Chapter 3 Cost concepts, classification and segregation
MULTIPLE CHOICE
Costs classification
1.The term relevant cost applies to all the following decision situations except the
A.Acceptance of a special order..
B.Determination of a product price.
C.Replacement of equipment.
D.Addition or deletion of a product line. (cma)
1.B
?A situation where the term relevant cost does not apply.
Relevant costs are those used in making decision. These costs have two
characteristics – differential costs and future costs. The term relevant costs applies
to the acceptance or rejection of a special sales order, replacement or retention of
equipment, addition or deletion of a product line, and even in the determination of a
product price. Among the choices given, however, choice-letter “b” is the best
answer because relevant cost is least applied in the determination of regular selling
price.
2.A decision-making concept, described as “the contribution to income that is foregone
by not using a limited source for its best alternative use,” is called
A.Marginal Cost.C.Potential Cost.
B.Incremental Cost.D.Opportunity Cost. (cma)
2.D
?The term used to describe the contribution to income that is foregone by not using a
limited source for its best alternative use.
The benefit foregone or sacrificed for not using a limited resource for its best
alternative use is called an opportunity cost, hence, choice-letter “d” is correct.
Choice-letter “a” is incorrect because marginal cost is the increase in cost per unit of
product. Choice-letter “b” is incorrect because incremental cost is the total increase
in cost from an alternative to another. Choice-letter “c” is incorrect because potential
cost may refer to future cost that may arise if an alternative is chosen.
3.In a decision analysis situation, which one of the following costs is not likely to
contain a variable cost component?
A.LaborC. Depreciation
B.Overhead D.Selling.(cma)
3.C
?The cost that is not likely to contain a variable cost component.
Choice-letter “c” is the correct answer. Depreciation expense, if the problem is silent,
is a fixed cost, and therefore, not variable neither would contain a variable
component. Choice-letter “a”, labor is academically treated as a variable cost.
Choice-letter “b”, overhead, has both the variable and fixed cost components.
Choice-letter “d”, selling expense, also has both the variable and fixed cost
components.
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