MANAGEMENT ADVISORY SERVICES

MAY 2022
First Pre-board Examination

1. A target in the balanced scorecard framework is

a. a statement of what the strategy must achieve and what is critical to its success.
b. a key action program required to achieve strategic objectives.
c. the level of performance or rate of improvement needed in the performance measure.
d. a diagram of the cause-and-effect relationships between strategic objectives.

2. A manager would like to see a decreasing trend in all of the following operating measures except:
a. Customer complaints as a percentage of units sold.
b. Scrap as a percentage of total cost.
c. Setup time.
d. Manufacturing cycle efficiency.

3. Which of the following statements is not a characteristic of a batch processed computer system?
a. The posting of a transaction, as it occurs, to several files, without intermediate printout.
b. The collection of like transactions which are sorted and processed sequentially against a master
file.
c. Keypunching of transactions, followed by machine processing.
d. the production of numerous printouts.

4. Which of the following statements is (are) true about automation?

a. Automation is inexpensive.
b. Automation should be adopted as soon as new technology is available.
c. Automation should be adopted after a company makes the most efficient use of existing
technology.
d. All of the above are true.

5. Which of the following is not a characteristic of a batch processing system?

a. The collection of like transactions which are sorted and processed sequentially against a master
file.
b. Keypunching of transactions, followed by machine processing.
c. The production of numerous printouts.
d. The posting of a transaction, as it occurs, to several files without intermediate printouts.

6. In the context of making a decision, which of the following statements regarding relevant costs is
correct?
a. An opportunity cost is not a relevant cost.
b. A traceable fixed cost cannot be a relevant cost.
c. A variable cost cannot be a sunk cost.
d. A sunk cost is not a relevant cost.

7. Which of the following statements about committed fixed costs is incorrect?

a. Committed fixed costs cannot be cut back in the short term (one year or less) without seriously
impairing the ability of an organization to achieve its long-run goals or profitability.
b. Advertising expenses and research and development costs are not examples of committed fixed
costs.
c. Discretionary fixed costs have a much shorter planning horizon than do committed fixed costs.
d. Committed fixed costs are irrelevant to future decisions because a firm is locked into incurring
such costs in every period once the decision has been made to acquire the resources.

8. One of the major assumptions limiting the reliability of breakeven analysis is that:
a. efficiency and productivity will continually increase.
b. total variable costs will remain unchanged over the relevant range.
c. total fixed costs will remain unchanged over the relevant range.
d. the selling price of products will decrease as more units are produced and made available.

9. Pinklawan Electronics Co. is developing a new product, surge protectors for high-voltage electrical
flows. The following unit cost information relates to the product.
Direct materials P3.25
Direct labor 4.00
Distribution 0.75
The company will also be absorbing P120,000 of additional fixed costs associated with this new
product. A corporate fixed charge of P20,000 currently absorbed by other products will not be
allocated to this new product.
 How many surge protectors (rounded to the nearest hundred) must Pinklawan sell at a selling price of
P14 per unit to gain P30,000 additional income before taxes?
a. 25,000 units.
b. 10,700 units.
c. 28,300 units.
d. 12,100 units.

10. Coccaine Jr. Corporation makes two types of motors for use in various products. Operating data and
unit cost information for its products are presented below.

Product A Product B
Annual unit capacity 10,000 20,000
Annual demand (units) 10,000 20,000
Selling price P100 P80
Variable manufacturing cost 53 45
Fixed manufacturing cost 10 10
Variable selling & administrative 10 11
Fixed selling & administrative 5 4
Fixed other administrative 2 0
Unit operating profit P 20 P 10
Machine hours per unit 2.00 1.5

Coccaine Jr. has 40,000 productive machine hours available. The relevant contribution margins, per
machine hour for each product, to be utilized in making a decision on product priorities for the coming
year, are:
a. Product A - P37.00; Product B - P24.00.
b. Product A - P20.00; Product B - P10.00.
c. Product A - P18.50; Product B - P16.00.
d. Product A - P17.00; Product B - P14.00.

11. Coccaine Jr. Corporation makes two types of motors for use in various products. Operating data and
unit cost information for its products are presented below.

Product A Product B
Annual unit capacity 10,000 20,000
Annual demand (units) 10,000 20,000
Selling price P100 P80
Variable manufacturing cost 53 45
Fixed manufacturing cost 10 10
Variable selling & administrative 10 11
Fixed selling & administrative 5 4
Fixed other administrative 2 0
Unit operating profit P 20 P 10
Machine hours per unit 2.00 1.5

Coccaine Jr. has 40,000 productive machine hours available. What is the maximum total contribution
margin that Coccaine can generate in the coming year?
a. P665,000.
b. P689,992.
c. P980,000.
d. P850,000.

12. Ka Leody Manufacturing is analyzing the market potential for its specialty turbines. Ka Leody
developed its pricing and cost structures for their specialty turbines over various relevant ranges. The
pricing and cost data for each relevant range are presented below.

Units produced and 1-5 6 - 10 11 - 15 16 - 20

sold
Total fixed costs P200,000 P400,000 P600,000 P800,000
Unit variable cost 50,000 50,000 45,000 45,000
Unit selling price 100,000 100,000 100,000 100,000

Which one of the following production/sales levels would produce the highest operating income for Ka
Leody?
a. 8 units.
b. 17 units.
c. 14 units.
d. 10 units.
13. For the year just ended, Silverstone Company's sales revenue was P450,000. Silverstone's fixed
costs were P120,000 and its variable costs amounted to P270,000. For the current year sales are
forecasted at P500,000. If the fixed costs do not change, Silverstone's operating profits this year will
be:
a. P110,000.
b. P200,000.
c. P60,000.
d. P80,000.

14. Lugaw Enterprises sells three products: X, Y, and Z. X is the company's most profitable product; Z is
the least profitable. Which of the following events will definitely decrease the firm's overall breakeven
point for the upcoming accounting period?
a. a decrease in Z's selling price.
b. an increase in anticipated sales of product X relative to sales of Y and Z.
c. an increase in X's raw material cost.
d. the installation of new computer-controlled machinery and subsequent layoff of assembly-line
workers.

15. The breakeven point in units increases when unit costs:

a. decrease and sales price remain unchanged.
b. decrease and sales price increases.
c. remain unchanged and sales price increases.
d. increase and sales price remain unchanged.

16. In a decision analysis situation, which one of the following costs is generally not relevant to the
decision?
a. differential cost.
b incremental cost.
c. historical cost.
d. avoidable cost.

17. Blue Company sells its single product for P30 per unit. The contribution margin ratio is 45%, and fixed
costs are P10,000 per month. Sales were 3,000 units in April and 4,000 units in May. How much
greater is the May operating income than the April operating income?
a. P16,500.
b. P30,000.
c. P13,500.
d. P10,000.

18. In the cost/volume/profit (CVP) model, the behavior of total revenues and total costs:
a. increase and decrease proportionately to changes in activity level.
b. increase and decrease inversely to changes in activity level.
c. remain constant within a limited range of output.
d. increase at an approximately linear rate within a relevant range of activity.

19. Given fixed costs of P10,000, variable costs per unit of P195, and a unit selling price of P370, how
many units must be sold to reach a target operating income of P60,000? (Use the contribution margin
method.)
a. 343 units.
b. 358 units.
c. 400 units.
d. 189 units.

20. Breakeven quantity is defined as the volume of output at which revenues are equal to:
a. total costs.
b. marginal costs.
c. variable costs.
d. fixed costs.

21. Yorme Company wants to earn a 6% return on sales after taxes. The company's effective income tax
rate is 40%, and its contribution margin is 30%. If Yorme has fixed costs of P240,000, the amount of
sales required to earn the desired return is:
a. P400,000.
b. P1,200,000.
c. P1,000,000.
d. P375,000.
22. When setting a product price, break-even analysis is best exemplified by consideration of:
a. competitors' prices.
b. probable competitive reaction.
c. sales and costs.
d. value-added and non-value added features.

23. Ping Company sells two products. Product A provides a contribution margin of P3 per unit, and
Product B provides a contribution margin of P4 per unit. If Ticker's sales mix shifts toward Product A,
which one of the following statements is correct?
a. The contribution margin ratios for Products A and B will change.
b. Operating income will decrease if the total number of units sold remains constant.
c. The overall contribution margin ratio will increase.
d. The total number of units necessary to break even will decrease.

24. Recent economic conditions are forcing MegaCorp to drop its price from P50 to P40 per unit, but the
company expects its sales to rise from 600,000 to 750,000 units. The company's current cost of
production is P38 per unit. Suppose MegaCorp would like to maintain a 16% target operating income
on its sales revenue. To achieve this target, the company must lower its cost of production by:
a P2.00 per unit.
b. P33.60 per unit.
c. P4.40 per unit.
d. P6.40 per unit.

25. Pacman’s Corporation manufactures pipe elbows for the plumbing industry. Dayton's per unit sales
price is P10 and variable costs are P7. Pacman's practical plant capacity is 35,000 units. Pacman's
total fixed costs amount to P42,000, and the company has a 50% effective tax rate.
If Pacman produced and sold 30,000 units, net income would be:
a. P90,000.
b. P48,000.
c. P45,000.
d. P24,000.

26. Which of the following is a cost that changes as the level of activity changes?
a. fixed costs.
b. engineered costs.
c. sunk costs.
d. opportunity costs.

27. Which of the following terms describe the level of activity over which the firm expects a set of cost
behavior to be consistent?
a. marginal activity.
b. range of opportunity.
c. relevant range.
d. margin of safety.

28. How does cost-volume-profit analysis allows management to determine the relative profitability of a
product?
a. By highlighting potential bottlenecks in the production process.
b. By keeping fixed costs to an absolute minimum.
c. By determining the contribution margin and projected profits at various levels of production.
d. By assigning costs to a product in a manner that maximizes the contribution margin.

29. A company produces two products, A and B. A sells for P16 and has variable costs of P10. B sells for
P12 and has variable costs of P8. Fixed Costs for the period are P35,000. Normally four units of A
are sold for every two units of B units. How many units of B must be sold if the company expects
profits of P50,000?
a. 15,947
b. 10,637
c. 5,313
d. Cannot be determined

30. What does sensitivity analysis refers to?

a. control.
b. what-if situations.
c. variable costs only.
d. fixed costs only.
31. A company's selling price is P18 per unit, variable cost is P6 per unit, and fixed costs are P36,000. If
fixed costs increased by P6,000, how many additional units must be sold to remain breaking-even?
a. 5,000
b. 1,000
c. 500
d. 250

32. The cost structure of an organization refers to which of the following?

a. proportion of fixed and variable costs to total costs.
b. proportion of total revenue to total costs.
c. proportion of profits to total costs.
d. None of the answers is correct.

33. Which of the following statements is true?

a. The higher the firm's leverage, the higher the degree of sensitivity of profits to cost changes.
b. The higher the firm's leverage, the lower the degree of sensitivity of profits to cost changes.
c. The higher the firm's leverage, the higher the degree of sensitivity of profits to volume changes.
d. The higher the firm's leverage, the lower the degree of sensitivity of profits to volume changes.

34. Three Rivers Company uses a standard cost system. Overhead is applied on the basis of direct
labor hours. Analysis of the actual financial results against budget shows the following:
 Unfavorable labor rate and efficiency variances
 Zero volume variance

Based on the above, which of the following conclusions about labor and overhead variances is
correct?
a. Unfavorable variable overhead efficiency variance
b. Unfavorable fixed overhead budget variance
c. Zero labor efficiency variance
d. Unfavorable variable overhead spending variance

35. The degree of operating leverage for Balloon Company is 7 and the degree of operating leverage for
Dirigible Company is 4. The two companies have identical sales levels and net incomes. Which of the
following statements is incorrect?
a. The break-even quantity for Balloon will be more than that for Dirigible.
b. The margin of safety for Balloon will be less than that for Dirigible.
c. The contribution margin for Balloon will be more than that for Dirigible.
d. A 10% reduction is sales will cause net income for Dirigible to be lower than that for Balloon.

36. The VHO Corporation, which uses a standard costing system, reported the following cost variances
for the most recent month:
Raw materials price variance U
Raw materials quantity variance U
Direct labor rate variance F
Direct labor efficiency variance U
Variable overhead spending variance U
Variable overhead efficiency variance U
Fixed overhead spending variance U
Fixed overhead volume (denominator) variance U

What can be concluded from VHO’s variances?

a. Production was below budgeted volume.
b. There was efficient use of raw materials.
c. The company paid a wage rate higher than the standard.
d. Variable overhead usage was inefficient.

37. Which of the following statements is incorrect for a manufacturing firm?

a. Inventoriable costs consist only of prime costs.
b. Inventoriable costs consist of prime costs and manufacturing overhead costs.
c. Inventoriable costs include both variable manufacturing and fixed manufacturing costs.
d. Inventoriable costs will never include any period costs.

38. OMG Corporation makes a single product. Manufacturing overhead is allocated on the basis of direct
labor hours. Actual fixed overhead cost equaled the budgeted fixed overhead cost. The fixed
overhead volume (denominator) variance was unfavorable. Which of the following statements is
correct?
a. Too many direct labor-hours were used for the output achieved.
b. Direct labor was efficiently used in the production of output.
 c. Actual quantity of product produced was less than the amount of budgeted production.
d. Actual overhead costs were over budget.

39. Which of the following statements about relevant costs is correct?

a. Fixed costs of production are costs that do not vary across alternatives.
b. Variable costs of production are costs that will vary across alternatives.
c. Relevant costs will never include sunk costs.
d. Opportunity costs are not relevant costs.

40. Point Company uses the standard costing method. The company's main product is a fine-quality
audio speaker that normally takes 0.25 hour to produce. Normal annual capacity is 3,000 direct labor
hours, and budgeted fixed overhead costs for the year were P675,000. During the year, the company
produced and sold 8,000 units. Actual fixed overhead costs were P480,000.
What is the fixed overhead volume variance?
a. P300,000 (F)
b. P300,000 (U)
c. P195,000 (U)
d. P225,000 (U)

41. Using regression analysis, Fairfield Co. graphed the following relationship of its most expensive
product line's sales with its customers' income levels:
If there is a strong statistical relationship between the sales and customers' income levels, which of
the following best represents the correlation coefficient for this relationship?
a. - 1.03
b. - 0.95
c. +0.93
d. +1.02

42. The standard direct labor cost to produce one pound of output for a company is presented below.
Related data regarding the planned and actual production activities for the current month for the
company are also given below.
Direct Labor Standard:
0.4 DLH @ P12.00 per DLH @= P4.80
Planned production, 15,000
Actual production, 15,500
Actual direct labor costs (6,250 DLH, P75.250
The company's direct labor efficiency variance for the current month would be
a. P600 unfavorable.
b. P602 unfavorable.
c. P2,400 unfavorable.
d. P3,000 unfavorable.

43. Which of the following standard costing variances would be least controllable by a production
supervisor?
a. Overhead volume.
b. Overhead efficiency.
c. Labor efficiency.
d. Material usage.

44. Virgil Corp. uses a standard cost system. In May, Virgil purchased and used 17,500 pounds of
materials at a cost of P70,000. The materials usage variance was P2,500 unfavorable and the
standard materials allowed for May production was 17,000 pounds. What was the materials' price
variance for May?
a. P17,500 favorable.
b. P17,500 unfavorable.
c. P15,000 favorable.
d. P15,000 unfavorable.

45. Which of the following is a difference between a static budget and a flexible budgets?
a. A flexible budget includes only variable costs; a static budget includes only fixed costs.
b. A flexible budget includes all costs, a static budget includes only fixed costs.
c. A flexible budget gives different allowances for different levels of activity, a static budget does not.
d. There is no difference between the two.

46. If a firm is at full capacity, the minimum special order price must cover
a. variable costs associated with the special order.
b. variable and fixed manufacturing costs associated with the special order.
c. variable and incremental fixed costs associated with the special order.
 d. variable costs and incremental fixed costs associated with the special order plus foregone
contribution margin on regular units not produced

47. Two months ago, Victory purchased 4,500 pounds of Hydrol, paying P15,300. The demand for this
product has been very strong since the acquisition, with the market price jumping to P4.05 per pound.
(Victory can buy or sell Hydrol at this price.) The company recently received a special-order inquiry,
one that would require the use of 4,200 pounds of Hydrol. Which of the following is (are) relevant in
deciding whether to accept the special order?
a. The 300-pound remaining inventory of Hydrol.
b. The P4.05 market price.
c. The P3.40 purchase price.
d. 4,500 pounds of Hydrol.

48. Crispin manufactures parts that are used in the production of washers and dryers. The following costs
are associated with part no. 65:
Direct materials P50
Direct labor 19
Variable OH 22
Fixed OH 15
Variable selling costs 11

The company has received a special-order inquiry from an appliance manufacturer in Korea for
15,000 units of part no. 65. Twenty percent of Crispin's fixed manufacturing overhead can be avoided
on the order, and the variable selling costs per unit will amount to only P5. The minimum price that
Crispin should charge the Korean manufacturer is:

a. P96.
b. P99.
c. P105.
d. P108.

Use the following to answer questions 49-51:

Holiday Chemical Company uses a standard cost system to collect costs related to the production of its
“bowling ball” fruitcakes. The direct labor standard for each fruitcake is 1.25 hours at a standard cost of
P11.00 per hour. During the month of November, Holiday's fruitcake production used 9,820 direct labor
hours at a total direct labor cost of P106,547. This resulted in production of 8,500 fruitcakes for
November.

49. What is Holiday's labor rate variance for November?

a. P8,855 favorable
b. P1,473 favorable
c. P13,047 unfavorable
d. P14,520 unfavorable

50. What is Holiday's labor efficiency variance for November?

a. P8,855 favorable
b. P10,328 favorable
c. P13,047 unfavorable
d. P14,520 unfavorable

51. Assume that 7 ounces of pecans are included in each bowling ball fruitcake. Because Holiday wants
only the best pecans in its fruitcakes, the pecans they buy are inspected and some are discarded as
unacceptable for fruitcake production. The loss rate is expected to be 1 ounce of pecans for every 5
ounces inspected. Under traditional standard costing, how many ounces of pecans should Holiday
use as a standard quantity per fruitcake?
a. 7.20
b. 7.80
c. 8.40
d. 8.75

52. The primary purpose of management advisory services is

a. To conduct special studies, preparation of recommendations, development of plans and
programs, and provision of advice and assistance in their implementation.
b. To provide services or to fulfill some social need.
c. To improve the client’s use of its capabilities and resources to achieve the objectives of the
organization.
 d. To earn the best rate of return on resources entrusted to its care with safety of investment being
taken into account and consistent with the firm’s social and legal responsibilities.

53. To measure controllable production inefficiencies, which of the following is the best basis for a
company to use in establishing the standard hours allowed for the output of one unit of product?
a. Average historical performance for the last several years.
b. Engineering estimates based on ideal performance.
c. Engineering estimates based on attainable performance.
d. The hours per unit that would be required for the present workforce to satisfy expected demand
over the long run.

54. The following are details of the monthly unit cost to manufacture and sell a particular product for
Grace Company:
Manufacturing Costs:
Direct materials P3.00
Direct labor 4.00
Variable indirect 2.00
Fixed indirect 1.50

Marketing Costs:
Variable 2.00
Fixed 1.00

Grace must decide to continue making the product or buy it from an outside supplier. The supplier
has offered to make the product at the same level of quality that the company can make it. Fixed
marketing costs would be unaffected, but variable marketing costs would be reduced by 25% if the
company were to accept the proposal. What is the maximum amount per unit that Grace can pay the
suppliers without decreasing its operating income?
a. P 9.50 c. P 9.00
b. P10.50 d. P11.00

55. Canyon reported P106,000 of net income for the year by using variable costing. The company had
10,000 units in the beginning inventory, planned and actual production of 50,000 units, and sales of
53,000 units. Standard variable manufacturing costs were P15 per unit, and total budgeted fixed
manufacturing overhead was P150,000. If there were no variances, net income under absorption
costing would be:
a. P52,000
b. P97,000
c. P106,000
d. P115,000

56. Effective planning of variable overhead includes all of the following EXCEPT:
a. choosing the appropriate level of capacity
b. eliminating nonvalue-adding costs
c. redesigning products to use fewer resources
d. redesigning the plant layout for more efficient processing

57. During September, 40,000 units were produced. The standard quantity of material allowed per unit
was 5 pounds at a standard cost of P2.50 per pound. If there was a favorable usage variance of
P25,000 for September, the actual quantity of materials used must have been
a. 210,000 pounds.
b. 190,000 pounds.
c. 105,000 pounds.
d. 95,000 pounds.

58. A static budget is best used to

a. measure whether or not a manager accomplishes his or her goals.
b. compare expected costs at the actual level of activity with the actual costs.
c. assess how well costs were controlled during the year.
d. determine managerial efficiency.

59. Solar Co.’s year-end income statement is as follows:

Sales (20,000 units) P360,000

Variable costs 220,000
Contribution margin P140,000
Fixed costs 105,000
Net income P 35,000
 Management is unhappy with the results and plans to make some changes for next year. If
management implements a new marketing program, fixed costs are expected to increase by P19,200
and variable costs to increase by P1 per unit. Unit sales are expected to increase by 15 percent.
What is the effect on income if the foregoing changes are implemented?
a. decrease of P21,200
b. increase of P13,800
c. increase of P 1,800
d. increase of P14,800

60. Jago Co. has 2 products that use the same manufacturing facilities and cannot be subcontracted.
Each product has sufficient orders to utilize the entire manufacturing capacity. For short-run profit
maximization, Jago should manufacture the product with the:
a. Lower total manufacturing costs for the manufacturing capacity.
b. Lower total variable manufacturing costs for the manufacturing capacity.
c. Greater gross profit per hour of manufacturing capacity.
d. Greater contribution margin per hour of manufacturing capacity.

61. The following information relates to Clyde Corporation, which produced and sold 50,000 units during
a recent accounting period.
Sales - P850,000
Manufacturing costs
Fixed - P210,000
Variable - P140,000
Selling & administrative costs
Fixed - P300,000
Variable - P45,000
Income tax rate - 40%

For the next accounting period, if production and sales are expected to be 40,000 units, the company
should anticipate a contribution margin per unit of:
a. P0.55
b. P3.10
c. P9.10
d. P13.30

62. Thompson Company is in the process of preparing its budget for the next fiscal year. The company
has had problems controlling costs in prior years and has decided to adopt a flexible budgeting
system this year. Many of its costs contain both fixed and variable cost components. A method that
can be used to separate costs into fixed and variable components is:
a. Trend analysis.
b. Monte Carlo simulation.
c. Dynamic programming.
d. Regression analysis.

63. The use of standard costs in the budgeting process signifies that an organization has most likely
implemented a:
a. Flexible budget.
b. Zero-based budget.
c. Static budget.
d. Strategic budget.

64. Baby Frames, Inc. evaluates manufacturing overhead by using variance analysis. The following
information applies to the month of May:

Actual Budgeted
Number of frames 19,000 20,000
manufactured
Variable overhead costs P 4,100 P 2 per DLH
Fixed overhead costs P22,000 P20,000; P1 per
unit
Direct labor hours 2,100 hours 0.1 hour per frame

What is the variable overhead efficiency variance?

a. P200 favorable.
b. P200 unfavorable.
c. P400 favorable.
d. P400 unfavorable.
65. Baby Frames, Inc. evaluates manufacturing overhead by using variance analysis. The following
information applies to the month of May:

Actual Budgeted
Number of frames 19,000 20,000
manufactured
Variable overhead costs P 4,100 P 2 per DLH
Fixed overhead costs P22,000 P20,000; P1 per
unit
Direct labor hours 2,100 hours 0.1 hour per frame

What is the fixed overhead spending variance?

a. P1,000 favorable.
b. P1,000 unfavorable.
c. P2,000 favorable.
d. P2,000 unfavorable.

66. A company produces widgets with budgeted standard direct materials of 2 pounds per widget at P5
per pound. Standard direct labor was budgeted at 0.5 hour per widget at P15 per hour. The actual
usage in the current year was 25,000 pounds and 3,000 hours to produce 10,000 widgets. What was
the direct labor usage variance?
a. P25,000 favorable.
b. P25,000 unfavorable.
c. P30,000 favorable.
d. P30,000 unfavorable.

67. Although there is no single format for the balanced scorecard, the report generally includes a variety
of measurements associated with objectives classified by critical success factors. Critical success
factors often include:
a. Sales, net income, cash flow, and return on investment performance.
b. Shareholder satisfaction, customer satisfaction, vendor satisfaction and employee satisfaction
issues.
c. Financial, internal business process, customer and human resource considerations.
d. Throughput and lifecycle times.

68. Multiple regression differs from simple regression in that it:

a. Provides an estimated constant term.
b. Has more dependent variables.
c. Allows the computation of the coefficient of determination.
d. Has more independent variables.

69. Which of the following is the best example of a committed cost?

a. Advertising expenses.
b. Company picnic.
c. Business license cost.
d. Travel expense.

70. The following is a fragment of the lyric to the song “Inner City Blues,” written by Marvin Gaye:
“Rockets, moon shots. Spend it, on the have-nots,” in which he suggests that the money for the
space program be spent on helping the poor. Which is the most appropriate cost concept embodied
by the lyric?
a. Opportunity cost
b. Sunk cost
c. Prime cost
d. Conversion cost