Ateneo de Zamboanga University

Accountancy Department

Cost Accounting and Cost Management, Part I

MODULE 2: COST BEHAVIOR AND ESTIMATION

Instructor: Kelvin J. Culajara, CPA, JD

1. Jackson, Inc. is preparing a flexible budget for 2020 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 six months of 2019:
Month Cost of Steam (in PHP) 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

Assuming that Jackson uses the high-low points method of analysis, the estimated
variable cost of steam per direct labor hour should be:
A. P4
B. P5.42
C. P5.82
D. P6

2. Meg Co. has developed a regression equation to analyse the behaviour of its
maintenance costs (Q) as a function of machine hours (Z). The following equation
was developed by using 30 monthly observations with a related coefficient of
determination of .90:

Q = P6,000 + P5.25Z

If 1,000 machine hours are worked in one month, the related point estimate of total
maintenance costs would be:
A. P11,250
B. P10,125
C. P5,250
D. P4,725

Questions 3 and 4 are based on the maintenance expenses of a company, which are to be
analysed for purposes of constructing a flexible budget. Examination of past records
disclosed the following costs and volume measures:
Highest Lowest
Cost per month 39,200 32,000
Machine hours 24,000 15,000

3. Using the high-low point method of analysis, the estimated variable cost per
machine hour is:
A. P1.25
B. P12.50

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 C. P0.80
D. P0.08

4. Using the high-low technique, estimate the annual fixed cost for maintenance
expenditures:
A. P447,360
B. P240,000
C. P230,400
D. P384,000

5. A company allocates its variable factory overhead based on direct labor hours.
During the past three months, the actual direct labor hours and the total factory
overhead allocated were as follows:
January February March
Direct labor hours 1,000 3,000 5,000
Total factory 80,000 140,000 200,000
overhead allocated
(in PHP)

Based upon this information, monthly fixed factory overhead was:

A. P30,000
B. P50,000
C. P46,667
D. P33,333

6. A cost accountant has compiled the actual costs for six different levels of activity.
This cost data is shown below:
Observation Activity Cost (in PHP)
H 20 200
I 40 200
J 60 600
K 80 800
L 100 1,000
M 100 1,200

If the high-low point method is applied, the rate of variable cost per hour of
activity is:
A. P8
B. P10
C. P12.50
D. P15
E. None of these

Questions 7 and 8 are based on the following information. As part of a cost study, a
manager has recorded the actual maintenance expenses for six different levels of machine
hours. The cost data is shown below:
Month Machine Hours Cost per Month
January 12,000 22,000
February 10,000 21,000
March 15,000 25,400
April 11,000 20,000
May 16,000 27,200

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June 14,000 24,000

7. If the manager applies the high-low point method, the estimated variable cost per
machine hour is:
A. P0.80
B. P1.02
C. P1.20
D. P1.70
E. Answer not given

8. Using also the high-low point method, the estimated annual fixed cost for
maintenance expenses is:
A. P48,000
B. P96,000
C. P120,000
D. P144,000
E. Answer not given

Questions 9 to 12 are based on the following information. As a part of a cost study, the
cost accountant of Red Lauan Inc. has recorded the cost of operations at seven different
levels of material usage. This information is shown as follows:
Kilos of Materials Cost of Operations (in PHP)
100 1,000
75 600
25 400
150 1,500
175 1,600
50 600
125 1,300

9. Using the high-low point method, the variable cost of operations per kilos of
materials used is:
A. P7.80
B. P8
C. P9.14
D. P16
E. None of these

10. Using the same high-low point method, the fixed cost of operation is:
A. P200
B. P400
C. P1,200
D. P1,600
E. None of these

11. Using the least squares method, the average rate of variability per kilo of materials
used is:
A. P5.16
B. P8.71
C. P10.84
D. P11.64
E. None of these

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 12. Using the least squares methods, the fixed portion of the cost is
A. P109
B. P129
C. P200
D. P271
E. None of these

Questions 13 and 14 are based on the following information. For budgeting and control
purposes, the controller of Mabun Manufacturing Company is in the process of
estimating the variable cost per hour and the fixed cost per month of operating an
automated equipment. Data for the past 12 months of operations have been gathered as
follows:
Number of observations 12
Sum of the hours 840
Sum of the costs (in PHP) 9,000

13. Using the least-squares method in cost segregation, what was the variable cost per
hour to operate the machine?
A. P5.25
B. P10.25
C. P5
D. P12
E. None of these

14. What was the fixed cost per month?

A. P360
B. P400
C. P90
D. P420
E. None of these

15. The Katagalan Company makes toys Y and Z, each of which needs two processes:
cutting and sanding. The contribution margin is P3 for product Y and P4 for
product Z. The table below shows the maximum number of units (constraints) of
each product that may be processed in the two departments.
Maximum Capacity (in Product Units)
Product Cutting Sanding
Y 30 40
Z 30 20

Considering the constraint on processing, which combination of products Y and Z

maximizes the total contribution margin?
A. 20 units of Y and 10 units of Z
B. 30 units of Y and 0 units of Z
C. 40 units of Y and 0 units of Z
D. 0 units of Y and 20 units of Z
E. O units of Y and 30 units of Z

16. You are requested to help in the preparation of flexible budgets. The study made
of the shipping expense showed the following over a period of time and there is no
indication that past trends will change in the future.

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 Sales Volume (in PHP) Shipping Expense (in PHP)
10,300,000 3,000
11,700,000 3,100
13,500,000 3,330
27,500,000 5,850
9,300,000 2,889
9,700,000 2,910
14,000,000 4,170
15,000,000 4,200
10,000,000 2,900
10,500,000 3,255

Using the high-low point method, the fixed cost of operation is:
A. P950
B. P600
C. P750
D. P800

17. For a simple regression analysis model that is used to allocate factory overhead, an
internal auditor finds that the intersection of the line of best fit for the overhead
allocation with the y-axis is P5,000. The slope of the trend line is .20. The
independent variable, factory wages, amounts to P900,000 for the month. What is
the estimated amount of factory overhead to be allocated for the month?
A. P65,000
B. P180,000
C. P230,000
D. P92,500
E. P185,000

Questions 18 and 19 are based on Mulvey Company which derived the following cost
relationship from a regression analysis of its monthly manufacturing overhead cost

C = P80,000 + P = 12M

Where: C = monthly manufacturing overhead cost

M = machine hours

The standard error of estimate of the regression is P6,000. The standard time required to
manufacture one six-unit case of Mulvey’s single product is 4 machine hours. Mulvey
applies manufacturing overhead to production on the basis of machine hours, and its
normal annual production is 50,000 cases.

18. Mulvey’s estimated variable manufacturing overhead cost for a month in which
schedule production is 5,000 cases would be
A. P80,000
B. P320,000
C. P240,000
D. P360,000
E. None of these

19. Mulvey’s predetermined fixed manufacturing overhead rate would be:

A. P1.60 per machine hour

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 B. P3.20 per machine hour
C. P4 per machine hour
D. P4.80 per machine hour
E. P0.40 per machine hour

20. Jacob Corp. wishes to determine the fixed portion of its maintenance expense (a
semi-variable expense), as measured against direct labor hours, for the first three
months of the year. The inspection costs are fixed; the adjustments necessitated by
errors found during inspection account for the variable portion of the maintenance
costs. Information for the first quarter is as follows:
Direct Labor Hours Maintenance Expenses
(in PHP)
January 34,000 610
February 31,000 585
March 34,000 610

What is the fixed portion of Jacob’s maintenance expense, rounded to the nearest
peso?
A. P283
B. P327
C. P372
D. P408