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Activity Cost and Analysis

MODULE 3 7. A cost that remains constant on a per unit basis in a given period despite changes in the level
ACTIVITY COST AND COST ANALYSIS of activity should be considered a(an):
A. variable cost. C. fixed cost.
THEORIES: B. prime cost. D. overhead cost. Bobadilla

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

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A. Breakeven point must increase. C. Operating leverage must increase.

14. If activity increases, which of the following statements about cost behavior is true? Bobadilla B. Margin of safety must decrease. D. Profit must increase. 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 21. The indifference point is the level of volume at which a company
A. earns the same profit under different operating scheme.
15. An increase in the activity level within the relevant range results in: B. earns no profit.
A. an increase in fixed cost per unit. C. earns its target profit.
B. a proportionate increase in total fixed costs. D. any of the above. Bobadilla
C. an unchanged fixed cost per unit.
D. a decrease in fixed cost per unit. Bobadilla 22. Operating leverage is the relative mix of
A. revenues earned and manufacturing costs
16. A cost that remains constant in total but varies on a per-unit basis with changes in activity is B. fixed and variable costs.
called a(n) C. high-volume and low-volume products.
A. expired cost. C. variable cost. D. manufacturing costs and period costs. Bobadilla
B. fixed cost. D. mixed cost. Bobadilla
23. The increased use of automation and less use of the work force in companies has caused a
17. Which of the following statements regarding fixed costs is incorrect? trend towards an increase in
A. Expressing fixed costs on a per unit basis usually is the best approach for decision- A. both variable and fixed costs.
making process. B. fixed costs and a decrease in variable costs.
B. Fixed costs expressed on a per unit basis will react inversely with changes in activity. C. variable costs and a decrease in fixed costs.
C. Assumptions by accountants regarding the behavior of fixed costs rest heavily on the D. variable costs and no change in fixed costs. Bobadilla
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
18. Lamang Company changed its cost structure by increasing fixed costs and decreasing its per- A. Unchanged C. Higher
unit variable costs. The change: B. Lower D. Indeterminate Bobadilla
A. Increases risk and increases potential profit.
B. Increases risk and decreases potential profit. 25. Costs that increase as the volume of activity decreases within the relevant range are
C. Decreases risk and decreases potential profit. A. Average cost per unit. C. Total fixed costs.
D. Decreases risk and increases potential profit. Bobadilla 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: 26. Which costs will change with an increase in activity within the relevant range?
A. an increase in sales volume is expected. A. Total fixed costs and total variable cost.
B. a decrease in sales volume is expected. B. Per unit fixed costs and total variable cost.
C. the firm is very unprofitable. C. Per unit variable cost and per unit fixed cost.
D. the firm has very high fixed costs. Bobadilla D. Per unit fixed cost and total fixed cost. Bobadilla

20. Management is considering replacing its existing sales commission compensation plan with a 27. Which of the following best describes the relationship between fixed costs per unit and
fixed salary plan. If the change is adopted, the company’s variable costs per unit, as total volume increases?

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A. Fixed cost per unit stays the same and variable cost per unit stays the same. 35. The equation(s) required for applying the least squares method in the computation of fixed and
B. Fixed cost per unit stays the same and variable cost per unit increases. variable production costs could be expressed as
C. Fixed cost per unit increases and variable cost per unit increases. A. xy = ax + b x2 C.  y = na + b x
D. Fixed cost per unit decreases and variable cost per unit stays the same. Bobadilla B. y = a + bx2 D. xy = ax + b x2
xy = na + b x y = na + bx 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. 36. Weaknesses of the high-low method include all of the following except
B. variable cost per unit is constant and fixed cost per unit fluctuates. A. Only two observations are used to develop the cost function.
C. both total variable cost and total fixed cost are constant. B. The high and low activity levels may not be representative.
D. both total variable cost and total fixed cost fluctuate. Bobadilla C. the method does not detect if the cost behavior is nonlinear.
D. the mathematical calculations are relatively complex. Bobadilla
29. The learning curve in cost estimation is a good example of:
A. non-linear cost behavior. C. simple regression. 37. Which of the following methods estimates costs by identifying costs as variable or fixed based
B. machine-intensive production. D. a random variable. Bobadilla on qualitative analysis?
A. Regression analysis C. Engineering method
30. Cost estimation is the process of B. Account analysis D. High-low method Bobadilla
A. estimating the relationship between costs and the cost drivers that cause those costs.
B. documenting costs in terms of direct and indirect costs. 38. Account analysis as compared to the engineering method
C. summarizing past costs into fixed and variable components. A. relies on past data.
D. all of the above. Bobadilla B. relies on present and future data.
C. measures the work involved in the activities that go into a product.
31. Which of the following methods is used to estimate costs? D. a and c. Bobadilla
A. Account analysis C. Engineering method
B. High-low method D. All of the above Bobadilla 39. Which of the following methods may be used to estimate costs by using time-and-motion
studies to approximate labor time?
32. For analysis purposes, the high-low method usually produces a(n) A. Regression analysis C. Engineering method
A. reasonable estimate. C. overstated estimate. B. Account analysis D. High-low method Bobadilla
B. precise estimate. D. understated estimate. Bobadilla
40. The cost estimation method that gives the most mathematically precise cost prediction
33. The high-low method is criticized because it equation is
A. is not a graphical method. A. the high-low method C. the scatter-diagram method
B. is a mathematical method. B. the contribution margin method D. regression analysis Bobadilla
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:
34. The high-low method may give unsatisfactory results if A. is more mathematical. C. fits its data into a mathematical equation.
A. the data points all fall on a line. C. the points are not representative. B. uses all the data points, not just two. D. takes more time to do. Bobadilla
B. volume of activity is heavy. D. volume of activity is light. Bobadilla
42. In regression analysis, what does the variable "X" stand for in the model Y = a + bX + e?
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A. The amount of the dependent variable, the cost to be estimated. 49. The engineering method of estimating costs:
B. The regression error, which is the distance between the regression line and the data A. can be used to estimate costs for totally new activities.
point. B. can detail each step required to perform an operation.
C. The value for the independent variable, the cost driver for the cost to be estimated; there C. sometimes can be quite expensive to use.
may be one or more cost drivers. D. all of the above are true. Bobadilla
D. The unit variable cost, also called the coefficient of the independent variable. Bobadilla
50. The correlation coefficient or R-squared (R2) is interpreted as:
43. Simple regression is A. the minimum distance between the regression line and a single data point.
A. a regression equation with more than one independent variable. B. the measure of the linear relationship between two or more variables.
B. a regression equation with more than one dependent variable. C. a determination of whether the data point is considered to be an "outlier."
C. a regression equation with more than one independent and dependent variables. D. the proportion of the variation in the dependent variable explained by the independent
D. a regression that considers all unknown factors. Bobadilla variable. Bobadilla

44. Regression shows 51. The closeness of the relationship between the cost and the activity is called
A. the proportion of the variation of dependent variable explained by dependent variables. A. correlation C. spurious
B. the proportion of the variation of independent variable explained by the independent B. regression analysis D. manufacturing overhead Bobadilla
variables.
C. the proportion of the variation of dependent variable explained by the independent 52. R-squared is a measure of
variables. A. the spurious relationship between cost and activity
D. none of the above. Bobadilla B. the fixed cost component
C. the variable cost per unit of activity Bobadilla
45. In the method of least squares, the deviation is the difference between the D. how well the regression line accounts for the changes in the dependent variable
A. predicted and estimated costs. C. predicted and average costs.
B. predicted and actual costs. D. average and actual costs. Bobadilla 53. The principal advantage of the scatter-diagram method over the high-low method of cost
estimation is that the scatter-diagram method
46. A cost-predicting equation determined through regression analysis A. includes cost outside the relevant range.
A. always gives close predictions. B. considers more than two points.
B. will not work any better than one obtained using the high-low method. C. can be used with more types of costs than the high-low method.
C. can be used only for costs that vary with sales of production. D. gives a precise mathematical fit of the points to the line. Bobadilla
D. could be severely affected by outliers. Bobadilla
54. The major objective of preparing a scatter-diagram is to
47. In the cost equation TC = F + VX, the X term is: A. develop an equation to predict future costs.
A. total fixed costs. C. unit variable cost. B. perform regression analysis on the results.
B. total variable costs. D. activity units. Bobadilla C. determine the relevant range. Bobadilla
D. find the high and low points to use for the high-low method of estimating costs.
48. Which of the following methods would be best for estimating costs for totally new activities?
A. Engineering method C. Scattergraph method 55. Advantages of the method of least squares over the high-low method include all of the
B. Account analysis method D. High-Low method Bobadilla following except
A. a statistical method is used to mathematically derive the cost function

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B. only two points are used to develop the cost function Direct labor hours 60,000
C. the squared differences between actual observations and the line (cost function) are Variable factory overhead P150,000
minimized Fixed factory overhead P240,000
D. all the observations have an effect on the cost function Bobadilla 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?
56. The scatter diagram method of cost estimation A. P6.00 C. P6.50
A. is influenced by extreme observations B. P7.50 D. P8.13 Bobadilla
B. requires the use of judgment
C. uses the least-squares method 5. Irma Company manufactures office furniture. During the most productive month of the year,
D. is superior to other methods in its ability to distinguish between discretionary and 3,500 desks were manufactured at a total cost of P84,400. In its slowest month, the company
committed fixed costs Bobadilla 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
PROBLEMS: B. P28,400 D. P38,400 Bobadilla

1. Nite Corporation has developed the following flexible budget formula for annual indirect labor 6. Palm, Inc. has a total of 2,000 rooms in its nationwide chain of hotels. On the average, 70
costs: percent of the rooms are occupied each day. The company’s operating cost is P21 per
Total Cost = P480,000 + P5.00 per machine hour occupied room per day at this occupancy level, assuming a 30-day month. This P21 figure
Operating budgets for the current month are based upon 20,000 machine hours of planned contains both variable and fixed cost elements. During October, the occupancy dropped to
machine time. Indirect labor costs included in this planning budget are: only 45 percent. A total of P792,000 in operating costs were incurred during the month.
A. P 48,333 C. P580,000
B. P100,000 D. P140,000 Bobadilla What would be the expected operating costs, assuming that the occupancy rate increases to
60 percent during November?
2. Harem Company uses an annual cost formula for overhead of P72,000 + P1.60 for each direct A. P1,056,000 C. P 756,000
labor hour worked. For the upcoming month Karla plans to manufacture 96,000 units. Each B. P 846,000 D. P 829,500 Bobadilla
unit requires five minutes of direct labor. Harem Company’s budgeted overhead for the month
is 7. The controller of Jema Company has requested a quick estimate of the manufacturing
A. P 12,800 C. P 84,800 supplies that it needs for the month of July when the expected production are 470,000 units.
B. P 18,800 D. P774,000 Bobadilla Below are the actual data from the prior three months of operations.
Production in units Manufacturing supplies
3. Total production costs for Jordan, Inc. are budgeted at P2,300,000 and P2,800,000 for 50,000 March 450,000 P723,060
and 60,000 units of budgeted output, respectively. Because of the need for additional facilities, April 540,000 853,560
budgeted fixed costs for 60,000 units are 25 percent more than budgeted fixed costs for May 480,000 766,560
50,000 units. How much is Jordan’s budgeted variable cost per unit of output? Using these data and the high-low method, what is the reasonable estimate of the cost of
A. P 7.50 C. P30.00 manufacturing supplies that would be needed for July? (Assume that this activity is within the
B. P16.00 D. P62.50 Bobadilla relevant range.)
A. P 805,284 C. P 755,196
4. Deakin Company is preparing a flexible budget for the coming year and the following B. P1,188,756 D. P 752,060 Bobadilla
maximum capacity estimates for Department OZ are available:

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8. The following activity and cost data that were provided by Hoist Corporation would help in B. P32,677 D. P40,800 Bobadilla
estimating its future maintenance costs:
Units Maintenance Cost 12. Clone Machinery had the following experience regarding power costs:
3 P450 Month Machine hours Power cost
7 P530 Jan. 300 P680
11 P640 Feb. 600 720
15 P700 Mar. 400 695
Using the least-squares regression method to estimate the cost formula, the expected total Apr. 200 640
cost for an activity level of 10 units would be closest to: Assume that management expects 500 machine hours in May. Using the high-low method,
A. P612.50. C. P595.84. calculate Clone's power cost using machine hours as the basis for prediction.
B. P581.82. D. P601.50. Bobadilla A. P 700 C. P 710
B. P 705 D. P1,320 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. 13. In the equation Y = P4,000 + P3X; Y is the cost of workers' compensation insurance and X is
B. 4,375 units. D. 5,250 units. Bobadilla 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
10. Balsy Company has provided the following data for maintenance cost: A. P4,000. C. P4,300.
Prior Year Current Year B. P 300. D. none of the above amounts. Bobadilla
Machine hours 12,500 15,000
Maintenance cost P27,000 P31,000 14. Using multiple regression, you have identified P12,000 of unit level costs for 3,000 units,
The best estimate of the cost formula for maintenance would be: P1,000 of product level costs for 40 products, and P3,500 of customer-level costs for ten
A. P21,625 per year plus P0.625 per machine hour. customers. The cost of Job 002 which used 800 unit level activities, 4 product level activities,
B. P 7,000 per year plus P0.625 per machine hour. and one customer-level activities amounts to
C. P 7,000 per year plus P1.60 per machine hour. A. P3,650 C. P3,050
D. P27,000 per year plus P1.60 per machine hour. Bobadilla B. P3,250 D. P2,950 Bobadilla

11. Almond Company wishes to determine the fixed portion of its maintenance expense (a semi- 15. It takes a worker 10 minutes to assemble a toy. With a learning curve of 70% as production
variable expense), as measured against direct labor hours for the first Malayan three months doubles, the average time (per unit) needed to make 8 units would be
of the year. The inspection costs are fixed; however, the adjustments necessitated by errors A. 4.90 minutes C. 3.33 minutes
found during inspection account for the variable portion of the maintenance costs. Information B. 3.43 minutes D. 3.23 minutes Bobadilla
for the first Malayan quarter is as follows:
Direct Labor Hours Maintenance Costs 16. The cost to rebuild a race car engine is P1,500, and a buyer offers to buy four engines for
January 34,000 P61,000 P6,000. Assuming a cumulative learning curve of 90% as production doubles, the incremental
February 31,000 58,500 cost of the third and fourth items will be
March 34,000 61,000 A. P 0 C. P2,160
What is the fixed portion of Almond Company’s maintenance expense, rounded to the nearest B. P 600 D. P1,250 Bobadilla
pesos?
A. P28,330 C. P37,200

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17. At a sales level of P300,000, Jamaica Company's gross margin is P15,000 less than its Based on the foregoing information, the variable cost per unit for the month of June was
contribution margin, its net income is P50,000, and its selling and administrative expenses A. P4.50 C. P6.00
total P120,000. At this sales level, its contribution margin would be: B. P5.00 D. P7.17 Bobadilla
A. P250,000. C. P170,000.
B. P155,000. D. P185,000. 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
18. The Shepherd Company’s president would like to know the estimated fixed and variable as the lowest level. What is the variable cost per peso sales?
components of a particular cost. Actual data for this cost for four recent periods appear below. A. P0.33. C. P0.54.
Activity Cost B. P0.47. D. P3.00 Bobadilla
Period 1 24 P174
Period 2 25 179 23. The following information is available for maintenance costs:
Period 3 20 165 Month Production Volume Maintenance Costs
Period 4 22 169 June 150,000 P500,000
Using the least-squares regression method, what is the cost formula for this cost? July 230,000 620,000
A. Y = P 0.00 + P7.55X C. Y = P103.38 + P3.00X August 380,000 800,000
B. Y = P110.44 + P2.70X D. Y = P113.35 + P0.89X Bobadilla September 120,000 480,000
October 270,000 710,000
19. Sams Company. wants to develop a single predetermined overhead rate. The company's Using the least squares, the estimate of the fixed portion of maintenance costs (rounded to
expected annual fixed overhead is P340,000 and its variable overhead cost per machine hour thousand pesos) is
is P2. The company's relevant range is from 200,000 to 600,000 machine hours. Sams A. P131,000 C. P332,000
Company expects to operate at 425,000 machine hours for the coming year. The plant's B. P321,000 D. P115,000 Bobadilla
theoretical capacity is 850,000. The predetermined overhead rate per machine hour should be
A. P2.40. C. P2.80. 24. Tomas Ocampo has just been appointed chairperson of the Accountancy Department of
B. P2.57. D. P2.85. Bobadilla 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:
20. The Overland Company wants to develop a cost estimating equation for its monthly cost of Semester/Term Number of Subjects Offered Total Cost
electricity. It has the following data: AY2004, First Semester 4 P10,000
Month Electricity Cost Direct Labor Hours AY2004, Second Semester 6 14,000
January P6,750 1,500 AY2004, Summer 2 7,000
April 7,500 1,700 AY2005, First Semester 5 13,000
July 8,500 2,000 AY2005, Second Semester 3 9,500
October 7,250 1,600 Tomas knows that there are some variable costs, such as amounts paid to student assistants,
Using the high-low method, what is the best equation? associated with the course. He would like to have variable and fixed cost components
A. Y = P 750 + P5.00X C. Y = P 750 + P3.50X separated for planning purposes.
B. Y = P1,500 + P3.50X D. Y = P1,500 + P5.00X Bobadilla Using the least-squares method, what is the variable cost per section of MAS?
A. P1,750 C. P1,200
21. During the month of June, Behold Corporation produced 12,000 units and sold them for P20 B. P1,500 D. P 900 Bobadilla
per unit. Total fixed costs for the period were P154,000, and the operating profit was P26,000.

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25. At a sales level of P300,000, Java Company's gross margin is P15,000 less than its March 40,000 P 75,000
contribution margin, its net income is P50,000, and its selling and administrative expenses April 65,000 82,500
total P120,000. At this sales level, its contribution margin would be: May 80,000 105,000
A. P250,000. C. P170,000. June 105,000 120,000
B. P155,000. D. P185,000. Bobadilla July 120,000 135,000
August 90,000 107,500
Question Nos. 26 and 27 are based on the following information: September 75,000 97,500
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 28. Using the high-low method, what is the estimated monthly fixed cost for custodial supplies?
hours worked in the plant. Total factory overhead costs at high and low levels of activity for recent A. P67,500 C. P42,500
years follow: B. P45,000 D. P40,000 Bobadilla
Low High
Direct labor hours 50,000 75,000 29. Using the high-low method in calculating the cost formula for custodial supplies, what amount
Total factory overhead costs P14,250,000 P17,625,000 of this expense would you expect to be incurred at an occupancy level of 110,000 guests?
A. P 92,500 C. P110,000
The factory overhead costs above consist of indirect materials, rent, and maintenance. The B. P 98,750 D. P127,500 Bobadilla
company has analyzed these costs at the 50,000-hour level of activity as follows:
Indirect materials (V) P 5,000,000 Question Nos. 30 through 32 are based on the following:
Rent (F) 6,000,000 St John Hospital contains 450 beds. The average occupancy rate is 80 percent per month. In other
Maintenance (M) 3,250,000 words, on average, 80 percent of the hospital’s beds are occupied by patients. At this level of
Total factory overhead costs P14,250,000 occupancy, the hospital’s operating costs are P32 per occupied bed per day, assuming a 30-day
month. This P32 figure contains both variable and fixed cost components.
V = variable; F = fixed; M = mixed
During the month of June, the hospital’s occupancy rate was only 60 percent. A total of P326,700
26. How much of the P17,625,000 factory overhead cost at the high level of activity consist of in operating cost was incurred during that month.
maintenance cost?
A. P4,125,000 C. P4,450,000 30. Using the high-low method, the amount of variable cost per occupied bed per cay is
B. P4,220,000 D. P4,525,000 Bobadilla 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? 31. Using the variable cost as determined in number 36, the total fixed operating costs per month
A. P16,950,000 C. P13,000,000 are:
B. P13,950,000 D. P10,950,000 Bobadilla A. P240,000 C. P290,000
B. P270,000 D. P300,000 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 32. Assuming an occupancy rate of 75 percent in a particular month, what amount of total
months were: operating costs would you expect the hospital to incur?
Month Guest-Days of Occupancy Custodial Supplies Expense A. P310,000 C. P340,875
B. P315,500 D. P375,500 Bobadilla
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The cost formula is

Question Nos. 33 through 35 are based on the following: A. Overhead = P11,400 – P90X C. Overhead = P11,400 + P90X
In the Omara Manufacturing Company, at an activity level of 80,000 machine hours, total overhead B. Overhead = P11,400 + (P45 x .6) D. Overhead = P11,400 x .6 Bobadilla
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 38. The following information pertains to data that have been gathered in the process of estimating
100,000 machine hours, maintenance costs were P130,000. a simple least squares regression:
Mean value of the dependent variable 30
Assume that all of the activity levels mentioned in this problem are within the relevant range. Mean value of the independent variable 10
Coefficient of the independent variable 3
33. The variable cost for maintenance per machine hour is: Number of observations 12
A. P1.30. C. P0.75. What is the "a" value for the least squares regression model?
B. P1.44. D. P1.35. Bobadilla A. 20
B. 6
34. The total fixed overhead cost for Omara is: C. 0
A. P115,000. C. P 60,000. D. The intercept term cannot be computed from the information given. Bobadilla
B. P130,000. D. P 55,000. Bobadilla
39. TransEx Company operates a fleet of delivery trucks in Luzon. The company has determined
35. If 110,000 machine hours of activity are projected for the next period, total expected overhead that if a truck is driven 105,000 kilometers during a year, the average operating cost is P11.40
cost would be: per kilometer. If a truck is driven only 70,000 kilometers during a year, the average operating
A. P256,000. C. P306,625. cost increases to P13.40 per kilometer. Assuming that in a given year, a truck were driven
B. P263,500. D. P242,500. Bobadilla 80,000 kilometers, what total cost would you expect to be incurred?
A. P1,012,000 C. P1,225,143
36. The following data were compiled from the records of Cabral Company: B. P1,407,000 D. P1,072,000 Bobadilla
Month Usage Cost
Jan. 600 P750 Question Nos. 40 through 41 are based on the following:
Feb. 650 775 The House of TROPS Company is a large retailer of sports equipment. An income statement for
Mar. 420 550 the company’s Ski Department for a recent quarter is presented as follows:
Apr. 500 650
May 450 570 The House of TROPS Company
Using the high-low method, what is the fixed cost element (to the nearest peso)? Income Statement
A. P225 C. P411 For the Quarter Ended March 31
B. P138 D. P364 Bobadilla
Sales P1,500,000
37. The following information was taken from a computer printout generated with the least squares Less cost of goods sold 900,000
method for use in estimating overhead costs: Gross margin 600,000
Slope 90 Less operating expenses:
Intercept 11400 Selling expenses P300,000
Correlation coefficient 0.6 Administrative expenses 100,000 400,000
Activity variable Direct labor hours Net income P 200,000
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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 Use the following Information to answer Question Nos. 46 through 51.
percent fixed. The company does not manufacture its own skis; it purchases them from a supplier Units Sold @ P60/each
for P4,500 per pair. 1,000 2,000 3,000
Salary P20,000 P30,000 P40,000
40. What is the variable cost per pair of skis? Cost of Goods Sold 15,000 30,000 45,000
A. P 900,000 C. P1,000,000 Cost/Unit of Depreciation 300 150 100
B. P 920,000 D. P1,020,000 Bobadilla Rent 20,000 20,000 20,000

41. Given the cost formula Y = P30,000 + P5X, total cost at an activity level of 16,000 units would 46. Which of the above costs behaves as a Variable Cost?
be: A. Rent. C. Cost of Goods sold.
A. P 30,000. C. P 80,000. B. Salary. D. Depreciation. Bobadilla
B. P 46,000. D. P110,000. Bobadilla
47. Which of the above costs behaves as a Mixed Cost?
Question Nos. 42 through 45 are based on the following: A. Rent. C. Cost of Goods sold.
A local church wants to rent a hall for P3,000 a day to hold a Bingo fundraiser. Every session of B. Salary. D. Depreciation. Bobadilla
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 48. Which one does not contain any fixed cost behavior?
session. P10,000 in prizes are awarded each session. A. Rent. C. Cost of goods sold.
B. Salary. D. Depreciation. Bobadilla
42. Total costs for 1 session can be classified as:
Bobadilla A. B. C. D. 49. If 3,000 units are sold what is the contribution margin?
Fixed Costs P13,200 P 3,000 P13,200 P10,000 A. P 75,000. C. P135,000.
Variable Costs P3 P13,200 P 3,000 P 3,200 B. P105,000. D. P180,000.

43. The church conducts 1 Bingo session per month. Over the course of the year, which cost 50. What is total fixed cost?
would not act as a variable cost based on just holding one more session? A. P50,000. C. P60,100.
A. Hall rental. C. Caller salary. B. P60,000. D. P90,000.
B. Cost of supplies. D. Prize money. Bobadilla
51. Given the following information, choose the cost and activity that would be used as the high
44. If the church conducts 12 sessions and 1,000 people attend each session, the average cost data point in high-low cost estimation:
per session is? Costs Activity (hours)
A. P 9,600. C. P15,200. P51,000 40,000
B. P14,700. D. P16,200. Bobadilla P50,000 41,000
P58,000 42,000
45. The church is thinking of holding 2 Bingo sessions per day with 1,000 people attending each P56,000 43,000
session. If they hold the 2 sessions, the average cost per session is? A. P58,000 and 42,000 hours C. P56,000 and 43,000 hours
A. P 9,600. C. P15,200. B. P58,000 and 43,000 hours D. P56,000 and 42,000 hours
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Use the following simple regression results based on the data from the Madrigal Corporation to 2,875,000 – 62,500X = 2,800,000 – 60,000X
answer Question Nos. 52 and 53. 2,500X = 75,000
Dependent variable – Machine maintenance costs X = P30
Independent variable – Machine hours
Computed values 4 . Answer: B
Intercept P3,500 Variable factory overhead (150,000/60,000) P2.50
Coefficient on independent variable P 3.50 Fixed overhead [240,000/(60,000 x 0.80) 5.00
Coefficient of correlation 0.856 Total rate P7.50
R2 0.733
Note: Variable rate per activity unit is constant. Fixed overhead per unit behaves inversely
52. What percentage of the variation in maintenance costs is explained by the independent with the activity-unit level.
variable?
A. 85.6% C. 47.3% 5 . Answer: B
B. 95.2% D. 73.3% Variable rate = (∆ in activity cost)/(∆ in activity level)
= (P84,000 – P46,000)/(3,500 – 1,100)
53. What is the total maintenance cost for an estimated activity level of 20,000 machine hours? = P16.00
A. P73,500 C. P82,300
B. P78,400 D. P84,750 Fixed cost a = y – bx
a = P46,000 – (1,100 x 16)
a = P28,400

1 . Answer: D 6 . Answer: B
Monthly fixed costs 480,000 / 12 P 40,000 Days Occupancy:
Variable 20,000 x 5 100,000 70% -- 2,000 x 30 days x 0.7 42,000
Total P140,000 45% -- 2,000 x 30 days x 0.45 27,000

2 . Answer: B Variable cost per Room Day:

Monthly budgeted fixed cost (72,000/12) P 6,000 (42,000 x 21) - 792,000
Variable cost based on actual units: P6.00
Number of hours allowed
42,000 - 27,000
(96,000 x 5/60)= 8,000 hours
Variable cost: 8,000 x 1.60 12,800 Fixed costs: 792,000 – (27,000 x 6) P630,000
Budgeted overhead cost P18,800
Cost at 60% rate:
3 . Answer: C Variable:
The solution can be made using an equation approach: 2,000 x 30 x 0.6 x P6 P216,000
a = y – bX Fixed 630,000
(P2,300,000 – 50,000X)1.25 = P2,800,000 – 60,000X
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