Activity Cost Analysis
MODULE 3 ACTIVITY COST AND COST ANALYSIS
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): A. variable cost. C. fixed cost. B. prime cost. D. overhead cost. Bobadilla
THEORIES: 1. Cost behavior analysis is a study of how a firm's costs A. relate to competitors' costs. B. relate to general price level changes. C. respond to changes in activity levels within the company. D. respond to changes in the gross national product.
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2. The term “relevant range” as used in cost accounting means the range over which A. costs may fluctuate C. production may vary B. cost relationships are valid D. relevant costs are incurred
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8. Malayan Company’s average cost per unit is the same at all levels of volume. Which of the following is true? A. MALAYAN must have only variable costs. B. MALAYAN must have only fixed costs. C. MALAYAN must have some fixed costs and some variable costs. D. MALAYAN’s cost structure cannot be determined from this information. Bobadilla 9. Depreciation expense based on the number of units produced is classified as what type of cost? A. Out-of-pocket cost. C. Variable cost. B. Marginal cost. D. Fixed cost. Bobadilla
3. Most operating decisions by management focus on a narrow range of activity which is called the: A. relevant range of production. C. optimal level of production. Bobadilla B. strategic level of production. D. tactical operating level of production.
10. When production increases, variable manufacturing costs react in which of the following ways? Bobadilla A. B. C. D. Unit variable cost decreases remains same remains same increases Total variable cost decreases Increases decreases Increases
4. An item or event that has a cause-effect relationship with the incurrence of a variable cost is called a A. mixed cost. C. direct cost. B. predictor. D. cost driver. Bobadilla
11. When the number of units manufactured increases, the most significant change in unit cost will be reflected as a(n) A. increase in the fixed element. C. increase in the mixed element. B. decrease in the variable element. D. decrease in the fixed element. Bobadilla
5. 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. Bobadilla
12. 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.
6. 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. Bobadilla
13. Which of the following best describes a fixed cost? A. It may change in total when such change is unrelated to changes in production. 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.
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Activity Cost Analysis
D. It may change in total when such change depends on production within the relevant range. Bobadilla
20. Management is considering replacing its existing sales commission compensation plan with a fixed salary plan. If the change is adopted, the company’s A. Breakeven point must increase. C. Operating leverage must increase. B. Margin of safety must decrease. D. Profit must increase. Bobadilla
14. If activity increases, which of the following statements about cost behavior is true? Bobadilla A. Fixed cost per unit will increase C. Fixed cost per unit will decrease B. Variable cost per unit will increase D. Variable cost per unit will decrease 15. An increase in the activity level within the relevant range results in: A. an increase in fixed cost per unit. B. a proportionate increase in total fixed costs. C. an unchanged fixed cost per unit. D. a decrease in fixed cost per unit.
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16. A cost that remains constant in total but varies on a per-unit basis with changes in activity is called a(n) A. expired cost. C. variable cost. B. fixed cost. D. mixed cost. Bobadilla
21. The indifference point is the level of volume at which a company A. earns the same profit under different operating scheme. B. earns no profit. C. earns its target profit. D. any of the above.
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22. Operating leverage is the relative mix of A. revenues earned and manufacturing costs B. fixed and variable costs. C. high-volume and low-volume products. D. manufacturing costs and period costs.
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23. The increased use of automation and less use of the work force in companies has caused a trend towards an increase in A. both variable and fixed costs. B. fixed costs and a decrease in variable costs. C. variable costs and a decrease in fixed costs. D. variable costs and no change in fixed costs. Bobadilla
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 decisionmaking process. B. Fixed costs expressed on a per unit basis will react inversely with changes in activity. C. Assumptions by accountants regarding the behavior of fixed costs rest heavily on the concept of the relevant range. Bobadilla D. Fixed costs frequently represent long-term investments in property, plant, and equipment.
24. If fixed costs decrease while variable cost per unit remains constant, the contribution margin will be A. Unchanged C. Higher B. Lower D. Indeterminate Bobadilla
18. Lamang Company changed its cost structure by increasing fixed costs and decreasing its perunit variable costs. The change: A. Increases risk and increases potential profit. B. Increases risk and decreases potential profit. C. Decreases risk and decreases potential profit. D. Decreases risk and increases potential profit. Bobadilla
25. Costs that increase as the volume of activity decreases within the relevant range are A. Average cost per unit. C. Total fixed costs. B. Average variable cost per unit. D. Total variable costs. Bobadilla
19. A management’s preference for a very low degree of operating leverage might indicate that: A. an increase in sales volume is expected. B. a decrease in sales volume is expected. C. the firm is very unprofitable. D. the firm has very high fixed costs. Bobadilla
26. Which costs will change with an increase in activity within the relevant range? A. Total fixed costs and total variable cost. B. Per unit fixed costs and total variable cost. C. Per unit variable cost and per unit fixed cost. D. Per unit fixed cost and total fixed cost. 52
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Activity Cost Analysis
27. Which of the following best describes the relationship between fixed costs per unit and variable costs per unit, as total volume increases? A. Fixed cost per unit stays the same and variable cost per unit stays the same. B. Fixed cost per unit stays the same and variable cost per unit increases. 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. Bobadilla 28. Within the relevant range, the difference between variable costs and fixed costs is: A. variable costs per unit fluctuate and fixed cost per unit remains constant. B. variable cost per unit is constant and fixed cost per unit fluctuates. C. both total variable cost and total fixed cost are constant. D. both total variable cost and total fixed cost fluctuate. 29. The learning curve in cost estimation is a good example of: A. non-linear cost behavior. C. simple regression. B. machine-intensive production. D. a random variable.
B. volume of activity is heavy.
36. Weaknesses of the high-low method include all of the following except A. Only two observations are used to develop the cost function. B. The high and low activity levels may not be representative. C. the method does not detect if the cost behavior is nonlinear. D. the mathematical calculations are relatively complex.
30. Cost estimation is the process of A. estimating the relationship between costs and the cost drivers that cause those costs. B. documenting costs in terms of direct and indirect costs. C. summarizing past costs into fixed and variable components. D. all of the above. Bobadilla
32. For analysis purposes, the high-low method usually produces a(n) A. reasonable estimate. C. overstated estimate. B. precise estimate. D. understated estimate.
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37. Which of the following methods estimates costs by identifying costs as variable or fixed based on qualitative analysis? A. Regression analysis C. Engineering method B. Account analysis D. High-low method Bobadilla
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35. The equation(s) required for applying the least squares method in the computation of fixed and variable production costs could be expressed as A. xy = ax + b x2 C. y = na + b x B. y = a + bx2 D. xy = ax + b x2 xy = na + b x y = na + bx Bobadilla
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31. Which of the following methods is used to estimate costs? A. Account analysis C. Engineering method B. High-low method D. All of the above
D. volume of activity is light.
38. Account analysis as compared to the engineering method A. relies on past data. B. relies on present and future data. C. measures the work involved in the activities that go into a product. D. a and c.
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39. Which of the following methods may be used to estimate costs by using time-and-motion studies to approximate labor time? A. Regression analysis C. Engineering method B. Account analysis D. High-low method Bobadilla 40. The cost estimation method that gives the most mathematically precise cost prediction equation is A. the high-low method C. the scatter-diagram method B. the contribution margin method D. regression analysis Bobadilla
33. The high-low method is criticized because it A. is not a graphical method. B. is a mathematical method. C. ignores much of the available data by concentrating on only the extreme points. D. does not provide reasonable estimates. Bobadilla
41. Regression analysis is better than the high-low method of cost estimation because regression analysis: A. is more mathematical. C. fits its data into a mathematical equation.
34. The high-low method may give unsatisfactory results if A. the data points all fall on a line. C. the points are not representative. 53
Activity Cost Analysis
B. uses all the data points, not just two.
D. takes more time to do.
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B. Account analysis method
42. In regression analysis, what does the variable "X" stand for in the model Y = a + bX + e? A. The amount of the dependent variable, the cost to be estimated. B. The regression error, which is the distance between the regression line and the data point. C. The value for the independent variable, the cost driver for the cost to be estimated; there may be one or more cost drivers. D. The unit variable cost, also called the coefficient of the independent variable. Bobadilla
49. The engineering method of estimating costs: A. can be used to estimate costs for totally new activities. B. can detail each step required to perform an operation. C. sometimes can be quite expensive to use. D. all of the above are true.
44. Regression shows A. the proportion of the variation of dependent variable explained by dependent variables. B. the proportion of the variation of independent variable explained by the independent variables. C. the proportion of the variation of dependent variable explained by the independent variables. D. none of the above. Bobadilla
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46. A cost-predicting equation determined through regression analysis A. always gives close predictions. B. will not work any better than one obtained using the high-low method. C. can be used only for costs that vary with sales of production. D. could be severely affected by outliers.
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47. In the cost equation TC = F + VX, the X term is: A. total fixed costs. C. unit variable cost. B. total variable costs. D. activity units.
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50. The correlation coefficient or R-squared (R2) is interpreted as: A. the minimum distance between the regression line and a single data point. B. the measure of the linear relationship between two or more variables. 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 variable. Bobadilla
43. Simple regression is A. a regression equation with more than one independent variable. B. a regression equation with more than one dependent variable. C. a regression equation with more than one independent and dependent variables. D. a regression that considers all unknown factors. Bobadilla
45. In the method of least squares, the deviation is the difference between the A. predicted and estimated costs. C. predicted and average costs. B. predicted and actual costs. D. average and actual costs.
D. High-Low method
51. The closeness of the relationship between the cost and the activity is called A. correlation C. spurious B. regression analysis D. manufacturing overhead
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52. R-squared is a measure of A. the spurious relationship between cost and activity B. the fixed cost component C. the variable cost per unit of activity Bobadilla D. how well the regression line accounts for the changes in the dependent variable 53. The principal advantage of the scatter-diagram method over the high-low method of cost estimation is that the scatter-diagram method A. includes cost outside the relevant range. B. considers more than two points. C. can be used with more types of costs than the high-low method. D. gives a precise mathematical fit of the points to the line. Bobadilla 54. The major objective of preparing a scatter-diagram is to A. develop an equation to predict future costs. B. perform regression analysis on the results. C. determine the relevant range. Bobadilla D. find the high and low points to use for the high-low method of estimating costs.
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48. Which of the following methods would be best for estimating costs for totally new activities? A. Engineering method C. Scattergraph method 54
Activity Cost Analysis
55. Advantages of the method of least squares over the high-low method include all of the following except A. a statistical method is used to mathematically derive the cost function B. only two points are used to develop the cost function C. the squared differences between actual observations and the line (cost function) are minimized D. all the observations have an effect on the cost function Bobadilla
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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 P150,000 Fixed factory overhead P240,000 Assume that Deakin’s normal capacity is 80% of maximum capacity. What would be the total factory overhead rate, based on direct labors, in a flexible budget at normal capacity? A. P6.00 C. P6.50 B. P7.50 D. P8.13 Bobadilla
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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 made 1,100 desks at a cost of P46,000. Using the high-low method of cost estimation, total fixed costs in August are: A. P56,000 C. P17,600 B. P28,400 D. P38,400 Bobadilla
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Palm, Inc. has a total of 2,000 rooms in its nationwide chain of hotels. On the average, 70 percent of the rooms are occupied each day. The company’s operating cost is P21 per occupied room per day at this occupancy level, assuming a 30-day month. This P21 figure contains both variable and fixed cost elements. During October, the occupancy dropped to only 45 percent. A total of P792,000 in operating costs were incurred during the month.
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56. The scatter diagram method of cost estimation A. is influenced by extreme observations B. requires the use of judgment C. uses the least-squares method D. is superior to other methods in its ability to distinguish between discretionary and committed fixed costs Bobadilla
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PROBLEMS: 1
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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 budget are: A. P 48,333 C. P580,000 B. P100,000 D. P140,000 Bobadilla
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What would be the expected operating costs, assuming that the occupancy rate increases to 60 percent during November? A. P1,056,000 C. P 756,000 B. P 846,000 D. P 829,500 Bobadilla
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 C. P 84,800 B. P 18,800 D. P774,000 Bobadilla
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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. P16.00 D. P62.50 Bobadilla 55
The controller of Jema Company has requested a quick estimate 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 in units Manufacturing supplies March 450,000 P723,060 April 540,000 853,560 May 480,000 766,560
Activity Cost Analysis
Using these data and the high-low method, what is the reasonable estimate of the cost of manufacturing supplies that would be needed for July? (Assume that this activity is within the relevant range.) A. P 805,284 C. P 755,196 B. P1,188,756 D. P 752,060 Bobadilla 8
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January 34,000 P61,000 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 pesos? A. P28,330 C. P37,200 B. P32,677 D. P40,800 Bobadilla
The following activity and cost data that were provided by Hoist Corporation would help in estimating its future maintenance costs: Units Maintenance Cost 3 P450 7 P530 11 P640 15 P700 Using the least-squares regression method to estimate the cost formula, the expected total cost for an activity level of 10 units would be closest to: A. P612.50. C. P595.84. B. P581.82. D. P601.50. Bobadilla
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. Clone Machinery had the following experience regarding power costs: Month Machine hours Power cost Jan. 300 P680 Feb. 600 720 Mar. 400 695 Apr. 200 640 Assume that management expects 500 machine hours in May. Using the high-low method, calculate Clone's power cost using machine hours as the basis for prediction. A. P 700 C. P 710 B. P 705 D. P1,320 Bobadilla
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. Bobadilla
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. In the equation Y = P4,000 + P3X; Y is the cost of workers' compensation insurance and X is direct labor hours. According to this equation, a 100-hour change in total direct labor hours will change the cost of workers compensation insurance by A. P4,000. C. P4,300. B. P 300. D. none of the above amounts. Bobadilla
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. 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 best estimate of the cost formula for maintenance would be: A. P21,625 per year plus P0.625 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. P27,000 per year plus P1.60 per machine hour.
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. Using multiple regression, you have identified P12,000 of unit level costs for 3,000 units, P1,000 of product level costs for 40 products, and P3,500 of customer-level costs for ten customers. The cost of Job 002 which used 800 unit level activities, 4 product level activities, and one customer-level activities amounts to A. P3,650 C. P3,050 B. P3,250 D. P2,950 Bobadilla
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. Almond Company wishes to determine the fixed portion of its maintenance expense (a semivariable expense), as measured against direct labor hours for the first Malayan three months of the year. The inspection costs are fixed; however, the adjustments necessitated by errors found during inspection account for the variable portion of the maintenance costs. Information for the first Malayan quarter is as follows: Direct Labor Hours Maintenance Costs
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. It takes a worker 10 minutes to assemble a toy. With a learning curve of 70% as production doubles, the average time (per unit) needed to make 8 units would be A. 4.90 minutes C. 3.33 minutes B. 3.43 minutes D. 3.23 minutes Bobadilla
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Activity Cost Analysis 16
. The cost to rebuild a race car engine is P1,500, and a buyer offers to buy four engines for P6,000. Assuming a cumulative learning curve of 90% as production doubles, the incremental cost of the third and fourth items will be A. P 0 C. P2,160 B. P 600 D. P1,250 Bobadilla
Using the high-low method, what is the best equation? A. Y = P 750 + P5.00X C. Y = P 750 + P3.50X B. Y = P1,500 + P3.50X D. Y = P1,500 + P5.00X
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21
. During the month of June, Behold Corporation produced 12,000 units and sold them for P20 per unit. Total fixed costs for the period were P154,000, and the operating profit was P26,000. Based on the foregoing information, the variable cost per unit for the month of June was A. P4.50 C. P6.00 B. P5.00 D. P7.17 Bobadilla
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. At a sales level of P300,000, Jamaica Company's gross margin is P15,000 less than its contribution margin, its net income is P50,000, and its selling and administrative expenses total P120,000. At this sales level, its contribution margin would be: A. P250,000. C. P170,000. B. P155,000. D. P185,000. Bobadilla
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. 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 as the lowest level. What is the variable cost per peso sales? A. P0.33. C. P0.54. B. P0.47. D. P3.00 Bobadilla
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. The Shepherd Company’s president would like to know the estimated fixed and variable components of a particular cost. Actual data for this cost for four recent periods appear below. Activity Cost Period 1 24 P174 Period 2 25 179 Period 3 20 165 Period 4 22 169 Using the least-squares regression method, what is the cost formula for this cost? A. Y = P 0.00 + P7.55X C. Y = P103.38 + P3.00X B. Y = P110.44 + P2.70X D. Y = P113.35 + P0.89X Bobadilla
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. The following information is available for maintenance costs: Month Production Volume Maintenance Costs June 150,000 P500,000 July 230,000 620,000 August 380,000 800,000 September 120,000 480,000 October 270,000 710,000 Using the least squares, the estimate of the fixed portion of maintenance costs (rounded to thousand pesos) is A. P131,000 C. P332,000 B. P321,000 D. P115,000 Bobadilla
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. Sams Company. wants to develop a single predetermined overhead rate. The company's expected annual fixed overhead is P340,000 and its variable overhead cost per machine hour is P2. The company's relevant range is from 200,000 to 600,000 machine hours. Sams 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 A. P2.40. C. P2.80. B. P2.57. D. P2.85. Bobadilla
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. Tomas Ocampo has just been appointed chairperson of the Accountancy Department of ADEB College. In reviewing the department’s cost records, Tomas has found the following total cost associated with MAS Part 2 subject over the last several terms: Semester/Term Number of Subjects Offered Total Cost AY2004, First Semester 4 P10,000 AY2004, Second Semester 6 14,000 AY2004, Summer 2 7,000 AY2005, First Semester 5 13,000 AY2005, Second Semester 3 9,500
20
. The Overland Company wants to develop a cost estimating equation for its monthly cost of electricity. It has the following data: Month Electricity Cost Direct Labor Hours January P6,750 1,500 April 7,500 1,700 July 8,500 2,000 October 7,250 1,600 57
Activity Cost Analysis
Tomas knows that there are some variable costs, such as amounts paid to student assistants, associated with the course. He would like to have variable and fixed cost components separated for planning purposes. Using the least-squares method, what is the variable cost per section of MAS? A. P1,750 C. P1,200 B. P1,500 D. P 900 Bobadilla
A. P16,950,000 B. P13,950,000
C. P13,000,000 D. P10,950,000
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Question Nos. 28 and 29 will be answered using the following data: The Bora Hotel’s guest-days of occupancy and custodial supplies expense over the last seven months were: Month Guest-Days of Occupancy Custodial Supplies Expense March 40,000 P 75,000 April 65,000 82,500 May 80,000 105,000 June 105,000 120,000 July 120,000 135,000 August 90,000 107,500 September 75,000 97,500
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. At a sales level of P300,000, Java Company's gross margin is P15,000 less than its contribution margin, its net income is P50,000, and its selling and administrative expenses total P120,000. At this sales level, its contribution margin would be: A. P250,000. C. P170,000. B. P155,000. D. P185,000. Bobadilla
Question Nos. 26 and 27 are based on the following information: SERAL Company is a manufacturing entity whose total factory overhead costs fluctuate considerably from year to year according to increases and decrease in the number of direct labor hours worked in the plant. Total factory overhead costs at high and low levels of activity for recent years follow: Low High Direct labor hours 50,000 75,000 Total factory overhead costs P14,250,000 P17,625,000
28
. Using the high-low method, what is the estimated monthly fixed cost for custodial supplies? A. P67,500 C. P42,500 B. P45,000 D. P40,000 Bobadilla
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. Using the high-low method in calculating the cost formula for custodial supplies, what amount of this expense would you expect to be incurred at an occupancy level of 110,000 guests? A. P 92,500 C. P110,000 B. P 98,750 D. P127,500 Bobadilla
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 50,000-hour level of activity as follows: Indirect materials (V) P 5,000,000 Rent (F) 6,000,000 Maintenance (M) 3,250,000 Total factory overhead costs P14,250,000
Question Nos. 30 through 32 are based on the following: St John Hospital contains 450 beds. The average occupancy rate is 80 percent per month. In other words, on average, 80 percent of the hospital’s beds are occupied by patients. At this level of 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 operating cost was incurred during that month.
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. How much of the P17,625,000 factory overhead cost at the high level of activity consist of maintenance cost? A. P4,125,000 C. P4,450,000 B. P4,220,000 D. P4,525,000 Bobadilla
30
. Using the high-low method, the amount of variable cost per occupied bed per cay is A. P 7.00 C. P12.00 B. P 9.00 D. P15.00 Bobadilla
27
. What total factory overhead costs would you expect the company to incur at an operating level of 70,000 direct labor hours? 58
Activity Cost Analysis 31
. Using the variable cost as determined in number 36, the total fixed operating costs per month are: A. P240,000 C. P290,000 B. P270,000 D. P300,000 Bobadilla
Using the high-low method, what is the fixed cost element (to the nearest peso)? A. P225 C. P411 B. P138 D. P364
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. The following information was taken from a computer printout generated with the least squares method for use in estimating overhead costs: Slope 90 Intercept 11400 Correlation coefficient 0.6 Activity variable Direct labor hours The cost formula is A. Overhead = P11,400 – P90X C. Overhead = P11,400 + P90X B. Overhead = P11,400 + (P45 x .6) D. Overhead = P11,400 x .6 Bobadilla
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. Assuming an occupancy rate of 75 percent in a particular month, what amount of total operating costs would you expect the hospital to incur? A. P310,000 C. P340,875 B. P315,500 D. P375,500 Bobadilla
Question Nos. 33 through 35 are based on the following: In the Omara Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were P223,000. Of this amount, utilities were P48,000 (all variable) and depreciation was P60,000 (all fixed). The balance of the overhead cost consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were P130,000.
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. The following information pertains to data that have been gathered in the process of estimating a simple least squares regression: Mean value of the dependent variable 30 Mean value of the independent variable 10 Coefficient of the independent variable 3 Number of observations 12 What is the "a" value for the least squares regression model? A. 20 B. 6 C. 0 D. The intercept term cannot be computed from the information given. Bobadilla
Assume that all of the activity levels mentioned in this problem are within the relevant range. 33
. The variable cost for maintenance per machine hour is: A. P1.30. C. P0.75. B. P1.44. D. P1.35.
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. The total fixed overhead cost for Omara is: A. P115,000. B. P130,000.
C. P 60,000. D. P 55,000.
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39
. If 110,000 machine hours of activity are projected for the next period, total expected overhead cost would be: A. P256,000. C. P306,625. B. P263,500. D. P242,500. Bobadilla
. TransEx Company operates a fleet of delivery trucks in Luzon. The company has determined that if a truck is driven 105,000 kilometers during a year, the average operating cost is P11.40 per kilometer. If a truck is driven only 70,000 kilometers during a year, the average operating cost increases to P13.40 per kilometer. Assuming that in a given year, a truck were driven 80,000 kilometers, what total cost would you expect to be incurred? A. P1,012,000 C. P1,225,143 B. P1,407,000 D. P1,072,000 Bobadilla
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. The following data were compiled from the records of Cabral Company: Month Usage Jan. 600 Feb. 650 Mar. 420 Apr. 500 May 450
Cost P750 775 550 650 570
Question Nos. 40 through 41 are based on the following: The House of TROPS Company is a large retailer of sports equipment. An income statement for the company’s Ski Department for a recent quarter is presented as follows: The House of TROPS Company 59
Activity Cost Analysis
Income Statement For the Quarter Ended March 31
A. Hall rental. B. Cost of supplies.
Sales Less cost of goods sold Gross margin Less operating expenses: Selling expenses Administrative expenses Net income
P300,000 100,000
P1,500,000 900,000 600,000
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400,000 P 200,000
45
. 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? A. P 9,600. C. P15,200. B. P14,700. D. P16,200. Bobadilla
Use the following Information to answer Question Nos. 46 through 51. Units Sold @ P60/each 1,000 2,000 Salary P20,000 P30,000 Cost of Goods Sold 15,000 30,000 Cost/Unit of Depreciation 300 150 Rent 20,000 20,000
40
C. P1,000,000 D. P1,020,000
Bobadilla
. If the church conducts 12 sessions and 1,000 people attend each session, the average cost per session is? A. P 9,600. C. P15,200. B. P14,700. D. P16,200. Bobadilla
Skis sell, on the average, for P7,500. Variable selling expenses are P500 per pair of skis sold. The remaining selling expenses are fixed. The administrative expenses are 20 percent variable and 80 percent fixed. The company does not manufacture its own skis; it purchases them from a supplier for P4,500 per pair. . What is the variable cost per pair of skis? A. P 900,000 B. P 920,000
C. Caller salary. D. Prize money.
Bobadilla
3,000 P40,000 45,000 100 20,000
41
. Given the cost formula Y = P30,000 + P5X, total cost at an activity level of 16,000 units would be: A. P 30,000. C. P 80,000. B. P 46,000. D. P110,000. Bobadilla
46
. Which of the above costs behaves as a Variable Cost? A. Rent. C. Cost of Goods sold. B. Salary. D. Depreciation.
47
Question Nos. 42 through 45 are based on the following: A local church wants to rent a hall for P3,000 a day to hold a Bingo fundraiser. Every session of bingo requires a caller for P200. There are supplies that are needed that cost P3 per person 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.
. Which of the above costs behaves as a Mixed Cost? A. Rent. C. Cost of Goods sold. B. Salary. D. Depreciation.
C. P13,200 P 3,000
Bobadilla
48
. Which one does not contain any fixed cost behavior? A. Rent. C. Cost of goods sold. B. Salary. D. Depreciation.
42
. Total costs for 1 session can be classified as: Bobadilla A. B. Fixed Costs P13,200 P 3,000 Variable Costs P3 P13,200
Bobadilla
D. P10,000 P 3,200
49
. If 3,000 units are sold what is the contribution margin? A. P 75,000. C. P135,000. B. P105,000. D. P180,000.
43
. The church conducts 1 Bingo session per month. Over the course of the year, which cost would not act as a variable cost based on just holding one more session?
50
. What is total fixed cost?
60
Bobadilla
Activity Cost Analysis
A. P50,000. B. P60,000.
C. P60,100. D. P90,000.
51
. 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 52
. 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%
53
. 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
61
1
2
3
4
.
.
Answer: D Monthly fixed costs 480,000 / 12 Variable 20,000 x 5 Total Answer: B Monthly budgeted fixed cost (72,000/12) Variable cost based on actual units: Number of hours allowed (96,000 x 5/60)= 8,000 hours Variable cost: 8,000 x 1.60 Budgeted overhead cost
P 40,000 100,000 P140,000 P 6,000
12,800 P18,800
. Answer: C The solution can be made using an equation approach: a = y – bX (P2,300,000 – 50,000X)1.25 = P2,800,000 – 60,000X 2,875,000 – 62,500X = 2,800,000 – 60,000X 2,500X = 75,000 X = P30 .
Answer: B Variable factory overhead (150,000/60,000) Fixed overhead [240,000/(60,000 x 0.80) Total rate
P2.50 5.00 P7.50
Note: Variable rate per activity unit is constant. Fixed overhead per unit behaves inversely with the activity-unit level. 5
. Answer: B Variable rate = (∆ in activity cost)/(∆ in activity level) = (P84,000 – P46,000)/(3,500 – 1,100) = P16.00 Fixed cost a = y – bx a = P46,000 – (1,100 x 16) a = P28,400
6
. Answer: B Days Occupancy: 70% -- 2,000 x 30 days x 0.7 45% -- 2,000 x 30 days x 0.45
42,000 27,000
Variable cost per Room Day:
(42,000 x 21) - 792,000 42,000 - 27,000
P6.00
Fixed costs: 792,000 – (27,000 x 6)
P630,000
Cost at 60% rate: Variable: 2,000 x 30 x 0.6 x P6 Fixed
P216,000 630,000
Total
P846,000
7
8
.
Answer: D b = (853.560 – 723,060) ÷ (540,000 – 450,000) 130,500 ÷ 90,000 a = 853,560 – (540,000 x 1.45)
P 70,560
Y = 70,560 + 1.45b = 70,560 + (470,000 x 1.45)
P752,060
. Answer: D ∑X = 36 ∑Y = 2,320 ∑XY = 22,600 ∑X2 = 404 ∑Y = na + b∑X ∑XY = as + b∑X2 2,320 = 4a + 36b 22,600 = 36a + 404b 20,880 = 36a + 324b 1,720 = 80b b = 21.50 2,320 = 4a + (36 x 21.50) 2,320 = 4a + 774 4a = 1,546 a = 386.50 Y = 386.50 + 21.50 X Y = 386.50 + (10 x 21.50) Y = 601.50
9
. Answer: C 4X = 42,500 – 17,500 4X = 25,000 X = 6,250
10
. Answer: C b = (31,000 – 27,000) ÷ (15,000 – 12,500) 4,000 ÷ 2,500 b = 1.6 a = 31,000 - (15,000 x 1.60) a = 7,000 Y = 7,000 + 1.60X
11
.
P 1.45
Answer: B
Variable Rate =
61,000 - 58,500 3,000
= 0.8333 Fixed : 61,000 – (34,000 x .8333)= 32,677
12
13
.
.
Answer: A b = (720 – 640) ÷ (600 - 200) 80 ÷ 400
P0.20
a = 720 – (600 x .2) 720 – 120
P600
Total Cost for month of May Y = 600 + (500 x 0.2)
P700
Answer: B ∆Y = 100 x 3
P300
Within a relevant range, the amount of total fixed cost remains constant at P4,000. The only cost that will change in total is variable cost because every additional hour will add P3 to total costs. 14
.
Answer: A Unit level costs: P12000 ÷ 3000 x 800 Product level costs: P1,000 ÷ 40 x 4 Customer level costs: P3,500 ÷ 10 Cost of Job 002
P3,200 100 350 P3,650
Within a relevant range, the amount of fixed cost remain constant at P4,000. The only cost that will charge in total is variable cost between every additional hour will be accompanied by an increase of P3. 15
16
17
18
. Answer: B Total number of minutes used after completing 8 units: (10 × .7 × .7 × .7) . Answer: C Cumulative average after completing 4 units: 1,500 × .9 × .9
.
3.43
P1,215
Total costs of 4 units 4 x P1,215 Less total costs of first 2 units 1,500 x 0.9 x 2
P4,860 2,700
Additional costs
P2,160
Answer: D Net income Add: selling and admin. Expense Gross Margin Add: excess of contribution margin over gross margin Contribution Margin
. Answer: B ∑X = 91 ∑Y = 687 ∑XY = 15,669 ∑X2 = 2,085 687 = 4a + 91b 15,669 = 91a + 2,085b 15,629.25 = 91a + 2,070.25b 39.75 = 14.75b b = P2.70
P 50,000 120,000 170,000 15,000 P185,000
687 = 4a + (91 X 2.695) 687 = 4a + 245.25 4a = 441.75 a = P110.44 Y = P110.44 + P2.70X 19
.
Answer: C Variable OH rate Fixed OH rate (340,000 ÷ 425,000) Total OH rate
P 2.00 0.80 P 2.80
20
. Answer: B b = (8,500 – 6,750) ÷ ( 2,000 – 1,500) = 1,750 ÷ 500 b = 3.50 a = 8,500 – (2,000 x 3.5) a = 1,500 y = 1,500 + 3.50X
21
. Answer: A Change in cost Change in sales = Variable cost per peso sale (P69,000 – P52,000) ÷ (P148,000 – P97,000) P17,000 P51,000 = P0.333.
22
. Answer: B Contribution margin per unit: (P154,000 + P26,000) ÷ 12,000 units Variable cost per unit: P20.00 – P15.00
23
P15.00 P 5.00
. Answer: B ∑X = 1,150,000 ∑Y = 3,110,000 ∑XY = 770,900 Million ∑X2 = 307, 100 Million The least-squares method is based on the cost model Y = a + bX I. Since all the observations are included, all the values are summed up: ∑Y = na + b∑X II. To minimize distortion, the first equation is made bigger by multiplying it by ∑X. ∑XY = a∑X + b∑X2 III. Solve for values of b and a Eq. 1: 3.11 = .000005 + 1.15b Eq. 2: 770,900 = 1.15a + 307,100b 715,300 = 1.15a + 264,500b 55, 600 = 42, 600b b = P1.305164 770,900 = 1.15a + ( 307,100 x 1.31) 1.15a = 370,085 a = P320, 520
24
. Answer: A ∑X = 20 ∑Y = 53,500 ∑XY = 231,500 ∑X2 = 90 53,500 = 5a + 20b 231,500 = 20 + 90b 214,000 = 20a + 80b 17,500 = 10b b = P1,750
25
26
27
.
Answer: D Net incomeP 50,000Add Fixed Costs:ManufacturingP 15,000Selling and administrative 120,000 135,000Total Contribution MarginP185,000 . Answer: A Maintenance cost at high level: Total factory overhead P17,625,000 Less: Indirect materials (variable) 75,000 x P100 ( 7,500,000) Rent (fixed) ( 6,000,000) Amount of maintenance cost P 4,125,000 . Answer: A Analysis of maintenance cost b = (P4,125,000 – P3,250,000) ÷ (75,000 – 50,000) b = 875,000 ÷ 25,000 b = P35 a = P3,250,000 – (50,000 x P35) a = P1,500,000 Indirect materials 70,000 x 100 Rent Maintenance 500,000 + (70,000 x 35) Total Overhead costs
28
29
30
.
Answer: B b = (135,000 – 75,000) ÷ (120,000 – 40,000) 60,000 ÷ 80,000 a = P75,000 – (40,000 x 0.75)
Answer: D Y = P45,000 + P0.75X Y = P45,000 + (110,000 x P0.75) . Answer: A Number of bed days based on occupancy rate of: 80% = 450 x 30 x 0.8 60% = 450 x 30 x 0.6 b=
P 7,000,000 6,000,000 3,950,000 P16,950,000 P0.75 P45,000
P127,500
10,800 8,100
(10,800 x 32) - 326,700 10,800 - 8,100
18,900 ÷ 2,700
P7
31
32
33
34
35
36
. .
.
.
.
Answer: B a = P326,700 – (8,100 x P7)
P270,000
Answer: C Number of bed days at 75% occupancy rate 0.75 x 30 x 450 = 10,125 Y = P270,000 + (10,125 x P7)
P340,875
Answer: C b = (P130,000 – P115,000) ÷ (100,000 – 80,000) P15,000 ÷ 20,000 Answer: A a = P130,000 – (10,000 x P0.75) a = P55,000 Total fixed overhead: Maintenance Cost Depreciation Total
P 55,000 60,000 P115,000
Answer: B Utilities 110,000 x P0.6 Maintenance P55,000 + (110,000 x P0.75) Depreciation Total
P 66,000 137,500 60,000 P263,500
. Answer: B b = (P775 - P550) ÷ (650 - 420) P225 ÷ 230 b= P0.98 a = P775 - (650 x 0.98) = P775 - 637 a = P138.00
37
. Answer: C Slope represents the variable rate. Intercept represents total fixed cost
38
. Answer: C Y = 12 x 30 = P360 a = P360 – (12 x 3 x 10) =0
39
P0.75
.
Answer: A
b=
(105,000 x P11.40) - (70,000 x P13.40) 105,000 - 70,000
b = (P1,197,000 – P938,000) ÷ 35,000 b = P7.40
a = P938,000 – (70,000 x P7.40) a = P420,000 Y = P420,000 + P7.40X Y = P420,000 + (80,000 x 7.40) = P1,012,000 40
.
Answer: D Number of units sold = 1,500,000 ÷ 7,500 Costs of goods sold = P200 x 4,500 Variable selling expenses 200 x 500 Variable administrative expenses 0.20 x 100000 Total
200 P900,000 P100,000 20,000 P1,020,000
41
. Answer: D The total cost at an activity level of 16,000 units is determined as follows: Total cost = P30,000 + (16,000 units x P5.00 per unit) P110,000
42
. Answer: C Total Fixed Costs include: Rental Cost of the caller Prize money Total
P 3,000 200 P10,000 P13,200
Total Variable costs are: P3 per person for the 1,000 people attending
P 3,000
43
44
. Answer: B The cost of supplies varies based upon the number of players that attend each session not just the number of sessions .
Answer: D Total costs: (P3,000 + P13,200)
P16,200
If the number of people attending each session is the same, all of the costs act like variable costs and the average cost per session equals the total cost per session. 45
.
Answer: B If they hold 2 sessions per day: Hall Rental Caller salary (2 x P200) Total prize money Total cost of supplies Total Average cost per session P29,400 ÷ 2 sessions
P 3,000 400 20,000 6,000 P29,400 P14,700
The hall Rental is fixed per day and not per session. The prize money and cost of the caller varies per session and the cost of supplies varies per person attending. 46
47
. Answer: C Cost of Goods sold is P15 per unit. A variable cost is one which is constant per unit. Unit salesUnit Variable Cost1,00015,000 ÷ 1,000P152,00030,000 ÷ 2,000P153,00045,000 ÷ 3,000P15 . Answer: B
The salary is a mixed cost. Notice that the cost per unit and in total for each volume level are not the same. There is a variable cost component of P10 per unit and a fixed cost component of P10,000. Within a relevant range, unit variable cost as well as total fixed cost are constant. Variable cost (30,000 – 20,000) ÷ (2,000 – 1,000) Fixed cost 20,000 – (1,000 x 10) 48
49
50
P 10 P10,000
. Answer: C Cost of Goods Sold is a variable cost. Rent and Depreciation are fixed costs. Salary is a mixed cost that has some fixed cost behavior. .
.
Answer: B Sales P60 * 3000 units Total Variable Cost Contribution Margin
P180,000 75,000 P105,000
Total variable cost: Cost of goods sold Variable salary cost Total
P45,000 30,000 P75,000
Answer: B Rent Depreciation Fixed salary cost Total fixed costs
P20,000 30,000 10,000 P60,000
51
. Answer: C To analyze mixed cost using high-low method, the analyst always identifies and uses the lowest and the highest levels of activities. The reason is that the activity presumably causes costs, so the analyst would like to use data that reflects the greatest possible variation in activity.
52
. Answer: D The question does not require a computation. R2 (goodness of fit) indicates the percentage of the variation in the dependent variable (cost) that is explained by variation in the independent variable (activity). The adjusted R2 varies from zero to 100%, and the higher the percentage, the better.
53
.
Answer: A Variable cost 20,000 x 3.5 Fixed cost Total cost
P70,000 3,500 P73,500
