ACTIVITY COST AND COST ANALYSIS 7.

7. A cost that remains constant on a per unit basis in a given period despite changes in the
level of activity should be considered a(an):
THEORIES: A. variable cost. C. fixed cost.
B. prime cost. D. overhead cost.
1. Cost behavior analysis is a study of how a firm's costs
A. relate to competitors' costs. 8. Malayan Company’s average cost per unit is the same at all levels of volume.
B. relate to general price level changes. Which of the following is true?
C. respond to changes in activity levels within the company. A. MALAYAN must have only variable costs.
D. respond to changes in the gross national product. B. MALAYAN must have only fixed costs.
C. MALAYAN must have some fixed costs and some variable costs.
2. The term “relevant range” as used in cost accounting means the range over which D. MALAYAN’s cost structure cannot be determined from this information.
A. costs may fluctuate C. production may vary
B. cost relationships are valid D. relevant costs are incurred 9. Depreciation expense based on the number of units produced is classified as what
type of cost?
3. Most operating decisions by management focus on a narrow range of activity which is A. Out-of-pocket cost. C. Variable cost.
called the: B. Marginal cost. D. Fixed cost.
A. relevant range of production. C. optimal level of production.
B. strategic level of production. D. tactical operating level of 10. When production increases, variable manufacturing costs react in which of the following
production. ways?
A. B. C. D.
4. An item or event that has a cause-effect relationship with the incurrence of a variable cost Unit variable cost decreases remains same remains same increases
is called a Total variable cost decreases Increases decreases Increases
A. mixed cost. C. direct cost.
B. predictor. D. cost driver. 11. When the number of units manufactured increases, the most significant change in
unit cost will be reflected as a(n)
5. If a predetermined overhead rate is not employed and the volume of production is A. increase in the fixed element. C. increase in the mixed element.
increased over the level planned, the cost per unit would be expected to B. decrease in the variable element. D. decrease in the fixed element.
A. Decrease for fixed costs and remain unchanged for variable costs.
B. Remain unchanged for fixed costs and increase for variable costs. 12. As volume increases,
C. Decrease for fixed costs and increase for variable costs. A. total fixed costs remain constant and per-unit fixed costs increase.
D. Increase for fixed costs and increase for variable costs. B. total fixed costs remain constant and per-unit fixed costs decrease.
C. total fixed costs remain constant and per-unit fixed costs remain constant.
6. Which of the following describes the behavior of the variable cost per unit? Variable cost: D. total fixed costs increase and per-unit fixed costs increase.
A. Varies in increasing proportion with changes in the activity level.
B. Varies in increasing proportion with changes in the activity level. 13. Which of the following best describes a fixed cost?
C. Remains constant with changes in the activity level. A. It may change in total when such change is unrelated to changes in production.
D. Varies in direct proportion with the activity level. B. It may change in total when such change is related to changes in production.
C. It is constant per unit of change in production.
 D. It may change in total when such change depends on production within the relevant C. the firm is very unprofitable.
range. D. the firm has very high fixed costs.

14. If activity increases, which of the following statements about cost behavior is true? 20. Management is considering replacing its existing sales commission compensation
A. Fixed cost per unit will increase C. Fixed cost per unit will decrease plan with a fixed salary plan. If the change is adopted, the company’s
B. Variable cost per unit will increase D. Variable cost per unit will A. Breakeven point must increase. C. Operating leverage must increase.
decrease B. Margin of safety must decrease. D. Profit must increase.

15. An increase in the activity level within the relevant range results in: 21. The indifference point is the level of volume at which a company
A. an increase in fixed cost per unit. A. earns the same profit under different operating scheme.
B. a proportionate increase in total fixed costs. B. earns no profit.
C. an unchanged fixed cost per unit. C. earns its target profit.
D. a decrease in fixed cost per unit. D. any of the above.

16. A cost that remains constant in total but varies on a per-unit basis with changes in activity 22. Operating leverage is the relative mix of
is called a(n) A. revenues earned and manufacturing costs
A. expired cost. C. variable cost. B. fixed and variable costs.
B. fixed cost. D. mixed cost. C. high-volume and low-volume products.
D. manufacturing costs and period costs.
17. Which of the following statements regarding fixed costs is incorrect?
A. Expressing fixed costs on a per unit basis usually is the best approach for decision- 23. The increased use of automation and less use of the work force in companies has
making process. caused a trend towards an increase in
B. Fixed costs expressed on a per unit basis will react inversely with changes in activity. A. both variable and fixed costs.
C. Assumptions by accountants regarding the behavior of fixed costs rest heavily on the B. fixed costs and a decrease in variable costs.
concept of the relevant range. C. variable costs and a decrease in fixed costs.
D. Fixed costs frequently represent long-term investments in property, plant, and D. variable costs and no change in fixed costs.
equipment.
24. If fixed costs decrease while variable cost per unit remains constant, the
18. Lamang Company changed its cost structure by increasing fixed costs and contribution margin will be
decreasing its per-unit variable costs. The change: A. Unchanged C. Higher
A. Increases risk and increases potential profit. B. Lower D. Indeterminate
B. Increases risk and decreases potential profit.
C. Decreases risk and decreases potential profit. 25. Costs that increase as the volume of activity decreases within the relevant range are
D. Decreases risk and increases potential profit. A. Average cost per unit. C. Total fixed costs.
B. Average variable cost per unit. D. Total variable costs.
19. A management’s preference for a very low degree of operating leverage might indicate
that: 26. Which costs will change with an increase in activity within the relevant range?
A. an increase in sales volume is expected. A. Total fixed costs and total variable cost.
B. a decrease in sales volume is expected. B. Per unit fixed costs and total variable cost.
 C. Per unit variable cost and per unit fixed cost. C. ignores much of the available data by concentrating on only the extreme
D. Per unit fixed cost and total fixed cost. points.
D. does not provide reasonable estimates.
27. Which of the following best describes the relationship between fixed costs per unit
and variable costs per unit, as total volume increases? 34. The high-low method may give unsatisfactory results if
A. Fixed cost per unit stays the same and variable cost per unit stays the same. A. the data points all fall on a line. C. the points are not representative.
B. Fixed cost per unit stays the same and variable cost per unit increases. B. volume of activity is heavy. D. volume of activity is light.
C. Fixed cost per unit increases and variable cost per unit increases.
D. Fixed cost per unit decreases and variable cost per unit stays the same. 35. The equation(s) required for applying the least squares method in the computation
of fixed and variable production costs could be expressed as
28. Within the relevant range, the difference between variable costs and fixed costs is: A. xy = ax + b x2 C.  y = na + b x
A. variable costs per unit fluctuate and fixed cost per unit remains constant. B. y = a + bx2 D. xy = ax + b x2
B. variable cost per unit is constant and fixed cost per unit fluctuates. xy = na + b x y = na + bx
C. both total variable cost and total fixed cost are constant.
D. both total variable cost and total fixed cost fluctuate. 36. Weaknesses of the high-low method include all of the following except
A. Only two observations are used to develop the cost function.
29. The learning curve in cost estimation is a good example of: B. The high and low activity levels may not be representative.
A. non-linear cost behavior. C. simple regression. C. the method does not detect if the cost behavior is nonlinear.
B. machine-intensive production. D. a random variable. D. the mathematical calculations are relatively complex.
30. Cost estimation is the process of 37. Which of the following methods estimates costs by identifying costs as variable or
A. estimating the relationship between costs and the cost drivers that cause fixed based on qualitative analysis?
those costs. A. Regression analysis C. Engineering method
B. documenting costs in terms of direct and indirect costs. B. Account analysis D. High-low method
C. summarizing past costs into fixed and variable components.
D. all of the above. 38. Account analysis as compared to the engineering method
A. relies on past data.
31. Which of the following methods is used to estimate costs? B. relies on present and future data.
A. Account analysis C. Engineering method C. measures the work involved in the activities that go into a product.
B. High-low method D. All of the above D. a and c.
32. For analysis purposes, the high-low method usually produces a(n) 39. Which of the following methods may be used to estimate costs by using time-and-
A. reasonable estimate. C. overstated estimate. motion studies to approximate labor time?
B. precise estimate. D. understated estimate. A. Regression analysis C. Engineering method
B. Account analysis D. High-low method
33. The high-low method is criticized because it
A. is not a graphical method. 40. The cost estimation method that gives the most mathematically precise cost
B. is a mathematical method. prediction equation is
A. the high-low method C. the scatter-diagram method
 B. the contribution margin method D. regression analysis C. can be used only for costs that vary with sales of production.
D. could be severely affected by outliers.
41. Regression analysis is better than the high-low method of cost estimation because
regression analysis: 47. In the cost equation TC = F + VX, the X term is:
A. is more mathematical. C. fits its data into a A. total fixed costs. C. unit variable cost.
mathematical equation. B. total variable costs. D. activity units.
B. uses all the data points, not just two. D. takes more time to do.
48. Which of the following methods would be best for estimating costs for totally new
42. In regression analysis, what does the variable "X" stand for in the model activities?
Y = a + bX + e? A. Engineering method C. Scattergraph method
A. The amount of the dependent variable, the cost to be estimated. B. Account analysis method D. High-Low method
B. The regression error, which is the distance between the regression line and the data
point. 49. The engineering method of estimating costs:
C. The value for the independent variable, the cost driver for the cost to be estimated; A. can be used to estimate costs for totally new activities.
there may be one or more cost drivers. B. can detail each step required to perform an operation.
D. The unit variable cost, also called the coefficient of the independent variable. C. sometimes can be quite expensive to use.
D. all of the above are true.
43. Simple regression is
A. a regression equation with more than one independent variable. 50. The correlation coefficient or R-squared (R2) is interpreted as:
B. a regression equation with more than one dependent variable. A. the minimum distance between the regression line and a single data point.
C. a regression equation with more than one independent and dependent variables. B. the measure of the linear relationship between two or more variables.
D. a regression that considers all unknown factors. C. a determination of whether the data point is considered to be an "outlier."
D. the proportion of the variation in the dependent variable explained by the independent
44. Regression shows variable.
A. the proportion of the variation of dependent variable explained by dependent
variables. 51. The closeness of the relationship between the cost and the activity is called
B. the proportion of the variation of independent variable explained by the independent A. correlation C. spurious
variables. B. regression analysis D. manufacturing overhead
C. the proportion of the variation of dependent variable explained by the independent
variables. 52. R-squared is a measure of
D. none of the above. A. the spurious relationship between cost and activity
B. the fixed cost component
45. In the method of least squares, the deviation is the difference between the C. the variable cost per unit of activity
A. predicted and estimated costs. C. predicted and average costs. D. how well the regression line accounts for the changes in the dependent variable
B. predicted and actual costs.D. average and actual costs.
53. The principal advantage of the scatter-diagram method over the high-low method
46. A cost-predicting equation determined through regression analysis of cost estimation is that the scatter-diagram method
A. always gives close predictions. A. includes cost outside the relevant range.
B. will not work any better than one obtained using the high-low method. B. considers more than two points.
 C. can be used with more types of costs than the high-low method. units. Each unit requires five minutes of direct labor. Harem Company’s budgeted overhead for the
D. gives a precise mathematical fit of the points to the line. month is
A. P 12,800C. P 84,800
54. The major objective of preparing a scatter-diagram is to B. P 18,800D. P774,000
A. develop an equation to predict future costs.
B. perform regression analysis on the results. iii
. Total production costs for Jordan, Inc. are budgeted at P2,300,000 and P2,800,000 for
C. determine the relevant range. 50,000 and 60,000 units of budgeted output, respectively. Because of the need for additional
D. find the high and low points to use for the high-low method of estimating costs. facilities, budgeted fixed costs for 60,000 units are 25 percent more than budgeted fixed costs for
50,000 units. How much is Jordan’s budgeted variable cost per unit of output?
55. Advantages of the method of least squares over the high-low method include all of A. P 7.50 C. P30.00
the following except B. P16.00 D. P62.50
A. a statistical method is used to mathematically derive the cost function
B. only two points are used to develop the cost function iv
. Deakin Company is preparing a flexible budget for the coming year and the following
C. the squared differences between actual observations and the line (cost function) are maximum capacity estimates for Department OZ are available:
minimized Direct labor hours 60,000
D. all the observations have an effect on the cost function Variable factory overhead P150,000
Fixed factory overhead P240,000
56. The scatter diagram method of cost estimation Assume that Deakin’s normal capacity is 80% of maximum capacity. What would be the total
A. is influenced by extreme observations factory overhead rate, based on direct labors, in a flexible budget at normal capacity?
B. requires the use of judgment A. P6.00 C. P6.50
C. uses the least-squares method B. P7.50 D. P8.13
D. is superior to other methods in its ability to distinguish between discretionary and
committed fixed costs v
. Irma Company manufactures office furniture. During the most productive month of the
year, 3,500 desks were manufactured at a total cost of P84,400. In its slowest month, the company
PROBLEMS made 1,100 desks at a cost of P46,000. Using the high-low method of cost estimation, total fixed
costs in August are:
PROBLEMS: A. P56,000 C. P17,600
i
B. P28,400 D. P38,400
Nite Corporation has developed the following flexible budget formula for annual indirect
labor costs: vi
. Palm, Inc. has a total of 2,000 rooms in its nationwide chain of hotels. On the average, 70
Total Cost = P480,000 + P5.00 per machine hour percent of the rooms are occupied each day. The company’s operating cost is P21 per occupied
Operating budgets for the current month are based upon 20,000 machine hours of room per day at this occupancy level, assuming a 30-day month. This P21 figure contains both
planned machine time. Indirect labor costs included in this planning budget are: variable and fixed cost elements. During October, the occupancy dropped to only 45 percent. A
A. P 48,333C. P580,000 total of P792,000 in operating costs were incurred during the month.
B. P100,000 D. P140,000
ii
What would be the expected operating costs, assuming that the occupancy rate increases to 60
. Harem Company uses an annual cost formula for overhead of P72,000 + P1.60 for each percent during November?
direct labor hour worked. For the upcoming month Karla plans to manufacture 96,000 A. P1,056,000 C. P 756,000
B. P 846,000 D. P 829,500
 D. P27,000 per year plus P1.60 per machine hour.
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. The controller of Jema Company has requested a quick estimate of the manufacturing
xi
supplies that it needs for the month of July when the expected production are 470,000 units. . Almond Company wishes to determine the fixed portion of its maintenance expense (a semi-
Below are the actual data from the prior three months of operations. variable expense), as measured against direct labor hours for the first Malayan three months
Production in units Manufacturing supplies of the year. The inspection costs are fixed; however, the adjustments necessitated by errors
March 450,000 P723,060 found during inspection account for the variable portion of the maintenance costs. Information
April 540,000 853,560 for the first Malayan quarter is as follows:
May 480,000 766,560 Direct Labor Hours Maintenance Costs
Using these data and the high-low method, what is the reasonable estimate of the cost of January 34,000 P61,000
manufacturing supplies that would be needed for July? (Assume that this activity is within the February 31,000 58,500
relevant range.) March 34,000 61,000
A. P 805,284 C. P 755,196 What is the fixed portion of Almond Company’s maintenance expense, rounded to the nearest
B. P1,188,756 D. P 752,060 pesos?
A. P28,330 C. P37,200
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. The following activity and cost data that were provided by Hoist Corporation would help in B. P32,677 D. P40,800
estimating its future maintenance costs:
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Units Maintenance Cost . Clone Machinery had the following experience regarding power costs:
3 P450 Month Machine hours Power cost
7 P530 Jan. 300 P680
11 P640 Feb. 600 720
15 P700 Mar. 400 695
Using the least-squares regression method to estimate the cost formula, the expected total Apr. 200 640
cost for an activity level of 10 units would be closest to: Assume that management expects 500 machine hours in May. Using the high-low method,
A. P612.50. C. P595.84. calculate Clone's power cost using machine hours as the basis for prediction.
B. P581.82. D. P601.50. A. P 700 C. P 710
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B. P 705 D. P1,320
. Given the cost formula Y = P17,500 + P4X, at what level of activity will total cost be P42,500?
A. 10,625 units. C. 6,250 units. xiii
. In the equation Y = P4,000 + P3X; Y is the cost of workers' compensation insurance and X is
B. 4,375 units. D. 5,250 units. direct labor hours. According to this equation, a 100-hour change in total direct labor hours will
x
change the cost of workers compensation insurance by
. Balsy Company has provided the following data for maintenance cost: A. P4,000. C. P4,300.
Prior Year Current Year B. P 300. D. none of the above amounts.
Machine hours 12,500 15,000
Maintenance cost P27,000 P31,000 xiv
. Using multiple regression, you have identified P12,000 of unit level costs for 3,000 units,
The best estimate of the cost formula for maintenance would be: P1,000 of product level costs for 40 products, and P3,500 of customer-level costs for ten
A. P21,625 per year plus P0.625 per machine hour. customers. The cost of Job 002 which used 800 unit level activities, 4 product level activities,
B. P 7,000 per year plus P0.625 per machine hour. and one customer-level activities amounts to
C. P 7,000 per year plus P1.60 per machine hour. A. P3,650 C. P3,050
 B. P3,250 D. P2,950 xx
. The Overland Company wants to develop a cost estimating equation for its monthly cost of
electricity. It has the following data:
xv
. It takes a worker 10 minutes to assemble a toy. With a learning curve of 70% as production Month Electricity Cost Direct Labor Hours
doubles, the average time (per unit) needed to make 8 units would be January P6,750 1,500
A. 4.90 minutes C. 3.33 minutes April 7,500 1,700
B. 3.43 minutes D. 3.23 minutes July 8,500 2,000
October 7,250 1,600
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. The cost to rebuild a race car engine is P1,500, and a buyer offers to buy four engines for Using the high-low method, what is the best equation?
P6,000. Assuming a cumulative learning curve of 90% as production doubles, the incremental A. Y = P 750 + P5.00X C. Y = P 750 + P3.50X
cost of the third and fourth items will be B. Y = P1,500 + P3.50X D. Y = P1,500 + P5.00X
A. P 0 C. P2,160
B. P 600 D. P1,250 xxi
. During the month of June, Behold Corporation produced 12,000 units and sold them for P20
xvii
per unit. Total fixed costs for the period were P154,000, and the operating profit was P26,000.
. At a sales level of P300,000, Jamaica Company's gross margin is P15,000 less than its Based on the foregoing information, the variable cost per unit for the month of June was
contribution margin, its net income is P50,000, and its selling and administrative expenses A. P4.50 C. P6.00
total P120,000. At this sales level, its contribution margin would be: B. P5.00 D. P7.17
A. P250,000. C. P170,000.
B. P155,000. D. P185,000. xxii
. Data to be used in applying the high-low method shows the highest cost of P69,000 and the
lowest cost of P52,000. The data shows P148,000 as the highest level of sales and P97,000
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as the lowest level. What is the variable cost per peso sales?
. The Shepherd Company’s president would like to know the estimated fixed and variable A. P0.33. C. P0.54.
components of a particular cost. Actual data for this cost for four recent periods appear below. B. P0.47. D. P3.00
Activity Cost
Period 1 24 P174 xxiii
. The following information is available for maintenance costs:
Period 2 25 179 Month Production Volume Maintenance Costs
Period 3 20 165 June 150,000 P500,000
Period 4 22 169 July 230,000 620,000
Using the least-squares regression method, what is the cost formula for this cost? August 380,000 800,000
A. Y = P 0.00 + P7.55X C. Y = P103.38 + P3.00X September 120,000 480,000
B. Y = P110.44 + P2.70X D. Y = P113.35 + P0.89X October 270,000 710,000
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Using the least squares, the estimate of the fixed portion of maintenance costs (rounded to
. Sams Company. wants to develop a single predetermined overhead rate. The company's thousand pesos) is
expected annual fixed overhead is P340,000 and its variable overhead cost per machine hour A. P131,000 C. P332,000
is P2. The company's relevant range is from 200,000 to 600,000 machine hours. Sams B. P321,000 D. P115,000
Company expects to operate at 425,000 machine hours for the coming year. The plant's
theoretical capacity is 850,000. The predetermined overhead rate per machine hour should be xxiv
. Tomas Ocampo has just been appointed chairperson of the Accountancy Department of ADEB
A. P2.40. C. P2.80. College. In reviewing the department’s cost records, Tomas has found the following total cost
B. P2.57. D. P2.85. associated with MAS Part 2 subject over the last several terms:
 Semester/Term Number of Subjects Offered Total Cost A. P4,125,000 C. P4,450,000
AY2004, First Semester 4 P10,000 B. P4,220,000 D. P4,525,000
AY2004, Second Semester 6 14,000
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AY2004, Summer 2 7,000 . What total factory overhead costs would you expect the company to incur at an operating level
AY2005, First Semester 5 13,000 of 70,000 direct labor hours?
AY2005, Second Semester 3 9,500 A. P16,950,000 C. P13,000,000
Tomas knows that there are some variable costs, such as amounts paid to student assistants, B. P13,950,000 D. P10,950,000
associated with the course. He would like to have variable and fixed cost components
separated for planning purposes. Question Nos. 28 and 29 will be answered using the following data:
Using the least-squares method, what is the variable cost per section of MAS? The Bora Hotel’s guest-days of occupancy and custodial supplies expense over the last seven
A. P1,750 C. P1,200 months were:
B. P1,500 D. P 900 Month Guest-Days of Occupancy Custodial Supplies Expense
March 40,000 P 75,000
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. At a sales level of P300,000, Java Company's gross margin is P15,000 less than its April 65,000 82,500
contribution margin, its net income is P50,000, and its selling and administrative expenses May 80,000 105,000
total P120,000. At this sales level, its contribution margin would be: June 105,000 120,000
A. P250,000. C. P170,000. July 120,000 135,000
B. P155,000. D. P185,000. August 90,000 107,500
September 75,000 97,500
Question Nos. 26 and 27 are based on the following information:
SERAL Company is a manufacturing entity whose total factory overhead costs fluctuate xxviii
. Using the high-low method, what is the estimated monthly fixed cost for custodial
considerably from year to year according to increases and decrease in the number of direct labor supplies?
hours worked in the plant. Total factory overhead costs at high and low levels of activity for recent A. P67,500 C. P42,500
years follow: B. P45,000 D. P40,000
Low High
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Direct labor hours 50,000 75,000 . Using the high-low method in calculating the cost formula for custodial supplies, what amount
Total factory overhead costs P14,250,000 P17,625,000 of this expense would you expect to be incurred at an occupancy level of 110,000 guests?
A. P 92,500 C. P110,000
The factory overhead costs above consist of indirect materials, rent, and maintenance. The B. P 98,750 D. P127,500
company has analyzed these costs at the 50,000-hour level of activity as follows:
Indirect materials (V) P 5,000,000 Question Nos. 30 through 32 are based on the following:
Rent (F) 6,000,000 St John Hospital contains 450 beds. The average occupancy rate is 80 percent per month. In other
Maintenance (M) 3,250,000 words, on average, 80 percent of the hospital’s beds are occupied by patients. At this level of
Total factory overhead costs P14,250,000 occupancy, the hospital’s operating costs are P32 per occupied bed per day, assuming a 30-day
month. This P32 figure contains both variable and fixed cost components.
V = variable; F = fixed; M = mixed
During the month of June, the hospital’s occupancy rate was only 60 percent. A total of P326,700 in
xxvi
. How much of the P17,625,000 factory overhead cost at the high level of activity consist of operating cost was incurred during that month.
maintenance cost?
xxx
. Using the high-low method, the amount of variable cost per occupied bed per cay is Apr. 500 650
A. P 7.00 C. P12.00 May 450 570
B. P 9.00 D. P15.00 Using the high-low method, what is the fixed cost element (to the nearest peso)?
A. P225 C. P411
xxxi
. Using the variable cost as determined in number 36, the total fixed operating costs per month B. P138 D. P364
are:
xxxvii
A. P240,000 C. P290,000 . The following information was taken from a computer printout generated with the least
B. P270,000 D. P300,000 squares method for use in estimating overhead costs:
Slope 90
xxxii
. Assuming an occupancy rate of 75 percent in a particular month, what amount of total Intercept 11400
operating costs would you expect the hospital to incur? Correlation coefficient 0.6
A. P310,000 C. P340,875 Activity variable Direct labor hours
B. P315,500 D. P375,500 The cost formula is
A. Overhead = P11,400 – P90X C. Overhead = P11,400 + P90X
Question Nos. 33 through 35 are based on the following: B. Overhead = P11,400 + (P45 x .6) D. Overhead = P11,400 x .6
In the Omara Manufacturing Company, at an activity level of 80,000 machine hours, total overhead
xxxviii
costs were P223,000. Of this amount, utilities were P48,000 (all variable) and depreciation was . The following information pertains to data that have been gathered in the process of
P60,000 (all fixed). The balance of the overhead cost consisted of maintenance cost (mixed). At estimating a simple least squares regression:
100,000 machine hours, maintenance costs were P130,000. Mean value of the dependent variable 30
Mean value of the independent variable 10
Assume that all of the activity levels mentioned in this problem are within the relevant range. Coefficient of the independent variable 3
Number of observations 12
xxxiii
. The variable cost for maintenance per machine hour is: What is the "a" value for the least squares regression model?
A. P1.30. C. P0.75. A. 20
B. P1.44. D. P1.35. B. 6
C. 0
xxxiv
. The total fixed overhead cost for Omara is: D. The intercept term cannot be computed from the information given.
A. P115,000. C. P 60,000.
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B. P130,000. D. P 55,000. . TransEx Company operates a fleet of delivery trucks in Luzon. The company has
xxxv
. If 110,000 machine hours of activity are projected for the next period, total expected overhead determined that if a truck is driven 105,000 kilometers during a year, the average operating
cost would be: cost is P11.40 per kilometer. If a truck is driven only 70,000 kilometers during a year, the
A. P256,000. C. P306,625. average operating cost increases to P13.40 per kilometer. Assuming that in a given year, a
B. P263,500. D. P242,500. truck were driven 80,000 kilometers, what total cost would you expect to be incurred?
A. P1,012,000 C. P1,225,143
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. The following data were compiled from the records of Cabral Company: B. P1,407,000 D. P1,072,000
Month Usage Cost
Jan. 600 P750 Question Nos. 40 through 41 are based on the following:
Feb. 650 775 The House of TROPS Company is a large retailer of sports equipment. An income statement for
Mar. 420 550 the company’s Ski Department for a recent quarter is presented as follows:
The House of TROPS Company xliii
. The church conducts 1 Bingo session per month. Over the course of the year, which cost
Income Statement would not act as a variable cost based on just holding one more session?
For the Quarter Ended March 31 A. Hall rental. C. Caller salary.
B. Cost of supplies. D. Prize money.
Sales P1,500,000
xliv
Less cost of goods sold 900,000 . If the church conducts 12 sessions and 1,000 people attend each session, the average cost
Gross margin 600,000 per session is?
Less operating expenses: A. P 9,600. C. P15,200.
Selling expenses P300,000 B. P14,700. D. P16,200.
Administrative expenses 100,000 400,000
Net income P 200,000 xlv
. The church is thinking of holding 2 Bingo sessions per day with 1,000 people attending each
session. If they hold the 2 sessions, the average cost per session is?
Skis sell, on the average, for P7,500. Variable selling expenses are P500 per pair of skis sold. The A. P 9,600. C. P15,200.
remaining selling expenses are fixed. The administrative expenses are 20 percent variable and 80 B. P14,700. D. P16,200.
percent fixed. The company does not manufacture its own skis; it purchases them from a supplier
for P4,500 per pair. Use the following Information to answer Question Nos. 46 through 51.
Units Sold @ P60/each
xl
. What is the variable cost per pair of skis? 1,000 2,000 3,000
A. P 900,000 C. P1,000,000 Salary P20,000 P30,000 P40,000
B. P 920,000 D. P1,020,000 Cost of Goods Sold 15,000 30,000 45,000
Cost/Unit of Depreciation 300 150 100
xli
. Given the cost formula Y = P30,000 + P5X, total cost at an activity level of 16,000 units would Rent 20,000 20,000 20,000
be:
A. P 30,000. C. P 80,000. xlvi
. Which of the above costs behaves as a Variable Cost?
B. P 46,000. D. P110,000. A. Rent. C. Cost of Goods sold.
B. Salary. D. Depreciation.

Question Nos. 42 through 45 are based on the following: xlvii

. Which of the above costs behaves as a Mixed Cost?
A local church wants to rent a hall for P3,000 a day to hold a Bingo fundraiser. Every session of A. Rent. C. Cost of Goods sold.
bingo requires a caller for P200. There are supplies that are needed that cost P3 per person B. Salary. D. Depreciation.
playing bingo. On an average each bingo player spends P20 and 1,000 people attend each
session. P10,000 in prizes are awarded each session. xlviii
.Which one does not contain any fixed cost behavior?
xlii
A. Rent. C. Cost of goods sold.
. Total costs for 1 session can be classified as: B. Salary. D. Depreciation.
A. B. C. D.
Fixed Costs P13,200 P 3,000 P13,200 P10,000 xlix
. If 3,000 units are sold what is the contribution margin?
Variable Costs P3 P13,200 P 3,000 P 3,200 A. P 75,000. C. P135,000.
 B. P105,000. D. P180,000.
l
What is total fixed cost?
A. P50,000. C. P60,100.
B. P60,000. D. P90,000.
li
. Given the following information, choose the cost and activity that would be used as the high
data point in high-low cost estimation:
Costs Activity (hours)
P51,000 40,000
P50,000 41,000
P58,000 42,000
P56,000 43,000
A. P58,000 and 42,000 hours C. P56,000 and 43,000 hours
B. P58,000 and 43,000 hours D. P56,000 and 42,000 hours

Use the following simple regression results based on the data from the Madrigal Corporation to
answer Question Nos. 52 and 53.
Dependent variable – Machine maintenance costs
Independent variable – Machine hours
Computed values

Intercept P3,500
Coefficient on independent variable P 3.50
Coefficient of correlation 0.856
R2 0.733
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. What percentage of the variation in maintenance costs is explained by the independent
variable?
A. 85.6% C. 47.3%
B. 95.2% D. 73.3%
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. What is the total maintenance cost for an estimated activity level of 20,000 machine hours?
A. P73,500 C. P82,300
B. P78,400 D. P84,750
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