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Activity Cost and Analysis
MODULE 3ACTIVITY COST AND COST ANALYSIS
THEORIES:
1. Cost behavior analysis is a study of how a firm's costsA. 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. Bobadilla
2. The term “relevant range” as used in cost accounting means the range over which A. costs may fluctuate C. production may varyB. cost relationships are valid D. relevant costs are incurred 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. BobadillaB. strategic level of production. D. tactical operating level of production.
4. An item or event that has a cause-effect relationship with the incurrence of a variable cost is called aA. mixed cost. C. direct cost.B. predictor. D. cost driver. 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 toA. 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
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
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
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
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 increasesTotal variable cost decreases Increases decreases Increases
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
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. 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.D. It may change in total when such change depends on production within the relevant
range. Bobadilla
14. If activity increases, which of the following statements about cost behavior is true? BobadillaA. Fixed cost per unit will increase C. Fixed cost per unit will decreaseB. Variable cost per unit will increase D. Variable cost per unit will decrease
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Activity Cost Analysis
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. Bobadilla
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
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-
making 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. BobadillaD. Fixed costs frequently represent long-term investments in property, plant, and equipment.
18. Lamang Company changed its cost structure by increasing fixed costs and decreasing its per-unit 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
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
20. Management is considering replacing its existing sales commission compensation plan with a fixed salary plan. If the change is adopted, the company’sA. Breakeven point must increase. C. Operating leverage must increase.B. Margin of safety must decrease. D. Profit must increase. 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. Bobadilla
22. Operating leverage is the relative mix ofA. revenues earned and manufacturing costsB. fixed and variable costs.C. high-volume and low-volume products.D. manufacturing costs and period costs. Bobadilla
23. The increased use of automation and less use of the work force in companies has caused a trend towards an increase inA. 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
24. If fixed costs decrease while variable cost per unit remains constant, the contribution margin will beA. Unchanged C. HigherB. Lower D. Indeterminate Bobadilla
25. Costs that increase as the volume of activity decreases within the relevant range areA. Average cost per unit. C. Total fixed costs.B. Average variable cost per unit. D. Total variable 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. Bobadilla
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. Bobadilla
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Activity Cost Analysis
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. Bobadilla
30. Cost estimation is the process ofA. 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
31. Which of the following methods is used to estimate costs?A. Account analysis C. Engineering methodB. High-low method 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. Bobadilla
33. The high-low method is criticized because itA. 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
34. The high-low method may give unsatisfactory results ifA. the data points all fall on a line. C. the points are not representative.B. volume of activity is heavy. D. volume of activity is light. Bobadilla
35. The equation(s) required for applying the least squares method in the computation of fixed and variable production costs could be expressed asA. xy = ax + b x2 C. y = na + b xB. y = a + bx2 D. xy = ax + b x2
xy = na + b x y = na + bx Bobadilla
36. Weaknesses of the high-low method include all of the following exceptA. 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. Bobadilla
37. Which of the following methods estimates costs by identifying costs as variable or fixed based on qualitative analysis?
A. Regression analysis C. Engineering methodB. Account analysis D. High-low method Bobadilla
38. Account analysis as compared to the engineering methodA. 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. Bobadilla
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 methodB. Account analysis D. High-low method Bobadilla
40. The cost estimation method that gives the most mathematically precise cost prediction equation isA. the high-low method C. the scatter-diagram methodB. the contribution margin method D. regression analysis 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.B. uses all the data points, not just two. D. takes more time to do. Bobadilla
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
43. Simple regression isA. 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
44. Regression showsA. 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.
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Activity Cost Analysis
C. the proportion of the variation of dependent variable explained by the independent variables.
D. none of the above. Bobadilla
45. In the method of least squares, the deviation is the difference between theA. predicted and estimated costs. C. predicted and average costs.B. predicted and actual costs. D. average and actual costs. Bobadilla
46. A cost-predicting equation determined through regression analysisA. 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. Bobadilla
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. Bobadilla
48. Which of the following methods would be best for estimating costs for totally new activities?A. Engineering method C. Scattergraph methodB. Account analysis method D. High-Low method 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. Bobadilla
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
51. The closeness of the relationship between the cost and the activity is calledA. correlation C. spuriousB. regression analysis D. manufacturing overhead Bobadilla
52. R-squared is a measure ofA. the spurious relationship between cost and activityB. the fixed cost component
C. the variable cost per unit of activity BobadillaD. 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 toA. develop an equation to predict future costs.B. perform regression analysis on the results.C. determine the relevant range. BobadillaD. find the high and low points to use for the high-low method of estimating costs.
55. Advantages of the method of least squares over the high-low method include all of the following exceptA. a statistical method is used to mathematically derive the cost functionB. only two points are used to develop the cost functionC. the squared differences between actual observations and the line (cost function) are
minimizedD. all the observations have an effect on the cost function Bobadilla
56. The scatter diagram method of cost estimationA. is influenced by extreme observationsB. requires the use of judgmentC. uses the least-squares methodD. is superior to other methods in its ability to distinguish between discretionary and
committed fixed costs Bobadilla
PROBLEMS:
1. Nite Corporation has developed the following flexible budget formula for annual indirect labor costs:Total Cost = P480,000 + P5.00 per machine hourOperating 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. P580,000B. P100,000 D. P140,000 Bobadilla
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Activity Cost Analysis
2. 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 isA. P 12,800 C. P 84,800B. P 18,800 D. P774,000 Bobadilla
3. 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. P30.00B. P16.00 D. P62.50 Bobadilla
4. 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 60,000Variable factory overhead P150,000Fixed 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. P6.50B. P7.50 D. P8.13 Bobadilla
5. 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. P17,600B. P28,400 D. P38,400 Bobadilla
5 . Answer: BVariable rate = (∆ in activity cost)/(∆ in activity level)= (P84,000 – P46,000)/(3,500 – 1,100)= P16.00
Fixed cost a = y – bxa = P46,000 – (1,100 x 16)a = P28,400
6. 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.
What would be the expected operating costs, assuming that the occupancy rate increases to 60 percent during November?A. P1,056,000 C. P 756,000B. P 846,000 D. P 829,500 Bobadilla
7. 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
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Activity Cost Analysis
March 450,000 P723,060April 540,000 853,560May 480,000 766,560
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 755,196B. P1,188,756 D. P 752,060 Bobadilla
8. The following activity and cost data that were provided by Hoist Corporation would help in estimating its future maintenance costs:
Units Maintenance Cost3 P4507 P53011 P64015 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
9. 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
10. Balsy Company has provided the following data for maintenance cost:Prior Year Current Year
1 . Answer: DMonthly fixed costs 480,000 / 12 P 40,000Variable 20,000 x 5 100,000Total P140,000
2 . Answer: BMonthly budgeted fixed cost (72,000/12) P 6,000Variable cost based on actual units:Number of hours allowed (96,000 x 5/60)= 8,000 hoursVariable cost: 8,000 x 1.60 12,800Budgeted overhead cost P18,800
3 . Answer: CThe solution can be made using an equation approach:a = y – bX(P2,300,000 – 50,000X)1.25 = P2,800,000 – 60,000X2,875,000 – 62,500X = 2,800,000 – 60,000X2,500X = 75,000X = P30
4 . Answer: BVariable factory overhead (150,000/60,000) P2.50Fixed overhead [240,000/(60,000 x 0.80) 5.00Total rate P7.50
Note: Variable rate per activity unit is constant. Fixed overhead per unit behaves inversely with the activity-unit level.
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Activity Cost Analysis
Machine hours 12,500 15,000Maintenance 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. Bobadilla
11. Almond Company wishes to determine the fixed portion of its maintenance expense (a semi-variable 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 CostsJanuary 34,000 P61,000February 31,000 58,500March 34,000 61,000
What is the fixed portion of Almond Company’s maintenance expense, rounded to the nearest pesos?A. P28,330 C. P37,200B. P32,677 D. P40,800 Bobadilla
12. Clone Machinery had the following experience regarding power costs:Month Machine hours Power costJan. 300 P680Feb. 600 720Mar. 400 695Apr. 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 710B. P 705 D. P1,320 Bobadilla
13. 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 byA. P4,000. C. P4,300.B. P 300. D. none of the above amounts. Bobadilla
14. 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 toA. P3,650 C. P3,050B. P3,250 D. P2,950 Bobadilla
15. 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 beA. 4.90 minutes C. 3.33 minutesB. 3.43 minutes D. 3.23 minutes Bobadilla
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 beA. P 0 C. P2,160B. P 600 D. P1,250 Bobadilla
17. 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
18. 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 CostPeriod 1 24 P174Period 2 25 179Period 3 20 165Period 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 + P3.00XB. Y = P110.44 + P2.70X D. Y = P113.35 + P0.89X Bobadilla
19. 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
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Activity Cost Analysis
A. P2.40. C. P2.80.B. P2.57. D. P2.85. Bobadilla
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 HoursJanuary P6,750 1,500
April 7,500 1,700July 8,500 2,000
October 7,250 1,600Using the high-low method, what is the best equation?A. Y = P 750 + P5.00X C. Y = P 750 + P3.50XB. Y = P1,500 + P3.50X D. Y = P1,500 + P5.00X Bobadilla
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 wasA. P4.50 C. P6.00B. P5.00 D. P7.17 Bobadilla
22. 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
23. The following information is available for maintenance costs:Month Production Volume Maintenance CostsJune 150,000 P500,000July 230,000 620,000
August 380,000 800,000September 120,000 480,000
October 270,000 710,000Using the least squares, the estimate of the fixed portion of maintenance costs (rounded to thousand pesos) isA. P131,000 C. P332,000B. P321,000 D. P115,000 Bobadilla
24. 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 CostAY2004, First Semester 4 P10,000AY2004, Second Semester 6 14,000AY2004, Summer 2 7,000AY2005, First Semester 5 13,000AY2005, Second Semester 3 9,500
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. P1,200B. P1,500 D. P 900 Bobadilla
25. 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 HighDirect labor hours 50,000 75,000Total factory overhead costs P14,250,000 P17,625,000
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 5,000,000Rent (F) 6,000,000Maintenance (M) 3,250,000Total factory overhead costs P14,250,000
V = variable; F = fixed; M = mixed
26. 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. P4,450,000B. P4,220,000 D. P4,525,000 Bobadilla
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Activity Cost Analysis
27. What total factory overhead costs would you expect the company to incur at an operating level of 70,000 direct labor hours?A. P16,950,000 C. P13,000,000B. P13,950,000 D. P10,950,000 Bobadilla
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 ExpenseMarch 40,000 P 75,000April 65,000 82,500May 80,000 105,000June 105,000 120,000July 120,000 135,000
August 90,000 107,500September 75,000 97,500
28. Using the high-low method, what is the estimated monthly fixed cost for custodial supplies?A. P67,500 C. P42,500B. P45,000 D. P40,000 Bobadilla
29. 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. P110,000B. P 98,750 D. P127,500 Bobadilla
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.
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.
30. Using the high-low method, the amount of variable cost per occupied bed per cay isA. P 7.00 C. P12.00B. P 9.00 D. P15.00 Bobadilla
31. Using the variable cost as determined in number 36, the total fixed operating costs per month are:A. P240,000 C. P290,000B. P270,000 D. P300,000 Bobadilla
32. 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. P340,875B. 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.
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. Bobadilla
34. The total fixed overhead cost for Omara is:A. P115,000. C. P 60,000.B. P130,000. D. P 55,000. Bobadilla
35. 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
36. The following data were compiled from the records of Cabral Company:Month Usage CostJan. 600 P750Feb. 650 775Mar. 420 550Apr. 500 650May 450 570
Using the high-low method, what is the fixed cost element (to the nearest peso)?A. P225 C. P411B. P138 D. P364 Bobadilla
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Activity Cost Analysis
37. The following information was taken from a computer printout generated with the least squares method for use in estimating overhead costs:
Slope 90Intercept 11400Correlation coefficient 0.6Activity variable Direct labor hours
The cost formula isA. Overhead = P11,400 – P90X C. Overhead = P11,400 + P90XB. Overhead = P11,400 + (P45 x .6) D. Overhead = P11,400 x .6 Bobadilla
38. 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 30Mean value of the independent variable 10Coefficient of the independent variable 3Number of observations 12
What is the "a" value for the least squares regression model?A. 20B. 6C. 0D. The intercept term cannot be computed from the information given. Bobadilla
39. 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. P1,225,143B. P1,407,000 D. P1,072,000 Bobadilla
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 CompanyIncome StatementFor the Quarter Ended March 31
Sales P1,500,000Less cost of goods sold 900,000Gross margin 600,000
Less operating expenses: Selling expenses P300,000 Administrative expenses 100,000 400,000Net income P 200,000
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.
40. What is the variable cost per pair of skis?A. P 900,000 C. P1,000,000B. P 920,000 D. P1,020,000 Bobadilla
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
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.
42. Total costs for 1 session can be classified as:Bobadilla A. B. C. D.
Fixed Costs P13,200 P 3,000 P13,200 P10,000Variable Costs P 3 P13,200 P 3,000 P 3,200
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?A. Hall rental. C. Caller salary.B. Cost of supplies. D. Prize money. Bobadilla
44. 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
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Activity Cost Analysis
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 3,000Salary P20,000 P30,000 P40,000Cost of Goods Sold 15,000 30,000 45,000Cost/Unit of Depreciation 300 150 100Rent 20,000 20,000 20,000
46. Which of the above costs behaves as a Variable Cost?A. Rent. C. Cost of Goods sold.B. Salary. D. Depreciation. Bobadilla
47. Which of the above costs behaves as a Mixed Cost?A. Rent. C. Cost of Goods sold.B. Salary. D. Depreciation. Bobadilla
48. Which one does not contain any fixed cost behavior?A. Rent. C. Cost of goods sold.B. Salary. D. Depreciation. Bobadilla
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.
50. What is total fixed cost?A. P50,000. C. P60,100.B. P60,000. 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 40,000P50,000 41,000P58,000 42,000P56,000 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 costsIndependent variable – Machine hoursComputed valuesIntercept P3,500Coefficient on independent variable P 3.50Coefficient of correlation 0.856R2 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. P82,300B. P78,400 D. P84,750
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Activity Cost Analysis
6 . Answer: BDays Occupancy:70% -- 2,000 x 30 days x 0.7 42,00045% -- 2,000 x 30 days x 0.45 27,000
Variable cost per Room Day:
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 P216,000Fixed 630,000
Total P846,000
7 . Answer: Db = (853.560 – 723,060) ÷ (540,000 – 450,000)130,500 ÷ 90,000 P 1.45
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
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Activity Cost Analysis
8 . Answer: D∑X = 36∑Y = 2,320∑XY = 22,600∑X2 = 404
∑Y = na + b∑X∑XY = as + b∑X2
2,320 = 4a + 36b22,600 = 36a + 404b20,880 = 36a + 324b1,720 = 80bb = 21.50
2,320 = 4a + (36 x 21.50)2,320 = 4a + 7744a = 1,546a = 386.50
Y = 386.50 + 21.50 XY = 386.50 + (10 x 21.50)Y = 601.50
9 . Answer: C4X = 42,500 – 17,5004X = 25,000 X = 6,250
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Activity Cost Analysis
10 . Answer: Cb = (31,000 – 27,000) ÷ (15,000 – 12,500)4,000 ÷ 2,500b = 1.6
a = 31,000 - (15,000 x 1.60)a = 7,000
Y = 7,000 + 1.60X
11 . Answer: B
Variable Rate =
= 0.8333
Fixed : 61,000 – (34,000 x .8333)= 32,677
12 . Answer: Ab = (720 – 640) ÷ (600 - 200)80 ÷ 400 P0.20
a = 720 – (600 x .2)720 – 120 P600
Total Cost for month of MayY = 600 + (500 x 0.2) P700
13 . 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.
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Activity Cost Analysis
14 . Answer: AUnit level costs: P12000 ÷ 3000 x 800 P3,200Product level costs: P1,000 ÷ 40 x 4 100Customer level costs: P3,500 ÷ 10 350Cost of Job 002 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 . Answer: BTotal number of minutes used after completing 8 units:
(10 × .7 × .7 × .7) 3.43
18 . Answer: B23 . Answer: B27 . Answer: A34 . Answer: A39 . Answer: A
16 . Answer: CCumulative average after completing 4 units:
1,500 × .9 × .9 P1,215
Total costs of 4 units 4 x P1,215 P4,860Less total costs of first 2 units 1,500 x 0.9 x 2 2,700
Additional costs P2,160
17 . Answer: DNet income P 50,000Add: selling and admin. Expense 120,000Gross Margin 170,000Add: excess of contribution margin over gross margin 15,000Contribution Margin P185,000
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Activity Cost Analysis
∑X = 91∑Y = 687∑XY = 15,669∑X2 = 2,085
687 = 4a + 91b15,669 = 91a + 2,085b15,629.25 = 91a + 2,070.25b39.75 = 14.75b
b = P2.70
687 = 4a + (91 X 2.695)687 = 4a + 245.254a = 441.75a = P110.44
Y = P110.44 + P2.70X
19 . Answer: CVariable OH rate P 2.00Fixed OH rate (340,000 ÷ 425,000) 0.80Total OH rate P 2.80
20 . Answer: Bb = (8,500 – 6,750) ÷ ( 2,000 – 1,500) = 1,750 ÷ 500b = 3.50a = 8,500 – (2,000 x 3.5)a = 1,500y = 1,500 + 3.50X
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Activity Cost Analysis
∑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 modelY = 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 aEq. 1: 3.11 = .000005 + 1.15bEq. 2: 770,900 = 1.15a + 307,100b 715,300 = 1.15a + 264,500b55, 600 = 42, 600bb = P1.305164
770,900 = 1.15a + ( 307,100 x 1.31)1.15a = 370,085a = P320, 520
24 . Answer: A∑X = 20∑Y = 53,500∑XY = 231,500∑X2 = 90
53,500 = 5a + 20b
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Activity Cost Analysis
Analysis of maintenance costb = (P4,125,000 – P3,250,000) ÷ (75,000 – 50,000)b = 875,000 ÷ 25,000b = P35
a = P3,250,000 – (50,000 x P35)a = P1,500,000
Indirect materials 70,000 x 100 P 7,000,000Rent 6,000,000Maintenance 500,000 + (70,000 x 35) 3,950,000Total Overhead costs P16,950,000
28 . Answer: Bb = (135,000 – 75,000) ÷ (120,000 – 40,000) 60,000 ÷ 80,000 P0.75a = P75,000 – (40,000 x 0.75) P45,000
29 Answer: DY = P45,000 + P0.75XY = P45,000 + (110,000 x P0.75) P127,500
30 . Answer: ANumber of bed days based on occupancy rate of:
80% = 450 x 30 x 0.8 10,80060% = 450 x 30 x 0.6 8,100
b =
18,900 ÷ 2,700 P7
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Activity Cost Analysis
a = P130,000 – (10,000 x P0.75)a = P55,000
Total fixed overhead:Maintenance Cost P 55,000Depreciation 60,000Total P115,000
35 . Answer: BUtilities 110,000 x P0.6 P 66,000Maintenance P55,000 + (110,000 x P0.75) 137,500Depreciation 60,000
Total P263,500
36 . Answer: Bb = (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: CY = 12 x 30
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Activity Cost Analysis
b =
b = (P1,197,000 – P938,000) ÷ 35,000b = P7.40
a = P938,000 – (70,000 x P7.40)a = P420,000
Y = P420,000 + P7.40XY = P420,000 + (80,000 x 7.40)= P1,012,000
40 . Answer: DNumber of units sold = 1,500,000 ÷ 7,500 200
Costs of goods sold = P200 x 4,500 P900,000Variable selling expenses 200 x 500 P100,000Variable administrative expenses 0.20 x 100000 20,000Total P1,020,000
41 . Answer: DThe 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: CTotal Fixed Costs include:
Rental P 3,000Cost of the caller 200Prize money P10,000Total P13,200
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Activity Cost Analysis
Total Variable costs are: P3 per person for the 1,000 people attending P 3,00046 . 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
47 . Answer: BThe 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) P 10Fixed cost 20,000 – (1,000 x 10) P10,000
48 . Answer: CCost of Goods Sold is a variable cost. Rent and Depreciation are fixed costs. Salary is a mixed cost that has some fixed cost behavior.
49 . Answer: BSales P60 * 3000 units P180,000Total Variable Cost 75,000Contribution Margin P105,000
Total variable cost: Cost of goods sold P45,000 Variable salary cost 30,000
Total P75,000
50 . Answer: BRent P20,000Depreciation 30,000Fixed salary cost 10,000Total fixed costs P60,000
51 . Answer: C
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Activity Cost Analysis
43 . Answer: BThe cost of supplies varies based upon the number of players that attend each session not just the number of sessions
44 . Answer: DTotal 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.
= P360
a = P360 – (12 x 3 x 10)= 0
31 . Answer: Ba = P326,700 – (8,100 x P7) P270,000
32 . Answer: CNumber of bed days at 75% occupancy rate0.75 x 30 x 450 = 10,125
Y = P270,000 + (10,125 x P7) P340,875
33 . Answer: Cb = (P130,000 – P115,000) ÷ (100,000 – 80,000)P15,000 ÷ 20,000 P0.75
231,500 = 20 + 90b 214,000 = 20a + 80b17,500 = 10b
b = P1,750
25 . Answer: DNet incomeP 50,000Add Fixed Costs:ManufacturingP 15,000Selling and administrative
120,000 135,000Total Contribution MarginP185,00026 . Answer: A
Maintenance cost at high level:Total factory overhead P17,625,000Less: Indirect materials (variable) 75,000 x P100 ( 7,500,000)Rent (fixed) ( 6,000,000)
Amount of maintenance cost P 4,125,000
52 . Answer: DThe 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: AVariable cost 20,000 x 3.5 P70,000Fixed cost 3,500Total cost P73,500
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Activity Cost Analysis
21 . Answer: AChange 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: BContribution margin per unit: (P154,000 + P26,000) ÷ 12,000 units P15.00Variable cost per unit: P20.00 – P15.00 P 5.00
45 . Answer: BIf they hold 2 sessions per day:Hall Rental P 3,000Caller salary (2 x P200) 400Total prize money 20,000Total cost of supplies 6,000 Total P29,400Average cost per session P29,400 ÷ 2 sessions 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.
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.
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