Name: ________________________ Class: ___________________ Date: __________ ID: A

Module 2- Cost Classification and Cost Behavior

Problem

1. Write A if the cost is classified as a period cost while B if the cost is a product cost.

a. Sales commissions earned by a company’s sales force.

b. Raw materials purchased during the period.
c. Current year’s depreciation on a firm’s manufacturing facitilities.
d. Wages earned by machine operators in a manufacturing plant.
e. Markering costs of an electronics manufacturer.
f. Production supervisor’s salary incurred by a manufacturer of office equipment.
g. Lease payments for the president’s automobile.
h. Lubricants purchased for the production equipment.
i. Executive salary of a multinational company.

The following selected information was extracted from the 2021 accounting records of ABC Company:
Raw materials Purchased* PHP2,840,000 Building Depreciation** PHP3,300,000
Direct labor 1,780,000 Advertising expense 800,000
Indirect labor 350,000 Factory supervisor salary 1,200,000
Sales commissions 1,500,000 Building maintenance 4,000,000
Executive officers’ 1,000,000 Building manager’s salary 1,000,000
salaries
Real property taxes*** 500,000 Building utilities 800,000

*Includes indirect materials

**Seventy percent of the company’s building was devoted to production activities; the remaining 30% was
used for selling and administrative functions. ABC’s beginning and ending work-in-process inventories
amounted to PHP3,060,000 and PHP2,450,000, respectively. Raw materials beginning and ending balances
amounted to PHP1,200,000 and PHP1,800,000, respectively. The requisition slip for raw materials reveals
that PHP40,000 worth of indirect materials were requested during the period.

***This is pertaining to the land wherein the building is located.

Required: Compute the following:

2. Factory Overhead:

3. Total Manufacturing Costs.

4. Cost of Goods Manufactured.

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Name: ________________________ ID: A

5. Write A if the cost is classified as a direct cost while B if the cost is an indirect cost.

a. Gold for making jewelry

b. Sandpaper-furniture making
c. Paper used in printing books
d. Milk to make ice cream
e. Water to make ice
f. Seats to be installed in a car
g. Leather to make gloves
h. Tape measure used by tailor
i. Flour used in making bread
j. Pineapple in a fruit cocktail

Some selected sales and cost data for Job Order 100 are given below:

Direct materials used PHP10,000

Direct labor 15,000
Factory overhead (all indirect, 40% variable) 7,500
Selling and administrative expenses (50% direct, 60% variable) 12,000

Required: Compute the following:

6. Prime Cost

7. Conversion Cost

8. Direct Cost

9. Indirect Cost

10. Product Cost

11. Period Expense

12. Variable Cost

13. Fixed Cost

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Name: ________________________ ID: A

14. Write A of the cost is classified as a variable cost while B if the cost is fixed cost.

a. Tomatoes used in the manufacture of Hunts ketchup.

b. Administrative salaries of executives employed by ABC Airlines.
c. Wages of assembly-line workers at ABC Motors Inc.
d. Marketing expenditures of the ABC Braves Baseball Club.
e. Commissions paid to ABC Cola’s sales people.
f. Property taxes
g. Sales agent’s salary
h. Direct materials
i. Sales agent’s commission
j. Rent

ABC Corporation a distributor of product A, its company’s revenues and expenses for the last three months
are given below:

OCTOBER NOVEMBER DECEMBER

Sales in units 1,800 3,200 4,800

Sales revenue PHP313,200 PHP556,800 PHP835,200

Less: COGS
Direct materials 54,000 96,000 144,000
Direct labor 45,000 80,000 120,000
Manufacturing overhead 31,600 48,400 67,600
Cost of Goods Sold 130,600 224,400 331,600
Gross margin 182,600 332,400 503,600
Selling and administrative expenses:
Shipping expense 41,300 58,100 77,300
Advertising expense 70,000 70,000 70,000
Salaries and commissions 104,400 157,600 218,400
Insurance expense 9,900 9,900 9,900
Depreciation expense 42,300 42,300 42,300
Total selling and administrative expenses 267,900 337,900 417,900
Net operating income (loss) PHP(85,300) PHP(5,500) PHP85,700

Required:

15. Identify each of the company’s expenses as either variable, fixed, or mixed costs.

16. Compute the total fixed costs.

17. Compute the variable cost per unit.

18. Construct a cost function.

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Name: ________________________ ID: A

The following information are available for ABC Corporation for the current period:

Period (Month) Quantity Cost Incurred

January 75 PHP190
February 50 PHP147
March 55 PHP154
April 50 PHP147
May 45 PHP140

Required:

19. Using the high-low method, compute the fixed cost per program.

20. Using the least-square regression method, compute the variable cost per unit.

21. Using the functions derived from the two item, predict the cost to be incurred for 200 units of output.

The method of least squares was used to develop a cost equation to predict cost and the monthly data for the
past 12 months were used for the analysis.

The following are the computer output obtained:

Intercept- PHP10,000
Slope- 5
Coefficient of correlation - 0.94

The driver used was “number of direct labor hours.”

22. What is the cost formula?

23. Using the cost formula, predict the cost for 800 labor hours.

24. What percentage of the variability in the cost is explained by the number of direct labor hours? Do you think
the equation will predict well?

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 ID: A

Module 2- Cost Classification and Cost Behavior

Answer Section

PROBLEM

1. ANS:
TBD

PTS: 1 TOP: Cost Classification

2. ANS:
TBD

PTS: 1 TOP: Cost Classification

3. ANS:
TBD

PTS: 1 TOP: Cost Classification

4. ANS:
TBD

PTS: 1 TOP: Cost Classification

5. ANS:
TBD

PTS: 1 TOP: Cost Classification

6. ANS:
TBD

PTS: 1 TOP: Cost Classification

7. ANS:
TBD

PTS: 1 TOP: Cost Classification

8. ANS:
TBD

PTS: 1 TOP: Cost Classification

9. ANS:
TBD

PTS: 1 TOP: Cost Classification

10. ANS:
TBD

PTS: 1 TOP: Cost Classification

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11. ANS:
TBD

PTS: 1 TOP: Cost Classification

12. ANS:
TBD

PTS: 1 TOP: Cost Classification and Behavior

13. ANS:
TBD

PTS: 1 TOP: Cost Classification and Behavior

14. ANS:
TBD

PTS: 1 TOP: Cost Classification and Behavior

15. ANS:
TBD

PTS: 1 TOP: Cost Classification and Behavior

16. ANS:
TBD

PTS: 1 TOP: Cost Behavior and Separation of Mixed Costs

MSC: High-low method
17. ANS:
TBD

PTS: 1 TOP: Cost Behavior and Separation of Mixed Costs

MSC: High-low method
18. ANS:
TBD

PTS: 1 TOP: Cost Behavior and Separation of Mixed Costs

MSC: High-low method
19. ANS:
TBD

PTS: 1 TOP: Separation of Mixed Costs MSC: High-low method

20. ANS:
TBD

PTS: 1 TOP: Separation of Mixed Costs MSC: Regression Method

21. ANS:
TBD

PTS: 1 TOP: Separation of Mixed Costs MSC: Cost Functions

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22. ANS:
TBD

PTS: 1 TOP: Separation of Mixed Costs MSC: Least Square

23. ANS:
TBD

PTS: 1 TOP: Separation of Mixed Costs MSC: Least square method

24. ANS:
TBD

PTS: 1 TOP: Separation of Mixed Costs MSC: Least square