Advanced Cost Accounting
Final Exam Questions
Course Introduction
Advanced Cost Accounting delves into the complex methods and techniques used to determine, analyze, and control costs within organizations. This course covers advanced topics such as process costing, job-order costing, activity-based costing, standard costing, and variance analysis. Students will explore the strategic role of cost information in decision-making, budgeting, and performance evaluation. Emphasis is placed on real-world applications and case studies, preparing students to address contemporary challenges in cost management and providing a strong foundation for careers in managerial accounting, finance, and business analysis.
Recommended Textbook
Cost Accounting A Managerial Emphasis 14th Edition by Charles T. Horngren
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Chapter 1: The Accountants Role in the Organization
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Sample Questions
Q1) You have been employed as an entry-level management accountant for a little under a year. You suspect that your immediate supervisor is involved in a significant fraud involving diverting of company assets to personal use. Briefly describe the steps you might take to resolve this dilemma.
Answer: The management accountant should first consult any internal company procedures concerning the resolution of ethical issues, and make sure these procedures are followed as closely as possible. At the same time, the management accountant should make sure that the facts are accurate, and are not based on rumors or inaccurate information. If these policies do not resolve the situation, present the facts to the next higher managerial level. Clarify the relevant ethical issues with an objective advisor (e.g., Institute of Management Accountants hotline). Consult your own attorney to be aware of your own rights and responsibilities. If all internal review procedures have still not resolved the ethical situation, the managerial accountant might have to resign and write an informative letter to an appropriate representative of the organization, and perhaps notify other parties.
Q2) Tracking what is happening in other companies is illegal.
A)True
B)False
Answer: False
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Page 3
Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) What is cost of goods manufactured for 20X3?
A)$230,000
B)$257,000
C)$283,000
D)$355,000
Answer: B
Q2) Which statement is true?
A)A direct cost of one cost object cannot be an indirect cost of another cost object.
B)All variable costs are direct costs.
C)A direct cost of one cost object can be an indirect cost of another cost object.
D)All fixed costs are direct costs.
Answer: C
Q3) Conversion costs include:
A)direct materials and direct manufacturing labor costs
B)direct manufacturing labor and manufacturing overhead costs
C)direct materials and manufacturing overhead costs
D)only direct materials
Answer: B
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4
Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Gross margin is reported on the contribution income statement.
A)True
B)False
Answer: False
Q2) What is the budgeted operating income for the month assuming that Dr. Hunter plans to perform the procedure 200 times?
A)$200,000
B)$100,000
C)$80,000
D)$40,000
Answer: C
Q3) What effect, and why, would an increase in the tax rate have on a company's breakeven point?
Answer: An increase in the tax rate would have no effect on the breakeven point. At the breakeven point, before-tax net income would be zero, so after-tax net income would also be zero regardless of the tax rate.
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Chapter 4: Job Costing
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Sample Questions
Q1) Normal costing is a method of job costing that allocates an indirect cost based on the actual indirect-cost rate times the actual quantity of the cost-allocation base.
A)True
B)False
Q2) The Work-in-Process Control account tracks job costs from the time jobs are started until they are completed.
A)True
B)False
Q3) Job costing and process costing systems share the same objective of estimating product costs.
A)True
B)False
Q4) When a job is complete:
A)Work-in-Process Control is debited
B)Finished Goods Control is credited
C)the cost of the job is transferred to Manufacturing Overhead Control
D)actual direct materials, actual direct manufacturing labor, and allocated manufacturing overhead will comprise the total cost of the job
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) Products make diverse demands on resources because of differences in all of the following EXCEPT:
A)volume
B)selling price
C)batch size
D)complexity
Q2) How are cost drivers selected in activity-based costing systems?
Q3) With traditional costing systems, products manufactured in small batches and in small annual volumes may be ________ because batch-related and product-sustaining costs are assigned using unit-related drivers.
A)overcosted
B)fairly costed
C)undercosted
D)ignored
Q4) Unit-level cost drivers are most appropriate as an overhead assignment base when:
A)several complex products are manufactured
B)only one product is manufactured
C)direct labor costs are low
D)factories produce a varied mix of products
7
Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) A primary consideration in assigning a cost to a responsibility center is:
A)whether the cost is fixed or variable
B)whether the cost is direct or indirect
C)who can best control the change in that cost
D)where in the organizational structure the cost was incurred
Q2) Operating budgets and financial budgets:
A)combined form the master budget
B)are prepared before the master budget
C)are prepared after the master budget
D)have nothing to do with the master budget
Q3) In a cost center, a manager is responsible for investments, revenues, and costs.
A)True
B)False
Q4) Responsibility accounting:
A)emphasizes controllability
B)focuses on whom should be asked about the information
C)attempts to assign blame for problems to a specific manager
D)All of these answers are correct.
Q5) Describe the concept of kaizen budgeting.
Q6) Describe the benefits to an organization of preparing an operating budget.
Page 8
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Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Sample Questions
Q1) Possible operational causes of an unfavorable direct materials efficiency variance include poor design of products or processes.
A)True
B)False
Q2) When using variance for performance evaluation, managers often focus on effectiveness and efficiency as two of the common attributes used in comparing expected results with actual results.
A)True
B)False
Q3) What is the static-budget variance of revenues?
A)$20,000 favorable
B)$20,000 unfavorable
C)$2,000 favorable
D)$2,000 unfavorable
Q4) A single variance:
A)signals the cause of a problem
B)should be evaluated in isolation from other variances
C)may be the result of many different problems
D)should be used for performance evaluation
Q5) What is benchmarking, and how is it useful to a company?
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Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
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Sample Questions
Q1) The fixed overhead efficiency variance is the difference between actual fixed overhead costs and fixed overhead costs in the flexible budget.
A)True B)False
Q2) What is the flexible-budget amount for variable manufacturing overhead?
A)$80,000
B)$78,750
C)$75,000
D)$76,500
Q3) When machine-hours are used as an overhead cost-allocation base and annual leasing costs for equipment unexpectedly increase, the most likely result would be to report a(n):
A)unfavorable variable overhead spending variance
B)favorable variable overhead efficiency variance
C)unfavorable fixed overhead flexible-budget variance
D)favorable production-volume variance
Q4) All unfavorable overhead variances decrease operating income compared to the budget.
A)True B)False
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) All of the following are examples of drawbacks of using absorption costing EXCEPT:
A)management has the ability to manipulate operating income via production schedules
B)manipulation of operating income may ultimately increase the company's costs incurred over the long run
C)operating income solely reflects income from the sale of units and excludes the effects of manipulating production schedules
D)decreasing maintenance activities and increasing production result in increased operating income
Q2) Challenges only result from estimating the denominator level, but NOT the costs in the numerator of the fixed manufacturing cost rate.
A)True
B)False
Q3) The production-volume variance totals:
A)$2,000
B)$1,500
C)$2,400
D)0
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11
Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver.
a. Direct manufacturing labor is $20 per hour.
b. Direct materials cost $18.40 per cubic yard.
c. Utilities have a minimum charge of $2,000, plus a charge of $0.10 per kilowatt-hour.
d. Machine operating costs include $400,000 of machine depreciation per year, plus $150 of utility costs for each day the machinery is in operation.
Q2) A learning curve is a function that measures how labor-hours per unit decrease, as units of production decrease.
A)True
B)False
Q3) Choosing an economically plausible cost driver for indirect costs is fairly simple and knowledge of operations is unnecessary.
A)True
B)False
Q4) List and briefly describe the six steps in estimating a cost function under quantitative analysis.
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) If the cookbook product line had been discontinued prior to this year, the company would have reported:
A)greater corporate profits
B)the same amount of corporate profits
C)less corporate profits
D)resulting profits cannot be determined
Q2) For make-or-buy decisions, a supplier's ability to deliver the item on a timely basis is considered a(n):
A)qualitative factor
B)relevant cost
C)differential factor
D)opportunity cost
Q3) All variable costs are relevant and all fixed costs are irrelevant.
A)True
B)False
Q4) Avoidable variable and fixed costs should be evaluated when deciding whether to discontinue a product, product line, business segment, or customer.
A)True
B)False
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Chapter 12: Pricing Decisions and Cost Management
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Sample Questions
Q1) Companies that operate in non competitive environments offering products or services that differ from each other can charge a very high price for their products and services.
A)True
B)False
Q2) What is the estimated life-cycle operating income for the first year?
A)$206,250
B)$162,500
C)$(43,750)
D)$43,750
Q3) What is the primary reason a firm would adopt target costing?
Q4) In markets with little or no competition, the key factor affecting price is the customers' willingness to pay, not costs or competitors.
A)True
B)False
Q5) Locked-in costs have already been incurred.
A)True
B)False
Q6) Compare target costing and kaizen costing.
Q7) What factors may influence the level of markups?
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Chapter 13: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Sample Questions
Q1) Riter's strategy is:
A)product differentiation
B)downsizing
C)reengineering
D)cost leadership
Q2) When analyzing the change in operating income, the strategy component of price-recovery:
A)calculations are similar to the efficiency-variance calculations
B)compares the change in output price with the changes in input prices
C)will report a large positive amount when a company has successfully pursued the cost leadership strategy
D)isolates the change attributed solely to an increase in production efficiencies
Q3) Overall, was Meale's strategy successful in 2012?
A)No, because the selling price per unit decreased.
B)Yes, because operating income increased.
C)Yes, because less direct materials were used.
D)No, because more units were produced and sold.
Q4) What is the primary purpose of the balanced scorecard?
Q5) Define engineered and discretionary costs and give two examples of each.
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Chapter 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) Costs in a homogeneous cost pools have the same or a similar cause-and-effect or benefits-received relationship with the cost-allocation base.
A)True
B)False
Q2) For each item listed select the appropriate purpose of cost allocation from the list below. A purpose may be used more than once.
1. To cost a product at a fair price for government contracts
2. To encourage simpler product design
3. To decide on an appropriate selling price for a special-order product
4. To cost inventories for reporting on a company's tax return
5. To encourage the sales department to focus on high-margin products
6. To evaluate a make or buy decision
7. To cost inventories for the balance sheet
8. To decide whether to add or delete a product line Purposes of cost allocation:
a. To provide information for economic decisions
b. To motivate managers and other employees
c. To justify costs or compute reimbursement amounts
d. To measure income and assets
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Chapter 15: Allocation of Support-Department Costs, Common
Costs, and Revenues
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Sample Questions
Q1) Revenue allocation based on the number of physical units is only appropriate when individual products in the bundle are of equal value.
A)True
B)False
Q2) The Maintenance Department has been servicing Gizmo Production for four years. Beginning next year, the company is adding a Scrap-Processing Department to recycle the materials from Gizmo Production. As a result, maintenance costs are expected to increase from $480,000 per year to $500,000 per year. The Scrap-Processing Department will use 25% of the maintenance efforts.
Required:
a. Using the stand-alone cost-allocation method, identify the amount of maintenance cost that will be allocated to Gizmo Production and the Scrap-Processing Department next year.
b. Using the incremental cost-allocation method, identify the amount of maintenance cost that will be allocated to Gizmo Production and the Scrap-Processing Department next year.
Q3) The stand-alone method may use selling price or unit costs to allocate revenues.
A)True
B)False
Page 17
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) New York Liberty Corporation makes miniature statues of the Empire State Building from cast iron. Sales total 50,000 units a year. The statues are finished either rough or polished, with an average demand of 60% rough and 40% polished. Iron ingots, the direct material, costs $6 per pound. Processing costs are $300 to convert 30 pounds into 60 statues. Rough statues are sold for $15 each, and polished statues can be sold for $18 or engraved for an additional cost of $5. Polished statues can then be sold for $30.
Required:
Determine whether New York Liberty Company should sell the engraved statutes. Why?
Q2) Which of the following statements is true regarding main products and byproducts?
A)Product classifications do not change over the short run.
B)Product classifications do not change over the long run.
C)Product classifications may change over time.
D)The cause-and-effect criterion determines the classification.
Q3) Separable costs include manufacturing costs only.
A)True
B)False
Q4) What are a joint cost and a splitoff point?
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18
Chapter 17: Process Costing
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Sample Questions
Q1) Why do we need to accumulate and calculate unit costs in process costing (and also job costing)?
Q2) In the weighted-average costing method, the costs of direct materials in beginning inventory are NOT included in the cost per unit calculation since direct materials are almost always added at the start of the production process. A)True
B)False
Q3) BIG Manufacturing Products has been using FIFO process costing for tracking the costs of its manufacturing activities. However, in recent months, the system has become somewhat bogged down with details. It seems that, when the company purchased Brown Electronics last year, its product lines increased six-fold. This has caused both the accountants and the suppliers of the information, the line managers, great difficulty in keeping the costs of each product line separate. Likewise, the estimation of the completion of ending work-in-process inventories and the associated costs has become very cumbersome. The chief financial officer of the company is looking for ways to improve the reporting system of product costs.
Required:
What can you recommend to improve the situation?
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) Explain the meaning of the terms spoilage, scrap, and rework. Provide an example of each. Is it possible for a single firm to have all three from a single productive process?
Q2) Spoilage is typically assumed to occur at the stage of completion where inspection takes place.
A)True
B)False
Q3) Normal spoilage rates are computed by dividing units of normal spoilage by total good units completed, NOT total actual units started in production.
A)True
B)False
Q4) Managers often cite reductions in the costs of spoilage as a(n):
A)major justification for implementing a just-in-time production system
B)measurement of improved output quality
C)immaterial item that is not to be tracked
D)indication of improvement in the accounting system
Q5) Abnormal spoilage is spoilage inherent in a particular production process.
A)True
B)False
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Page 20
Chapter 19: Balanced Scorecard: Quality, Time, and the
Theory of Constraints
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Sample Questions
Q1) How much will internal failure costs change if the internal product failures are reduced by 50% with the new procedures?
A)$168,000 decrease
B)$126,000 decrease
C)$ 84,000 decrease
D)$ 84,000 increase
Q2) When a firm has a bottleneck machine, a good way to manage the bottleneck is to make sure that prior machines produce more units for the bottleneck machine to increase its throughput.
A)True
B)False
Q3) What is the change in the daily contribution margin if the change is made?
A)$(608)
B)$(634)
C)$(672)
D)$800
Q4) Two important drivers of time are limited capacity and bottlenecks.
A)True
B)False
Q5) Discuss the methods used to identify quality problems.
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Chapter 20: Inventory Management, Just-In-Time, and Simplified Costing Methods
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Sample Questions
Q1) Inventory management is the planning, organizing, and controlling activities that focus on the flow of materials into, through, and from the organization.
A)True
B)False
Q2) What is the economic order quantity?
A)180 cartons
B)273 cartons
C)270 cartons
D)360 cartons
Q3) A positive aspect of backflush costing is the presence of the visible audit trail.
A)True
B)False
Q4) A financial benefit of a just-in-time system is that inventory carrying costs are reduced.
A)True
B)False
Q5) What are the principles of lean accounting? Are there any limitations? Discuss.
Page 22
Q6) What are five features of a just-in-time manufacturing system?
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Chapter 21: Capital Budgeting and Cost Analysis
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Sample Questions
Q1) An example of an intangible asset would be a corporation's customer base.
A)True
B)False
Q2) The use of an accelerated method of depreciation for tax purposes would usually decrease the present value of the investment.
A)True
B)False
Q3) Springtime Flower Company provides flowers and other nursery products for decorative purposes in medium to large sized restaurants and businesses. The company has been investigating the purchase of a new specially equipped van for deliveries. The van has a value of $62,755 with a seven-year life. The expected additional cash inflows are $13,750 per year. What is the internal rate of return?
A)10%
B)12%
C)15%
D)20%
Q4) What conflicts can arise between using discounted cash flow methods for capital budgeting decisions and accrual accounting for performance evaluation? How can these conflicts be reduced?
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Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational
Considerations
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Q1) What is the market-based transfer price per pair of soles from the Sole Division to the Assembly Division?
A)$20
B)$32
C)$40
D)$52
Q2) Assume 100,000 pounds are transferred from the Production Division to the Distribution Division for a transfer price of $0.80 per pound. The Distribution Division sells the 100,000 pounds at a price of $1.10 each to customers. What is the operating income of both divisions together?
A)$20,000
B)$30,000
C)$40,000
D)$50,000
Q3) It is possible to increase the overall after-tax profit of a multinational corporation by adjusting transfer prices.
A)True
B)False
Q4) Briefly explain each of the three methods used to determine a transfer price.
Page 24
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Chapter 23: Performance Measurement, Compensation,
and Multinational Considerations
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Q1) Evaluating an executive's performance using the annual return on investment would sharpen an executive's long-run focus.
A)True
B)False
Q2) Return on investment can be increased by:
A)increasing operating assets
B)decreasing operating assets
C)decreasing revenues
D)Both B and C are correct.
Q3) What is the Cyclotron Division's return on investment?
A)0.2
B)0.4
C)0.5
D)0.8
Q4) What are Bleach's and Cleanser's residual incomes based on book values, respectively?
A)$116,250; $32,500
B)$110,000; $67,500
C)$67,500; $110,000
D)$37,500; $116,250
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