CHAPTER 2 ACTIVITY COST AND COST ANALYSIS: THEORIES: Cost behavior analysis is a study of how a firm's costs A. relate to Competitors! costs. : relate to general price level changes. - Tespond to changes in activity levels within the company. respond to changes in the gross national product. hs en “relevant range” as used in cost eccounting means the range over which: A. costs may fluctuate B. cost relationships are valid C. production may vary D. relevant costs are incurred An ifem or event that has a cause-effect relationship with the incurrence of a variable costis called a: A. mixed cost, B. predictor. C. direct cost. D. cost driver. If a predetermined overhead rate is not employed and the volume of production is increased over the level planned, the cost per unit would be expected to A. decrease for fixed costs and remain unchanged for variable costs. B. remain unchanged for fixed costs and increase for variable costs. C. decrease for fixed costs and increase for variable costs. D. increase for fixed costs and increase for variable costs. Which of the following describes the behavior of the variable cost per unit? Variable cost: A. varies in increasing proportion with changes in the activity level. B, varies in increasing proportion with changes in the activity level. C. remains constant with changes in the activity level. D. varies in direct proportion with the activity level. 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): 4310. 1. 12. variable cost. A. B. prime cost. C._ fixed cost. D. overhead cost y's average cost per unit is the same at all leve}, 2 S Of vot, Nadal Con are Which of the following ‘Nadal must have only variable costs. B. Nadal must rave only fixed costs. / C. Nadal must have some fixed costs and some variable costs. D. Nadal's cost structure cannot be determined from this information, > When production increases, variable manufacturing costs react in which following ways? Of the Unit variable cost Total variable cost A. decreases decreases B. remains same Increases C. remains same decreases D. increases Increases When the number of units manufactured increases, the most significant chan ge in unit cost will be reflected as a(n) ‘A. increase in the fixed element. B._ decrease in the variable element. C. increase in the mixed element. D. decrease in the fixed element. As volume increases, ‘A. total fixed costs remain constant and per-unit fixed costs increase. 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 D. total fixed costs increase and per-unit fixed costs increase. Which of the following best describes a fixed cost? A. It may change in total when such change is unre production. B._ Ttmay change in total when such change is related to changes in production c Itis constant per unit of change in production. It may change in total when such change depends on p: relevant range. lated to changes in roduction within the Lamang Company changed its cost structure by increasing fixed cosa! - reasing its Per-unit variable costs. The change: . increases risk and increases potential profit. 1450. {a regression analysis, an R square (R’) of 1.0 would indicate A. that] percent of the data points are on the regression line. B__ that 7 percent of the total mixed costs can be attributable to fixed costs. C._ that percent of the total mixed costs can be attributable to variable costs. D. that there is a perfect correlation between the independent and dependent variables. PROBLEMS: 1. Nite Corporation has developed the following flexible budget formula for annual indirect labor costs: Total Cost = P480.000 + P5.00 per machine hour Operating budgets for the current month are based upon 20,000 machine hours of planned machine time. Indirect labor costs included in this planning buclget are: A. P 48,333 CC. P580,000 B. P100,000 D. P140,000 Harem Company uses an annual cost formula for overhead of P72,000 + P1.60 for each direct labor hour worked. For the upcoming month Karla plans to manufacture 96,000 units, Each unit requires five minutes of direct labor. Harem ‘Company's budgeted overhead for the month is A. P 12,800 Cc. P 84,800 B. P 18,800 D. P774,000 Total production costs for Jordan, Inc. are budgeted at P2,300,000 and P2,800,000 for 50,000 and 60,000 units of budgeted output, respectively. Because of the need for additional 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? A. P 7.50 C. P30.00 B. P1600 D. P6250 Deakin Company is preparing a flexible budget for the coming year and the following maximum capacity estimates for Department OZ are available: Direct labor hours 60,000 Variable factory overhead 150,000, Fixed factory overhead 240,000 21| capacity is 80% of maximur ’s normal " ‘Paci assume that Dea Sry overhead rate, based on direct labore an Mg would be the 19 city? Me, budget at norms Cc. P6.50 A. 76.00 D. P8.13 B. P7.50 furniture. During th, factures office & the most rma Compa desks were mamulactured at a total cost ep Pic month of a th dhe company made 1,100 desks ata cost of Pag ogg uae h its slowest month Fr estimation, total fixed costs in August ggg” Using high-low method o C. P17,600 A. Ba D. P38,400 B. P28 ‘as a total of 2,000 rooms in its nationwide chain of hotels, average, 0 percent of the rooms are aed gach ay. The copy . operating cost is P21 per occupied room per day at this occu; ancy ia assuming a 30-day month, This P21 figure contains both vatiable ang fined cog elements. During October, the occupancy dropped to only 45 percent 4 four 792,000 in operating costs were incurred during the month, % Palm, Inc. What would be the expected operating costs, assuming that the occupancy increases to 60 percent during November? IPANCY rate A. P1,056,000 C. P 756,000 B. P 846,000 D. P 829,500 The controller of Jema Company has requested a quick estimaic of the manufacturing supplies that it needs for the month of July when the expected production are 470,000 units. Below are the actual data from the Prior three months of operations. Production inunits Manufacturing supplies March 450,000 P723,060 April 540,000 853,560 May 480,000 766,560 Using these data and the high-low method, what is the reasonable estimate of the t of manufacturin, 8 Supplies that would be nex i vi - eded for July? (Assume that this activity is within the relevant range) " Dany? (A A. P 805,284 cP BL P1,188,756 DP tied ounce activity and cost data that were Provided by Hoist Corporation SP in estimating its future maintenance costs: 22Units Maintenance Cost 3 2450 ? P530 u P640 15 P700 Using the least-squares regression method to estimate the cost formula, the expected (otal cost for an activity level of 10 units would be closest to: A. P612.50. C. P595.84. B. P581.82. D. P601.50. 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 B. 4,375 units. D. 5,250 units. Balsy Company has provided the following data for maintenance cost: Prior Year Current Year Machine hours 12,500 15,000 Maintenance cost P27,000 P31,000 The reasonable estimate of the cost formula for maintenance would be: A, 21,625 per year plus P0625 per machine hour. B. P 7,000 per year plus P0.625 per machine hour. C. P 7,000 per year plus P1.60 per machine hour. D. 27,000 per year plus P1.60 per machine hour. Almond Company wishes to determine the fixed portion of its maintenance ‘expense (a scmi-variable expense), as measured against direct labor hours for the first three months of the year. The inspection cosis are fixed; however, the adjustments necessitated by errors found during inspection account for the variable portion of the maintenance costs. Information for the first quarter is as follows: Direct Labor Hours Maintenance Costs January 34,000 61,000 February 31,000 58,500 March 34,000 61,000 What is the fixed portion of Almond Company’s maintenance expense, rounded to the nearest peso? A. 28,330 C. P37,200 B. P32,677 D. P40,800 23