Cost Accounting Exam Solutions
Course Introduction
Cost Accounting is an essential course that introduces students to the methods and techniques used to record, analyze, and manage costs within an organization. The course covers key concepts such as cost behavior, cost-volume-profit analysis, job and process costing, activity-based costing, budgeting, and standard costing. Students learn how to apply cost data to support managerial decision-making, control operations, and improve organizational efficiency. This foundation prepares students for careers in accounting, finance, and management by equipping them with the analytical tools necessary for effective internal financial planning and control.
Recommended Textbook
Horngrens Financial and Managerial Accounting The Managerial Chapters 5th Edition by Miller
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Chapter 1: Accounting and the Business Environment
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Q1) The income statement shows whether or not a business can generate enough cash to pay its liabilities.
A)True
B)False
Answer: False
Q2) Which of the following statements is true of the corporate form of business?
A)The board of directors sets policy for the corporation and appoints the officers.
B)Changes in the ownership of stock has a negative effect on the continuity of the corporation.
C)Any stockholder may commit the corporation to a contract.
D)It is easy for stockholders to lodge an effective protest against management.
Answer: A
Q3) Which of the following financial statements reports an increase or decrease in net cash during the time period covered?
A)Income statement
B)Statement of retained earnings
C)Statement of cash flows
D)Cash budget
Answer: C
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) A chart of accounts provides more detail than a ledger.
A)True
B)False
Answer: False
Q2) A journal entry for a $290 payment to purchase office supplies was erroneously recorded as a debit to Office Supplies for $600 and a credit to Cash for $290.Which of the following statements correctly states the effect of the error on the trial balance?
A)The sum of the credits will exceed the sum of the debits by $310.
B)The sum of the debits will exceed the sum of the credits by $290.
C)The sum of the debits will exceed the sum of the credits by $310.
D)The sum of the debits will exceed the sum of the credits by $600.
Answer: C
Q3) The higher the debt ratio,the lower the risk.
A)True
B)False
Answer: False
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4
Chapter 3: The Adjusting Process
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Q1) In the case of deferred revenue,the cash is received first,and the revenue is earned later.
A)True
B)False
Answer: True
Q2) DeLito Tax Planning Service bought production equipment for $10,200 on January 1,2017.It has an estimated useful life of five years and zero residual value.DeLito uses the straight-line method to calculate depreciation and records depreciation expense in the books at the end of every month.As of June 30,2017,the book value of this equipment shown on its balance sheet will be ________.
A)$9,180
B)$10,200
C)$11,220
D)$10,370
Answer: A
Q3) Under cash basis accounting,an expense is recorded only when cash is paid. A)True
B)False
Answer: True
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Page 5
Chapter 4: Completing the Accounting Cycle
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Questions
Q1) Rosewood,Inc.earned revenues of $19,000 and incurred expenses of $4,000.The company declared and paid cash dividends of $1,500.What is the balance in the Income Summary account after closing net income or loss to the Retained Earnings account?
A)debit balance of $19,000
B)credit balance of $4,000
C)credit balance of $15,000
D)balance of $0
Q2) The post-closing trial balance shows the net income for the period just ended.
A)True
B)False
Q3) Which of the following accounts would appear in the income statement debit column?
A)Unearned Revenue
B)Service Revenue
C)Depreciation Expense
D)Prepaid Insurance
Q4) List the steps of the accounting cycle that take place during the period.
Q5) List the order in which the balance sheet,statement of retained earnings,and income statement are prepared.Briefly discuss why this order is necessary.
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) Even in a perpetual inventory system that updates the inventory account as and when transactions occur,the business must count its inventory at least once in a year.
A)True
B)False
Q2) On November 1,2017,Lotz,Inc.sold merchandise for $10,000,FOB destination,with payment terms of 3/10,n/40.Customer returns on this sale amounted to $5,000.The company received payment for the balance on November 10,2017.The cost of goods sold was $3,600.Calculate the amount of gross profit from these transactions.
A)$6,400
B)$1,300
C)$1,400
D)$4,900
Q3) An invoice is a request by the seller for payment from the purchaser. A)True
B)False
Q4) On November 1,2016,Everett Janitorial Supply sold merchandise with a cost of $3,200 for $5,000,FOB destination,and payment terms of 2/10,n/30.The company uses a perpetual inventory system.Give journal entries to record the sales revenue.
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Chapter 6: Merchandise Inventory
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Q1) Shipman,Inc.has 7 units in inventory on December 31.The units were purchased in November for $190 each.The price lists from suppliers indicate the current replacement cost of the item to be $186 each.What is the effect on gross profit if Shipman values its ending merchandise inventory using the lower-of-cost-or-market rule?
A)The gross profit would increase by $4.
B)The gross profit would not be affected.
C)The gross profit would decrease by $28.
D)The gross profit would increase by $28.
Q2) An overstatement of ending merchandise inventory in the current period results in an understatement of net income in the current period.
A)True
B)False
Q3) The tracking of inventory shrinkage due to theft,damage,or errors is done with the help of a (n)________ of inventory.
A)authorization
B)sale
C)physical count
D)delivery
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Chapter 7: Internal Control and Cash
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Q1) The following information is available for Ashland Company for the month ending June 30,2017.
Balance as per the bank statement is $11,240.
Balance as per books is $10,200.
Check #506 for $1,200 and check #510 for $900 were not shown on the June 30 bank statement.
A deposit in transit of $3,110 had not been received by the bank when the bank statement was generated.
A bank debit memo indicated an NSF check for $85 written by Maddie Wolfe to Ashland Company on June 13.
A bank credit memo indicated a note collected by the bank of $2,100 and interest revenue of $55 on June 20.
The bank statement indicated service charges of $20.
Prepare bank reconciliation for Ashland Company for June 30,2017.
Q2) As long as the same person deposits customer checks and records the deposits into the journal,there will be good internal control over cash receipts.
A)True
B)False
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Chapter 8: Receivables
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Q1) Accounts Receivable are generally reported at the gross amount on the balance sheet.
A)True
B)False
Q2) The entity that signs the promissory note and promises to pay the required amount is the ________.
A)maker of the note
B)banker of the note
C)holder of the note
D)payee of the note
Q3) Companies that follow GAAP are required to use the direct write-off method for uncollectible accounts receivable.
A)True
B)False
Q4) The direct write-off method is only acceptable for companies that have very few uncollectible receivables.
A)True
B)False
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Page 10
Chapter 9: Plant Assets, natural Resources, and Intangibles
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Q1) Franchises are privileges granted by a business to sell goods and services under specified conditions.
A)True
B)False
Q2) Which of the following accounting methods is generally used to compute amortization expense?
A)declining-balance
B)units-of-production
C)straight-line
D)first-in,first-out
Q3) Cardoza Corp.purchased a mine on January 1,2016,for $513,000,which is estimated to contain 30,000 tons of iron ore.There is no residual value.The business extracted and sold 9,500 tons of ore in 2016 and 16,800 tons of ore in 2017.What is the depletion expense for 2017?(Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar. )
A)$162,450
B)$449,730
C)$287,280
D)$63,270
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Page 11
Chapter 10: Investments
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Q1) The fair value method is used to account for available-for-sale investments because they are normally sold in the near future at their current market value.
A)True
B)False
Q2) When a company collects the face value of a long-term investment in bonds at maturity,________.
A)total assets and equity of the firm remains unchanged
B)both assets and liabilities of the firm increase
C)both assets and equity of the firm increase
D)liabilities decrease and equity increases
Q3) When there is an unrealized loss on trading investments,the ________ will decrease.
A)total equity
B)cash
C)total liabilities
D)long-term investments
Q4) Trading investments are categorized as noncurrent assets.
A)True B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) It is mandatory for both the employer and employee to pay ________.
A)FICA
B)SUTA
C)employee income tax
D)federal unemployment tax
Q2) NewAge,Inc.made total cash sales in February of $666,000,which are subject to 7.5% sales tax.Prepare the summary entry to record the transaction.
Q3) Dana Appliances sells dishwashers with a four-year warranty.In 2017,sales revenue for dishwashers is $97,000.The company estimates warranty expense at 4.5% of revenues.What is the 2017 warranty expense?
A)$4,365
B)$1,091.25
C)$0
D)$3,423.53
Q4) On December 31,2016,Jerry's,Inc.borrowed $500,000 by signing a five-year,8% note payable.The note is payable in five yearly installments of $100,000 plus interest,due at the end of every year beginning on December 31,2017.What amount represents the current portion of Long-term Notes Payable at December 31,2016?
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) On January 1,2017,Door #2 Services issued $20,000 of 8% bonds that mature in five years.They were issued at par.The bonds pay semiannual interest payments on June 30 and December 31 of each year.Provide the journal entry for the payment made on June 30,2017.
Q2) When using the effective-interest amortization method,the amount of the interest expense is calculated using the face value of the bonds and the stated interest rate.
A)True
B)False
Q3) On November 1,2017,Archangel Services issued $313,000 of eight-year bonds with a stated rate of 12% at par.Interest payments occur each April 30 and October 31.On December 31,2017,Archangel made an adjusting entry to accrue interest at year-end.What is the amount of Interest Expense that will be recorded on December 31,2017?
A)$37,560
B)$6,260
C)$18,780
D)$783
Q4) When computing a bond's cash flow for interest,which interest rate is used? Why?
Q5) What is the difference between simple interest and compound interest?
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Chapter 13: Stockholders Equity
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Q1) When a company issues stock at an amount greater than the par value,a gain is recorded for the difference between the issue price and the par value.
A)True
B)False
Q2) ABC has 61,000 shares of $16.00 par common stock outstanding.ABC announces a stock split of 4-for-1.What is the effect of the split?
A)par stays at $16.00; total shares increase to 15,250
B)par drops to $8.00; total shares stay at 61,000
C)par drops to $4.00; total shares increase to 244,000
D)par goes to $64.00; total shares increase to 244,000
Q3) Stephens,Inc.had 140,000 shares of $5 par value common stock issued and outstanding as of December 15,2016.The company is authorized to issue 1,000,000 common shares.On December 15,2016,Stephens declared a 40% stock dividend when the market value for its common stock was $9 per share.The stock was issued on Dec.30. Prepare the journal entries to record the declaration and distribution of the stock dividend.Explanations are not required.Compute the total shares after the dividend.
Q4) List the four basic rights of stockholders.
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Chapter 14: The Statement of Cash Flows
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Q1) The indirect and direct methods use different computations but produce the same amount of net cash flow from operating activities.
A)True
B)False
Q2) Which of the following is a cash outflow for a financing activity on the statement of cash flows?
A)purchase of long-term investments,such as the stock of another company
B)loans made to another party
C)purchase of treasury stock
D)purchase of land
Q3) The operating and financing activities of the statement of cash flows are presented differently between the indirect and direct methods.
A)True
B)False
Q4) Accountants can prepare the statement of cash flows directly from the lower part of the spreadsheet.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Q1) The relationship between total liabilities and total assets is the ________.
A)debt ratio
B)debt to equity ratio
C)current ratio
D)earnings per share
Q2) If inventory turnover is too slow,a company may be unable to sell goods or it may be understating merchandise inventory.
A)True
B)False
Q3) Data for Martin Corp.and Tante,Inc.follow:
\(\begin{array}{lll}
& \text { Martin } & \text { Tante } \\
\text { Net Sales } & \$ 25,000 & \$ 32,500 \\
\text { Cost of Goods Sold } & 18,500 & 22,360 \\
\text { Other Expenses } & 2,150 & 5,000 \\
\text { Net Income } & \$ 4,350 & \$ 5,140
\end{array}\) Prepare a comparative common-size income statement for each company for the year ending December 31,2017.Round to two decimal places.Use a multi-step format for the income statement.
Q4) What is an annual report? Briefly describe the key parts of the annual report.
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Chapter 16: Introduction to Managerial Accounting
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Q1) Malibu Corporation provided the following information for the year: \[\begin{array} { | l | r | }
\hline \text { Beginning Balance - Work-in-Process Inventory } & \$ 26,000 \\
\hline \text { Ending Balance-Work-in-Process Inventory } & 55,000 \\
\hline \text { Beginning Balance - Raw Materials Inventory } & 81,000 \\
\hline \text { Ending Balance-Raw Materials Inventory } & 59,000 \\
\hline \text { Purchases - Raw Materials } & 360,000 \\
\hline \text { Direct Labor } & 471,000 \\
\hline \text { Indirect Labor } & 19,000 \\
\hline \text { Depreciation on Factory Plant and Equipment } & 24,000 \\
\hline \text { Plant Utilities and Insurance } & 268,000 \\
\hline
\end{array}\] What was the amount of the cost of goods manufactured for the year?
A)$1,363,000
B)$1,164,000
C)$1,135,000
D)$1,193,000
Q2) Define period cost.Give three examples of period costs of a merchandising company.
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Chapter 17: Job Order Costing
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Q1) The predetermined overhead allocation rate is calculated by dividing ________.
A)the total estimated overhead costs by total number of days in a year
B)the estimated amount of cost driver by actual total overhead costs
C)the actual overhead costs by actual amount of the cost driver or allocation base
D)the estimated overhead costs by total estimated quantity of the overhead allocation base
Q2) Which of the following statements is true of costing systems?
A)A process costing system would be used by manufacturers of custom-made perfumes.
B)A job order costing system would be used by manufacturers of baking utensils.
C)A construction company would likely use a process costing system.
D)An accounting firm would likely use a job order costing system.
Q3) Job order costing is well suited for the service industry.
A)True
B)False
Q4) In a manufacturing operation,depreciation of plant equipment should be debited to the Depreciation Expense account.
A)True
B)False
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Chapter 18: Process Costing
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Q1) Process costing is the most appropriate costing method for a restaurant serving specialty cuisine.
A)True
B)False
Q2) The combined production costs from all departments for completed products are transferred to the Cost of Goods Sold account immediately after the completion of all production processes.
A)True
B)False
Q3) When indirect materials are issued to production,the Manufacturing Overhead account is credited.
A)True
B)False
Q4) Cost amounts that are transferred out of one department become the transferred in cost for the next department.
A)True
B)False
Q5) List five ways in which managers use a production cost report to make decisions for their companies.
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Chapter 19: Cost Management Systems: Activity-Based, just-In-Time, and Quality Management Systems
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Q1) The common factor in all quality management systems is the desire to improve the business's performance by providing quality products or services.
A)True
B)False
Q2) Manufacturing overhead costs,which are also known as indirect costs,cannot be cost-effectively traced to products.
A)True
B)False
Q3) Provide answers to the following just-in-time costing questions.
\[\begin{array} { | l | l | }
\hline { \text { Just-in-Time Costing Question } } & \text { Just-in-Time Costing Answer } \\
\hline \text { When are the costs of products recorded? } & \\
\hline \text { Which inventory accounts are used? } & \\
\hline \text { Which accounts are used to record } & \\
\text { manufacturing costs? } & \\
\hline
\end{array}\]
Q4) Managers can use activity-based management to make what two kinds of decisions?
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) Jose Foster,a manager of Prettiest Pooch,Inc. ,was reviewing the water bills of a dog daycare and spa.He determined that its highest and lowest bills of $3,800 and $2,000 were incurred in the months of May and November,respectively.If 600 dogs were washed in May and 200 dogs were washed in November,what was the fixed cost associated with the company's water bill? (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar. )
A)$2,000
B)$3,800
C)$1,100
D)$1,800
Q2) Which of the following statements is true of the behavior of total variable costs,within the relevant range?
A)They will decrease as production increases.
B)They will remain the same as production levels change.
C)They will decrease as production decreases.
D)They will increase as production decreases.
Q3) Decreases in fixed cost ________ contribution margin per unit and ________ the breakeven point.
Q4) How is the contribution margin ratio calculated?
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Chapter 21: Variable Costing
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Q1) Under absorption costing,the more fixed manufacturing overhead in ending Finished Goods Inventory,the larger the Cost of Goods Sold.
A)True
B)False
Q2) Peter Newton,a production supervisor at BeThink,Inc. ,uses variable costing for any cost control decisions that he has to make.Which of the following is the reason for his choice?
A)Fixed costs are not relevant in the long run.
B)Only variable costs are controllable in the long and short run.
C)Absorption costing is not relevant for long-run decisions.
D)Lower management usually does not have control over most fixed costs.
Q3) In variable costing,all fixed manufacturing overhead costs are expensed in the period incurred.
A)True
B)False
Q4) In service companies,variable costing can be used for profitability analysis and contribution margin analysis.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) A company has prepared the operating budget and the cash budget and is now preparing the budgeted balance sheet.The balance of Accounts Payable can be taken from the ________.
A)inventory,purchases,and cost of goods sold budget
B)schedule of cash payments
C)direct materials budget
D)selling and administrative expenses budget
Q2) Why is the forecast of sales revenue considered to be the cornerstone of the master budget?
Q3) The last step in the preparation of the master budget is the budgeted balance sheet. A)True
B)False
Q4) Which of the following is true of the sales budget?
A)It provides sales data that is used to prepare financial statements for external reporting purposes.
B)It captures the variable and fixed expenses of the business.
C)It is used in the production budget.
D)It shows the cost of expected production in a period.
Q5) List the three sections of the cash budget.
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Emerald Marine Stores Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor.Emerald uses standard costs to prepare its flexible budget.For the first quarter of the year,direct materials and direct labor standards for one of their popular products were as follows: Direct materials: 4 pounds per unit; $6 per pound
Direct labor: 2 hours per unit; $17 per hour
During the first quarter,Emerald produced 4,000 units of this product.Actual direct materials and direct labor costs were $65,000 and $329,000,respectively. For the purpose of preparing the flexible budget,calculate the total standard direct materials cost at a production volume of 4,000 units.
A)$96,000
B)$65,000
C)$16,000
D)$24,000
Q2) The fixed overhead volume variance always reveals underallocated fixed overhead costs.
A)True
B)False
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) In a decentralized company,segment managers may not fully understand the big picture when making decisions.
A)True
B)False
Q2) The return on investment of a company is a measure of profitability and efficiency.
A)True
B)False
Q3) Decentralization may cause the company to duplicate certain costs or activities.
A)True
B)False
Q4) Residual income is used as a key performance indicator for evaluating an investment center's financial performance.
A)True
B)False
Q5) A cost center responsibility report ________.
A)includes depreciation expense
B)typically focuses on the flexible budget variance
C)is the same as a performance report
D)shows all costs incurred by the department
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Chapter 25: Short-Term Business Decisions
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Q1) Owen's Furniture manufactures a small table and a large table.The small table sells for $900,has variable costs of $550 per table,and takes 10 direct labor hours to manufacture.The large table sells for $1,600,has variable costs of $970,and takes eight direct labor hours to manufacture.The company has a maximum of 5,000 direct labor hours per month when operating at full capacity.If there are no constraints on sales of either of the products and the company could choose any proportions of product mix that they wanted,the maximum contribution margin that the company could earn will be
A)$1,000,000
B)$606,250
C)$1,606,250
D)$393,750
Q2) The contribution margin approach helps managers in short-term decision making because it ________.
A)treats fixed manufacturing overhead as product cost
B)reports only mixed costs
C)reports costs and revenues at present value
D)isolates costs by behavior
Q3) Define the terms Relevant Cost and Sunk Cost.
Q4) Explain the difference between price-takers and price-setters.
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Chapter 26: Capital Investment Decisions
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Q1) The following information is provided by Westwind Systems:
\[\begin{array} { l r r r r }
& \text { Project A } & \text { Project B } & \text { ProjectC } & \text { Project D } \\
\text { Initial investment } & \$ 438,000 & \$ 218,000 & \$ 560,000 & \$ 516,000 \\
\text { PV of cash inflows } & \$ 582,000 & \$ 388,000 & \$ 800,000 & \$ 394,000 \\
\text { Payback period (years) } & 3.6 & 3.2 & 4.0 & 2.0 \\
\text { NPV of project }& \$ 144,000 & \$ 170,000 & \$ 240,000 & \$ 122,000
\end{array}\] Calculate the profitability index for Project C.Show your calculations and round to two decimal places.
Q2) Both the payback and the accounting rate of return methods focus on cash flows that an asset generates.
A)True
B)False
Q3) Most capital budgeting methods focus on accrual-based income.
A)True
B)False
Q4) What are the strengths of the net present value capital budgeting method?
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Chapter 27: Accounting Information Systems
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) Which of the following is true of outputs in an accounting information system?
A)In a manual system,reports and financial statements must be created using Word documents,Excel spreadsheets,or PowerPoint.
B)In a computerized system,the software can generate reports instantaneously that can never be manipulated.
C)Examples of outputs in an accounting information system include purchase invoices,bank checks,and sales invoices.
D)Since the output in an accounting information system is audited and error-free,it provides the evidence and data for accounting transactions.
Q2) Rockville Corporation makes a $1,200 purchase of merchandise inventory on account.This transaction will be recorded in the ________.
A)cash payments journal
B)sales journal
C)cash receipts journal
D)purchases journal
Q3) Sales on account are recorded in a cash receipts journal.
A)True
B)False
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