Cost Accounting – Review 2

Easy Round

1. What costing system is used when homogeneous processing of products is made along with
individual modifications after the level for processing?
a. Process Costing
b. Activity-based Costing
c. Hybrid Costing
d. Extended Normal Costing

A hybrid costing system is a cost accounting system that includes features of both a job costing
and process costing system. For example, this situation arises when identical products are
manufactured until they reach the painting operation, after which each product receives a
different coating, with each coat having a different cost.

2. In a situation where assigning of actual cost to products is a problem, this costing system is used.
a. Process Costing
b. Activity-based Costing
c. Hybrid Costing
d. Extended Normal Costing

The extended normal costing method is most commonly used in situations where it is difficult to
assign actual costs to products. It derives production costs by multiplying budgeted or standard
costs by the number of actual units produced

3. It involves the tracing of many types of cost to specific cost objects.

a. Absorption Costing
b. Activity-based Costing
c. Hybrid Costing
d. Total Costing

Full costing is one of the more time-consuming accounting functions, since it involves the tracing
of many types of costs to specific cost objects. Full costing also known as absorption costing.

4. At the end of fiscal year, equivalent units of production is a term applied to:
a. Finished Goods Inventory
b. Work-in-Process Inventory
c. Raw Materials Inventory
 d. MRO Supplies

Equivalent units of production is a term applied to the work-in-process inventory at the end of
an accounting period. It is the number of completed units of an item that a company could
theoretically have produced, given the amount of direct materials, direct labor, and
manufacturing overhead costs incurred during that period for the items not yet completed.

5. Which standard/s requires the reporting of actual cost incurred when reporting expenses?
a. GAAP
b. IFRS
c. Both a and b
d. Neither a nor b

Both Generally Accepted Accounting Principles (GAAP) and International Financial Reporting
Standards (IFRS) require that an entity report its actual costs incurred when reporting expenses.

6. Advertising, Bonuses, Direct Materials, Donations, and Employee Compensation are what type
of cost?
a. Controllable Cost
b. Consumable Cost
c. Fixed Cost
d. Differential Cost

Controllable costs are those costs that can be altered in the short term. More specifically, a cost
is considered to be controllable if the decision to incur it resides with one person.

7. In accepting or rejecting special orders, this analysis is most commonly used by managers.
a. Inferential Analysis
b. Differential Analysis
c. Causal Analysis
d. Mechanistic Analysis

Managers often use differential analysis to decide whether to accept a special one-time order
made by a customer. Managers compare sales revenue and costs for each alternative (accept or
reject the special order), and select the alternative with the highest profit.

8. Which of the following is not a prime cost?

a. Raw Materials
 b. Piece rate pay
c. Commission
d. Utilities

Utilities are example of overhead expenses. Piece rate pay is the cost of labor and related
payroll taxes directly associated with the production of one additional unit. If there is a
salesperson commission associated with a specific sale, then that is a prime cost.

9. Single Company manufactures Boyfriend/Girlfriend Dolls. In 2021, It has the following data:

Cost Pools Activity Cost Cost Drivers

Polyvinyl Chloride P120,000 3,000 lbs.
3D Machine setup P9,750 325 repetitions
3D Machine repair time P1,045 5 units
Quality Inspections P8,100 135 inspections

Requirements for Job 222

Polyvinyl Chloride 100 lbs
3D Machine setup 25 reps
3D Machine repair time 0.50 hours
Quality Inspections 10 inspections

If 1 unit is equal to 15-minute intervals, the total prime cost that should be assigned to job 222 is
(No space after comma for final answer)
P4,000

Polyvinyl Chloride (P120,000/3,000 lbs) x 100 lbs = P4,000

10. Listed below are selected line items from the cost of quality report for Max Products for last
month

Category Amount

Rework P725

Equipment maintenance P1,154

Product Testing P786

Product Repair P695

What is Max’s total prevention and appraisal cost for last month

a. P786
 b. P1,154
c. P1,1940
d. P2,665

The costs of prevention and appraisal are conformance costs that serve as financial measures of
internal performance. Prevention costs are incurred to prevent defective output. Appraisal costs
are incurred to detect nonconforming output. The equipment maintenance cost is a prevention
cost, while product testing cost is an appraisal cost:

P1,154 + P786 = P1,940

Average Round

1. Activity cost pools are used in activity-based costing, it helps to

a. Track the cause of an activity
b. Compile all the relevant costs
c. Deduct unnecessary cost
d. Assign cost on specific task

Activity cost pools help to accurately assign costs, which is important in determining the
profitability of products and making production decisions to improve profit margins.

2. Backflush costing is primarily designed to

a. Eliminates work-in-process
b. Shorten accounting process
c. Minimize the finished goods inventory
d. All of the above
e. None of the above

Backflush costing is appropriate in a JIT environment, because in this environment work-in-

process and finished-goods inventories are minimal, and goods are sold as they are produced.

3. The primary characteristic of a sunk cost is that:

a. Its marginal cost exceeded its marginal benefit
b. Its marginal benefit exceeded its marginal cost
 c. Its marginal cost is zero
d. Its marginal benefit is zero

Sunk costs are costs that were paid. Since economic decisions are based on the marginal cost
and the marginal benefit of a proposed action, the primary characteristic of sunk costs is that
their marginal cost is zero, regardless of the initial cost.

4. This involves studying the business processes of companies that are considered among the best
in the world in performing a particular task.
a. Business process
b. Benchmarking
c. Non-constraint
d. Total quality management

Benchmarking is the practice of comparing business processes and performance metrics to

industry bests and best practices from other companies.

5. In traditional costing, what cost is allocated to products depending on the consumed production
resources volume?
a. Direct Materials
b. Direct Labor
c. Factory Overhead
d. Administrative Expense

Traditional costing is the allocation of factory overhead to products based on the volume of
production resources consumed. Under this method, overhead is usually applied based on
either the amount of direct labor hours consumed or machine hours used.

6. What is the objective of Kaizen Costing?

a. The fixation of selling price to attain higher profitability
b. Efficient cost measurement for managerial decision making
c. To achieve proper recording and presentation of cost data.
d. To achieve lower cost in manufacturing products.

The objective of Kaizen costing is to reduce actual costs to manufacture a product below the
standard cost. It is the process of continual cost reduction that occurs after a product design has
been completed and is now in production.

7. The following are the quality cost data collected for Show Off JPIA 2020 and 2021
 2020 2021

Prevention Costs P4,000 P5,000

Maintenance Costs P6,000 P5,000

Rework costs P12,000 P15,000

Warranty costs P14,000 P11,000

Assembly wages P90,000 P100,000

If the NFJPIA R10 & CARAGA uses a direct labor base, the quality cost index

a. Decreased 4 points from 2020 to 2021

b. Was unchanged from 2020 to 2021
c. Increased 10 points from 2020 to 2021
d. Decreased 10 points from 2020 to 2021

Quality cost indices are often used to measure and analyze the cost of maintaining a given level
of quality. It uses different type of base for its index: direct labor, total sales, total
manufacturing cost, and etc.

2020 – (4,000+6000+12000+14000) / 90000 = 0.40 or 40%

2021 – (5000+5000+15000+11000) / 100,000 = 0.36 or 36%

2021 – 2020 = 0.36 – 0.40 = – 0.04

8. Single Company manufactures Boyfriend/Girlfriend Dolls. In 2021, It has the following data:

Cost Pools Activity Cost Cost Drivers

Polyvinyl Chloride P120,000 3,000 lbs.
3D Machine setup P9,750 325 repetitions
3D Machine repair time P1,045 5 units
Quality Inspections P8,100 135 inspections

Requirements for Job 222

Polyvinyl Chloride 100 lbs
3D Machine setup 25 reps
3D Machine repair time 0.50 hours
Quality Inspections 10 inspections
 If 1 unit is equal to 15-minute intervals, the total overhead that should be assigned to job 222 is
(No space after comma for final answer)
P1,768

3D Machine setup25 reps (9,750/325) x 25 reps 750

3D Machine repair time (1,045/5) x (30 mins/15 mins) 418
Quality Inspections (8,100/135) x 10 inspections 600
Total overhead P1,768

9. RastaMan Company is planning to add new model of ghost rider bike, the The Ghoster-31, on its
present product lines. The expected cost and revenue data for The Ghoster-31 bike are as
follows:
Annual Sales 4,000 units
Unit selling price P58
Unit variable cost:
Production P34
Selling P4
Avoidable direct fixed costs per year:
Production P20,000
Selling P30,000

If the Ghoster-31 model is added as a new product line, it is expected that the contribution
margin of other product lines at RastaMan will drop by P7,000 per year.

What is the lowest unit selling price that could be charged for the Ghoster-31 model and still
make it economically desirable for RastaMan to add new product line?

P52.25

Solution

Variable cost per unit P38.00

Avoidable direct fixed cost per unit (20,000 +30,000) / 4,000 P12.50

Contribution margin of other product loss P1.75

Selling Price P52.25

10. RastaMan Company is planning to add new model of ghost rider bike, the The Ghoster-31, on its
present product lines. The expected cost and revenue data for The Ghoster-31 bike are as
follows:
 Annual Sales 4,000 units
Unit selling price P58
Unit variable cost:
Production P34
Selling P4
Avoidable direct fixed costs per year:
Production P20,000
Selling P30,000

If the Ghoster-31 model is added as a new product line, it is expected that the contribution
margin of other product lines at RastaMan will drop by P7,000 per year.

If the Ghoster-31 product line is added next year, the change in net income in RastaMan
resulting from this decision would be
a. P30,000 increase
b. P5,000 decrease
c. P23,000 increase
d. P15,000 increase

Ghoster-31 Segment Margin (P58 – P50.50)* P30,000

Contribution Margin loss on other product (P7,000)

Change in Net Income P23,000

Variable cost per unit P38.00

Avoidable direct fixed cost per unit (20,000 +30,000) / 4,000 P12.50

Total Cost of Ghoster-31 P50.50

Difficult Round

1. Which among the statement is true with regards to marginal and absorption costing?
a. Overhead costs is recorded as expense under absorption costing
b. Marginal costing includes factory overhead in the inventory asset
c. Profitability on sale will appear to be lower under absorption costing.
d. Gross margin is used for measurement of profits under marginal costing.
1
Overhead costs are charged to expense in the period under marginal costing, whereas they are
applied to products under the absorption costing method. 2Absorption costing is required by the
applicable accounting frameworks for financial reporting purposes, so that factory overhead will
be included in the inventory asset. 3The profitability of each individual sale will appear to be
higher under marginal costing, while profitability will appear to be lower under absorption
costing. 4The measurement of profits under marginal costing uses the contribution margin
(which excludes applied overhead), while the gross margin (which includes applied overhead) is
used under absorption costing.

2. The cost of statistical quality control in a product quality cost system is categorized as a(an)
a. Internal failure cost
b. Training cost
c. Prevention cost
d. Appraisal cost

Appraisal costs are expenses related to quality control that a company incurs to ensure its
products and services meet the standards of its customers, the company, and regulatory
requirements.

3. All of the following would generally be included in a cost-of-quality report, except

a. Warranty claims
b. Design engineering
c. Supplier evaluations
d. Lost contribution margin

Lost contribution margin doesn’t concern the quality of products. Cost of quality is a method for
calculating the costs companies incur ensuring that products meet quality standards, as well as
the costs of producing goods that fail to meet quality standards. The goal of calculating cost of
quality is to create an understanding of how quality impacts the bottom line.

4. A semivariable cost:
 a. Increases and decreases directly and proportionately with changes in volume
b. Changes in response to a change in volume, but not proportionately
c. Increases if volume increases but remains constant if volume decreases
d. Changes inversely in response to a change in volume

Semi-variable costs are also referred to as mixed costs or semi-fixed costs. Costs of this kind may
change, but they do not change in direct proportion to changes in activity.

5. The following information pertains to the Brandon Company:

Selling price per unit P123
Standard fixed manufacturing costs per unit P60
Variable selling and administration costs per unit P12
Standard variable manufacturing costs per unit P3
Fixed selling and administrative costs P48,000
Units produced 10,000
Units sold 9,600

What is variable costing breakeven in units? (NO need to put LABEL)

6,000
Solution
Expenses = Profit
Expenses = Contribution Margin
(48,000 + (10,000 x P60)) = (P123 – P3 – P12) * X
(48,000 + (10,000 x P60)) / (P123 – P3 – P12) = X = 6,000 units

6. The following information pertains to the Brandon Company:

Selling price per unit P123
Standard fixed manufacturing costs per unit P60
Variable selling and administration costs per unit P12
Standard variable manufacturing costs per unit P3
Fixed selling and administrative costs P48,000
Units produced 10,000
Units sold 9,600

What is absorption costing breakeven in units? (NO need to put LABEL)

1,000
Solution
Expenses = Profit
Expenses = Contribution Margin
48,000 = (P123 – P3 – P12 – P60) * X
P48,000 = 48X
 P48,000/P48 = X = 1,000 Units

7. BBMo Ako Company sells love potion for P35 per unit, and the variable production and sales
costs are P21 per unit. If BBMo Ako Company adopts 40% increase in selling price of its product,
how much can unit sales decline before total profits decline? (Ex Ans: 35%)
50%
The contribution margin was P14 (P35 – P21) without price increase and P28 (P35 X 1.4 – P21)
with the increase. Thus, sales volume could decline by 50% before profits would fall below profit
level without sales increase.

8. Carmen Lumber Enterprise uses standard costing. For the month of October 2021, the shop
reported the following data:
I. Standard direct labor rate: P10/hr
II. Standard hours allowed for actual production: 8,000
III. Actual Direct labor rate: P9.50/hr
IV. Labor efficiency variance: P4,800 favorable

The labor rate variance for October is

a. P3,760 U
b. P3,760 F
c. P2,850 F
d. P2,850 U

Solution

Labor Efficiency Variance = Difference in Time x Standard rate

LEV = DT x Standard Rate

4,800 F = DT x P10

DT = 4,800 F / 10

DT = 480 F DT = Actual Time – Standard Time

480 F = AT – 8,000

AT = 7,520 (8,000 – 480)

Labor Rate Variance = Difference in Rate x Actual Time

LRV = (P9.50 – P10) x 7,520 hrs.

Labor Rate Variance = P3,760 F

9. Carmen Lumber Enterprise uses standard costing. For the month of October 2021, the shop
reported the following data:
V. Standard direct labor rate: P10/hr
VI. Standard hours allowed for actual production: 8,000
VII. Actual Direct labor rate: P9.50/hr
VIII. Labor efficiency variance: P4,800 favorable

The total labor variance for October is

a. P1,040 U
b. P1,040 F
c. P8,560 F
d. P8,560 U
Solution
Labor Rate Variance P3,760 F
Labor Efficiency Variance P4,800 F
Total Labor Variance P8,560 F

10. Red Velvet Company uses flexible budgeting for cost control. Red Velvet produced 10,800 CDs
during March, incurring an indirect material cost of P13,000. Its master budget for the year
reflected an indirect material costs of P180,000 at a production volume of 144,000 units. A
flexible budget for March production would reflect indirect material costs of
P13,500
Total budgeted costs of P180,000 divided by budgeted units of 144,000 results in a unit cost of
P1.25. The budgeted cost for March is 10,800 units times P1.25 or P13,500.