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Review Questions: Cost Concepts and Classifications
Review Questions: Cost Concepts and Classifications
Review Questions
EXERCISES
Exercise 1 (Schedule of Cost of Goods Manufactured and Sold; Income Statement)
Amazing Aluminum Company, a manufacturer of recyclable soda cans, had the following inventory balances at the
beginning and end of 2005:
x. Required:
y. Choose one of the terms listed above to characterize each of the amounts described below.
1. The cost of including one extra child in a day care center.
2. The cost of merchandise inventory purchased two years ago, which is now obsolete.
3. The cost of feeding 500 children in a public school cafeteria is P 800 per day, or P 1.60 per child per day. What
economic term describes this P 1.60 cost?
4. The management of a high-rise office building uses 2,500 square feet of space in the building for its own
management functions. This space could be rented for P 250,000. What economic term describes this P 250,000
in lost rental revenue?
5. The cost of building an automated assembly line in a factory is P 800,000. The cost of building a manually
operated assembly line is P 375,000. What economic term is used to describe the difference between these two
amounts?
6. Referring to the preceding question, what economic term is used to describe the P 800,000 cost of building the
automated assembly line?
z.
m. Cost items
1. The cost of food used in the kitchen
2. The cost of general advertising by the hotel, which is allocated to the food and beverage department
3. The cost of space (depreciation) occupied by a sauna next to the pool. The space could otherwise have been
used for a magazine and bookshop.
4. The discount on room rates given as a special offer for a Labor Day Gateway Special.
5. The wages earned by table-service personnel.
6. The salary of the kitchen manager.
7. The cost of leasing a computer used for reservations, payroll and general hotel accounting
8. The wages of the hotels maintenance employees, who spent 11 hours (at P 14 per hour) repairing the dishwasher
in the kitchen.
9. The difference in the total cost incurred by the hotel when one additional guest is registered.
10. The cost of space (depreciation) occupied by the kitchen.
11. The profit that would have been earned in a magazine and bookshop, if the hotel had one.
12. The cost of the refrigerator purchased 13 months ago. The unit was covered by a warranty for 12 months, during
which time it worked perfectly. It conked out after 13 months, despite an original estimate that it would last five
years.
13. The cost of dishes broken by kitchen employees.
14. The cost of a pool service that cleans and maintains the hotels swimming pool.
n.
o. Exercise 6
p.
q. TOP Pickups is an up-scale, higher-priced, specialty pickup truck maker based in Binan, Laguna. The
management accountant for TOP Pickups compiled information for various levels of pickup truck output:
r.
aw. Selling price per ax. 46,00 ay. 40,1 az. 35,9
truck 0 00 00
ba. Unit cost bb. 29,00 bc. bd.
0
be. Profit per truck bf. bg. bh.
bi. Required:
bj. Rounding all calculations to the nearest peso, fill in the blanks with the correct figures.
bk.
3. Variable costs
a. Are always indirect costs
b. Increase in total when the actual level of activity increases
c. Include most personnel costs and depreciation on machinery
d. Can always be traced directly to the cost object
bo.
4. Fixed costs
a. May include either direct or indirect costs
b. Vary with production or sales volumes
c. Includes parts and materials used to manufacture a product
d. Can be adjusted in the short run to meet actual demands
bp.
a. The cost of the goods themselves c. Insurance costs for the goods
b. Incoming freight costs d. All of the above
f. The Awit Company manufactures several different products. Unit costs associated with Product ABC are as
follows:
g. Direct materials P 60
h. Direct manufacturing labor 10
i. Variable manufacturing overhead 18
j. Fixed manufacturing overhead 32
k. Sales commissions (2% of sales) 4
l. Administrative salaries 16
m. Total P 140
21. What are the variable costs per unit associated with Product ABC?
a. P 18 b. P 22 c. P 88 d. P 92
22.
23. What are the fixed costs per unit associated with Product ABC?
a. P 102 b. P 48 c. P 52 d. P 32
24.
25. What are the inventoriable costs per unit associated with Product ABC?
a. P 120 b. P 140 c. P 50 d. P 88
26.
27. What are the period costs per unit associated with Product ABC?
a. P 4 b. P 16 c. P 20 d. P 52
28.
29. All of the cost categories listed below are usually found in a companys accounting records, except for:
37. In the preparation of the schedule of Cost of Goods Manufactured, the accountant incorrectly included as part of
manufacturing overhead the rental expense on the firms retail facilities. This inclusion would
a. Overstate period expense on the income statement
b. Overstate the cost of goods sold on the income statement
c. Understate the cost of goods manufactured
d. Have no effect on the cost of goods manufactured
38.
43. Buffy Company rents out a small unused portion of its factory to another company for P 1,000 per month. The rental
agreement will expire next month, and rather than renew the agreement Buffy Company is thinking about using the
space itself to store materials. The term to describe the P 1,000 per month is
47. A direct labor overtime premium should be charged to a specific job when the overtime is caused by the:
a. Increased overall level of activity in the factory
b. Customers requirement for early completion of the job
c. Managements failure to include the job in the production schedule
d. Managements requirement that the job be completed before the annual factory closure due to vacation
48.
53. Ryan Soh is paid P 10 an hour for straight-time and P 15 an hour for overtime. One week he worked 45 hours, which
included 5 hours of overtime, and 3 hours of idle time caused by materials shortages. Compensation would be
reported as
a. P 370 of direct labor and P 105 of manufacturing overhead
b. P 420 of direct labor and P 55 of manufacturing overhead
c. P 450 of direct labor and P 25 of manufacturing overhead
d. P 445 of direct labor and P 30 of manufacturing overhead
54.
55.