Advanced Cost Accounting
Midterm Exam
Course Introduction
Advanced Cost Accounting delves into complex cost accounting principles and techniques essential for effective managerial decision-making in diverse business environments. The course covers sophisticated topics such as activity-based costing, standard costing, variance analysis, process costing, joint and by-product costing, and cost allocation methods. Students will analyze real-world case studies, explore the integration of cost data in strategic planning and performance evaluation, and learn to use advanced cost accounting systems and tools. Emphasis is placed on the application of cost information in budgeting, control, operational efficiency, profit maximization, and supporting long-term organizational objectives.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis16th Global Edition by Srikant M. Datar
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23 Chapters
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Page 2
Chapter 1: The Manager and Management Accounting
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Sample Questions
Q1) If there is an ethical conflict concerning your direct supervisor,when is it appropriate to contact authorities or individuals not employed by the organization?
A)when there is a personal conflict
B)when your supervisor is about to be promoted
C)when there is a clear violation of the law
D)when you face injustice from your supervisor
Answer: C
Q2) Briefly explain the planning and control activities in management accounting.How are these two activities linked to each other?
Answer: Planning business operations relates to designing,producing,and marketing a product or service.This includes preparing budgets and determining the prices and cost of products and services.A company must know the cost of each product and service to decide which products to offer and whether to expand or discontinue product lines. Controlling business operations includes comparing actual results to the budgeted results and taking corrective action when needed.
Feedback links planning and control.The control function provides information to assist in better future planning.
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Cost assignment ________.
A)includes future and arbitrary costs
B)associates accumulated costs with certain cost objects
C)is the same as cost accumulation
D)is the difference between budgeted and actual costs
Answer: B
Q2) When 24,000 units are produced,variable costs are $12.00 per unit.Therefore,when 18,000 units are produced ________.
A)variable costs will remain at $12.00 per unit
B)variable costs will total $288,000
C)variable unit costs will increase to $16.00 per unit
D)variable unit costs will decrease to $9.00 per unit
Answer: A
Q3) Period costs ________.
A)include only fixed costs
B)seldom influence financial success or failure
C)include the cost of selling,delivering,and after-sales support for customers
D)should be treated as an indirect cost rather than as a direct manufacturing cost
Answer: C
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Breakeven point in units is ________.
A)total costs divided by profit margin per unit
B)contribution margin per unit divided by total cost per unit
C)fixed costs divided by contribution margin per unit
D)the sum of fixed and variable costs divided by contribution margin per unit
Answer: C
Q2) Craylon Manufacturing produces a single product that sells for $140.Variable costs per unit equal $35.The company expects total fixed costs to be $60,000 for the next month at the projected sales level of 1,500 units.In an attempt to improve performance,management is considering a number of alternative actions.Each situation is to be evaluated separately.One alternative is to increase advertising expenses by $11,000.What is the effect on operating income with the increase of advertising expenses?
A)Operating income will decrease by $11,000.
B)Operating income will increase by $11,000.
C)Operating income will decrease by $86,500.
D)Operating income will increase by $86,500.
Answer: A
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Page 5
Chapter 4: Job Costing
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Sample Questions
Q1) When an organization allocated indirect costs to departments by relative size of the budgets,it is based on the criterion of benefits received.
A)True
B)False
Q2) Which of the following are reasons for using longer periods,such as a year,to calculate indirect cost rates?
A)shorter the period,the greater is the influence of seasonal patterns on the amount of costs
B)longer the period,the greater is the influence of seasonal patterns on the amount of costs
C)shorter the period,the smaller is the influence of seasonal patterns on the amount of opportunity costs
D)longer the period,the smaller is the influence of seasonal patterns on the amount of opportunity costs
Q3) Actual costing helps managers get information earlier and take corrective measures to improve labor efficiency.
A)True
B)False
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) Service companies,in particular,find great value from ABC because a vast majority of their cost structure is composed of ________ costs.
A)prime
B)factory
C)indirect
D)committed
Q2) Quality-inspection costs is an example of batch-level costs.
A)True
B)False
Q3) Activity-based management refers to the use of information derived from ABC analysis to analyze and improve operations.
A)True
B)False
Q4) The reduction in cost per unit of wooden chess pieces under ABC system is due to difference in allocation of ________.
A)labor costs
B)prime costs
C)indirect costs
D)material costs
Page 7
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) Companies implementing kaizen budgeting believe that employees who actually do the job have the best knowledge of how the job can be done better.
A)True
B)False
Q2) Financial planning software packages assist management with ________.
A)assigning responsibility to various levels of management
B)identifying the target customer
C)sensitivity analysis in their planning and budgeting activities
D)achieving greater commitment from lower management
Q3) Discuss the importance of the sales forecast and items that influence its accuracy.
Q4) Describe operating and financial budgets and give at least two examples of each discussed in the textbook.
Q5) Activity-based budgeting would permit the use of multiple drivers and multiple cost pools in the budgeting process.
A)True
B)False
Q6) Describe some of the drawbacks of using the operating budget as a control device.
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Page 8
Chapter 7: Flexible Budgets,direct-Cost Variances,and Management Control
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Sample Questions
Q1) When preparing a flexible budget,fixed costs must be adjusted to reflect actual costs at actual output.
A)True
B)False
Q2) Direct material price variance is likely to be unfavorable if the purchasing manager switched to a lower-price supplier.
A)True
B)False
Q3) Jalbert Incorporated planned to use materials of $11 per unit but actually used materials of $15 per unit,and planned to make 1,560 units but actually made 1,730 units. The flexible-budget amount for materials is ________.
A)$17,160
B)$23,400
C)$19,030
D)$25,950
Q4) A favorable variance should be ignored by management.
A)True
B)False
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) Effective planning of variable overhead costs means that managers must
A)increase the expenditures in the variable overhead budgets
B)focus on activities that add value for the customer and eliminate nonvalue-added activities
C)increase the linearity between total costs and volume of production
D)identify the product advertising requirements and factor those into the variable overhead budget
Q2) Fixed costs for the period are by definition a lump sum of costs that remain unchanged and therefore the fixed overhead spending variance is always zero.
A)True
B)False
Q3) Managers can use variance analysis to make decisions about the mix of products to make.
A)True
B)False
Q4) An unfavorable production-volume variance indicates an overallocation of fixed overhead costs.
A)True
B)False
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) Kaiser Company just hired its fourth production manager in three years.All three previous managers had quit because they could not get the company above the break-even point,even though sales had increased somewhat each year.The company was operating at about 60 % of plant capacity.The flatware industry was growing,so increased sales were not out of the question.
I.R.Thinking took the job as manager of the production division with a very attractive salary package.After interviewing for the position,he proposed a salary and bonus package that would give him a very small salary but a large bonus if he took the operating income (using absorption costing)above the breakeven point during his very first year.
Required:
What do you think Mr.Thinking had in mind for increasing the company's operating income?
Q2) The effect of spreading fixed manufacturing costs over a shrinking master-budget capacity utilization amount results in ________.
A)greater utilization of capacity
B)increased unit costs
C)more competitive selling prices
D)greater demand for the product
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Page 11
Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) An experience curve is a function that measures the decline in cost per unit in various business functions of the value chain as the amount of these activities increases.
A)True
B)False
Q2) The cost to be predicted and managed is referred to as the ________.
A)independent variable
B)dependent variable
C)cost driver
D)regression
Q3) Which of the following statements is true of a linear cost function?
A)It presents variable cost as a slope coefficient.
B)It presents total cost as an intercept.
C)It presents variable cost as an intercept.
D)It presents total cost as slope coefficient.
Q4) June Lockett,controller,gathered data on overhead costs and direct labor-hours over the past 12 months.List and discuss the different approaches June can use to estimate a cost function for overhead costs using direct labor-hours as the cost driver.
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) Each of the following are true of relevant information except:
A)Past costs are helpful when making predictions but not relevant when making decisions
B)Different alternatives can be compared by examining differences in expected future revenues and expected total future costs
C)significant past investment amounts are relevant to decision making
D)Not all future revenues and expenses are relevant
Q2) Which of the following is a relevant cost to be included in a make-or-buy decision?
A)fixed salaries that will not be incurred if the part is outsourced
B)pension costs to the current employees
C)increase in the cost of repairing of all equipment of the firm
D)material-handling costs that cannot be eliminated even if the product is outsourced
Q3) For make-or-buy decisions,relevant costs include ________.
A)incremental costs plus sunk costs
B)incremental costs plus opportunity costs
C)differential costs plus fixed costs
D)incremental costs plus differential costs
Q4) Explain what revenues and costs are relevant when choosing among alternatives.
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Page 13
Chapter 12: Strategy,balanced Scorecard,and Strategic
Profitability Analysis
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Sample Questions
Q1) Which of the following is the correct mathematical expression to calculate total factor productivity?
A)Sales value of output produced ÷ Quantity of all inputs used
B)Quantity of output produced ÷ Quantity of the input used
C)Quantity of output produced ÷ Costs of all inputs used
D)Sales value of output produced ÷ Cost of inputs required to produce current year production in previous year
Q2) Which of the following focuses on these five factors: competitors,potential entrants to the market,equivalent products,bargaining power of customers,and bargaining power of suppliers?
A)balanced scorecard
B)product differentiation analysis
C)industry analysis
D)business process reengineering
Q3) Successful re-engineering efforts generally involve changing the roles and responsibilities of employees.
A)True
B)False
Q4) What are the four key perspectives in the balanced scorecard?
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Chapter 13: Pricing Decisions and Cost Management
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Sample Questions
Q1) Selling prices computed under cost-plus pricing are prospective prices that may or may not actually be charged to customers.
A)True
B)False
Q2) A full-cost formula for pricing does requires that the management accountant performs a detailed analysis of cost-behavior patterns to separate product costs into variable and fixed components.
A)True
B)False
Q3) At what point are direct material costs per unit "locked in"?
A)designed
B)assembled
C)sold
D)delivered
Q4) Cost allocation data could be a valuable input to encourage design of products that are simpler to manufacture and less costly to service.
A)True
B)False
Q5) What is the primary reason a firm would adopt target costing?
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Chapter 14: Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) Salary of top management and general-administration costs is an example of which of the following?
A)customer output unit-level costs
B)customer batch-level costs
C)distribution-channel costs
D)corporate-sustaining costs
Q2) The sales-volume variance is subdivided into ________.
A)sales-mix variance and static-budget variance
B)sales-mix variance and sales-quantity variance
C)flexible-budget variance and fixed-budget variance
D)market-share variance and static-budget variance
Q3) When the purpose of cost allocation is to provide information for economic decisions or to motivate managers and employees,which of the following would be the best criteria?
A)the cause-and-effect and the ability-to bear criteria
B)the cause-and-effect and the benefits-received criteria
C)the benefits-received and the fairness criteria
D)the fairness and the ability-to-bear criteria
Q4) Explain the importance of customer-profitability analysis.
Q5) Briefly describe the four criteria used to guide cost-allocation decisions.
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Chapter 15: Allocation of Support-Department Costs, common
Costs, and Revenues
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Sample Questions
Q1) When actual cost-allocation rates are used,managers of the supplier division are motivated to improve efficiency.
A)True
B)False
Q2) The dual-rate cost-allocation method classifies costs in each cost pool into a
A)budgeted-cost pool and an actual-cost pool
B)variable-cost pool and a fixed-cost pool
C)direct-cost pool and an indirect-cost pool
D)direct-cost pool and a reciprocal-cost pool
Q3) Which of the following is a disadvantage of single-rate method?
A)It is very costly to implement.
B)It may lead operating department managers to make sub-optimal decisions that are in their own best interest.
C)It does not signal to department managers how variable costs and fixed costs behave differently.
D)It requires managers to distinguish variable costs from fixed costs,which is often a challenging task.
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) A company produces three products from a joint production process:: A,B,and C.As a percentage of total sales value,a represents 50%,B 49.5%,and C .5%.Product C could be considered a ________.
A)primary product
B)main product
C)byproduct
D)waste product
Q2) Outputs with a negative sales value because of disposal costs have which of the following impact on costs?
A)added to cost of goods sold
B)added to joint production costs and allocated to joint or main products
C)added to joint production costs and allocated to byproducts and scrap
D)subtracted from product revenue
Q3) Physical measures such as weight or volume are the best indicators of the benefits received for allocating joint costs.
A)True
B)False
Q4) Explain why some companies choose not to allocate joint costs to products.
Q5) What are joint costs,separable costs,and a split-off point?
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Chapter 17: Process Costing
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Sample Questions
Q1) The Swivel Chair Company manufacturers a standard recliner.During February,the firm's Assembly Department started production of 155,000 chairs.During the month,the firm completed 185,000 chairs and transferred them to the Finishing Department.The firm ended the month with 18,000 chairs in ending inventory.All direct materials costs are added at the beginning of the production cycle.Weighted-average costing is used by Swivel.What were the equivalent units for conversion costs for February if the beginning inventory was 70% complete as to conversion costs and the ending inventory was 45% complete as to conversion costs?
A)193,100
B)163,100
C)185,000
D)171,200
Q2) Why do we need to accumulate and calculate unit costs in process costing (and also job costing)?
Q3) What is the difference between a weighted-average method of process costing and a first-in,first-out method of process costing?
Q4) List and describe the five steps in process costing.
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19
Chapter 18: Spoilage, rework, and Scrap
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Q1) There is no difference between scrap which can be sold for relatively small amount and a byproduct.
A)True
B)False
Q2) Spoilage can be considered either normal or abnormal.
A)True
B)False
Q3) Distinguish among spoilage,reworked units,and scrap.Give an example of each.
Q4) Under standard costing,there is no need to calculate a cost per equivalent unit.
A)True
B)False
Q5) How do job-costing systems account for spoilage?
Q6) Rework is finished production that is NOT in accordance with customer desires.The product is redone and sold as finished goods.
A)True
B)False
Q7) What is the distinction between normal and abnormal spoilage?
Q8) Abnormal spoilage is spoilage inherent in a particular production process. A)True
B)False
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Chapter 19: Balanced Scorecard: Quality and Time
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Sample Questions
Q1) An important difference between financial measures of quality and nonfinancial measures of quality is that ________.
A)financial measures of quality tend to be useful indicators of future long-term performance,while nonfinancial measures have more of a short-term focus
B)nonfinancial measures of quality tend to be useful indicators of future long-term performance,while financial measures of quality have more of a short-term focus
C)nonfinancial measures are generally too subjective to have any long-term value,while financial measures are too objective for taxation purposes
D)nonfinancial measures are generally too subjective to have any short-term value,while financial measures are too objective to have medium-term value
Q2) When considering how well a company is doing keeping customers happy and understanding their needs and wants,financial and nonfinancial measures can be used.
A)True
B)False
Q3) Manufacturing cycle times affect both revenues and costs.Explain.
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Chapter 20: Inventory Management, just-In-Time, and Simplified Costing Methods
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Sample Questions
Q1) Which of the following statements best defines setup time?
A)It is the time required to manufacture an item,including order preparation time,inspection time,and customer delivery time.
B)It is the time required to get equipment,tools,and materials ready to start the production of a component or product.
C)It is a time or period ranging from the time when a customer orders goods to the time when they are delivered to the customer.
D)It is the time required to create a new product to be sold by a business to its customers.
Q2) Companies that implement JIT purchasing will emphasize developing short-term supplier relationships with many suppliers to attain flexibility. A)True B)False
Q3) Companies use safety stock as a buffer against unexpected decreases in demand. A)True
B)False
Q4) What are five features of a just-in-time manufacturing system?
Q5) What are the principles of lean accounting? Are there any limitations? Discuss.
Page 22
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Chapter 21: Capital Budgeting and Cost Analysis
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Q1) As cash flows and time value of money are central to capital budgeting decisions,the AARR method is regarded as better than the IRR method.
A)True
B)False
Q2) Post-investment audits ________.
A)result in managers to overstate the expected cash inflows from projects and accept projects they should reject
B)provide management with feedback about the performance of a project
C)include obtaining appropriation requests so that the funding will be authorized to purchase the equipment
D)are usually not feasible in a large project because the cost accounting system does not collect actual costs at the same level of detail as the initial plans had
Q3) If there are non-uniform cash flows (cash flows that differ from year-to-year),payback period is calculated by dividing net initial investment by uniform increase in annual future cash flows.
A)True B)False
Q4) List the capital budgeting methods used to analyze financial information.
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Chapter 22: Management Control Systems, transfer Pricing, and Multinational Considerations
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Q1) Why is decentralization costly?
Q2) Which of the following is true about transfer pricing?
A)The maximum price that the buying division is willing to pay is the higher of the eventual contribution generated from an internal transaction and the price of purchasing from an external party
B)The selling division must always set a transfer price above the market price of the product to make the transaction economically feasible for the buying division.
C)There is generally a minimum transfer price the selling division will not go below based on its own cost structure.
D)The transfer-price range lies between the its fixed cost per unit and the higher of its contribution or price at which the product is available from external suppliers
Q3) How does cost-based transfer price method help managers to determine transfer prices?
Q4) The labels profit center and cost center are dependent on the degree of centralization or decentralization in a company.
A)True
B)False
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Chapter 23: Performance Measurement, compensation, and Multinational Considerations
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Q1) Which of the following is true about designing an accounting-based performance measure?
A)The decisions made in steps are followed in a hierarchial order.
B)The issues considered in each step are independent.
C)Management's beliefs are not required during the analyses.
D)Behavioral criteria are important when evaluating the steps.
Q2) The weighted-average cost of capital (WACC)equals ________.
A)the after-tax average cost of all the long-term and short-term sources of funds
B)the after-tax average cost of all the long-term source of funds
C)the pre-tax average cost of all the short-term sources of funds
D)the pre-tax average cost of all the long-term and short-term sources of funds
Q3) Using residual income as a measure of performance rather than return on investment promotes goal congruence because residual income ________.
A)places importance on the reduction of underperforming assets
B)calculates a percentage return rather than an absolute return
C)concentrates on maximizing an absolute amount of dollars
D)concentrates on maximizing the return on sales
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Page 25