Cost Accounting Exam Practice Tests
Course Introduction
Cost Accounting focuses on the process of collecting, analyzing, and reporting information related to the costs of producing goods and services. The course covers key concepts such as cost behavior, cost allocation, job order and process costing, standard costing, variance analysis, and activity-based costing. Students will learn how cost accounting supports management decision-making, budgeting, and strategic planning, with an emphasis on understanding product and service profitability, cost control, and performance evaluation within organizations.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis 16th Edition by Srikant M. Datar
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4116 Verified Questions
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Page 2
Chapter 1: The Manager and Management Accounting
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195 Verified Questions
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Sample Questions
Q1) As per IMA statement of ethical professional practice, integrity refers to disclosing all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations is a responsibility.
A)True
B)False
Answer: False
Q2) Discuss the behavioral considerations that provide value to strategic decision making.
Answer: Management is primarily a human activity that should focus on encouraging individuals to do their jobs better. Budgets have a behavioral effect by motivating and rewarding employees for achieving an organization's goals. So, when workers underperform, for example, behavioral considerations suggest that managers need to discuss ways to improve their performance with them rather than just sending them a report highlighting their underperformance.
Q3) The controller is usually responsible for budgeting.
A)True
B)False
Answer: True
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3
Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Accountants define a cost as the amount of money spent on a resource.
A)True
B)False
Answer: False
Q2) A unit cost is computed by dividing total cost by the number of units.
A)True
B)False
Answer: True
Q3) A cost system determines the cost of a cost object by ________.
A) accumulating and then assigning costs
B) accumulating costs
C) assigning and then accumulating costs
D) assigning costs
Answer: A
Q4) Although unit costs are regularly used in financial reports and for making product mix and pricing decisions, managers should think in terms of total costs rather than unit costs for making decisions.
A)True
B)False
Answer: True
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Chapter 3: Cost-Volume-Profit Analysis
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211 Verified Questions
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Sample Questions
Q1) A decision table is a summary of the alternative actions, events, outcomes, and probabilities of events.
A)True
B)False
Answer: True
Q2) Which option provides the least amount of risk?
A) Option one
B) Option two
C) Both options provide the same amount of risk.
D) It depends on how many donations it receives.
Answer: A
Q3) The margin of safety refers to how many more sales are needed in order to breakeven,
A)True
B)False
Answer: False
Q4) If variable costs per unit increase, then the breakeven point will decrease.
A)True
B)False
Answer: False
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Chapter 4: Job Costing
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Sample Questions
Q1) The ________ adjusts individual job-cost records to account for underallocated or overallocated overhead.
A) adjusted allocation-rate
B) proration approach
C) write-off to cost of goods sold approach
D) weighted-average cost approach
Q2) 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
Q3) Which account is credited to write off the difference between allocated and actual overhead using the proration approach?
A) Work-in Process Control
B) Manufacturing Overhead Allocated
C) Finished Goods Control
D) Manufacturing Overhead Control
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Page 6
Chapter 5: Activity-Based Costing and Activity-Based Management
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176 Flashcards
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Sample Questions
Q1) Increased used of automation, computer integrated manufacturing, and utilization of robots have lead to an increase in indirect costs relative to direct costs.
A)True
B)False
Q2) Which of the following statements is true of ABC systems?
A) ABC systems are time-driven cost systems.
B) ABC systems classify some direct costs as indirect costs and some indirect costs as direct costs.
C) ABC systems provide valuable information to managers beyond accurate product costs.
D) ABC systems assume all costs are variable costs.
Q3) In activity based costing systems, limiting cost-allocation bases to only units of output strengthens the cause-and-effect relationship between the cost-allocation base and the costs in a cost pool.
A)True
B)False
Q4) Only indirect costs are included in the cost pools of ABC.
A)True
B)False
7
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Chapter 6: Master Budget and Responsibility Accounting
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226 Flashcards
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Sample Questions
Q1) Which of the following best describes a bill of materials?
A) It is a document that is prepared by a vendor to invoice a manufacturer for a purchase of materials
B) It is a document that is used to order materials
C) It is a document that requests materials be removed from the warehouse and put into production
D) It is a document that identifies how each product is manufactured, specifying materials and components and the quantities of materials in each finished good
Q2) Administration of budgets is free of emotions as budgets are mechanical tools.
A)True
B)False
Q3) The cash budget is a schedule of expected cash receipts ,disbursements, and financing.
A)True
B)False
Q4) Rolling budgets are constantly updated to reflect the latest cost and revenue information.
A)True
B)False
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Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Sample Questions
Q1) Which of the following is the correct formula for the materials price variance?
A) (Actual price of input - Budgeted price of input) x Budgeted quantity of input
B) (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Budgeted price of input
C) (Actual price of input - Budgeted price of input) x Actual quantity of input
D) (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Actual price of input
Q2) When using variance analysis for performance evaluation, managers often focus on effectiveness and efficiency as two of the common attributes used in comparing expected results with actual results.
A)True
B)False
Q3) With a direct materials price variance of $40,000 F and direct materials efficiency, direct manufacturing labor price, and direct labor efficiency variances of $60,000 U, 20,000 U, and 15,000 U, the write-off to cost of goods sold if these are deemed immaterial would be a debit of $55,000.
A)True
B)False
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Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
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Sample Questions
Q1) The production-volume variance may also be referred to as the ________.
A) flexible-budget variance
B) denominator-level variance
C) spending variance
D) efficiency variance
Q2) Effective planning of variable overhead costs includes ________.
A) choosing the appropriate level of investment
B) eliminating value-added costs
C) redesigning products or processes to use fewer resources
D) reorganizing management structure
Q3) Variable overhead has no production-volume variance.
A)True
B)False
Q4) Which of the following journal entries is used to record fixed overhead costs allocated?
A) Fixed Overhead Allocated Work-in-Process Control
B) Work-in-Process Control Fixed Overhead Allocated
C) Fixed Overhead Control Work-in-Process Control
D) Fixed Overhead Allocated Fixed Overhead Control
Q5) List the four steps to develop budgeted variable overhead cost-allocation.
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) If the unit level of inventory increases during an accounting period, then ________.
A) less operating income will be reported under absorption costing than variable costing
B) more operating income will be reported under absorption costing than variable costing
C) operating income will be the same under absorption costing and variable costing
D) the exact effect on operating income cannot be determined
Q2) Under variable costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in ________.
A) increasing the manager's bonus
B) decreasing the manager's bonus
C) not affecting the manager's bonus
D) being unable to determine the manager's bonus using only the above information
Q3) Throughput margin equals revenues minus all product costs.
A)True
B)False
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) Jake's Copy Center hires a new employee. Jake knows he has to be patient with the employee until the employee gains enough experience to meet production standards. Jake is unsure of the learning curve in his operation, but he knows the first job by a new employee averages 50 minutes and the second job averages 40 minutes. Assume all jobs to be equal in size.
Required:
a.What is the learning-curve percentage, assuming the cumulative average-time method?
b.What is the time for a new employee to do 32 jobs with this learning curve using the cumulative average-time method? You may use an index of ?0.1520.
Q2) Which of the following is the mathematical expression to calculate the coefficient of determination?
A) Coefficient of determination = 1 - (Unexplained variation / Total variation)
B) Coefficient of determination = (1 + Total variation ) / Unexplained variation)
C) Coefficient of determination = (1 - Unexplained variation ) / Total variation)
D) Coefficient of determination = 1 - Unexplained variation + Total variation)
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) Differential revenue is the difference in total revenue between two alternatives.
A)True
B)False
Q2) A cost may be relevant for one decision, but NOT relevant for a different decision.
A)True
B)False
Q3) Depreciation allocated to a product line is a relevant cost when deciding to discontinue that product.
A)True
B)False
Q4) Why is the depreciation of an old equipment irrelevant to decision making?
Q5) The cost to produce Part A was $20 per unit in 2013 and in 2014 it has increased to $22 per unit. In 2014, Supplier ABC has offered to supply Part A for $18 per unit. For the make-or-buy decision ________.
A) incremental revenues are $4 per unit
B) incremental costs are $2 per unit
C) net relevant costs are $2 per unit
D) differential costs are $4 per unit
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Chapter 12: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Sample Questions
Q1) What is the term for an organization's ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control?
A) Marketing strategy
B) Product differentiation
C) Cost leadership
D) Competitor differentiation
Q2) Smart Office Systems Inc, (SOSI) a manufacturer of office equipment, in 2017, one of its best years, SOSI sold 1,000,000 units of its YAZ1 calculator for $20 each. In 2016, it sold 930,000 of that same unit for $17.75 each. The cost of the calculator was $16 and $15.00 for 2017 and 2016 respectively. Using the data from 2017 and 2016, what was SOSI's revenue effect of growth?
A) $1,242,500 U
B) $192,500 F
C) $1,242,500 F
D) $280,000 U
Q3) Engineered costs contain a higher level of uncertainty than discretionary costs.
A)True
B)False
Page 14
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Chapter 13: Pricing Decisions and Cost Management
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210 Flashcards
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Sample Questions
Q1) When is a company said to be engaged in predatory pricing? What are the primary conditions to be satisfied to prove predatory pricing?
Q2) Which of the following can be used to determine markup percentage in the case of cost-plus pricing?
A) Target annual operating income / Invested capital
B) Estimated annual dividend / Invested capital
C) Target sales revenue / Target annual operating income
D) Estimated annual dividend / Target annual operating income
Q3) Companies must always examine their pricing ________.
A) based on the supply of the product
B) based on the full cost of producing the product and price to make a profit
C) through the eyes of their customers and then manage costs to produce a profit
D) based on the GAAP cost of producing the product and then add a mark-up
Q4) A value-added cost is a cost that, if eliminated,would increase the actual or perceived value or utility (usefulness) customers experience from using the product or 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) Managers can gain more insight about the static-budget variance by subdividing it into the flexible-budget variance and the sales-volume variance.
A)True
B)False
Q2) The sales-mix variance is calculated by ________.
A) deducting budgeted contribution margin based on actual units at budgeted mix from budgeted contribution margin based on actual units sold at the actual mix
B) deducting budgeted contribution margin based on budgeted units at actual mix from budgeted contribution margin based on actual units sold at the budgeted mix
C) deducting budgeted contribution margin based on actual units at actual mix from budgeted contribution margin based on budgeted units sold at the budgeted mix
D) deducting budgeted contribution margin based on actual units at actual mix from budgeted contribution margin based on actual units sold at the actual mix
Q3) What are the two components of the sales-volume variance?
Q4) What are the two components of the sales-quantity variance?
Q5) How can a company's revenues and costs differ across customers?
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Chapter 15: Allocation of Support-Department Costs, Common
Costs, and Revenues
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Sample Questions
Q1) In certain high-cost defense contracts involving new weapons and equipment, contracts are rarely subject to competitive bidding because ________.
A) the government taxes the defense companies at a higher level than that of other public sector companies
B) there is an implicit agreement among defense contractors to "share contracts"
C) all defense contractors have essentially the same cost structure
D) no contractor is willing to assume all the risk of receiving a fixed price for the contract
Q2) Special cost-allocation problems arise when ________.
A) support department costs exceed budgetary estimates
B) practical capacity is used as the allocation base
C) support departments provide reciprocal services to each other and operating departments
D) the same cost-allocation base is used among various support departments
Q3) Describe methods which may be used to allocate support costs within organizations containing multiple support departments. Discuss advantages and disadvantages of the various methods.
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) Allocating joint costs to individual products can be helpful for litigation settlement purposes in which the costs of joint products or services are key inputs.
A)True
B)False
Q2) When the selling prices at the split-off are unavailable, the NRV method is the best alternative.
A)True B)False
Q3) The drawback of the constant gross-margin percentage NRV method in joint costing is that it ________.
A) recognizes that profits are derived from the costs incurred after split-off
B) assumes the profit margin to be identical across all products
C) attempts to approximate the sales values at split-off by subtracting from final selling prices the separable costs incurred after the split-off point
D) ignores the separable costs of further processing
Q4) All separable costs in joint-cost allocations are always incremental costs.
A)True
B)False
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Chapter 17: Process Costing
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Sample Questions
Q1) Activity -based costing plays a more significant role in job costing as compared to process costing as companies using process costing have homogeneous products.
A)True
B)False
Q2) The accuracy of the completion estimate of conversion costs depends on the care, skill, and experience of the estimator and also the nature of the conversion process.
A)True
B)False
Q3) When calculating the costs to be transferred using the FIFO method, we should not include costs assigned in the previous period to units that were in process at the beginning of the current period but are now included in the units transferred.
A)True
B)False
Q4) Underestimating the degree of completion of ending work in process leads to increase in operating income.
A)True
B)False
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Chapter 18: Spoilage, Rework, and Scrap
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Sample Questions
Q1) Which of the following is true of unit costs of normal and abnormal spoilage when they are detected at the same inspection point?
A) Unit cost of normal spoilage is more than unit cost of abnormal spoilage.
B) Unit cost of normal spoilage is equal to unit cost of abnormal spoilage.
C) Unit cost of abnormal spoilage is more than unit cost of normal spoilage.
D) Addition of unit cost of normal spoilage and unit cost of abnormal spoilage is equal to unit cost of good units produced and transferred.
Q2) Recognizing the value of scrap in the accounting records is always done at the time the scrap is produced.
A)True
B)False
Q3) The standard-costing method ________.
A) adds a layer of complexity to the calculation of equivalent-unit costs in a process-costing environment
B) makes calculating equivalent-unit costs unnecessary
C) requires an analysis of the spoilage costs in beginning inventory
D) requires an analysis of the spoilage costs in ending inventory
Q4) What is the advantage and disadvantage of early inspections?
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Page 20
Chapter 19: Balanced Scorecard: Quality and Time
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Sample Questions
Q1) Examples of nonfinancial measures of quality include the ________.
A) inspection costs incurred
B) number of customer complaints
C) design engineering costs
D) quality training costs
Q2) Longer manufacturing cycle times increase the inventory carrying costs and decrease revenues.
A)True
B)False
Q3) Manufacturing Cycle Efficiency (MCE) = Value-added Manufacturing Time divided by Manufacturing Cycle Time.
A)True
B)False
Q4) Warranty costs is an example of external failure costs.
A)True
B)False
Q5) Conformance quality is the performance of a product or service relative to its design and product specifications.
A)True
B)False
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Chapter 20: Inventory Management, Just-in-Time, and Simplified Costing Methods
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Sample Questions
Q1) A costing system that omits recording some or all of the journal entries relating to the cycle from purchase of direct materials to the sale of finished goods is called
A) dependent costing
B) synchronous costing
C) sequential costing
D) backflush costing
Q2) A grouping of all the different types of equipment used to make a given product is referred to as ________.
A) total quality management
B) materials requirements planning
C) manufacturing cells
D) economic order quantity
Q3) The supply chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in the same company or in other companies.
A)True
B)False
Q4) Lean accounting is much simpler than traditional product costing. Why?
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Chapter 21: Capital Budgeting and Cost Analysis
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Sample Questions
Q1) 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
Q2) The nominal approach to incorporating inflation into the net present value method predicts cash inflows in real monetary units and uses a real rate as the required rate of return.
A)True
B)False
Q3) Which of the following is another term for required rate of return?
A) hurdle rate
B) total cost rate
C) variance rate
D) predetermined overhead rate
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Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational
Considerations
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Q1) The seller of Product A has no idle capacity and can sell all it can produce at $59 per unit. Outlay cost is $20. What is the opportunity cost, assuming the seller sells internally?
A) $20
B) $39
C) $59
D) $79
Q2) Effort in terms of management control systems is defined in terms of physical exertion such as a worker producing at a faster rate.
A)True
B)False
Q3) Companies have an incentive to lower the transfer prices of products they are exporting into a country to reduce the tariffs and customs duties charged on those products.
A)True
B)False
Q4) Hybrid transfer prices take into account both cost and market information. A)True
B)False
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Chapter 23: Performance Measurement, Compensation, and Multinational Considerations
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Q1) When designing the steps in accounting-based performance measures, should the decisions in these steps be sequential?
Q2) The more owners have access to sensitive performance measures, the more they can rely on incentive compensation for their managers.
A)True
B)False
Q3) The ________ method of profitability analysis recognizes the two basic ingredients in profit-making: increasing income per dollar of revenues and using assets to generate more revenues.
A) Balanced Scorecard
B) Residual-Income
C) DuPont
D) Economic Value Added
Q4) In an EVA calculation, the measure of the invested capital for a division would be that division's assets minus that division's long-term liabilities.
A)True
B)False
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