Republic of the Philippines b) No Yes

MARINDUQUE STATE COLLEGE c) Yes Yes

Tanza, Boac, Marinduque d) Yes No
e-mail: sbm_boac_msc@yahoo.com
042-332-0389/042-321-1804 5. Prime Cost and conversion cost share what common
element of total cost?
a) Variable Overhead
COST ACCOUNTING b) Fixed Overhead
Cost Concepts and Classification c) Direct Materials
d) Direct Labor
TRUE OR FALSE 6. Factory rent is
1. The materials, labor, and overhead costs incurred to a) A prime cost and an Inventoriable cost
produce a product are called period costs. b) A prime cost and a period cost
2. Marketing, Selling, and Administrative Costs are the c) A conversion cost and an Inventoriable cost
three broad classifications of costs incurred by a d) A conversion cost and a period cost
manufacturing company. 7. Examples of factory overhead costs are
3. Lumber can be both a finished product and a a) Lubricants for factory machinery
material. b) Depreciation of factory machinery
4. Product cost consists of the sum of prime cost and c) Both of the above
conversion cost. d) None of the above
5. Total fixed costs decrease with increase in the 8. Transportation costs incurred to get the finished
number of units produced and increase with decrease product to the customer would be:
in output. a) a marketing or selling expense
6. Period costs are found in both merchandising and b) a conversion cost
manufacturing firms. c) a period cost
7. The three cost elements of manufactured goods are d) both A and C
direct materials, direct labor and marketing costs. 9. The term "relevant range" as used in cost accounting
8. A cost that is present under one alternative but means the range over which
absent in whole or part under another alternative is a) Costs may fluctuate.
known as differential cost. b) Cost relationships are valid.
9. Like product costs, period costs are not necessarily c) Production may vary.
treated as expense in the period in which they are d) Relevant costs are incurred.
incurred. 10. Which of the following is not a product cost
10. Variable costs are costs that change, in total, in component?
direct proportion to changes in the level of activity. a) Rent on a factory building
11. The salary paid to the manager in charge of a b) Indirect production labor wages
warehouse is probably a variable cost. c) Janitorial supplies used in a factory
12. Indirect materials/factory supplies are classified as d) Commission on the sale of a product
administrative expense.
13. The salary paid to a factory foreman is classified as COMPLETION
factory overhead.
14. In manufacturing setting, prime costs are fixed. 1. Costs that can be conveniently traced to a cost object
15. Fixed cost remains constant if expressed on a unit are referred to as ____________ costs.
basis. 2. A cost that remains unchanged in total within the
16. Differential costs can be either fixed or variable. relevant range is known as a _____________ cost.
17. A fixed cost is constant per unit of product. 3. The assumed range of activity that reflects the
18. A decrease in production will ordinarily result in an company’s normal operating range is referred to as the
increase in fixed production cost per unit. _____________________________.
19. A factory supervisor’s salary would be classified as a 4. A cost that has both fixed and variable components is
direct cost of a unit of product. known as a __________________ cost.
20. Factory rent is included in manufacturing overhead, 5. Anything for which management wants to accumulate
but office rent is a period cost. or collect costs is known as a ______________________.
6. Costs that cannot be conveniently traced to a cost
MULTIPLE CHOICE object are known as __________________ costs.
1. Direct Materials cost is 7. A cost that varies in total in direct proportion to
Conversion Cost Prime Cost changes in activity is known as a _______________ cost.
a) No No 8. A cost that remains constant on a per unit basis within
b) No Yes the relevant range is a ________________________
c) Yes Yes cost.
d) Yes No 9. Another name for inventoriable costs is
2. Direct labor cost is a ______________ costs.
Conversion Cost Prime Cost 10. A cost that shifts upward or downward when activity
a) No No changes by a certain interval is referred to as a
b) No Yes ___________ cost.
c) Yes Yes
d) Yes No PROBLEM 1.
3. Indirect labor is a
a) Prime Cost Blanche Corporation estimated its unit costs of
b) Conversion Cost producing and selling 12,000 units per month as
c) Period Cost follows:
d) Non-manufacturing Cost Direct Materials Used P 32.00
4. In a job cost system, manufacturing overhead is Direct Labor 20.00
An indirect cost of jobs A necessary element of Variable Mfg. Overhead 15.00
production Fixed Mfg. Overhead 6.00
a) No Yes Variable Marketing Cost 3.00
 Fixed Marketing Cost 4.00 3. Use the method of least square to estimate the fixed
Estimated Unit Cost P 80.00 and variable portion of overhead costs based on machine
Compute: hours.
1. Total variable Costs per month.
2. Total Fixed Costs per month. PROBLEM 5.
The total factory costs of Marco Company for the
PROBLEM 2. month of May showed the following among others:
Given the following facts, complete the Dept.1 Dept. 2
requirements below: Direct Materials P 400,000 P 700,000
Sales Price P 200 per unit Direct Labor 350,000 600,000
Fixed Costs: Depreciation for Machinery
Marketing and Admin. P 24,000 per period and Equipment 100,000 180,000
Mfg. Overhead 30,000 per period Factory Supplies 10,000 24,000
Variable Costs: Allocated costs from
Marketing and Admin. P 6 per unit corporate Headquarters 120,000 180,000
Mfg. Overhead 9 per unit Supervisor’s Salary 45,000 55,000
Direct Labor 30 per unit Repairs and maintenance (allocated on the basis of
Direct Materials 60 per unit number of hours spent to maintain machines (50 hours for
Unit produced and sold 1,200 per period Dept. 2 and 100 hours for Dept. 2), P 120,000.
Compute: Factory rent-buildings (allocated on the basis of floor
1. Variable manufacturing cost per unit. space, 30% to Dept. 1 and 70% to Dept. 2), P 200,000.
2. Variable cost per unit. Plant Executive’s salaries (allocated on the basis of
3. Full manufacturing cost per unit. hours spent by each department, 40% to Dept. 1 and 60%
4. Full cost to make and sell per unit. to Dept. 2), P 350,000.
Required: Determine the following.
PROBLEM 3. 1. Direct Variable Costs
Johnson Corporation is preparing a flexible budget 2. Total controllable direct fixed costs.
and desires to separate electricity expense, which is 3. Total non-controllable direct fixed costs.
semi-variable and fluctuates with total machine 4. Total Direct Fixed Costs.
5. Total Direct Costs.
hours, into its fixed and variable components. 6. Total Indirect Costs.
Information for the first three months of 2014 is as 7. Total Unavoidable costs in case of production
follows: stoppages.
Machine Hours Electricity Expense
January 3,500 P 31,500 PROBLEM 6.
February 2,000 20,000 Scott Hewitt, the new Plant Manager of Old World
March 4,000 35,600 Manufacturing Plant Number 7, has just reviewed a draft
of his year-end financial statements. Hewitt receives a
Compute: year-end bonus of 10% of the plant’s operating income
1. Variable rate per machine hour. before tax. The year-end income statement provided by
2. Fixed portion of Johnson’s electricity expense. the plant’s controller was disappointing to say the least.
3. Total manufacturing costs if Johnson’s actual machine After reviewing the numbers, Hewitt demanded that his
hours are 4,500. controller go back and “work the numbers” again. Hewitt
insisted that if he didn’t see a better operating income
PROBLEM 4. number the next time around he would be forced to look
Valdez Motors Co. makes motorcyles. Management for a new controller.
wants to estimate overhead costs to plan its Old World Manufacturing classifies all costs
directly related to the manufacturing of its product as
operations. A recent trade publication revealed that product costs. These costs are inventoried and later
overhead costs tend to vary with machine hours. To expensed as costs of goods sold when the product is
check this, they collected the following data for the sold. All other expenses, including finished goods
past 12 months. warehousing costs of P 3,250,000 are classified as period
Month No. Machine Hours Overhead Costs expenses. Hewitt had suggested that warehousing costs
1 175 P 4,500 be included as product costs because they are “definitely
2 170 4,225 related to our product.” The company produced 200,000
3 160 4,321 units during the period and sold 180,000 units.
4 190 5,250 As the controller reworked the numbers he
5 175 4,800 discovered that if he included warehousing costs as
6 200 5,100 product costs, he could improve operating income by P
7 160 4,450 325,000. He was also sure these new numbers would
8 150 4,200 make Hewitt happy.
9 210 5,475
10 180 4,760 Required:
11 170 4,325 1. Show numerically how operating income would improve
12 145 3,975 by P 325,000 just by classifying the preceding Required
Required: costs as product costs instead of period expenses?
1. Use the High-Low Method to estimate the fixed and 2. Is Hewitt correct in his justification that these costs
variable portion of overhead costs based on machine “are definitely related to our product.”
hours. 3. By how much will Hewitt profit personally if the
2. If the plant is planning to operate at a level of 200 controller makes the adjustments in requirement 1.
machine hours next period, what would be the estimated 4. What should the plant controller do?
overhead costs?

Prepared by:
ALFRED OFRECIO