Cost Accounting Final Exam
Course Introduction
Cost Accounting is a comprehensive course that introduces students to the fundamental principles and techniques used to determine, analyze, and control costs within an organization. The course covers topics such as cost classification, cost behavior, job order costing, process costing, activity-based costing, standard costing, and budgeting. Emphasis is placed on the use of cost information for planning, decision-making, and performance evaluation in both manufacturing and service sectors. Through practical examples and case studies, students learn how cost accounting supports management in achieving operational efficiency and strategic objectives.
Recommended Textbook
Fundamental Managerial Accounting Concepts 9th Edition by Thomas P Edmonds
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Page 2
Chapter 1: Management Accounting and Corporate Governance
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Sample Questions
Q1) All of the following are downstream costs except:
A) packaging costs.
B) advertising.
C) research and development.
D) sales commissions.
Answer: C
Q2) Discuss the regulation of financial accounting,and compare to the level of regulation of managerial accounting information.
Answer: The financial accounting information prepared by a company is governed by accounting standards (generally accepted accounting principles),most of which have been established by the Financial Accounting Standards Board (FASB).The Securities and Exchange Commission has authority to set these standards,but it has generally deferred to FASB.In comparison,the practice of managerial accounting is unregulated.The information is not made available to the public,so managerial accounting is limited only by the value-added principle: the cost of preparing the information should not exceed the benefits to be received from using the information.
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Chapter 2: Cost Behavior, operating Leverage, and Profitability Analysis
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Sample Questions
Q1) Which characteristic is true of the high-low method,the scattergraph method,and regression analysis?
A) All methods will produce the same estimate of variable and fixed costs.
B) All methods use historic data to estimate variable and fixed costs.
C) All methods use only two data points in analyzing a mixed cost.
D) None of these are correct.
Answer: B
Q2) Select the correct statement regarding fixed costs.
A) Because they do not change, fixed costs should be ignored in decision making.
B) The fixed cost per unit decreases when volume increases.
C) The fixed cost per unit increases when volume increases.
D) The fixed cost per unit does not change when volume decreases.
Answer: B
Q3) Assume that wages expense is a variable cost and that the relevant range is 10,000 to 15,000 labor hours.Within that range,the cost is $15 per hour.What can you assume about wages expense outside this range?
Answer: Outside the relevant range,the cost may be more or less than $15 per hour.A cost relationship or behavior that applies within a specified range may not apply outside that range.
Page 4
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Chapter 3: Analysis of Cost, volume, and Pricing to Increase Profitability
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Sample Questions
Q1) Anton Company produces and sells bicycles for $500.The variable costs per unit are $300 plus a sales commission of 15% of the selling price.Total fixed costs consist of $16,000 in fixed overhead and $9,000 in fixed selling and administrative costs.
Required:
1)Compute the contribution margin per unit.
2)Compute the break-even point in units and dollars.
3)How many units must be sold to earn a profit of $20,000?
4)What would be the break-even point in units if the sales commission is reduced to $20 per unit sold?
Answer: 1)Contribution margin per unit = $500 {$300 + 15% ($500)} = $125
2)Break-even point in units = ($16,000 + $9,000)÷ $125 = 200 units; Break-even point in dollars = 200 × $500 = $100,000
3)Units needed to earn $20,000 = ($16,000 + $9,000 + $20,000)÷ $125 = 360 units
4)$25,000 ÷ $180 contribution margin per unit = 138.9 units = 139 units (rounded)
Q2) What is the break-even point for a company?
Answer: The break-even point is where total revenue equals total costs.It is also the point at which contribution margin equals total fixed costs.
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Chapter 4: Cost Accumulation,tracing,and Allocation
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Sample Questions
Q1) Using the step method of allocating service department costs,the costs are allocated to:
A) service departments only.
B) operating departments only.
C) both service departments and operating departments.
D) neither service departments nor operating departments.
Q2) Why is a company's selection of cost allocation methods important to individual managers?
Q3) Financial reporting standards require that joint costs:
A) Be treated as a period cost and expensed immediately.
B) Be assigned to the product produced in the largest quantity.
C) Be assigned to the product with the highest sales value.
D) Be allocated to the two or more joint products.
Q4) Humphries Construction Company builds warehouses that range in size from 12,000 to 100,000 square feet.Which of the following would not be a rational base for allocating overhead costs to the warehouses?
A) Labor hours
B) Direct material costs
C) Number of warehouses completed
D) Square footage of the warehouses
Page 6
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Chapter 5: Cost Management in an Automated Business
Environment: ABC, ABM, and TQM
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Sample Questions
Q1) To reduce its total batch-level costs,a company should produce its products in large batches.
A)True
B)False
Q2) The concept of cost of quality is not applicable in service-type businesses such as accounting firms.
A)True
B)False
Q3) Which of the following is not a cost resulting from a unit-level activity?
A) The cost of electricity to power manufacturing equipment
B) The cost of sending monthly statements to customers
C) The indirect cost of glue used on each product
D) The per unit cost of packaging goods
Q4) All of the following are external failure costs except:
A) warranty repairs and replacement.
B) reliability testing
C) customer relations.
D) restocking and packaging.
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Q5) Discuss how automation has affected the selection of cost drivers employed in product costing systems.
Chapter 6: Relevant Information for Special Decisions
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Sample Questions
Q1) Which of the following costs is an example of a product-level cost?
A) Machine setup costs
B) Patent filing costs
C) Materials and labor costs
D) Shipping and handling costs
Q2) Outdoor Living Company has just received a special order for 500 hammocks.Outdoor Living has sufficient idle capacity to accept the order.Accepting the order will increase Outdoor Living's variable manufacturing costs.Which type of cost is considered a sunk cost to Outdoor Living's decision whether to accept or reject the special order?
A) Raw materials to make the 500 hammocks
B) Labor cost to make the 500 hammocks
C) Depreciation on equipment that would be used to make the hammocks
D) Materials handling cost
Q3) An alternative under consideration involves incurring $50 in costs to generate $60 in revenue.The differential revenue for this alternative is $10.
A)True
B)False
Q4) How can a manager's time horizon affect his/her decision making?
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Chapter 7: Planning for Profit and Cost Control
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Sample Questions
Q1) The master budget generally starts with a sales forecast.
A)True
B)False
Q2) Which of the following statements is incorrect?
A) Capital budgeting affects the master budget because it considers what assets a company should have and use when achieving its budgets.
B) Capital budgeting involves decisions about whether to buy or lease equipment
C) Capital budgeting focuses on short-term planning.
D) Cash outflows for capital budgeting will appear on the cash budget.
Q3) Planning concerned with long-range decisions such as defining the scope of the business is referred to as:
A) operations budgeting.
B) master planning.
C) capital budgeting.
D) strategic planning.
Q4) If a company purchases its inventory on account,it need not prepare a schedule of cash payments for inventory purchases.
A)True
B)False
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Chapter 8: Performance Evaluation
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Sample Questions
Q1) Which of the following is not an example of budget gamesmanship that may occur in a company?
A) Lowballing.
B) Budget slack.
C) Making the numbers.
D) None of these answers are correct.
Q2) With respect to cost variances,managers seek to achieve actual costs that are higher than standard costs.
A)True
B)False
Q3) Which of the following is a difference between a static and a flexible budget?
A) Static budgets use the same fixed cost amounts, whereas flexible budgets change the amount of fixed costs at different levels of activity.
B) Static budgets are based on the same per-unit variable amount, whereas flexible budgets are based on multiple per-unit variable amounts.
C) Static budgets are based on a single estimate of volume, whereas flexible budgets show estimated costs and revenues at a variety of activity levels.
D) None of these answers are correct.
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Chapter 9: Responsibility Accounting
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Sample Questions
Q1) Unless there are other factors to be considered,an investment opportunity with a return on investment that equals or exceeds the company's required rate of return would be accepted.
A)True
B)False
Q2) What are the advantages of using a market-based transfer price? Why is it not always used?
Q3) Explain how the management by exception doctrine relates to responsibility accounting.
Q4) Which of the following statements regarding cost centers is incorrect?
A) Cost centers are units within a business that incur expense but do not have responsibility for generating revenue.
B) Cost centers tend to be found at upper levels on a company's organization chart.
C) A manager of a cost center has less responsibility than a manager in an investment center.
D) Cost center managers are evaluated on their ability to control costs and keep within budget.
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Chapter 10: Planning for Capital Investments
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Sample Questions
Q1) When the effect of income taxes is considered in a capital budgeting analysis,the amount of depreciation expense must be added back to after-tax income to calculate the annual cash inflow.
A)True
B)False
Q2) The assumption regarding ordinary annuities is that cash flows occur at the end of each period.
A)True
B)False
Q3) A cash flow that only occurs in equal amounts each year is referred to as:
A) a lump sum.
B) a perpetuity.
C) an annuity.
D) None of these answers are correct.
Q4) Cash inflows from a capital investment may include the salvage value of capital assets and increases in revenues.
A)True
B)False
Q5) Describe what is meant by the time value of money.
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Chapter 11: Product Costing in Service and Manufacturing
Entities
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Sample Questions
Q1) The cost of direct materials flow through all of the following accounts except:
A) Manufacturing Overhead.
B) Work in Process Inventory.
C) Finished Goods Inventory.
D) Cost of Goods Sold.
Q2) Product costs are reported on the income statement above gross margin.
A)True
B)False
Q3) Which is required for preparation of a company's external financial statements: absorption costing or variable costing? Which is frequently used for internal decision making?
Q4) During February,Benke Manufacturing Company paid $18,000 in property taxes on one of its factory buildings.This overhead cost should be allocated to units completed during the month it was paid.
A)True
B)False
Q5) Describe the flow of costs in a manufacturing company,starting with raw materials inventory.What accounts do the costs flow through?
Q6) Describe how firms use service and product cost information.
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Chapter 12: Job-Order, process, and Hybrid Costing Systems
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Sample Questions
Q1) What are hybrid costing systems? Under what circumstances might a company use a hybrid system?
Q2) Process costing systems do not distinguish the cost of one unit of product from another.
A)True
B)False
Q3) Factory insurance is an indirect product cost and part of overhead.
A)True
B)False
Q4) A hybrid costing system is one that combines features of both process and job-order costing systems.
A)True
B)False
Q5) A process costing system would be appropriate for all of the following except:
A) Production of gasoline.
B) Manufacture of smartphones.
C) Services provided by a public accounting firm.
D) Manufacture of granola bars.
Q6) Why is the concept of equivalent units important for process costing?
Q7) What source documents would be used in preparing a job cost sheet? Page 14
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Page 15
Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Assume that you are considering purchasing some of a company's long-term bonds as an investment.Which of the company's financial statement ratios would you probably be most interested in?
A) Debt to assets ratio
B) Debt to equity
C) Plant assets to long-term liabilities
D) All of these answers are correct.
Q2) On December 31,Year 1,Houston Company's total current assets were $560,000 and its total current liabilities were $420,000.On January 1,Year 2,Houston issued a long-term note to a bank for $30,000 cash.
Required:
(a)Compute Houston's working capital before and after issuing the note payable.
(b)Compute Houston's current ratio before and after issuing the note payable.(Round your answer to two decimal places.)
Q3) Short-term creditors are usually most interested in assessing:
A) Liquidity.
B) Solvency.
C) Managerial effectiveness.
D) Profitability.
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Page 16
Chapter 14: Statement of Cash Flows
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Sample Questions
Q1) What are the two methods used to prepare the statement of cash flows?
A) Indirect and direct
B) Inflow and outflow
C) Sources and uses
D) Cash and noncash
Q2) On January 1,the balance of Fink Corporation's accounts receivable was $10,000.Sales on account amounted to $80,000 during the Year.The ending balance of accounts receivable was $16,000.What is the amount of cash collected from customers?
A) $64,000
B) $90,000
C) $86,000
D) $74,000
Q3) A decrease in retained earnings may indicate a cash outflow occurred to pay a dividend.
A)True
B)False
Q4) Would issuing a mortgage to purchase a building be reported on the statement of cash flows? If so,where would it be reported? If not,why not?
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