Advanced Cost Accounting Practice Exam
Course Introduction
Advanced Cost Accounting delves into the sophisticated concepts and techniques used to measure, analyze, and manage costs within organizations. Building upon foundational cost accounting principles, this course explores topics such as activity-based costing, standard costing, process costing, job order costing, marginal and absorption costing, and transfer pricing. Emphasis is placed on cost behavior analysis, decision-making tools, budgeting, variance analysis, and performance evaluation. Students will learn how to employ cost information for strategic planning, control, and optimization of organizational resources, equipping them to tackle complex cost challenges in a variety of industries.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis 16th Edition by Srikant M. Datar
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Chapter 1: The Manager and Management Accounting
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Q1) The ________ is primarily responsible for management accounting and financial accounting.
A) COO (Chief Operating Officer)
B) CIO (Chief Information Officer)
C) treasurer
D) controller
Answer: D
Q2) Managers track the costs incurred in each value-chain category is to reduce costs and to improve efficiency.
A)True
B)False
Answer: True
Q3) Which of the following is true of cost accounting?
A) It is a subset of management accounting and therefore its information is used only to meet the needs of managers.
B) It is used only by manufacturers.
C) It is part of both management and financial accounting systems.
D) The distinction between management accounting and cost accounting is clear-cut.
Answer: C
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Page 3
Chapter 2: An Introduction to Cost Terms and Purposes
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Q1) Outside the relevant range, variable costs, such as direct material costs ________.
A) will decrease proportionately with changes in sales volumes
B) will remain the same with changes in production volumes
C) will not change proportionately with changes in production volumes
D) will increase proportionately with changes in sales volumes
Answer: C
Q2) Manufacturing overhead costs are also referred to as ________.
A) indirect manufacturing costs
B) prime costs
C) direct manufacturing costs
D) direct material
Answer: A
Q3) All manufacturing costs are period costs.
A)True
B)False
Answer: False
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Chapter 3: Cost-Volume-Profit Analysis
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Q1) The Marietta Company has fixed costs of $75,000 and variable costs are 75% of the selling price. To realize operating income of $10,000 from sales of 80,000 units, the selling price per unit ________. (Round the answer to the nearest cent.)
A) must be $1.06
B) must be $1.42
C) must be $4.25
D) must be $3.75
Answer: C
Q2) In the profit-volume graph the point at which the profit-volume line and x-axis intersect is the breakeven point.
A)True
B)False
Answer: True
Q3) Companies that are substituting variable costs for fixed costs receive a greater per unit return above the breakeven point.
A)True
B)False
Answer: False
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5
Chapter 4: Job Costing
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Q1) Describe job-costing and process-costing systems. Explain when it would be appropriate to use each.
Q2) The budgeted direct-labor cost rate includes ________.
A) budgeted total costs in indirect cost pool
B) budgeted total direct-labor costs in the denominator
C) budgeted total direct-labor costs in the numerator
D) budgeted total direct-labor hours in the numerator
Q3) Direct costs ________.
A) are anything for which a measurement of costs is desired
B) are costs related to a particular cost object that can be traced to that cost object in an economically feasible manner
C) focus specifically on the costing needs of the CFO
D) are costs related to a particular cost object that cannot be traced to that cost object in a cost-effective manner
Q4) The ending balance in Work-in-Process Control represents the total costs of all jobs that have NOT yet been completed.
A)True
B)False
Q5) What is the difference between an actual cost system and a normal cost system?
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Q1) Explain how activity-based costing systems can provide more accurate product costs than traditional cost systems.
Q2) Which of the following is a sign that an ABC system may be useful for an organization?
A) Significant amounts of indirect costs are allocated using multiple cost pools.
B) Products make similar demands on resources because of similarities in volume, process steps, batch size, or complexity.
C) Many indirect costs are described as batch-level costs, product-sustaining costs, or facility-sustaining costs.
D) Operations staff disagrees with accountants about the costs of manufacturing and marketing products and services.
Q3) Demand for refinements to the costing system has accelerated due to ________. A) increase in direct costs
B) decrease in product diversity
C) decrease in indirect costs
D) competition in product markets
Q4) How does ABC costing system help service companies?
Q5) Explain how a top-selling product may actually result in losses for the company.
Page 7
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Chapter 6: Master Budget and Responsibility Accounting
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Q1) What is budgetary slack? What are the pros and cons of building slack into the budget from the point of view of (a) an employee and (b) a senior manager?
Q2) Activity-based budgeting would permit the use of multiple drivers and multiple cost pools in the budgeting process.
A)True
B)False
Q3) The cost of goods sold budget is calculated by deducting beginning finished-goods from cost of goods available for sale.
A)True
B)False
Q4) Which of the following information is required by a company's manager while preparing a manufacturing overhead costs budget?
A) estimated incentives to be paid to marketing personnel
B) estimated expense for office supplies
C) estimated expense for maintenance of factory building
D) rent expense for lease of office building
Q5) Describe the concept of kaizen budgeting.
Q6) Describe the benefits of preparing an operating budget to an organization.
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Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Q1) A variance is ________.
A) the difference between actual fixed cost per unit and standard variable cost per unit
B) the standard units of inputs for one output
C) the difference between an actual result and a budgeted performance
D) the difference between actual variable cost per unit and standard fixed cost per unit
Q2) Which of the following could be a reason for a favorable material price variance?
A) the purchasing manager bargaining effectively with suppliers
B) the purchasing manager giving orders for small quantity to reduce storage cost
C) the purchasing manager accepting a bid from the highest-priced supplier to ensure the quality of material
D) the personnel manager hiring underskilled workers
Q3) Efficiency is the relative amount of inputs used to achieve a given output level.
A)True
B)False
Q4) 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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Q1) Briefly explain the meaning of the variable overhead efficiency variance and the variable overhead spending variance.
Q2) While calculating the costs of products and services, a standard costing system
A) allocates overhead costs on the basis of the actual overhead-cost rates
B) uses standard costs to determine the cost of products
C) does not keep track of overhead cost
D) traces direct costs to output by multiplying the standard prices or rates by the actual quantities
Q3) In flexible budgets the costs that are not "flexed" because they remain the same within a relevant range of activity (such as sales or output) are called ________.
A) total overhead costs
B) total budgeted costs
C) fixed costs
D) variable costs
Q4) Unskilled work force can lead to unfavorable efficiency variance.
A)True
B)False
Q5) What is a standard costing system?
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Chapter 9: Inventory Costing and Capacity Analysis
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Q1) Which of the following statements is true?
A) When production is equal to sales, operating income will be greater under variable costing than under absorption costing.
B) When production is greater than sales, operating income will be lower under variable costing than absorption costing.
C) When production is less than sales, operating income is higher under absorption costing than variable costing.
D) When production is greater than sales, operating income is greater under absorption cost than under variable costing.
Q2) Throughput is a variation of which of the following systems?
A) absorption costing
B) variable costing
C) job costing
D) standard costing
Q3) Throughput contribution equals ________.
A) variable costs minus fixed costs
B) revenues minus all direct labor costs
C) revenues minus all direct material cost of goods sold
D) revenues minus manufacturing overhead
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Page 11
Chapter 10: Determining How Costs Behave
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Q1) Regression analysis ________.
A) calculates the slope coefficient using only two observed values within the relevant range and their respective costs
B) measures the average amount of change in the dependent variable associated with a unit change in one or more independent variables
C) estimates the cost functions using the time-and-motion studies
D) measures the variability or dispersion in a set of data points
Q2) Which of the following is a learning-curve model?
A) the cumulative average-time learning model and the incremental unit-time learning model
B) the simple regression model and the multiple regression model
C) the multicollinearity learning model and the goodness of fit learning model
D) the account analysis learning model and the conference learning method model
Q3) Data collection problems can arise when extreme values of observations occur.
A)True
B)False
Q4) List and briefly describe the six steps in estimating a cost function under quantitative analysis.
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Page 12
Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) Direct materials are $600, direct labor is $450, variable overhead costs are $650, and fixed overhead costs are $400. The cost of one unit is ________.
A) $850
B) $1,050
C) $1,700
D) $2,100
Q2) When evaluating a make-or-buy decision, which of the following needs to be considered?
A) alternative uses of the production capacity
B) the original cost of the production equipment
C) pension costs to the current employees
D) material-handling costs that cannot be eliminated
Q3) Qualitative factors, as well as relevant revenues and relevant costs need to be considered when selecting among alternatives.
A)True
B)False
Q4) How does a manager go about choosing which of three products to produce and sell when each product uses a single machine with a limited capacity?
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Chapter 12: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Q1) Managers can reduce capacity-based fixed costs by measuring and managing
A) unused capacity
B) variable costs
C) engineered costs
D) discretionary costs
Q2) Engineered costs ________.
A) have a no repetitive relationship with output
B) have no measurable cause-and-effect relationship between output and resources used
C) include research and development and human resource costs
D) include a high level of certainty
Q3) When analyzing the change in operating income, the strategy component of price-recovery will increase when ________.
A) capacity is reduced
B) market share is increased
C) selling prices are increased
D) more units are sold
Q4) Define engineered and discretionary costs and give two examples of each.
Q5) 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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Q1) Ocean Grove Vending Company has invested $980,000 in a plant to make vending machines. The target operating income desired from the plant is $196,000 annually. The company plans annual sales of 1600 vending machines at a selling price of $1100 each. What is the cost base of each vending machine for Ocean Grove Vending Company?
A) $1100
B) $1422
C) $978
D) $613
Q2) A non-value-added cost is a cost that, if eliminated, would reduce the actual or perceived value or utility (usefulness) customers experience from using the product or service.
A)True
B)False
Q3) Long-run pricing is an operational decision and not a strategic decision as perceived by many.
A)True
B)False
Q4) What are the five steps that are followed while implementing target pricing and target costing?
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Chapter 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Q1) Which of the following is true of corporate-sustaining costs?
A) are common to all individual customers
B) have a clear cause-and-effect relationship with several cost-allocation bases
C) should be allocated for decisions regarding reducing customer costs
D) evaluates the effectiveness of sales personnel
Q2) How is value-engineering relevant to a well done customer profitability analysis, especially when an ABC system is utilized to calculate customer profits (or losses)?
A) ABC will satisfy GAAP and provide input into value-engineering decisions
B) ABC offers the opportunity to analyze the costs of activities assigned to each customer and to determine if improvements can be made to optimize profits
C) customer profitability analysis will reveal that the cost drivers of less profitable customers are the problem and that value-engineering is the solution
D) Only value-added activities will be shown in the cost analysis and thus all other costs will be eliminated via value-engineering
Q3) Why would a manager perform customer-profitability analysis?
Q4) Should a company allocate its corporate costs to divisions?
Q5) What actions might be taken with an unprofitable customer?
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Chapter 15: Allocation of Support-Department Costs,
Common Costs, and Revenues
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Q1) Which of the following describes who the direct allocation method allocates support-department costs?
A) it allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments
B) it allocates support-department costs to other support departments and to operating departments in a sequential manner that partially recognizes the mutual services provided among all support departments
C) it allocates each support-department's costs to operating departments only
D) it requires managers to rank the support departments in the order that the step-down allocation is to proceed
Q2) The method that allocates each department's budgeted costs to operating departments only is called ________.
A) direct method
B) step-down method
C) reciprocal method
D) sequential method
Q3) What is a "common cost"? What are two methods that a manager can use to allocate common costs to two or more users?
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Q1) Which of the following would not be a GAAP or managerial accounting reason for allocating joint costs?
A) to calculate cost of goods sold
B) to analyze the profitability of various products
C) for reimbursement of costs under a federal contract
D) to evaluate the performance of division managers
Q2) In each of the following industries, identify possible joint (or severable) products at the split-off point.
a.Coal
b.Petroleum
c.Dairy
d.Lamb
e.Lumber
f.Cocoa Beans
g.Christmas Trees
h.Salt
i.Cowhide
Q3) Explain why some companies choose not to allocate joint costs to products.
Q4) What are the reasons for allocating joint costs to individual products or services?
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Chapter 17: Process Costing
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Q1) Which of the following entries is used to record the standard costs of direct materials assigned to units worked on and total direct materials variances?
A) Work in Process (at standard costs) Direct Materials Variances
Direct Materials Control
B) Work in Process (at actual costs) Direct Materials Variances
Direct Materials Control
C) Direct Materials Variances Direct Materials Control Work in Process (at standard costs)
D) Direct Materials Variances Direct Materials Control Work in Process (at actual costs)
Q2) When there are multiple support departments within an organization, it is common to use journal entries to transfer-in costs from one department to another. What are some of the points to remember about these costs?
Q3) The principal difference between process costing and job costing is that in job costing an averaging process is used to compute the unit costs of products or services.
A)True
B)False
Q4) List and describe the five steps in process costing.
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) Which of the following statements is true of scrap?
A) When a production process yields two or more products with high total sales values relative to the total sales values of other products, those are called scrap.
B) For accounting purpose, distinction is made between normal and abnormal scrap.
C) Scrap refers to units of production, fully or partially completed, that do not meet the specifications required by customers for good units and are discarded or sold at reduced prices
D) Scrap is either sold or disposed of quickly or it is stored for later sale, disposal, or reuse.
Q2) The last step in the five-step procedure for process costing with spoilage is to summarize total costs to account for.
A)True
B)False
Q3) How do job-costing systems account for spoilage?
Q4) Units spoiled due to machine breakdowns and operator errors are normal spoilage. A)True
B)False
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Chapter 19: Balanced Scorecard: Quality and Time
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Q1) The costs of quality are the costs incurred ________.
A) to enhance large scale production
B) to prevent the production of a low quality product
C) due to defective and low quality product
D) because of warranties, normal spoilage, abnormal spoilage, and scrap
Q2) An example of a nonfinancial measure for customer satisfaction is ________.
A) number of defective units shipped as a percentage of total units shipped
B) warranty claims by customers
C) liability claims incurred to the company
D) rework costs due to inefficiency
Q3) One of the ways to increase capacity is to invest in new equipment, such as flexible manufacturing systems that can be programmed to switch quickly from producing one product to producing another.
A)True
B)False
Q4) The last step of the five-step decision making process is implementing the decision, evaluating performance, and learning. How can a balanced scorecard play a role in helping to assure this final step will be successful?
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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Q1) Why do conflicts arise between the EOQ model's optimal order quantity and the order quantity that managers regard as optimal?
Q2) Just-in-time systems are similar to materials requirement planning systems as both systems are demand-pull systems.
A)True
B)False
Q3) What are the implications of JIT and backflush costing systems for activity-based costing (ABC) systems?
Q4) Which of the following statements is true of lean accounting?
A) It is much complex than traditional product costing but produces more accurate product unit costs.
B) It does not always compute costs for individual products but does emphasize product costs by value stream.
C) It omits recording some of the journal entries relating to the stages from the purchase of direct materials to the sale of finished goods.
D) It is acceptable under GAAP.
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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Q1) Which of the following is a stage of the capital budgeting process that indicates potential capital investments that agree with an organization's strategy?
A) identify projects stage
B) make predictions stage
C) obtain information stage
D) implement the decision, evaluate performance, and learn stage
Q2) Which of the following statements is true of accrual accounting rate of return (AARR) method and internal rate of return (IRR) method?
A) AARR method calculates the return in absolute terms, whereas IRR method calculates the result in terms of percentage.
B) The AARR method calculates the return using operating-income numbers after considering accruals and taxes, whereas the IRR method calculates the return using after-tax cash flows and the time value of money.
C) The AARR method calculates the return considering the time value of money, whereas the IRR method calculates the return ignoring the time value of money.
D) The AARR method considers cash flows, whereas the IRR method considers operating income.
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Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational
Considerations
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Q1) What are distress prices and which transfer prices should be used for judging performance if distress prices prevail?
Q2) One of the problems in using one set of accounting records for tax reporting and another set of records for internal management reporting is that ________.
A) it is illegal as well as unethical to do so
B) the tax authorities may suspect manipulation of records
C) it is almost impossible to keep the records straight and hard to reconcile the books
D) the shareholders do not approve of such methods and the market prices will decline
Q3) Which of the following is a part of the formal management control system?
A) mutual commitments among the members of the organization
B) the accounting information system provides metrics about costs, revenues, and contribution margins
C) shared values and loyalties among the members of the organization
D) general understanding about acceptable behavior for managers
Q4) Briefly explain each of the three methods used to determine a transfer price.
Q5) Why is decentralization costly?
Q6) Dual pricing is not widely used. Explain its disadvantages.
Page 24
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Chapter 23: Performance Measurement, Compensation,
and Multinational Considerations
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Q1) Megatron Corp. earned net income of 16,000 Euros in its overseas branch at France. Its headquarters is located in the U.S. The rate of conversion during set up was $1.309 / Euro. What is the value of its income in its home currency if the rate is $1.508 / Euro at the end of a financial year and the average rate being $1.410 / Euro?
A) $12,223
B) $22,560
C) $24,128
D) $20,944
Q2) Team incentives encourage cooperation by ________.
A) identifying an efficient and a nonefficient employee
B) enhancing the incentives of individual employees leading to overall positive performance
C) letting individuals help one another as they strive toward a common goal
D) rewarding all teams by the same margin
Q3) When designing the steps in accounting-based performance measures, should the decisions in these steps be sequential?
Q4) Make a list of steps of designing an accounting based performance measure. Give an example of decisions taken under each step.
Page 25
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