COST ACCOUNTING AND COST MANAGEMENT

COST ACCOUNTING AND COST MANAGEMENT

Easy 1.Refers to the income or benefit sacrificed or foregone when an alternative is selected over another [A] avoidable cost [B] postponable cost [C] out-of-pocket cost [D] opportunity cost.

2.The following are the functions of controllership, except: [A] reporting and

interpreting decisions made by management [B] planning and control [C]tax administration and compliance with all the requirements of governmental regulatory bodies [D] protection of assets.

3.The collection, presentation and analysis of cost data should serve the following essential uses or aims, except: [A] planning profit by means of budgets [B] controlling costs via responsibility accounting [C] assisting in establishing selling prices and a pricing policy [D] furnishing relevant cost data for evaluation of decisions made by management .

4.The following are examples of variable cost, which one is the exception: [A] sales commission [B] depreciation [C] royalties [D] overtime premiums.

5.The following are examples of factory overhead, which is not included: [A] overtime premiums [B] cost of spoilage and rework not chargeable to a particular job [C] power used in machine operation [D] all of the choices are considered factory overhead .Moderate 6.Statement I: Capital expenditures relate to the use of resources for future benefits – the benefits extending two or more accounting periods; Statement II: Revenue expenditures are costs that will benefit only the current period. [A] both statements are false [B] both statements are true [C] statement I is true, statement II is false [D] statement I is false, statement II is true.

7.The following are the characteristics of variable cost, which one is not included: [A] costs tend to vary or change in total amount in an indirect proportion to volume of activity [B] comparatively constant cost per unit in the face of changing volume [C] easy and reasonable accurate assignments to operating departments [D] control of their incurrence and consumption by the responsible department head.

8.Statement I: Financial Accounting data may be both historical and estimates. However, more emphasis is given to future estimates; Statement II: Financial Accounting reports are in the form of one set of all-purpose financial statements that will serve the needs of both external and internal users. [A] both statements are false [B] both statements are true [C] statement I is true, statement II is false [D] statement I is false, statement II is true.Difficult 9.Statement I: Financial Accounting reports are prepared and required not only by shareholders, prospective investors, and creditors but also by the different regulatory bodies; Statement II: Management Accounting is optional for its existence and function since it depends upon management and its needs. [A] both statements are false [B] both statements are true [C] statement I is true, statement II is false [D] statement I is false, statement II is true.

10.Cost accounting is area of accounting concerned with cost determination, cost control and cost analysis. Which of the following statements is a description pertaining to cost analysis? [A] refers to the accumulation of cost data by products, processes or services to be able to arrive at a unit cost or cost per work unit [B] refers to the comparison of standards set for costs per unit and per work unit with the figures per actual operations so that remedial measures may be adopted [C] refers to the use of cost data by management in decision-making [D] none of the choices.

Easy 1.The following data have been taken from the accounting records of Davis Corporation for

the just completed year:

Administrative expenses P 600,000 Direct labor 800,000 Finished goods inventory, beginning480,000 Finished goods inventory, ending 640,000 Manufacturing overhead 920,000 Purchases of raw materials 480,000 Raw materials inventory, beginning 160,000 Raw materials inventory, ending 280,000 Sales 3,960,000 Selling expenses 560,000 Work in process inventory, beginning280,000 Work in process inventory, ending 200,000 Determine the amount to be reported for prime Cost: [A] 1,160,000 [B] 1,100,000 [C]

1,150,000 [D] 1,110,000

Solution:

2.The following data have been taken from the accounting records of Davis Corporation for

the just completed year:

Administrative expenses P 600,000 Direct labor 800,000 Finished goods inventory, beginning480,000 Finished goods inventory, ending 640,000 Manufacturing overhead 920,000 Purchases of raw materials 480,000 Raw materials inventory, beginning 160,000 Raw materials inventory, ending 280,000 Sales 3,960,000 Selling expenses 560,000 Work in process inventory, beginning280,000 Work in process inventory, ending 200,000 Determine the amount to be reported for Conversion Cost: [A] 1,720,000 [B] 1,750,000

[C] 1,550,000 [D] 1,620,000.

Solution:

Moderate

3.The following items were among those that were reported on Lee Company’s income statement for the year ended December 31, 2009: Legal and audit fees, 1,700,000; Rent for office space, 2,400,000; Interest on inventory loan, 2,100,000; Loss on abandoned data, processing equipment used in operations, 1,350,000. The office space is used generally by Lee’s sales department. What amount of the above-listed items should be classified as general and administrative expenses in the income statement? [A]

1,500,000 [B] 1,700,000 [C] 1,800,000 [D] 1,900,000.

Solution:

4.Brock Corp. reports operating expenses in two categories: selling and administrative.The adjusted trial balance at December 31, 2009 included the following expense and loss accounts: Accounting and legal fees, 1,200,000; Advertising expenses, 1,500,000; Freight-out, 800,000; Interest expense, 700,000; Loss on sale of investment, 300,000; Officers’ salaries, 2,250,000; Rent for office space, 2,200,000; Sales salaries/commissions, 1,400,000. One half- of the rented premises are occupied by the sales department. Brock’s total selling expenses for 2009 should be? [A] 3,700,000 [B]

4,800,000 [C] 3,000,000 [D] 4,000,000.

Solution:

Difficult 5.For each unit of product manufactures, a company incurs direct materials cost of P30, direct labor of P35 and variable overhead of P10. The company’s monthly fixed overhead is P150,000. Compute for the total production cost if the company produces 20,000 units. [A] 1,700,000 [B] 1,650,000 [C] 1,800,000 [D] 1,950,000.

Solution:

JOB ORDER COST SYSTEM

Easy 11.The appropriate method for the disposition of underapplied or overapplied factory overhead [A] is to cost of goods sold only [B] is to finished goods inventory only [C] is apportioned to cost of goods sold and finished goods inventory [D] depends on the significance of the amount .

12.The following procedures are considered relevant in using job order costing method, which one is not included: [A] costing each product [B] service allocation [C] overhead allocation [D] none of the choices.

13.The most widely used methods of service allocation are (in increasing order of

sophistication) would be: [A] direct method, step-down method, and reciprocal

method [B] step-down method, direct method, and reciprocal method [C] reciprocal method, direct method, and step-down method [D] step-down method, reciprocal method, and direct method.

14.Scrap materials may be accounted for in any of the following, except: [A] additional revenue [B] reduction to cost of goods sold [C] reduction of factory overhead control [D] charge to employee .

15.It is the process of correcting defective units in order to bring them into a salable condition [A] machining [B] rework [C] casting [D] manufacturing.Moderate 16.This method of service cost allocation allows reflection of all reciprocal services among service departments. It is also known as the simultaneous solution method, cross allocation method, matrix allocation method, or double distribution method [A] reciprocal method [B] direct method [C] step-down method [D] service bay method.

17.This method of service allocation involves allocation of service department costs directly to both service and producing departments [A] reciprocal method [B] direct method [C] step-down method [D] service bay method.

18.This method of service allocation allocates service department costs directly to the producing departments. No consideration is given to services performed by one service department for another service department [A] reciprocal method [B] direct method [C] step-down method [D] service bay method.Difficult 19.Statement I: Waste refer to filings or excessive trimmings of materials, defective materials that cannot be returned to vendor or not suitable for manufacturing operations, or broken parts as a result of an employee error or machine breakdowns that causes the product in a poor quality condition; Statement II: Scarp materials is the amount of raw materials left over from a production process or production cycle for which there are no further use [A] both statements are false [B] both statements are true [C] statement I is true, statement II is false [D] statement I is false, statement II is true.

20.Statement I: Job order costing method is the accumulation of costs by specific jobs; Statement II: Job order costing method is used when the products manufactured within the department or cost center are heterogeneous or dissimilar type of products. [A] both statements are false [B] both statements are true [C] statement I is true, statement II is false [D] statement I is false, statement II is true.Easy

1.Paula Company ha inventories at the beginning and end of 2010 as follows:

January 1, 2010 December 31, 2010 Raw materials P 55,000 P 65,000 Work-in-process 96,000 80,000 Finished goods 50,000 85,000 During 2010, the following costs were incurred: raw materials purchased, P400,000; direct-labor payroll, P220,000; and factory overhead, P330,000. Determine Paula’s cost of goods sold for 2010.

Solution: