programs, with the follo a were run on a computer using one of the standard ing results; Machine hours Coefficient Direct materials weight Coefficient Y intercept 2,500 Y Intercept 4,600 bi 5.0 b 26 fr 70 f 50 Which regression equation should be used? Y= 2,500 + 5.0x, Cc. ¥=4,600+4 2.6% B. Y=2,500+3.5x, D. Y= 4,600 + 1.3x. faicpa} A ‘The regression equation to be used. Regression analysis shows the relationships of variable “Y” in relation to variable “x”, where ¥ = a + bx. The value of “x” used in estimating the value of “Y” should represent the best correlation of the two variables. The coefficient of correlation is represented by r’ {or rho). Between machine hours and direct materials weight, machine hours have the higher degree of correlation, and therefore should be the more reasonable basis in developing the value of "V”, as follows: Ysa + bx ¥ = 2500+ 5x where: a = point of intercept b = slope x = independent variable = dependent variable The manager of the assembly department of a company would like to estimate the fixed and variable component: of the department's cost. To do so, the manager has collected information sn totat cost and output for the past 24 months. To estimate the fixed and variable components of total cost, the manager should use A. Regression analysis C. Sensitivity analysis, B. Game theory. D. Queuing theory. A Fhe method to be used in estimating the fixed and variable components of total costs L Regression analysis shows the relationship of variable “Y” with variable “x’. ‘The relationship normally contains fied factor (known as point of in'cept, oF “a") and a variable factor (known asa slope, or “b”). This relationship is expressed as follows Ys at bx ¥ = point of intercept + slope (x) The “a” or the point of intercept is where the regression line starts from the graph in the positive quadrant. ‘The "b” or the slope is determined by dividing the assigned difference in tive value of "Y" over the assigned difference in the value of "x". Also, using the regression analy’, the values of “a” (ve. fixed costs) and “b” (i.e., variable rate) may be determined by using the least squares method. |MULTIPLE CHOICE QUESTIONS}MULTIPLE CHOICE QUESTIONS} n Cost Concepts, Classification and Segregation Chigiey Choice-letter “b” is incorrect because game theory applies to anticipating the response o reaction of competing companies as price changes, and developing strategies thereafter. Choscs. letter “c* is incorrect because sensitivity analysis relates to predicting the outcome or possible scenario of events’ after considering changes in variables that have an impact on the events Choice-lettet “d” is incorrect because queuing theory is used in finding the number of opting! service lines to be used by comparing the benefits that could be derived from the service bine with the corresponding costs thereof. 43. In determining cost behavior in business, the cost function is often expressed as Y= a + bx Which one of the following cost estimation methods should id} used in estimating fixed anc variable costs for the equation? A. Graphic method. C.__High-and-iow point method. B. Simple regression. 2 Multiple regression. {ema} 43. D A cost estimation method that should not be used in estimating fixed and variable costs. Multiple regression analysis estimates the value of Y in relation with multiple values of "x". This may be mathematically expressed as follows: i B OY a tb +02 +b +. HM, The multiple regression equation involves two or more values of “x” and “b". This runs counter to. the linearity assumption within the relevant range. Multiple regression analysis extends beyond a relevant range and is applied in long-term analysis where costs are not classified as fixed-and variable but rather all costs are classified 2s variable in the long-run. As such, multiple regression analysis cannot be used to determine the fixed and variable component of costs. Choice-letter “a” is incorrect because the graphic method refers to scattergraph, one of the techniques applied in the regression analysis, which could be used in estimating the fixed and variable elements of costs. Choice-letters "b” and “c” are incorrect because they are also methods used in segregating costs into their fixed and variable components. 44. ¥ = PS75,0U0 + P8.50x represents the behavior of maintenance costs (Y} as a function of machine hours (x). Thirty (30) monthly observations were used to develop the foregoing regression equation. The related coefficient of determination was .90. if 2,500 machines hours were worked in one month, the related point estimate of total variable maintenance costs would be: A. P23,000 C. P25,250 AT 21,250 D. Pi9,125 ; (rpcpa) 44. B 2 The related point estimate of total variable maintenance costs, {23 The variabie coefficient is P8.50 and the independent variable “x” is 2,500 hours. The estimated variable maintenance costs is PP21,250 (i.e, PS.S0 x 2,500 hrs.). 45, Ail of the foliowing are assumptions underlying the validity of linear regression output exceptc apter 3 Cost Concepts, Classification and Sep: A. The errors are normally distributed and their mean is zero Be Certainty. The variance cf the errors is constant. ? D. The independent variables are not correlated with each other. {ema} 8 A descriation that is not an assuroption underlying the validity of iinear regression. Using finear regression analysis, several assumptions are used except that certainty cannot be achieved in predicting the future. One reasct, is that regression analysis uses statistical samplir iechriciue that gives allowance for stencard deviation and standard error of estimate. Another is that the ceat environment where the events cist are also affected by variables that may not have been considered in setting the vegressiun equation analysis, Choiec-tetters “a”, “c’, and “d’ ave incorrect because they are several assumptions underlying the validity of near regression such as the errors are normally distributed and their mean is zero, the variance of the errors is constant, and the independent Variables are not correlated with each other. 46. When the relationship between the independent and devendent variable is.got expected to ain constant, an appropriaie method of analysis is “Taster analysis Cuvslinear regression 8. Simple linear regression. Sinvplex linear programmit (cat 46.0 . _ % An appropriate method of anclysis to b= used when the relaticnship between the independent and dependent variabies ic net expected to remain constant, svilinear regression analysis does not use a straight line or linear analysis but rather estimates the value of “Y” in a given range using particular intercept and slope values, and in another given range in the same curvilinear regrassion using c'fferent values of slope, etc. Choice-letter “a” is incorrect because cluster analysis groups variables into their similar atsributes and analyzes the effects of such veriables as a group; this method is not applicable under the circumstance given in the atiestion, Cho'ce letter “b" is incorrect because simple lini regression uses a straight line. Choice-lexicr “d” is incorrect because simplex linear programming is an algorithm for finding optimai so'tions to optimize revenue of minimize costs. 47. An auditor Used regression analysis to evaluate the relationship between utility costs and machine hours, The following inforrnation was developed using a computer software program: intercept 2,950 Regression 825 Correlation coefficient 00 Standard error of the éstimate 200 Numbers of observations 36 What is the expected ut! ‘the company’s 30 machines will use 2,400 hours next month? 4,050 * Cc. P3,970 BO 4,030 D. P3830 (cia) JONS| MULTIPLE CHOICE uesIMULTIPLE CHOICE: QUESTIONS; Cost Concepts, Classification and Se: Chapter 3 a8 2) The expected utility costs next month if total machine hours used will be 2,400 hour LA The estimated utility costs may be determined by tie regression equation avaly.is where ¥ = 2 + bx. If “Y" is the utility costs, “a” is the paint of intercept, "bis the slope of the regression line, and “x” is the number of machine hours, then: Y= 2,050 + 0.825% _ Y = 2,050 + (0.825) 2,400 hrs. = pa,030 48. A division uses a regression in which monthiv advertising expenditures are used to preci monthly product sales {both in millions of pesos), Tie results show a regression coefficient for the independent variable equal to 0.8, This coefficient value indicates that A. The averag* monthiy advertising 2xpenditura in the sample ie 800,000, 8 When monthly advertising is at its average level, product sales wil! be P8C0,000. A. Onaverage, for every additional peso in advertising, sales increase by P.80. D. Advertising is not good previctar of sales because the coefficient isso small (ca) > te Je regression coeificient for the indepencent variable that is equal tc 0.80. . £3 The dependent variable is the sales value and the independent variable is the advertising expense, The coefficient of the advertising expense 1s 0.80 in determining the vaiu2 of sales. Therefore, on average, it indicates that for every peso spent in advertising, sales increase by P0.80. Choice-letter “a” is incorrect because the advertising expense is the basis of estimating sales znd not the one to be estimated. Choice-tetter “b” is incorrect because the amount of average advertising is not given and therefare sales could noi be estimated. Choice-letter “cis incorrect because 2 regression coefficient of the indesendunt variab'e speaks of estimating the vaiue of Y and does not speak of the relationship between the values of “¥” anc "V", which is the one determined by the coefficient of correlation (or rho). 49. Rovic Company is in the process of preparing its budget for the next fiscal year. The company has had problems controlling costs in prior years and has decided to adopt a flexible budgeting system this year. Many of its costs contain both fixed and variable cost components. A method that can be used to separate costs into fixed and variable components is A. Trend analysi C, Dynamic programming 3, Monte Carlo simulation, AE Regression analysis. (cma) 43D . 2 Amethod that can be used to separate costs into fixed and variable components Q Generally, there are two methods used in separating the fixed and variable components of costs ~ the high-low method and thé regression equation znalysts, Under the regression line analysis, there are still two popular techniques that are in use ~ the scattergraph and the least-squares. method.Chapter 3 Cost Convep' Bys 51, Jaséification and Segregation Choice-tetter “2” is incorrect because trend analysis o* time series analysis anticipates the possible outcome of events based on past performances which does not necessarily require the segregation of fixed and variable components of casts. Choice-letter “b” is incorrect because Monte Carle simulation involves adding random numbers io otherwise deterministic medeis te simulite the bncertainty inherent in real-world situations. Choice-letter “c” is incorrect because ic programming fs an appvoach to solving problems, not 2 particular algorithm wiere 4 large rnathematical model into smaller, more manageable pieces in such a way. thet sinaller problems are solved, the resuir is the optimal scivtion to the overall model. Dynamic piugramming is used for prsdiems thet involve probabilistic variables and time-staged duciuions, that is, decisions affected by previous decisions A derision tree with probabilities for sac’. iar ch iPustrates a time-staged decision process that could be evaluated with dynamic oroesam Qvestions SO and 51 are based on the fo'lowing information, The Manso Company derived the rollowing cost relationship from a regression analysis of its monthly manufacturing overhead cost (C= P80,000 + P12 Mi cturing overhead cost The standard error of the estimate of the regression is P6,000, The standard time required to mignufacture ene six-unit case of Manso’s single. product is 4 machine hours. Manso applies merfacturiny overhead to producaon on the basis of machine hours, andi its normal snnual procuction is 50,000 cases. J. Mianso’s estimated variable manifacturny overhead cost for a month in which scheduled cverhead is 5,000 cases wil! be A. P 80,000 c P240,090 8. P22u,006 ©. P360,000 (ema} 2 The estimated variatle manufacturing overhead for 5,000 cases. The variable overhead rate is applied at P12 per machine hour. Four (4) machine hours are needed per case, hence, there are 20,000 estirvated totat mechine hours to be used (ie, 5,000 units x 4 machine nours). The tolai estimated variable manufacturing overhead 15 P240,00C (/.¢., 20,000 MH x P22). Manso’s predetermined fixed manufacturing overhead rate would be A. 1.60 perm: C. P4,00 per machine hour. 8, PLO per mac! D. P4.80 per machine hour. (ema) EO) ‘The predetermined fimed manufacturing overhead per machine hour. IMULTIPLE CHOICE QUESTIONS}» (MULTIPLE CHOICE QUESTIONS} Chapter Cosi Concepts, Classitication and Segr LD Standard fixed manufacturing overhead rate is budgeted fixed overhead divided by normal capacity. The annual budaeted fixed overhead is P250,G00 (i.e., P80,000 x 12 mos.) and the normal capacity in machine hours are 200,000 machine hours (Le., 50,000 cases x 4 machine hours). Therefore, the standard fixed maruiacturing overhead is P4.86 per inachine "our fhe, 960,000/200,000 machine hours}. 52. fo facilitate planning and budgeting, management of a travel service cormpany wents to develop forecasts of monthly sales for the next 74 months” Sased on past date, Management has observed an upward trend in tevei of sales. There ar” also seasonal variations with high sales in june, July, ard August, anc! low sales in January, February, and March. An anpropriace technique for forecasting te comperiy’s sales is Time series analysis, C. Linear programming Queuing Theory. B, Sensitivity anaiysis. (cai 52. A 2 Anappropt -hniniue for forecasting the company's sales. 1 Time series analysis predic:s the outcome of varisble “Y’ (e.g., seles) in relation to time {i.e,, the representation of variable “x"}. The seasonal variations {e.g secular trend) are averaged ‘overtime to use a predictabie coctficient ove? a longer length of time, Choice-letter “a” is ingorrect vecause queuing theory is used to dete:rm number of service lines to b2 provided with the least costs of waiting and servicing Choice-letter “c’ is incorrect becuse linear programming optimizes the objective functions given the resource constraints. Choice-letter “a” is incorrect because sensitivity arralysis predicts the effects of the changes in one of more variabies included in a decision model 53. Whatare the four components of a time series? AC Trend, cycheal, seasonal, and irregular, —C._—_Aphe, cyclical, seasonal, and repetitive, 8. Alpha, cyclical, seasonal, and irregular, 0. ind, cyclical, seasonal, and repetitive. 53. A ? © The four components of a time series. {D3 Time series or trend analysis predicts the future by using adjusted past data. The past data are adjusted by factors such as secular trend, cyclical fluctations, seasonal variations, and irregular or random vorlations. Secular trend refers to the long-term change that may affect the past series of events. Cyclical fluctuations refer to economic cycle (ie, prosperity, recession, depression, and. recovery) and business life-cycle - (i infancy, growth, expansion, and maturity/decline) that are normally beyond the control of managers but have to be considered in planning because of there great effects. Seasonal variations refer to short-term changes in sales patterns due to regular business practices, customs in the place, traditions, and similar factors affecting buying habits. A seasonal index may be used to reflect seasonal variations. irregular or random variations refer to possibitities that are also to be included in the planning activities, particularly in ‘the time series analysis, because of their possibility of occurrence. Examples of irregular variations are natural calamities, strikes, fire, etc.‘ Choice-letters “b"; “c’, and “d” are incorrect because they include alpha. and repetitive variations which are not part of the four components of time series.82 hapter 3 Cost Concepts, Classification and Segregation. 54, The four components of time series data are secular trend, cyclical variation, seasonally, and random variation, The seasonality in the data can be removed by ‘A. Multiplying the data by a seasonality facter B. Ignoring it. Le Taking the wei D. Subtracting a seas ted average over tour time periods lly factor from the data, (ema) 54.¢ ‘The means |.y which seasonality can be removed in the time series data, Seasonal variations reflect the changes in estimated data due to regular facters such as attitudes, practices, customs, traditions, cultures, etc. that ought to be included in the time series analysts This variation may be removed by getting the weighted average over several business period not only ina particular business period. Choice-tetters “a” and “d” are incorrect because multiplying or subtracting the data by a seasonality factor means adjusting for, not removing, seasonality factor. Choice-letter “b” is incorrect seascnal variations cannot be ignored; they. are included in the data and should be considered fer @ forecasting model to be accurate. 55. An internal auditor for a large automotive parts retailer wishes to perform a risk analysis and wants to use an appropriate statistical toc! to help identify stores that are a! variance with the majority of stores. The most appropriate statistical toa! to use would be A. Linear time series analysis. AO Cross-sectional regression analvsis Cross tabulation with chi square analysis of significance. D. Time series muitiple regression analysis to identify changes in individual stores over time. (cia) 55. B 2 The most appropriate statistical tool to identify stores that ere at variance with the majo ty of stores. (0 Choice-letter “b” is correct. Cross rectional regression analysis refers to the method of using past deta in estimating the future performance of an entity by incorporating other entities’ data, This rnethad Is the most appropriate to be used wider the circumstance because it compares attributes of a store’s operating statistics with other stoves at a given time, Choice-letter “a” is incorrect because it compares data of an entity from one time to another, Cheice-letter “c” is incorrect because cross tabulations have to have a model for expectations to be useful, of which model is not giver: in the situation. Choice-letter “d” is incorrect because multiple regression analysis does not compare one store with another but ‘compares the performance of an individual store over a period of time. 56. ‘The moving-average method of forecasting A ea cresesedhional forecasting method. tL B._Regresses the variable of interest on a related variaie to develop a forecast ©. Derives final forecasts by adjusting the initial forecasts based on the smoothing constant. IMULTIPLE CHOICE QUESTIONS!|MULTIPLE CHOICE QUESTIONS} ation and Segregation Chapter a 3 Cost Concepts, Class AZ tocludes each new observation in the average 25 1 becomes available and discard the oldest includes . cia} observation. 56. D ; 2 Atrue description about moving-average methed of forecasting. a rr Sverage method of forecasting determines the new average coefficient if a new observation becomes available and in te process discards the oldest observation, hence, choice- letter “d” is correct. ‘ Choice-letter “a” is incorrect because cross-sectional forecasting method determines th: value of a future event by comparing an items with all the items in the observation and determines its relationship. Choice-letter “b” is incorrect because moving-overage method is not only interested on the relationship of variables but on the availability of variables as it comes into observation. Choice-letter “c” is incorrect because smoothing constant is used when there is a material change on the observed data that may render the averaging irrelevant. 57. Asa part of a risk analysis, an auditor wishes to forecast the percentage growth in next month’ sales for a particular plant using the past 30 Months sales results. Significant changes in the organization affecting saies volumes were made within the last 9 months. The most effective analysis technique to usé would be . A. Unweighted moving average. Queuing theory. 2” Exponential smoothing. D. Linear regression analysis, {cia} 57.8 ? The most effective analysis technique to use in forecasting the percentage growth in next month’s sales given = significant change in sales volume in the last 9 r-onths. €2 Exponential smoothing considers significant changes in the behavior and environment of variables affecting a particular outcome, choice-ietter “b” is correct. Choice-letter “a” is incorrect because unweighted moving average does not consider the changes in variables affecting a particular outcome but simply anticinrtes future outcome but considering each variable in their nominal relationship. Choice-letter ‘c’, queuing theory, i Incorrect because it af plies to analyzing the effects of reducing the cost of waiting in a line with the cost of providing added service line to reduce the cost of delay in a queue. Choice-tetter “d’ is incorrect because linear regression analysis applies to a relationship of variables of “x’ and.“y’ in their most expected behavior considering their several relational observations. Scattergraph 58, Quality control program empioys many tools for problem definition and anaiysis, A-scatte diagram is one of these tools. The ob, ctive of a scatter diagram is to x Display a population of items for analysis. 8. Show frequency distribution in graphic form. C. Divide a universe of data into homogeneous groups. D. Show the vital trend and separate trivial items, 58. A 2 The objective of a scatter diagram. ia)- - _ Chapter Cost Concepts, Classification and Segregation a4 Scatter diagram is used to determine, by visual fi . the relationship of two variables in 3 graph The telationship of the variables may be positive, negative, of there may be. x0 correlation at all Choice-lette: “a” is correct because in scatter graph the population is displayed for analysis, Choice-lecter “b” is incorrect because the objective of scatter graph 1s to show frequency distribution in graphic form but not te determine the relationship of the variables in the graph Choice-letter “c" is Incorrect because dividing date into homogenous groups is not a concern af scatter graph but more on the relationship of variables in the graph, Choice-letter “d” & incorrect because scatter graph is not only used! to display vital trends but is concerned first with the analysis of data to determine the existence or non-existence of trends and analyze the degree of relationshin between variables. 59. The management of an airline is interested in the relationship between maintenance cost and the level of operations of its aircraft. Using regression anelysis on cost activity data collected over 12 months, the relationship below was estimated, ace 1,008 2,006 3,090 4,000 ‘The estimated increase in the- monthly malatenance cost each additional hour of operation ts PASC per hour. C. Pa50 per hour. 8. P30 per hour. D. P8S0 per hour (cia) BA 2 The variable rate of maintenance cdst per hour. (2 Variable cost per hour is determined as follows: VeRate = AinCosts/Ainhours = (Ye 4) / 0%) if Y, = P1,000,00C “ Y, = P 850,000 X= 2,000hrs. % = 1,000 hrs. Then: VCR (P1,000,000 ~ P850,060) / (2,000 - 1,000) VcR = P150,000/ 1,000 = p7sQ/hr. Least-squares method ‘Questions 60 through 63 are based on the following information. Below is an examination of last ‘year’s financial statements of Mackenzie Park Co., which manufactures and calls trivets. Labor [MULTIPLE CHOICE QUESTIONS}IMULTIPLE CHOICE QUESTIONS! sification and Segregation Chapter 3 85 Cost Concepts, Cla hours and production cost for, the last 4 months of the years, which are representative for the year, were as follows: Total f Month Labor Hours Production Costs e September 2,500 P 20,000 Gctober 3,500 25,000 November 4,500 30,000 December 3,500 _25,000 Totals 14,000 100,000 Based upon the information given using the least squares method of computation with letters listed below, select the best answer for each question IF: a = Fixed variable cost per month Variable production cost per labor hour Number of months Labor hours per month y = Tetal monthly production costs ¥ = Summation 60. The equation(s) required for applying the least squares method of computation of fixed and variable production costs can be expressed as AL Exysax+bEx’ CY sath EY = na+b3x’ 8. na + bx (Be Uh sabes box YY = na +bEx : (aicpa) 60. 0 2 The equations required for applying the least squares method. GD in applying the least squares method to segregate the fied (ie., “a”) and, variadle (ie., “b"), components in the regression line equation Y = a + bx, the following equations are to be used: ‘ By = na +bEx ExY = alx+ bE? 61. Thecastiunctign derived by the simple least squares method Ze ssilinear B. Must be tested for minima and maxima. CC. ts parabolic. : D. Indicates maximum costs at the function's point of inflection. ~ tai¢pa) 61. A 2 Adescription of the cost function derived by the simple least squares method. D Choice-letter “a” is correct because the !cast squares method is based on ‘the simple regression equation, Y= a + bx, where it depicts a straight line, and is therefore, linear, Choice-letter “b” is incorrect bacause minima and maxima testing refers to standard deviation and does not directly telate to the function of the equation itself. Choice-letter “c” is incorrect because the least squares method relates to straight ine and not to a parabola. Choice-letter “a” is incorrect because, essentialy, the regression is infinite and therefore has co maximum point of costs.-_ Chapter 3 Cost Concepis, Classffication and Segregation 86 62, Monthly preduction cost can be expressed AL yeaxth. C. y=b+ax pi cysathx: D. y= Za+bx (aicpa) o.B ~) Amatiematical expression of a monthly production cost. (D Monihiy production costs equal the sum of fixed costs and variable costs. If “a” is fixed costs and “px’ as the total variable costs fi.e., unit variable cost * units sold), ther, total costs (ie., ¥}, shat! be’ Y= 3+be 63. Using the lesst-squares method 07 computation the fixed monthly production cost of trivets is approximately A. PI00,900 cP 7,500 eB. P 25.000 D. 20,006 (aicpa) 63. C cs 2. The fixed monthty production cost of trivets. 12 The fixed production cost is assumed to be constant. ‘Using the least squares method, the values of DX, EY, SYY, and Dx? are to be determined as shown below (X=labor hours, Y-costs): x y xy x ~ 2,500 920,G00 —P $6,000,000 6,250,000 3500 25,000 87,500,000 12,250,000 500 30,000 135,000,000 20,250,000 3500 _ 25,000 ~_87,500,000 _12,250,000 ‘= 44,000. 100,000 360,000,000 £2.000,004 Using the least squares equations, and since n= 4, we have: BY = na+bEx. = 100,000 = 4a +b14,0000 ZXY = abk+bExt 360,000,000 = 14,900a + b51,000,000 To solve for “b", let us eliminate “a” by making the coefficient of “a” in the first equation equal to the nogstive of the coefficient of “a” in the second equation. To do it, we have to multiply the first equation by negative 3,500.L., 14,900/4), and it will result as follows { 100,000 4a 4p 14,0000 } -3,500 360,000,000 = 14,00" + 51,000,000 350,002 “14,0002. ~ b49,000,000 10,000,000 + b 2,000,900 b 10,906, 000 / 2,000,000 6 ai | By substituting the value of “b” (ie.. variable cost rate) in the first equation, then, the value of “a” | is determined as: < Viz + 100,000 = 4a + 14,0000 | then: 200,000 ="4a+(5)14,000 [MULTIPLE CHOICE QUESTIONS}Cost Concepts. Classification anu! Segregation Chapter 4 100,000 = 4a + 70,000 43 = 100,000 - 70,060 a = 2500 (velue of fixed cost} Coefficient of determination and coefficient of correlation 54. tn regression analysis, the coefficient of determination is a measure of -*C The amount of variation in the dependent variable explained by the indepencert 8. The amount of variation in the dependent variable vasiables. é C. The slope of the regression line. D. The predicted value of tie independent variable. Description of the coefficient of determination. “2! is correst, coefficient of determination is coefficient of cerretstion squared (r}. it measures the proportion of the-variance of the dependent variatle expiained by the independent variable Choice-lotter "b” is incorrect because coefficlent of determination measures t = Fnount of é variation in the dependent varicble as explained, not unexplained, by the independent variable. 2 Cho'ce-ietter “c” is incorrect because the stone of the regression iine is the variable cost rate (i.e, 3 “p']. Choice-tetter “a” is incorrect because the predicted value of the independe=t variable is not s ~ measured by the coefficient of determination. 8 § 65. If the coefficient of correlation between two variables is Zero, how might a scatter diagram of z these variables appear? = 5 AO Random points. g B.A least squares line that siopes up to the right C. Aleast squares line that slopes down to the right. _ DL. Under these conditions, a scatter diagram could not be ploited on a graph (eicpa} 65. A 2 The appearance of variables on @ scatter dizgrarr if the coefficient of correlation between vaiiables is > C1) if the ccefficient of correlation betwzen two veriables ic z2rc, then the plotted oservations on the scatter graph would net show a relevant trend ef correlation between the two variables, hence at random points. Choice-letter “a” is therefcre correct. Choice Jetter “b” is incorrect because the regression line that slopes up te the right indicates a cositive correlation. Choice-letter "c” is incorrect because the regression line that stopes down to the right depicts a negative correlation, Choice-ietter “3 is incorrect because @ scatter diagram could stil be pictied on a graph although random in nature. 66. Using regression analysis, Fairfields Co. graphed the following relationship of its cheapest product line's saies with its customers’ income ievels:Chapter 3 Cost Concepts, Classification and Segregation 88 Sales iP) t . bes 9 Income levels Increasing Ii there is 2 strong statistical relatiorship between the sales and customers’ income levels, which of the fullowing numbers best represent the corvelation coefficient for this relationship? A, 9.00 C. 40.93 8, 0.93 D. 49.00 (aicpa) 65. 8 S The number that best represents the correlation coefficient as shown on the given graph. iG The giaph shows a strong negative statistical relationship between variables X and Y, and choice- totter "b” ig the best answer. Choice-tetter “a” is Incorrect because the coefficient of correlation id be within the range ~.00 to #1.09, and since choice-letter “a” is greater than =1.00, then are not correct answers because the sh it is not a possiblé answer. Choice-lettars “c” and “d” cient of correlation must be negative and not positive, coe 67. Using the graph below, the coefficient of correlation between direct materials cost and units produced is nearest Direct Mat jan —— 0 Units of production. The nearest description of the coefficient of correlation between direct materials and units produced is: AL 0.75 c 00 : B, 0.50 D. 100 (cia) 67.0 2 The nearest description of the coefficient of correlation between direct materials and units produced. {0 Choice letter “d” is the best possible answer because the graph depicts a very strong positive Statistica! relationship between the units of production and cost of direct materials used. Choice Tetter “a” is incorrect because the graph depicts a direct, positive relationship and not an inverse [MULTIPLE CHOICE QUESTIONS}CHOICE QUESTIONS) (MULTIPLE 63, i 69. 70. n and Segregation Chapter 3 Cost Concepts, Classtfice ig incorrect because between 0.50 and 1.00, the betier relationship of the variables on the graph Choice ‘correlation, is incorrect because there is ap id units ot productio: negative relationship. Choice-letter “b” choice is 1.00 with regard to the trend ani letter “c", where r= 0, which means there is NOT apparent relationship between direct materials costs 3 Correlation is a term frequently used in conjunction with regression analysts and !s measured by the value of the coefficient of correlation, ". The best explanation of the value “r” 1s that t A. Interprets variances in terms of the independent variable &. - Ranges in size frém negative infinity to p infinity. C 1s.a measure of the relative relationship between two veriables B.'s positive only for downward-sloping regression lines. (cma) An explanation of the value of “r’. Choice-levter “ce” is correct, coefficient of correlation {'1”) measures the relaticnshio between two variables. The relationship may be positive, negative, or no correlation at all. Choice-letter °3" |s incorrect because interpretation of the variances in terms of independent variable fs covered within the scope of analysis of variations anc hypothes's testing. Choice-letter “b” is incorrect because thé coefficient of variation ranges from ~1.00 to +1.00. Choice-letter “a” is incorrect because 2 downward-sloping regression line depicts a negative relationship between two variables. in regression analysis, which of the following correlation coefficients represents the strongert relationship between the indenendent and dependent variable? AL 1.03 C89 r 8. 02 : b. 75 (ca) c 2 ‘The one that represents the strongest relationship between the independent and dependent variables. : Choice-letter “c’ is the best answer because it represents the strongest relationship between the independent and dependent variables. Choice-letter “a” Is definitely incorrect because its beyond the possible range of coefficient of Correiation from -1.09 to +1.09. Choice-letter “b” incorrect because it shows 2 very week, almost nil, relationship between two variables. Choice” etter “a” is incorrect because .75 represents. relationship that is lower than the relationship represented by choice-letter “c" i" The auditor of 2 bank has developed @ multiple regression mocet that has been used for @ number of years to estimate the amount of interest income from commercial loans. During te ‘current year, the auditor applies the model and discovers that the he has decreased dramatically, but the rodel otherwise seéms to be working well son is justified DY qemedet cco Pees ¥é Well. Which conctusion is justi A. Changing to 2 cross-sectional regression analysis should cause r? a Ts i B, Regression analysis iS no longer an appropriate eeu to nae ta sat £-Some new factors; natincluded in the model are causing terest income to changeChapter 3 Cost Concepts, Classification and Segregation 90 70. 2 D. Alinear regression analysis would increase the model's reliabili (cia) i The implication of the decrease in r*, G2 The coefficient of determination (r’) measures the variation in the dependent variable (i.e., 71. 71. 2 interest income) thet is explained by the independent variables. Since the model explains less of the change in interest income, some other factor must be causing interest.income to change, choice-letter "c" is correct. Choice-letter “a” is incorrect because cross-sectional regression analysis is inappropriate. Choice-letter “b" is incorrect because regression analysis is still an appropriate technique in estimating interest income. Choice-letter “d” is incorrect because the auditor should seaich for a more appropriate model in anticipating variations in interest income that may not be reliably estimated by the simple linear regression analysis. ‘An auditor asks accounting personnel how they determine the value of the organization's real estate holdings. They say that valuations are based on a regression model that uses 17 ifferent —haracteristics of the properties (square footage, proximity to dawntuwn, age, etc.) to predict value. The coefficients of this model were estimated using a random sample of 20 company properties, for which the model produced an r” value of 0.92, Based on this information, which ‘one of the following should the auditor conciude. AC The model's high probably is due in large part to random chance. B. 52% of the variable that determine value ‘the model. C. Tne model is very reliable. D. This sample of properties is probably representative of the overail population of company holdings. (cia) LA A true statement about a regression model. £2 Choice-letter “a’ is the best answer since regression analysis is a statistical technique that uses sampling in measuring the pattern end possible outcome of a particular chenomenon. Had the random of the properties used been different, the model's r” may have been different. Choice-letter “b” Is incorrect because the value of the r, 0.92, does not indicate the number of variables included in the model that are determinarive of its value. Choice-letter “c” is incorrect because the mode! has too many predictors for a small sample size, and does not speak well of reliability. Choice-letter “d” is incorrect because result of a sampling exercise should still be verified by doing an analysis using a different set of semples before conclusions are to be drawn. 72. A firm regressed overhead on units produced over the past year and found a coefficient of determination equal to 0.85 with a U-shaped residual error pattern, itis reasonable to conclude that the relationship between overhead and units produced is A. Weak. “© Nonlinear B. Causal. : D. Linear. 72.€ [MULTIPLE CHOICE QUESTIONS}MULTIPLE CHOICE QUEBIONS) a Cost Concepts, Classification and Segregation Chapters 2 Adescription of the relationship between overhead and units produced. BP Choice-letter “c’ is correct because the residual error pattern is U-shaped. The residual error pattern consists of the plots of the estimates of the error terin in the linear regression equation Choice-letter “a” is incorrect because the relationship between ‘overhead and units produced is strong, not weak, as evidenced by the 0.85 value of coefficient of determination. Choice-letter ter ie ineorract besalise’ regression line mode! measures the relationship between two variables byt it does not establish causal relationship. Choice-letter “d” is Incorrect because a U-shaped residual error pattern indicates a nonlinear relationship. sou/ 3, Using the method of least squares, the variable rate for utili icepts, Classification and Segregation 2 TOPICAL QUIZZER INSTRUCTIONS: Choose the-letter of your best answer. This quiz is good for 20 minutes. Good luck. ore 4. Which of the following best describes an opportunity cost? ‘A. itis usually relevant, but is not part of the traditional accounting records. 8. Itis usually not relevant, but is part of the traditional accounting records. C. itis usually relevant, and is part of the traditional accounting records. D. Itis usually nor relevant, and is not part of the traditional accounting records. The term “standard costs” refers to A. “manufacturing costs incurred to produce units of output. 8. ali costs associates with manufacturing other than direct labor costs and raw material costs. C. costs that are predetermined and should be attained. 1D. the sum of raw material costs and direct labor costs. Use the following information to answer questions 3 and.4: Month Meals served __~- Utilities costs December 55 401.00 January 30 360,00 February 25 347,50 March 40 385.50 April 60 P414.00 s costs per meal served is, A. P90 C. P2.00. B. P180 D. P3,00 4, Using the methed of least squares, the fixed cost is .- P200, G. P306 8. P331 D. P303. 5. Of most reievance in deciding how indirect costs shouls be assigned to products is the degree of A, causality C. avoidat Bo linea D. controllability. Those costs referred to as “capacity costs” ar eoeene ate that management decides to inct nthe current period to enable the company to cchieve objectives other than the filing ¢ rders placed by customer. ; 5 Coste that are likely to respond to the : »zunt of-attention devoted to them by specified i ¢, San et providing the capability to operate at 2 particuiar volume for’ such activities as : ing, sales and research. ; p. se eeuagunts in total Fespionse to Small changes in the rate of utilzation of capacity. 7 Simple regression differs from multiple regression in that [ropIcAL QUIZZER!98 10. 1. 12 Costs Concepts, Classification and Segregation Chapter 3 A. Simple regression uses only one dependent variable and multiple regression uses more than one dependent variable. B, Simple regression is limited to the use of only the independent va! regression can use both dependent and independent variables. C. Multiple regression uses all available data to estimate the cost function whereas simple regression only uses simple data D. Simple regression uses only one independent variable and multiple regression uses more than one independent variable, (rpepa} and multiple Which of the following employees of a boutique hgtel would be classified as direct labor? ‘A. Hotel supervisor. C. Sales representative. B. Hotel security guard. D. Plant supervisor.* Which of the following topics is of more concein to management accounting than to cost accounting? ‘A. generally accepted accounting principles. BI inventory valuation. C. cost of goods sold valuation. D. impact of economic conditions on company operations. * Which of the following is not a characteristic of product cost? A. Product costs include costs of the factors of production identified with the product. 8. Product costs do not include any fixed cost. C. Product costs are expensed when the product is sold. D. Product costs include direct materials, direct labor, and factory overhead. * Which of the following best describes an opportunity cost? ‘A. Itts usually relevant, But is not part of the traditional accounting records. B. itis usually not relevant, but is part of the traditional accounting records. C. Itis usually relevant, and is part of the traditional accounting records. 1D. itis usually nor relevant, and is not part of the traditional accounting records. * Which one of the following is a cost that would not likely be associated with computer-integrated manufacturing? ‘A. Manufacturing overhead associated with allocation of equipment depreciation. §. Direct labor costs of @ welder on the production floor. € Manufacturing overhead associated with allocation of the plant lease to the latest production run. D. Direct materials cost with several fuse plates for a naw automobile.* [As production manager, Mr. 8 is asked to track the manufacturing cost per unit on the factory floor, Total manufacturing costs were P100,000 before considering factory maintenance salaries of P12,000 and P50,000 of factory depreciation. How much is the calculation of manufacturing cost per unit if 500 units had been produced in the current quarter? A, 224. - +, P20 B. P300. fe *p. p324,* Which one of the following is an example of a period cost?.Chapter 3 Cosis Concepts, Classification and Segregation 94 A. A change in benefits for the union workers who work in the New York plant of a Fortune 1000 manufacturer, 8. Workers’ compensation insurance on factory workers wages allocated to the factory. C.. Aprocessor used to produce computers. D. Amanager’s salary for work performed in the corporate head office. * 15. For what reason is product cost primarily tracked? To keep up with current cost trends to bring products to market. 70 effectively allocate the cost of products ta measure profitabil Yo determine what amounts are necessary for allocating overhead. 10 keep management's bonuses increasing every year. * A. 8. o adapted Thank you for taking the quizzer! A@% Suggested Letter-Answers P St ‘ave ‘Get “ACE ‘VE ‘BOL ‘a6 "va ‘GL ‘39 °VS "DF 'BE “IZ VE TOPICAL QUIZZER!