You are to select each of the numbered items which follow with the one term listed below (A to H) which most specifically identifies the cost concept indicated parenthetically. (Caution: An item of cost may be classified in several ways, depending on the purpose of the classification. You are to select the most appropriate answer in the context.) The same term may be used more than once.

 

A. Common or joint costs                                   H. Avoidable costs     

B. Imputed costs                                                  E. Out-of-pocket costs             

C. Differential costs                                              F. Sunk costs

 D. Opportunity costs                                           G. Postponable costs 

                                                                                       

1. The management of a corporation is considering replacing a machine which is operating satisfactorily, with a more efficient new model. Depreciation on the cost of the existing machine is omitted from the data issued in judging the proposal, because it has – little or no significance with respect to such a decision. (The omitted cost)

 

2. A company declined an offer received to rent one of its warehouses and elected to use the warehouse for storage of extra raw materials to insure uninterrupted production. Storage cost has been charged with the monthly amount of the rental offered. (The monthly amount of rental offered is known as)

 

3. The sales department urges an increase in production of a product and as part of the data presented, in support of its proposal indicates the total additional cost – involved for the volume level it proposes. (The increase in total cost)

 

4. A CPA takes exception to his client’s inclusion in the cost of a fixed asset of an “interest” charge based on the client’s own funds invested in the asset. The client states that the change was intended to obtain a cost comparable to that which have been the case if funds had been borrowed to finance the acquisition. (The item which describes such interest charges)

5. A company is considering the purchase of new equipment. If this equipment is not purchased, extensive repairs will have to be made to the equipment now in service. (The cost of needed repairs to equipment now in services, if the new equipment is not purchased)

 

6. XYZ Corporation had an old machine with a book value of P 50,000. The costs to operate the machine include operators’ wages, repairs and maintenance, power, etc. (The operating costs enumerated, as distinguished from the book value of the machine)

7. The ABC Company has received an order for goods at a price lower than it usually charges. In deciding to accept the offer, management considered the fact that fixed cost will not increase because the goods can be processed in used plant capacity (The fixed costs involved.)

 

8. Management of DEF Company decided to defer to the off-season period, certain repairs and overhead to machinery and equipment. (The cost of repairs and overhaul deferred.)

 

9. The income statement for a particular product line shows a net loss, after deducting all expenses. If the product – line is eliminated, overall net income will decrease (instead of increase) because certain costs which have been allocated to the product line will have to be absorbed by other products. (The allocated costs.)

 

10. If a particular department is eliminated, facilities now being used by that department can be rented out (Rent of the facilities if the department is eliminated.)