Cost Accounting
Chapter Exam Questions
Course Introduction
Cost Accounting is a foundational course that explores the principles, methods, and techniques used to determine and control costs within an organization. The course covers topics such as cost classification, cost behavior, job order and process costing, standard costing, variance analysis, and activity-based costing. Students will learn how to use cost information for budgeting, performance evaluation, and decision-making. Through practical examples and case studies, the course emphasizes the role of cost accounting in managing resources efficiently and supporting strategic planning within manufacturing and service organizations.
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) If a managerial accountant suspected his or her immediate superior of unethical behavior, who happens to be a chief executive officer or equivalent, the managerial accountant should request an immediate meeting with the executive committee or the audit committee.
A)True
B)False
Answer: True
Q2) The Standards of Ethical Conduct for management accountants include concepts related to ________.
A) competence, performance, diligence, and reporting
B) competence, confidentiality, integrity, and credibility
C) experience, diligence, reporting, and objectivity
D) diligence, objectivity, conflicts of interest, and credibility
Answer: B
Q3) Staff management includes ________.
A) manufacturing managers
B) management accountants
C) purchasing managers
D) distribution managers
Answer: B
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Chapter 2: An Introduction to Cost Terms and Purposes
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Q1) Which of the following formulas determine cost of goods sold in a merchandising entity?
A) Beginning inventory + Purchases + Ending inventory = Cost of goods sold
B) Beginning inventory + Purchases - Ending inventory = Costs of goods sold
C) Beginning inventory - Purchases + Ending inventory = Cost of goods sold
D) Beginning inventory - Ending inventory - Purchases = Cost of goods sold
Answer: B
Q2) Improvements in information-gathering technologies are making it possible to trace more costs as direct.
A)True
B)False Answer: True
Q3) An actual cost is the cost incurred-a historical or past cost. A)True
B)False Answer: True
Q4) A unit cost is also called an average cost.
A)True
B)False
Answer: True
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Chapter 3: Cost-Volume-Profit Analysis
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Q1) Fixed costs equal $16,000, unit contribution margin equals $35, and the number of units sold equal 1,300. Operating income is ________.
A) $45,500
B) $29,500
C) $16,000
D) $61,500
Answer: B
Q2) All else being equal, a reduction in selling price will ________.
A) increase contribution margin
B) reduce fixed costs
C) increase variable costs
D) reduce operating income
Answer: D
Q3) If the breakeven point is 1,300 units and each unit sells for $50, then ________.
A) selling 1,340 units will result in a loss
B) selling $85,000 will result in a loss
C) selling $65,000 will result in zero profit
D) selling $58,000 will result in profit
Answer: C
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Chapter 4: Job Costing
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Q1) X-Industries manufactures 3-D printers. For each unit, $3,400 of direct material is used and there is $2,600 of direct manufacturing labor at $16 per hour. Manufacturing overhead is applied at $20 per direct manufacturing labor hour. Calculate the profit earned on 46 units if each unit sells for $9,500.
A) $65,320
B) $35,880
C) $11,500
D) $3,250
Q2) Hammond and Jarrett provide tax consulting for estates and trusts. Their job-costing system has a single direct-cost category (professional labor) and a single indirect-cost pool (research support). The indirect-cost pool contains all the costs except direct personnel costs. All budgeted indirect costs are allocated to individual jobs using actual professional labor-hours.
Required:
a.Discuss the reasons a consulting firm might use a normal costing system rather than an actual costing system.
b.What might be some reasons for the firm to change from a one-pool to a multiple-pool allocation concept?
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Q1) One reason for assigning selling and distribution costs to products for analytical purposes is ________.
A) to justify a varied product-mix
B) that these costs should be included in the cost of goods sold in the income statement
C) to ensure that all costs are considered
D) that all direct costs must be assigned
Q2) Quality-inspection costs is an example of batch-level costs.
A)True
B)False
Q3) The risk of peanut-butter costing rises when broad averages are used across multiple products without managers considering the true amounts of resources consumed in the making of each product.
A)True
B)False
Q4) Explain how activity-based costing systems can provide more accurate product costs than traditional cost systems.
Q5) Do activity-based costing systems always provide more accurate product costs than conventional cost systems? Why or why not?
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) Variances that are calculated frequently and in a timely manner can provide early warnings to management so corrective action can be taken.
A)True
B)False
Q2) In the cash budget, the cash excess (surplus) or deficiency (deficit) is calculated using which of the following formulas?
A) beginning cash + receipts - disbursements
B) beginning cash + receipts - disbursements - minimum cash balance + loan proceeds
C) beginning cash + receipts - disbursements - minimum cash balance
D) total cash needed - cash disbursements
Q3) Rolling budgets are constantly updated to reflect the latest cost and revenue information.
A)True
B)False
Q4) A rolling budget is the same as a continuous budget.
A)True
B)False
Q5) Describe the concept of kaizen budgeting.
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Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Q1) If a sales-volume variance was caused by poor-quality products, then the ________ would be in the best position to explain the variance.
A) production manager
B) sales supervisor
C) financial supervisor
D) logistic manager
Q2) Cost variances should be investigated ________.
A) when they are considered within the "in-control" range as determined by management
B) when the variance is more than a certain percentage of budgeted costs, as determined by management
C) even though the cost of investigation exceeds the benefit as determined by management
D) when the variance is less than a certain percentage of budgeted costs, as determined by management
Q3) The goal of variance analysis is for managers to understand why variances arise, to learn, and to improve future performance.
A)True
B)False
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Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
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Q1) Comfort Company manufactures pillows. The 2015 operating budget is based on production of 25,000 pillows with 0.75 machine-hour allowed per pillow. Budgeted variable overhead per hour was $25.
Actual production for 2015 was 27,000 pillows using 19,050 machine-hours. Actual variable costs were $23 per machine-hour.
Required:
Calculate the variable overhead spending and efficiency variances.
Q2) An unfavorable production-volume variance ________.
A) is not a good measure of a lost production opportunity
B) indicates that the company had reduced its per unit fixed overhead cost to improve sales
C) measures the amount of extra fixed costs planned for but not used
D) takes into account the effect of additional revenues due to maintaining higher prices
Q3) If the production planners set the budgeted machine hours standards too loose, one could anticipate there would be a favorable fixed overhead efficiency variance.
A)True
B)False
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Chapter 9: Inventory Costing and Capacity Analysis
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Q1) Kennywood Inc., a manufacturing firm, is able to produce 1,000 pairs of pants per hour, at maximum efficiency. There are three eight-hour shifts each day. Due to unavoidable operating interruptions, production averages 800 units per hour. The plant actually operates only 28 days per month. Based on the current budget, Kennywood estimates that it will be able to sell only 501,000 units due to the entry of a competitor with aggressive marketing capabilities. But the demand is unlikely to be affected in future and will be around 519,000. Assume the month has 30 days. What is the practical capacity for the month?
A) 216,000 units
B) 720,000 units
C) 537,600 units
D) 672,000 units
Q2) Which of the following would be subtracted from sales while calculating contribution margin in a variable costing format of an operating income statement?
A) Direct labor in factory
B) Rent on factory building
C) Rent on the headquarters building
D) Sales commission on incremental sales
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Chapter 10: Determining How Costs Behave
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Q1) The incremental unit-time learning model with a 80% learning curve indicates that if it takes 150 minutes to manufacture the first unit of a new model, then the second unit will take only 120 minutes to manufacture.
A)True
B)False
Q2) The major advantages of quantitative methods are that they are objective, so managers can use them to evaluate different cost drivers.
A)True
B)False
Q3) The cost function y = 300 + 2X ________.
A) has a slope coefficient of 300
B) has an intercept of 300
C) is a nonlinear
D) represents a fixed cost
Q4) Regression analysis is a statistical method that measures the average amount of change in the dependent variable associated with a unit change in one or more independent variables.
A)True
B)False
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Chapter 11: Decision Making and Relevant Information
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Q1) An example of a qualitative factor for the decision-making process is ________
A) customer satisfaction as determined by written responses given by customers to survey questions
B) employee wages paid this week
C) number of clicks on a web site during a month
D) manufacturing overhead allocated to WIP
Q2) Assume you are a sophomore in college and are committed to earning an undergraduate degree. Your current decision is whether to finish college in four consecutive years or take a year off and work for some extra cash.
a.Identify at least two revenues or costs that are relevant to making this decision. Explain why each is relevant.
b.Identify at least two costs that would be considered sunk costs for this decision.
c.Identify at least two opportunity costs for this decision.
d.Comment on at least one qualitative consideration for this decision.
Q3) Outsourcing is risk free to the manufacturer because the supplier now has the responsibility of producing the part.
A)True
B)False
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Chapter 12: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Q1) The percentage of processes with real-time feedback would be a measure of which perspective?
A) marketing
B) customer
C) learning and growth
D) internal-business-process
Q2) Heliem Corp. uses the balanced scorecard technique to achieve its long term objectives. Managers of Heliem came to know that all the balanced scorecards objectives were achieved other than financial perspective measures for the previous period. While the learning and growth and internal business processes perspective measures were achieved with relative ease, Heliem had to strive extremely hard to achieve customer oriented measures. The company had failed miserably in achieving its financial measures.
Using the given information, evaluate the strategy of Heliem and its implementation.
Q3) What is re-engineering. Can you contrast a re-engineering approach to change with a kaizen approach to change?
Q4) Can a company identify unused capacity and, if so, how can unused capacity be managed?
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) In case of pricing for special orders, managers include all future costs, variable costs, and costs that are fixed in the short run.
A)True
B)False
Q2) Bouchard Company manufactures a product that currently has a full cost of $700. Its target operating income per unit is $80 and management's budgets assume that same target operating income per unit for the foreseeable future. To stay competitive, Bouchard management believes it must cut its price by 25%. What will be its new target cost?
A) $700
B) $505.00
C) $585.00
D) $80
Q3) Reverse engineering has the objective of reducing costs while still satisfying customer needs.
A)True B)False
Q4) What is the primary reason a firm would adopt target costing?
Q5) What factors may influence the level of markups?
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Chapter 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Q1) A shift towards a higher proportion of sales of products with a lower contribution margin per unit will most likely result in a(n) ________.
A) unfavorable sales-mix variance
B) unfavorable sales-quantity variance
C) favorable sales-mix variance
D) favorable sales-quantity variance
Q2) To improve customer profitability, companies should track which of the following?
A) only the final invoice price of a sale
B) the volume of the products purchased by each customer
C) the location of each customer
D) the customer profile
Q3) The static-budget variance is the difference between ________.
A) an actual result and the corresponding budgeted amount in the static budget
B) the budget amount in the static budget and the amount in the flexible budget
C) an actual result and the flexible budget amount
D) the static budget amount and the sales-volume variance
Q4) What actions might be taken with an unprofitable customer?
Q5) How can a company's revenues and costs differ across customers?
Q6) Should a company allocate its corporate costs to divisions?
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Chapter 15: Allocation of Support-Department Costs, Common
Costs, and Revenues
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Q1) Why do organizations use budgeted rates instead of actual rates to allocate the costs of support departments to each other and to user departments and divisions? Explain.
Q2) A company sells a software suite that includes a word processor and spreadsheet applications. The suite sells for $250 and the items are also available separately for $200 (spreadsheet) and $170 (word processor). The spreadsheet app is by far the best seller of the standalone product sales. Using the incremental-revenue allocation method and assuming that the spreadsheet is the primary product, how much of the $250 revenue from the bundled product sale would be allocated to the spreadsheet and to the word processing products?
A) $200 of revenue for the spreadsheet and $50 for the word processor
B) $200 of revenue for the spreadsheet and $0 for the word processor
C) $135 of revenue for the spreadsheet and $115 for the word processor
D) $250 of revenue for the spreadsheet and $0 for the word processor
Q3) Which of the following is an example of a revenue object?
A) suppliers
B) products
C) labor
D) duration to complete a given task
Page 17
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Q1) In joint costing, the sales value at split-off method allocates joint costs entirely to joint products sold during the accounting period on the basis of the relative total sales value at the split-off point.
A)True
B)False
Q2) The constant gross-margin percentage NRV method makes the simplifying assumption of treating the joint products as though they comprise a single product.
A)True
B)False
Q3) The constant gross-margin percentage NRV method is the only method of allocating joint costs under which products may receive negative allocations.
A)True
B)False
Q4) Discuss in brief how easy it is for companies to classify products as main products, joint products, and byproducts.
Q5) List the reasons that the sales value at split-off method of joint cost allocation should be used.
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Chapter 17: Process Costing
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Q1) Both, the standard-costing method and FIFO, assumes that the earliest equivalent units in beginning work in process are completed first.
A)True
B)False
Q2) Which of the following entries is used to record direct materials purchased and used in production during a month in the Assembly department, before transferring the goods to Testing department?
A) Debit: Work in Process-Assembly Credit: Wages Payable Control
B) Debit: Accounts Payable Control Credit: Work in Process-Assembly
C) Debit: Work in Process-Assembly Credit: Accounts Payable Control
D) Debit: Accounts Payable Control Credit: Cash
Q3) From an accounting standpoint, favorable cost variances are debit entries, while unfavorable ones are credits.
A)True
B)False
Q4) An operation-costing system is a hybrid-costing system applied to batches of similar, but NOT identical, products.
A)True
B)False
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) In accounting for scrap, which of the following statements is true?
A) Normal scrap is accounted for separately from abnormal scrap.
B) In accounting for scrap, there is no distinction between the scrap attributable to a specific job and scrap common to all jobs.
C) Initial entries to scrap accounting records are most often made in dollar terms.
D) Scrap records not only help measure efficiency, but also help keep track of scrap, and so reduce the chances of theft.
Q2) Which of the following defines spoilage?
A) units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units
B) units of production whether fully or partially completed, that do not meet the specifications required by customers for good units and are discarded or sold at reduced prices
C) residual material that results from manufacturing a product
D) products of a joint production process that have low total sales values relative to the total sales value of the main product
Q3) What are the objectives in accounting for spoilage?
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Chapter 19: Balanced Scorecard: Quality and Time
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Q1) Cost of Quality (COQ) reports provide more insight about quality improvements and allow managers to compare trends over time.
A)True
B)False
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) Which of the following is an advantage of nonfinancial measures of quality?
A) They help managers aggregate costs to evaluate the tradeoffs of incurring prevention costs and appraisal costs to eliminate internal and external failure costs.
B) They detect and provide immediate short-run feedback on whether quality-improvement efforts are succeeding.
C) They focus managers' attention on how poor quality affects operating income.
D) They direct attention to financial processes that help managers identify the precise problem areas that need improvement.
Q4) What are control charts and how can inferences be drawn from them?
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Chapter 20: Inventory Management, Just-in-Time, and Simplified Costing Methods
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Q1) Which of the following costs is a relevant inventory carrying cost of carrying inventory?
A) The lost contribution margin on future sales forgone as a result of customer dissatisfaction in product quality.
B) The lost contribution margin on sales forgone because of the shortage of inventory.
C) The costs of storage space owned that cannot be used for other profitable purposes when inventories decrease.
D) The costs of shrinkage.
Q2) What are the implications of JIT and backflush costing systems for activity-based costing (ABC) systems?
Q3) In a backflush-costing system, no record of work in process appears in the accounting records.
A)True
B)False
Q4) A positive aspect of backflush costing is the presence of the visible audit trail.
A)True
B)False
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Chapter 21: Capital Budgeting and Cost Analysis
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Q1) A general rule in capital budgeting is that a project is accepted only if the internal rate of return equals or ________.
A) exceeds the required rate of return
B) exceeds the inflation rate
C) exceeds the risk-free rate
D) exceeds the accrual accounting rate of return
Q2) Which of the following statements is true of a post-investment audit?
A) It encourages managers to overstate the expected cash inflows from projects and accept projects they should reject.
B) It helps managers avoid optimistic estimate errors.
C) It does not help senior management to recognize problems in the implementation of the project.
D) It provides managers with feedback about the performance of a project to determine if any variance from expectations were the result of the overly optimistic estimates of because of implementation issues.
Q3) How is inflation related to capital budgeting? Discuss.
Q4) What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method?
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Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational Considerations
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Q1) Division A sells ground veal internally to Division B, which in turn, produces veal burgers that sell for $12 per pound. Division A incurs costs of $5.25 per pound while Division B incurs additional costs of $11.50 per pound. What is Division A's operating income per burger, assuming the transfer price of the ground veal is set at $7.00 per burger?
A) $1.75 B) $2.25 C) $8.75 D) $4.50
Q2) Which of the following would be considered an example of an element of an informal control system?
A) procedures developed by first level managers to help guide staff in their daily work
B) a policy that requires all employees to take at least two weeks of vacation each year
C) Shared values within an organization's culture
D) the master budget
Q3) What are transfer prices and what are its criteria?
Q4) Why is decentralization costly?
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Chapter 23: Performance Measurement, Compensation, and Multinational Considerations
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Q1) In an EVA calculation, the corporate charge for a division's investment is based on a weighted average of the after-tax interest rate on the firm's debt and the cost of the firm's equity.
A)True
B)False
Q2) Historical costs are costs recognized in particular situations that are not usually recognized by accrual accounting procedures.
A)True
B)False
Q3) Which of the following steps in designing an accounting-based performance measure includes decisions of selecting net income as a measure of financial performance?
A) choosing performance measures that align with the firm's financial goals
B) choosing the time horizon of each performance measure
C) choosing the details for each performance measure
D) choosing a target level of performance
Q4) Briefly explain each of the four levels of control. Why does a company need to implement more than a diagnostic control system?
25
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