1.

A decision-making concept, described as the “contribution to income that is foregone by not using a limited
source for its best alternative use,” is called
a. Marginal Cost c. Potential Cost
b. Incremental Cost d. Opportunity Cost
2. In a decision analysis situation, which one of the following costs is not like to contain a variable cost component
a. Labor c. Depreciation
b. Overhead d. Selling
3. The term that refers to costs incurred in the past that are not relevant to a future decision is
a. Full absorption cost c. Sunk cost
b. Under-allocated indirect cost d. Incurred marginal cost

Questions 4-6 are based on the following information. Management accountants are frequently asked to analyze
various decision situations including the following:

I. The cost of a special device that is necessary if a special order is accepted

II. The cost proposed annually for the plant service for the grounds at corporate headquarters
III. Joint production cost incurred, to be considered in a sell-at-split versus a process-further decision
IV. The cost of alternative use of plant space to be considered in make-or-buy decision
V. The cost of obsolete inventory acquired several years ago, to be considered in a keep-versus-disposal
decision
4. The costs described in situations I and IV are
a. Prime costs c. Relevant costs
b. Discretionary costs d. Differential costs
5. The costs described in situations III and V are
a. Prime costs c. Discretionary costs
b. Sunk costs d. Relevant costs
6. The cost described in situation II is a
a. Prime costs c. Relevant costs
b. Discretionary costs d. Differential costs
7. Management accountants are concerned with incremental unit costs. These costs are similar to the following
except
a. The economic marginal cost
b. The variable cost
c. The cost to produce an additional unit
d. The manufacturing unit cost
8. Opportunity costs are
a. Costs irrevocably incurred by past actions
b. The difference between actual and standard costs
c. Not recorded in the accounting records
d. Partly fixed costs and partly variable costs

9. Cost of goods sold is a component of the income statement. In a merchandising establishment, this refers to
purchases adjusted for changes in inventory. In a manufacturing company, what replaced purchases to arrive at
cost of goods sold?
a. Finished goods c. Work in process inventory
b. Fixed manufacturing overhead d. Cost of good manufactured
10. The salaries you could be earning by working rather than attending college is an example of
a. Outlay costs c. Sunk costs
b. Misplaced costs d. Opportunity costs
 11. Which of the following employees of a boutique hotel would be classified as direct labor?
a. Hotel supervisor c. Sales representative
b. Hotel security guard d. Plant supervisor
12. Which of the following topics is of more concern to management accounting than to cost accounting?
a. Generally accepted accounting principles
b. Inventory valuation
c. Cost of goods sold valuation
d. Impact of economic conditions on company operations
13. For what reason is product cost primarily tracked?
a. To keep up with current cost trends to bring products to market
b. To effectively allocate the cost of products to measure profitability
c. To determine what amounts are necessary for allocating overhead
d. To keep management’s bonuses increasing every year
14. Mine and Yours Company uses a regression equation to analyze the behavior of its transportation costs (T) as a
function of travel-time (H). They developed the following equation using two years’ observation with a related
coefficient of determination of .85:

T = 100,000 + P50H

If 500 hours of travel time were logged in one period, the related point estimate of total transportation costs
would be

a. P110,000 c. P106,250
b. P121,000 d. P125,000
15. These are among the methods of segregating fixed cost and variable costs except
a. Breakeven method c. Scattergraph method
b. Simple regression analysis d. High-low method
16. Jackson, Inc., is preparing a flexible budget for next year and requires a breakdown of the cost of steam used in
its factory into the fixed and variable elements. The following data on the cost of steam used and direct labor
hours worked are available for the last 6 months of this year.

Month Cost of Steam (P) Direct Labor Hours

July 15, 850 3, 000
August 13, 400 2, 050
September 16, 370 2, 900
October 19, 800 3, 650
November 17, 600 2, 670
December _18, 500_ _2, 650_
Total P 101, 520 16, 920
Assuming that Jackson uses the high-low method of analysis, the estimated variable cost of steam per direct
labor hour is

a. P4.00 c. P5.82
b. P5.42 d. P6.00
For the numbers 17 and 18

Mat Company estimates its material handling costs at two activity levels as follows:

Kilos Handled Cost

80,000 P160,000
60,000 P132,000
17. What is Mat’s estimate cost of handling 75,000 kilos?
a. P150,000 c. P157,500
b. P153,000 d. P132,000

18. The total production cost for 20,000 units was P21,000 and the total production cost for making 50,000 units
was P34,000. Once production exceeds 25,000 units, additional fixed costs of P4,000 were incurred. The full
production cost per unit for making 30,000 units is:
a. P0.30 c. P0.84
b. P0.68 d. P0.93
19. Regression analysis
a. Estimates the independent cost variable
b. Uses probability assumptions to determine total project costs
c. Estimates the dependent cost variable
d. Ignores the coefficient of determination
20. Simple regression analysis provides the means to evaluate a line of regression, which is fitted to a plot of data
and represents
a. The way costs change with respect to the dependent variable
b. The way costs change with respect to both independent and dependent variables
c. The variability expense with pesos of production
d. The way costs change with respect to the independent variable
21. The slope of the line of regression is
a. The rate at which the independent variable varies
b. The rate at which the dependent variable varies
c. The level of the fixed costs
d. The level of the total variable costs
22. Simple regression analysis involves the use of

Dependent Independent Dependent Independent

Variables Variables Variables Variables
a. One None c. One Two
b. One One d. None two
23. The segregation of fixed costs and variable costs is key to proper cost analysis. Regression analysis is a technique
used for this purpose. Identify the appropriate statements below on regression analysis:
1. It assumes that a change in value of a dependent variable is related to the change in the value of an
independent variable.
2. A linear relationship between direct cost and production volume can cause a problem when using
accounting data for regression analysis.
3. It attempts to find an equation for the linear relationship among variable.
4. It establishes a cause and effect relationship.

a. All four statements are appropriate

b. Statements 1, 3 and 4 only
c. Statements 1 and 3 only
d. Statements 2 and 4 only
24. In the standard regression equation Y = a + bx, the letter b is best described as a(n):
a. Independent variable c. Constant coefficient
b. Dependent variable d. Variable coefficient
25. The letter “x” in the standard regression equation is best described as a(n)
a. Independent variable c. Constant coefficient
b. Dependent variable d. Coefficient of determination
26.
Average Cost per hour 9.00
A 684.65
B 7.2884
Standard error of a 49.515
Standard error of b .12126
Standard error of the estimate 34.469
R2 .99724

Based upon the data described from the regression analysis, 420 maintenance hours in a month would mean the
maintenance costs (rounded to the nearest peso) would be budgeted at
a. P3,780 c. P3,790
b. P3,600 d. P3,746
27. An auditor used regression analysis to evaluate the relationship between utility costs and machine hours. The
following information was developed using a computer software program:

Intercept 2,050
Regression .825
Correlation coefficient .800
Standard error of the estimate 200
Numbers of observations 36
What is the expected utility cost if the company’s 10 machines will use 2,400 hours next month?

a. P4,050 c. P3,970
b. P4,030 d. P3,830

28. Y = P575,000 + P8.50x represents the behavior of maintenance costs (Y) as a function of machine hours (x).
Thirty (30) monthly observations were used to develop the foregoing regression equation. The related
coefficient of determination was .90. if 2,500 machines hours were worked in one month, the related estimate
of total variable maintenance costs would be:
a. P23,000 c. P25,250
b. P21,250 d. P19,125
29. Quality control program employs many tools for problem definition and analysis. A scatter diagram is one of
these tools. The objective of a scatter diagram is to
a. Display a population of items for analysis
b. Show frequency distribution in graphic form
c. Divide a universe of data into homogeneous groups
d. Show the vital trend and separate trivial items
30. Correlation is a term frequently used in conjunction with regression analysis and is measured by the value of the
coefficient of correlation, “r”. The best explanation of the value “r” is that it
a. Interprets variances in terms of the independent variable
b. Ranges in size from negative infinity to positive infinity
c. Is a measure of the relative relationship between two variables
d. Is positive only for downward-sloping regression lines