Advanced Cost Accounting
Textbook Exam Questions
Course Introduction
Advanced Cost Accounting examines complex cost accumulation methods and their application in managerial decision-making. The course delves into modern costing techniques such as activity-based costing, process costing, standard costing, and job-order costing, exploring how these methods can inform budgeting, performance evaluation, and strategic planning. Emphasis is placed on cost allocation, variance analysis, and the use of cost information in pricing, profitability analysis, and cost control. Through case studies and practical scenarios, students develop critical skills in designing and implementing cost systems that align with organizational objectives and support effective management practices.
Recommended Textbook
Cost Accounting A Managerial Emphasis 6th Canadian Edition by Charles T. Horngren
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Chapter 1: The Accountants Vital Role in Decision Making
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Sample Questions
Q1) There are three (3) basic business strategies: low cost, premium products, and customer satisfaction.
A)True
B)False
Answer: False
Q2) Control measures should
A) be set and not changed until the next budget cycle.
B) be flexible to allow for employees who are slackers.
C) be kept confidential from employees so that competitors don't have an opportunity to gain a competitive advantage.
D) be linked by feedback to planning.
E) provide continuous feedback.
Answer: D
Q3) The controller is also called the CFO.
A)True
B)False
Answer: False
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) What is the unit cost for the plant leasing costs for 20x4 assuming plant leasing costs are for the production of 1,014,000 units?
A) $0.119
B) $0.118
C) $0.110
D) $0.900
E) $0.943
Answer: B
Q2) Calculate this year's operating income if the company plans to produce and sell 50,000 units.
A) $50,000
B) $0
C) $<250,000>
D) $<550,000>
E) $250,000
Answer: A
Q3) Prime costs consist of direct and indirect manufacturing labour.
A)True
B)False
Answer: False
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) The break-even point in tickets sold of option two?
A) 85 tickets
B) 80 tickets
C) 76 tickets
D) 39 tickets
E) 71 tickets
Answer: A
Q2) What would target operating income be when fixed costs equal $6,000, unit contribution margin equals $40.00, and the number of units equals 400?
A) $6,000
B) $10,000
C) $16,000
D) $20,000
E) $60,000
Answer: B
Q3) A profit-volume graph shows the impact on operating income from changes in the output level.
A)True
B)False Answer: True
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Chapter 4: Job Costing
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Sample Questions
Q1) Actual costing can also be a method of job costing.
A)True
B)False
Q2) The actual costs of all individual overhead categories are recorded in the Manufacturing Overhead Control account as credit entries.
A)True
B)False
Q3) Transferring costs from pools to jobs is called
A) cost allocation.
B) cost control.
C) cost pool.
D) cost factoring.
E) cost processing.
Q4) The amount of manufacturing overhead allocated to all jobs during June 2012 totals
A) $77,000.
B) $105,000.
C) $110,000.
D) $200,000.
E) $557,000.
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Chapter 5: Activity-Based Costing and Management
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Sample Questions
Q1) Activity-based cost systems
A) apply average support costs to each unit of product.
B) limit cost drivers to units of output.
C) allocate costs based on the overall level of activity.
D) generally undercost complex products.
E) highlight the different levels of activities.
Q2) An ABC system is one building block of activity-based management (ABM). The second building block is
A) that senior management support is crucial.
B) understanding the components of indirect cost pools.
C) knowing the limitations of allocating indirect costs.
D) the ability for managers to understand that the demand for output is central to profitability.
E) automating the costing system.
Q3) It may be appropriate to use a departmental costing system when costs are incurred on different activities within a department but each activity has the same cost allocation base.
A)True
B)False
Q4) How are cost drivers selected in activity-based costing systems?
Page 7
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) How many boxes should Berry's Boxes produce in 2012?
A) 24,000 boxes
B) 20,000 boxes
C) 19,500 boxes
D) 20,500 boxes
E) 22,500 boxes
Q2) What are the expected total cash receipts for February?
A) $118,500
B) $89,000
C) $88,500
D) $85,000
E) $80,500
Q3) What will be Fair Score Company's budgeted total sales for 2012?
A) $18,400,000
B) $17,600,000
C) $16,000,000
D) $15,200,000
E) $12,300,000
Q4) Describe operating and financial budgets and give at least two examples of each discussed in the textbook.
Page 8
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Chapter 7: Flexible Budgets, Variances, and Management
Control: I
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Sample Questions
Q1) A packaging company produces cardboard boxes in an automated process. The required direct materials costs $0.30 per unit. Fixed manufacturing overhead costs are budgeted at $24,000 per month and are allocated based on units of production. The budgeted contribution margin per unit is $0.85, and administration fixed costs are budgeted at $7,500 per month. What is the flexible-budget amount for operating income for 40,000 and 20,000 units, respectively?
A) $26,000; $20,000
B) $36,000; $30,000
C) $40,000; $34,000
D) $44,000; $38,000
E) $2,500; <$14,500>
Q2) Variances can be expected to vary within some normal limits, as standards represent a range of possible acceptable outcomes.
A)True
B)False
Q3) Decreasing demand for a product may create a favourable sales-volume variance.
A)True
B)False
Q4) Describe the purpose of variance analysis.
Page 9
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Chapter 8: Flexible Budgets, Variances, and Management
Control: II
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Sample Questions
Q1) Capacity decisions are considered operating decisions because they involve the long-term acquisition of assets by purchase or lease.
A)True
B)False
Q2) Fixed and variable cost variances can ________ be applied to activity-based costing systems.
A) occasionally
B) always
C) seldom
D) most times
E) never
Q3) The production-volume variance
A) only pertains to variable overhead costs.
B) only pertains to fixed overhead costs.
C) is not applicable in analysis of inventory costs.
D) pertains to both fixed and variable overhead costs.
E) equals the rate variance minus the efficiency variance.
Q4) Explain two concerns when interpreting the production-volume variance as a measure of the economic cost of unused capacity.
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Sample Questions
Q1) There is not an output-level variance for variable costing, because
A) the inventory level decreased during the period.
B) the inventory level increased during the period.
C) fixed manufacturing overhead is allocated to work-in-process.
D) fixed manufacturing overhead is not allocated to work-in-process.
E) variable manufacturing overhead is not allocated to work-in-process.
Q2) What is throughput costing? What advantages is it purported to have over variable and absorption costing?
Q3) What is the inventoriable cost per unit using variable costing?
A) $32
B) $35
C) $40
D) $60
E) $75
Q4) What is the theoretical capacity for the month of April?
A) 600,000 units
B) 720,000 units
C) 744,400 units
D) 576,000 units
E) 480,000 units
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Chapter 10: Quantitative Analyses of Cost Functions
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Sample Questions
Q1) Which of the following is/are one of the criteria used when a manager evaluates an estimated cost function for decision making purposes?
A) economic plausibility
B) goodness of fit
C) irrelevant high-low outliers
D) specifications analysis
E) economic plausibility and goodness of fit
Q2) A linear cost function is a function in which the graph of total costs versus a single cost driver forms a straight line, within the relevant range.
A)True
B)False
Q3) A nonlinear cost function
A) has two constants and a single slope.
B) does not effectively describe the behaviour of costs all of the time.
C) never describes the behaviour of costs in relation to the cost driver.
D) always describes the behaviour of costs in relation to the cost drivers.
E) means the relevant range cannot be determined for that cost.
Q4) What are the estimated total costs if Miller's expects to sell 6,500 units next year?
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) When opportunity costs exist, they are always relevant.
A)True
B)False
Q2) All variable costs are relevant in relevant-cost analysis.
A)True
B)False
Q3) If Konrade's Engine Company purchases 1,000 TE456 parts from the outside supplier per month, then its monthly operating income will
A) increase by $13,000.
B) increase by $15,000.
C) decrease by $5,000.
D) decrease by $3,000.
E) decrease by $35,000.
Q4) Which of the following is False concerning relevant costs and relevant revenues?
A) Every decision deals with the future.
B) Nothing can be done to alter past costs or revenues.
C) Historical costs may be useful for predicting future costs.
D) Historical costs in themselves are irrelevant to a decision on future costs.
E) Total differential costs include both relevant and irrelevant costs.
Q5) Explain what revenues and costs are relevant when choosing among alternatives.
Page 13
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Chapter 12: Pricing Decisions, Product Profitability Decisions, and Cost Management
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Sample Questions
Q1) Which of the following are examples of downstream costs?
A) R&D, distribution, marketing, design
B) production, distribution, marketing, design
C) R&D, design, production
D) production, R&D, distribution, marketing, design
E) after-sales service, distribution, marketing
Q2) Short-run pricing decisions include adjusting product mix and output volume in a competitive market.
A)True
B)False
Q3) A business that engages in predatory pricing violates Canadian law.
A)True
B)False
Q4) What is the target cost?
A) $800,000
B) $960,000
C) $1,440,000
D) $1,600,000
E) $768,000
Q5) What is the primary reason a firm would adopt target costing?
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Chapter 13: Strategy, Balanced Scorecard, and Profitability Analysis
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Sample Questions
Q1) Downsizing is an integrated approach to configure processes, products, and people to by match costs to the activities that need to be performed, to operate efficiently and effectively, now and in the future.
A)True
B)False
Q2) What is the operating income for year 1?
A) $210,000
B) $366,120
C) $1,000,000
D) $260,000
E) $231,000
Q3) In general, profit potential increases with greater competition, stronger potential entrants, products that are similar, and tougher customers and suppliers.
A)True
B)False
Q4) One way to eliminate unused capacity is to downsize.
A)True
B)False
Q5) What are the four key perspectives in the balanced scorecard?
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Chapter 14: Period Cost Allocation
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Sample Questions
Q1) If one is willing to put in the time and expense, it is always possible to identify the specific cause-and-effect relationship needed for a cost allocation base.
A)True
B)False
Q2) Which of the following is the first step in the cost-allocation decision process?
A) Calculate the cost-allocation rate for each indirect cost pool.
B) Identify the purpose of the cost allocation.
C) Identify the direct inputs that are already measured.
D) Identify the relevant indirect costs included in the cost pool(s) or numerator(s).
E) Analyze the alternatives and select the best one for the denominator.
Q3) The fixed and variable costs allocated to the Sauna Department are
A) $50,000 and $75,000, respectively.
B) $50,000 and $60,000, respectively.
C) $30,000 and $75,000, respectively.
D) $30,000 and $50,000, respectively.
E) $30,000 and $60,000 respectively
Q4) Should a company allocate its corporate costs to divisions?
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Chapter 15: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) The incremental benefit or (loss) of processing Kharton into Kraxton is:
A) $74,000
B) $22,000
C) ($22,000)
D) ($96,000)
E) $170,000
Q2) When using a physical-volume measure, what is the approximate amount of joint costs that will be allocated to Mr. DirtOut and Mr. SinkClean?
A) $231,116 and $148,884
B) $224,200 and $155,800
C) $227,202 and $152,798
D) $155,800 and $224,200
E) $148,884 and $231,116
Q3) Byproducts and scrap are differentiated by
A) number of units per processing period.
B) weight or volume of outputs per period.
C) management preference only.
D) the amount of sales value per unit.
E) the amount of costs assigned to each unit.
Q4) How should toxic waste be accounted for?
Page 17
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Chapter 16: Revenue and Customer Profitability Analysis
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Q1) Price discounting is the reduction of selling prices below listed levels in order to encourage an increase in purchases by customers.
A)True
B)False
Q2) ________ is a package of two or more products or services, sold for a single price, where the individual components of the package may also be sold as separate items, each with their own stand-alone price.
A) A revenue product
B) A byproduct
C) A bundled product
D) A joint product
E) A product package
Q3) The sales-quantity variance arises because
A) the mix of individual products actually sold differs from the budgeted mix.
B) the total quantity of units actually sold differs from the static budget.
C) the total quantity of units expected to be sold differs from the static budget.
D) the mix of budgeted products sold differs from the actual product mix.
E) the budgeted sales in units cannot be achieved unless the price is decreased
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Chapter 17: Process Costing
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Q1) Equivalent units measure output in terms of the physical quantities of each of the inputs (factors of production) that have been consumed by the units.
A)True
B)False
Q2) The weighted-average process costing method distinguishes between units started in the previous period but completed during the current period and units started and completed during the current period.
A)True
B)False
Q3) Using standard costs simplifies the calculations for which of the following in process-costing?
A) direct materials
B) conversion costs
C) equivalent units
D) direct materials and conversion costs but standard costs not relevant for equivalent units
E) direct materials and conversion costs and equivalent units
Q4) List and describe the five steps in process costing.
Q5) Describe three objectives of a costing system.
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) What are the costs per equivalent unit for direct materials and conversion respectively?
A) $2.00; $1.54
B) $1.45; $1.54
C) $2.11; $1.62
D) $2.11; $1.18
E) $2.00; $1.18
Q2) Shazam Machines produces numerous types of money change machines. All machines are made in the same production department and many use exactly the same processes. Because customers have such different demands for the machine characteristics, the company uses a job costing system. Unfortunately, some of the production managers have been upset for the last few months when their jobs were charged with the spoilage that occurred over an entire processing run of several types of machines. Some of the best managers have even threatened to quit unless the accounting system is changed.
Required: What recommendations can you suggest to improve the accounting for spoilage?
Q3) Normal spoilage is avoidable and controllable.
A)True
B)False
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Chapter 19: Cost Management: Quality, Time, and the Theory of Constraints
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Q1) Which of the following does NOT pertain to control charts?
A) They plot a series of successive observations of a particular step, procedure, or operation.
B) They plot each observation relative to specified ranges that represent the expected distribution.
C) They are used in statistical quality control.
D) They plot only those observations outside specified limits.
E) They plot each observation relative to specified ranges that represent the expected distribution, but only those observations outside specified limits.
Q2) In the banking industry, depositing a customer's check into the wrong bank account is an example of quality of design failure.
A)True
B)False
Q3) The two basic aspects of quality are quality of design and conformance quality. Define and give an example of each.
Q4) Discuss how a manufacturer of personal computers such as Dell Computer can benefit from the introduction of a quality improvement program.
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Chapter 20: Inventory Cost Management Strategies
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Q1) Shrinkage is measured by comparing the cost of inventory on the books to the cost of inventory physically counted.
A)True
B)False
Q2) The economic-order-quantity decision model aids in the calculation of the optimal quantity of inventory to order.
A)True
B)False
Q3) Backflush costing is an example of sequential tracking.
A)True
B)False
Q4) Which of the following is NOT a component in a materials requirement planning system?
A) lead times of all items to be purchased
B) master production schedule
C) bill of materials filed
D) standard construction times for all components produced externally
E) demand forecasts for finished goods
Q5) The costs associated with storage are an example of which cost category?
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Chapter 21: Capital Budgeting: Methods of Investment Analysis
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Q1) Comparison of the actual results for a project to the costs and benefits expected at the time the project was selected is referred to as
A) the audit trail.
B) management control.
C) a post-investment audit.
D) a cost-benefit analysis.
E) capital budgeting.
Q2) In determining whether to keep a machine or replace it, the net book value of the machine is irrelevant.
A)True
B)False
Q3) Accrual accounting measures income on a year-to-year basis.
A)True
B)False
Q4) Internal rate-of-return is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time.
A)True
B)False
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Chapter 22: Capital Budgeting: a Closer Look
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Q1) What is the net present value of the investment assuming a discount rate of 13%?
A) $31,707
B) $48,288
C) $35,706
D) $52,287
E) $101,131
Q2) The tax effects are significant in capital budgeting decisions. A)True B)False
Q3) Headwaters Ltd. is considering purchasing a new asset. It has a cost of $1,350,000, an expected 6 year life and a salvage value of $90,000. The equipment would qualify as a class 8 (20% CCA) asset and Headwaters has a required rate of return of 11% and an effective tax rate of 32%.
Required:
Assume that this asset is the only asset in the pool. Assuming the asset is disposed of at its estimated salvage value, what is the tax effect on the disposition of the asset? Assume the asset will be disposed of on day 1 of year 7 so the asset is eligible for CCA claims in year 6.
Q4) Explain why the term tax shield is used in conjunction with amortization.
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Chapter 23: Transfer Pricing and Multinational Management Control Systems
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Q1) Discuss the possible problems a corporation might have if its operations are totally decentralized.
Q2) An advantage of decentralization is that it
A) creates greater responsiveness to local needs.
B) focuses manager's attention on the organization as a whole.
C) does not result in a duplication of activities.
D) reduces the cost of gathering information.
E) increases loyalty toward the organization as a whole.
Q3) Management control systems motivate managers and other employees to exert effort through a variety of rewards tied to the achievement of goals.
A)True
B)False
Q4) Examples of market-based transfer prices include variable manufacturing costs, full manufacturing costs, and full product costs.
A)True
B)False
Q5) Briefly explain each of the three general methods used to determine a transfer price.
Page 25
Q6) What is the purpose of the internal control system within an organization?
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Chapter 24: Multinational Performance Measurement and Compensation
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Q1) There are three basic ingredients in profitability: investment, revenues, and debts. A)True
B)False
Q2) The timing of feedback depends on the level of management that receives the information and on the complexity of the organization's information technology.
A)True
B)False
Q3) Using gross book value as an investment base will result in a lower ROI than using net book value as an investment base.
A)True
B)False
Q4) During the past year Badger Company had a net income of $175,000. What is the ROI if the investment is $25,000?
A) 0.142
B) 2.500
C) 5.140
D) 7.000
E) 5.450
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