Quiz 2

Cost Behavior Analysis

1. Direct materials and direct labor are considered to be:
A. selling expenses
B. prime costs
C. administrative expenses
D. conversion costs
E. factory overhead

2. Depreciation on factory buildings and equipment is classified as:

A. selling expense
B. administrative expense
C. direct labor
D. indirect materials
E. factory overhead

3. Easy Co., developed the following equation to predict certain components of its budget for
the coming period:
Costs = PHP100,000 + (PHP5 X direct labor hours)
The PHP5 would approximate:
a. Total cost
b. Direct labor rate per hour
c. Fixed cots per direct labor hour
d. The coefficient of determination
e. Variable costs per direct labor hour

4. The term “relevant range” as used in the cost accounting means the range over which:

a. Relevant costs are incurred

b. Cost relationships are valid
c. Costs may fluctuate
d. Sales volume fluctuates
e. Production may vary

5. An expense that is likely to contain both fixed and variable components is:
A. security guard wages
B. supplies
C. heat, light, and power
D. small tools
E. taxes on real estate

6. The term "variable costs" refers to:

A. all costs whose total amounts change in proportion to changes in activity within a
relevant range
B. all costs that are likely to respond to the amount of attention devoted to them by a
specified manager
C. all costs that are associated with marketing, shipping, warehousing, and billing
activities
D. all costs that do not change in total for a given period and relevant range, but become
progressively smaller on a per-unit basis as volume increases
E. all manufacturing costs incurred to produce units of output
7. The following statement that best describes a fixed cost is:
A. it may change in total when such change depends on production within the relevant
range
B. it increases on a per-unit basis as production increases
C. it decreases on a per-unit basis as production increases
D. it may change in total when such change is related to changes in production
E. it is constant per unit of production

8. When the number of units manufactured increases, the most significant change in average
unit cost will be reflected as:
A. a decrease in the variable element
B. a decrease in the nonvariable element
C. an increase in the semivariable element
D. an increase in the variable element
E. an increase in the nonvariable element

9. Within a relevant range, the amount of variable cost per unit:

A. moves in the same direction as fixed cost per unit
B. differs at each production level
C. remains constant at each production level
D. increases as production increases
E. decreases as production increases

10. The term "prime costs" refers to:

A. the sum of direct labor costs and all factory overhead costs
B. the sum of direct materials costs and direct labor costs
C. manufacturing costs incurred to produce units of output
D. all costs associated with manufacturing other than direct labor and direct materials
costs
E. cost standards that are predetermined and should be attained

11. The term "conversion costs" refers to:

A. costs that are associated with marketing, shipping, warehousing, and billing activities
B. the sum of direct labor costs and all factory overhead costs
C. the sum of direct materials costs and direct labor costs
D. manufacturing costs incurred to produce units of output
E. all costs associated with manufacturing other than direct labor costs and direct
materials costs

12. Direct labor is a:

Conversion Cost Manufacturing Cost Prime Cost

A. Yes Yes Yes
B. No Yes Yes
C. No No No
D. No No Yes
E. Yes Yes No

13. A factory overhead cost:

A. is a direct cost
B. is a prime cost
C. can be a variable cost or a fixed cost
 D. can only be a fixed cost
E. includes all factory labor

14. Prime cost and conversion cost share what common element of total cost?
A. direct labor
B. commercial expense
C. variable overhead
D. fixed overhead
E. direct materials

15. Factory overhead includes:

A. indirect materials but not indirect labor
B. indirect labor but not indirect materials
C. prime costs
D. all manufacturing costs
E. all manufacturing costs, except direct materials and direct labor

16. Indirect materials are a(n):

A. fixed cost
B. irrelevant cost
C. factory overhead cost
D. direct cost
E. prime cost

17. Wages of the security guard for a small plant are an example of:

Fixed Factory
Indirect Labor Overhead
A. No Yes
B. No No
C. Yes Yes
D. Yes No
E. none of the above

18. Wages paid to factory machine operators of a manufacturing plant are an element of:

Prime Cost Conversion Cost

A. Yes No
B. Yes Yes
C. No No
D. No Yes
E. none of the above

19. The following relationships pertain to a year’s budgeted activity for So Easy Company:
High Low
Direct labor hours 400,000 300,000
Total costs PHP154,000 PHP129,000

What are the budgeted fixed costs for the year?

 a. 100,000
b. 25,000
c. 54,000
d. 75,000
e. None of the above

20. Maintenance expenses of a company are to be analyzed for purposes of constructing a

flexible budget. Examination of past records disclosed the following costs and volume
measures:

High Low
Cost per month PHP39,200 PHP32,000
Machine hours 24,000 15,000

Using the high-low method of analysis, the estimated variable cost per machine hour is:

a. PHP12.50
b. PHP0.80
c. PHP0.08
d. PHP1.25
e. None of the above

21. 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:

October November December

Direct labor hours.............................. 2,500 3,000 5,000
Total factory
overhead allocated...................... PHP80,000 PHP75,000 PHP100,000

Based upon this information, the estimated variable cost per direct labor hour was:
A. PHP0.125
B. PHP12.50
C. PHP0.08
D. PHP8.00
E. none of the above

Classification of Costs. Place a check mark in the appropriate column to indicate the proper classification
of each of the following costs.

Other
Indirect Admini-
Indirect Indirect Factory Marketing strative
Item Materials Labor Costs Expenses Expenses
1. Factory heat, light,
and power......................................... X
2. Advertising......................................... X
3. Wages of stockroom clerk................... X
4. Freight out......................................... X
5. Oil for machines................................. X
6. Salary of vice president
 of human relations............................. X
7. Legal expenses................................... X
8. Salary of the factory manager............. X
9. Employer payroll taxes on
controller's salary............................... X

1.
High and Low Points Method. A controller is interested in analyzing the fixed and variable costs of
indirect labor as related to direct labor hours. The following data have been accumulated:

Indirect Direct Labor

Month Labor Cost Hours
March....................................................................................... PHP2,880 425
April.......................................................................................... 3,256 545
May.......................................................................................... 2,820 440
June......................................................................................... 3,225 560
July........................................................................................... 3,200 540
August...................................................................................... 3,200 495

Required: Determine the amount of the fixed portion of indirect labor expense and the variable rate for
indirect labor expense, using the high and low points method. (Round the variable rate to three decimal
places and the fixed cost to the nearest whole peso.)

Variable rate per indirect labor hours = 2.556

Fixed costs = 1,794

4.
Method of Least Squares. The management of Rainbow Inc. would like to separate the fixed and variable
components of electricity as measured against machine hours in one of its plants. Data collected over
the most recent six months follow:

Electricity Machine
Month Cost Hours
January..................................................................................... PHP1,100 4,500
February................................................................................... 1,110 4,700
March....................................................................................... 1,050 4,100
April.......................................................................................... 1,200 5,000
May.......................................................................................... 1,060 4,000
June......................................................................................... 1,120 4,600

Required: Using the method of least squares, compute the fixed cost and the variable cost rate for
electricity expense. (Round the variable rate to two decimal places and fixed cost to the nearest whole
peso.)

Variable rate = 0.13

Fixed cost = 524.00