Cost Accounting
Mock Exam
Course Introduction
Cost Accounting is a comprehensive course designed to introduce students to the principles and practices of cost measurement and cost control in organizations. The course explores methods for tracking, analyzing, and allocating costs related to materials, labor, and overhead within various production and service environments. Students will learn about cost behavior, job order costing, process costing, activity-based costing, and standard costing. Emphasis is placed on using cost information for budgeting, performance evaluation, and decision-making, enabling future managers and accountants to contribute effectively to organizational efficiency and strategic planning.
Recommended Textbook Management Accounting 6th Canadian Edition by
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Page 2
Charles T. Horngren
Chapter 1: Management Accounting and Management Decisions
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Sample Questions
Q1) Explain the role of budgets and performance reports in planning and control.
Answer: Budgets and performance reports are essential tools for planning and control. Budgets result from the planning process. Managers use them to translate the organization's goals into action. A performance report compares actual results to the budget. Managers use these reports to monitor, evaluate, and reward performance and, thus, exercise control.
Q2) The Society of Management Accountants has adopted a set of standards of professional ethics which includes codes of conduct regarding all of the following EXCEPT
A) competence.
B) independence.
C) integrity.
D) confidentiality.
Answer: B
Q3) ________ is (are) deviations from plans.
A) A budget
B) Performance reports
C) Variances
D) Management by exception
Answer: C
Page 3
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Chapter 2: Cost Behaviour and Cost-Volume Relationships
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Sample Questions
Q1) A cost that changes in direct proportion to changes in the cost driver is a A) fixed cost.
B) joint cost.
C) mixed cost.
D) variable cost.
Answer: D
Q2) In a highly leveraged company,
A) fixed costs are low and variable costs are high.
B) large changes in sales volume result in small changes in net income.
C) there is a higher possibility of net income or net loss and therefore more risk than a low leveraged firm.
D) a variation in sales leads to only a small variability in net income.
Answer: C
Q3) If the firm wants to earn $70,000 in before-tax profit, contribution margin must equal
A) $98,000.
B) $110,000.
C) $125,000.
D) $155,000.
Answer: B
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Chapter 3: Measurement of Cost Behaviour
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Sample Questions
Q1) The process of identifying appropriate cost drivers and their effects on the costs of making a product or providing a service is called
A) cost prediction.
B) cost measurement.
C) activity analysis.
D) budgeting.
Answer: C
Q2) The application of cost measures to expected future activity levels to forecast future costs.
Answer: Cost prediction
Q3) Costs determined by management as part of the periodic planning process in order to meet the organization's goals.
Answer: Discretionary fixed costs
Q4) Measuring a cost function objectively by using statistics to fit a cost function to all the data.
Answer: Regression analysis
Q5) Costs that change abruptly at intervals of activity because the resources and their costs come in indivisible chunks.
Answer: Step costs
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Chapter 4: Cost Management Systems
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Sample Questions
Q1) The operating income (loss) under absorption costing would be
A) $ 16,600.
B) $ 8,200.
C) $( 3,000).
D) $(10,000).
Q2) Product costs are identified with goods produced or purchased for resale.
A)True
B)False
Q3) An example of a product cost is
A) advertising expense.
B) amortization on office equipment.
C) indirect materials.
D) store supplies expense.
Q4) Which of the following is NOT a product cost?
A) Indirect labour
B) Raw materials used
C) Insurance on the plant
D) Advertising expense
Q5) The costing method, which excludes fixed manufacturing overhead from the cost of products.
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Chapter 5: Cost Allocation and Activity-Based Costing Systems
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Q1) Each of the following is a step in the general approach to allocating costs to final products or services EXCEPT
A) select one or more cost drivers in each production department.
B) allocate production-related costs to the operating line.
C) apply the total costs allocated to the production department to the output of the department using cost drivers.
D) identify production costs as either direct or indirect.
Q2) Another term for cost application is
A) cost pool.
B) cost driver.
C) cost objective.
D) cost attribution.
Q3) If the step-down method of allocating costs is used, and the Personnel Department renders the greatest service, then the total amount of overhead that would be allocated from Maintenance to Finishing is
A) $6,000.
B) $8,357.
C) $6,750.
D) $8,142.
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Chapter 6: Job-Costing Systems
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Q1) The budgeted factory-overhead rate using direct-labour costs as the cost driver is
A) 272 percent.
B) 300 percent.
C) 320 percent.
D) 290 percent.
Q2) The ending inventory of work in process is
A) $260,000.
B) $254,000.
C) $128,000.
D) $72,000.
Q3) A job-order cost system associates costs with particular jobs.
A)True
B)False
Q4) A system that accumulates manufacturing costs by jobs.
Q5) The amount of the overhead variance would be
A) $24,400 overapplied.
B) $24,400 underapplied.
C) $8,400 overapplied.
D) $8,400 underapplied.
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Chapter 7: Process-Costing Systems
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Q1) The key difference between the FIFO and weighted-average computations for WIP inventory is equivalent units.
A)True
B)False
Q2) The equivalent units for conversion costs are
A) 6,000.
B) 30,000.
C) 24,000.
D) 27,600.
Q3) In process costing, the journal entry to record direct labour would include a
A) debit to Accrued Payroll.
B) credit to Factory Overhead.
C) debit to Work-in-process Department Name.
D) credit to Finished Goods.
Q4) The equivalent units for materials are
A) 164,000.
B) 194,000.
C) 200,000.
D) 206,000.
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Chapter 8: Relevant Information and Decision Making: Marketing Decisions
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Q1) The product strategy in which companies first determine the price at which they can sell a new product and then design a product that can be produced at a low enough cost to provide an adequate profit margin is referred to as
A) full costing.
B) target costing.
C) predatory pricing.
D) discriminatory pricing.
Q2) ________ uses information as a basis for estimating future costs.
A) Prediction method
B) Decision model
C) Implementation
D) Evaluation of performance
Q3) The average target profit percentage for setting prices as a percentage of prime costs would be
A) 54 percent.
B) 87 percent.
C) 169 percent.
D) 122 percent.
Q4) Costs that will not continue if an ongoing operation is changed or deleted.
Page 10
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Chapter 9: Relevant Information and Decision Making: Production
Decisions
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Q1) Conflicts in the decision-making process can arise when superiors evaluate a manager's performance using a model consistent with the decision model.
A)True
B)False
Q2) A cost that requires a cash disbursement.
Q3) Which of the data provided in the table is irrelevant?
A) The original cost of the replacement machine
B) The disposal value of the old machine
C) The book value of the old machine
D) The annual operating cost of the old machine
Q4) To maximize profits, which products should Avey process further?
A) Product B only
B) Product L only
C) Product M only
D) Products M, L and B
Q5) A relevant costing analysis that focuses on keeping or dropping a segment of a business.
Q6) Any costs beyond the split-off point.
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Q7) Future costs that differ between alternatives.
Q8) The costs of manufacturing joint products prior to the split-off point.
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Chapter 10: Capital Budgeting Decisions
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Sample Questions
Q1) The cost of capital for the firm is A) 8%.
B) 6%.
C) 10%.
D) 12%.
Q2) Future cash flows expressed in present value terms.
Q3) The approximate internal rate of return of the project is A) 8%.
B) 12%.
C) 12.5%.
D) 14%.
Q4) Assume straight-line amortization in all computations, and ignore income taxes. The net present value in case Y is A) $80,000.
B) $12,144.
C) $(328).
D) $123,056.
Q5) A requirement of Capital Cost Allowance that treats all assets as if they were placed in service at the midpoint of the tax year.
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Chapter 11: The Master Budget
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Q1) The cash disbursements in September for August purchases will be
A) $35,000.
B) $52,500.
C) $95,000.
D) $87,500.
Q2) The second step in preparing the master budget is preparing the A) sales budget.
B) budgeted income statement.
C) cash budget.
D) budgeted balance sheet.
Q3) The total purchases budgeted for February should be
A) $216,000.
B) $230,400.
C) $295,200.
D) $144,000.
Q4) The total cash received in October on October sales will be A) $430,000.
B) $250,000.
C) $590,000.
D) none of the above.
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Chapter 12: Flexible Budgets and Variance Analysis
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Q1) For Product Y, the standard price per unit was
A) $11.00 per pound.
B) $5.33 per pound.
C) $10.75 per pound.
D) $10.00 per pound.
Q2) Flexible-budget variances are designed to measure
A) effectiveness of operations at projected level of activity.
B) effectiveness of operations at actual level of activity.
C) efficiency of operations at projected level of activity.
D) efficiency of operations at actual level of activity.
Q3) What would be the total flexible budget if the number of lines increased to 2,600,000?
A) $176,800
B) $245,000
C) $251,800
D) Cannot be determined
Q4) The total flexible-budget variance can be broken down into a price variance and a usage variance.
A)True
B)False
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Chapter 13: Management Control Systems, the Balanced
Scorecard, and Responsibility Accounting
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Q1) The first step in designing a management control system is
A) evaluating management's performance.
B) establishing organizational goals.
C) preparing financial statements.
D) distinguishing between profit centres and cost centres.
Q2) The contribution margin is
A) $150,000.
B) $330,000.
C) $270,000.
D) $100,000.
Q3) A logical integration of management accounting tools to gather and report data and to evaluate performance.
Q4) Which of the following is NOT a characteristic of a management control system?
A) It aids and coordinates the process of making decisions.
B) It encourages short-term profitability.
C) It motivates individuals throughout the organization to act in concert.
D) It coordinates forecasting sales and cost-driver activities, budgeting, and measuring and evaluating performance.
Q6) A responsibility centre for which costs are accumulated. Page 16
Q5) A responsibility centre for controlling revenues as well as costs.
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Chapter 14: Management Control in Decentralized Organizations
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Q1) A transfer price exists when two segments of the same organization
A) sell a product to the same customer.
B) sell a service to each other.
C) sell a product in a foreign country.
D) sell the same service to competitors.
Q2) If Division X is NOT at full capacity, the lowest price at which it would be willing to sell to Division Y would be
A) $50.
B) $34.
C) $16.
D) $44.
Q3) If operating income AFTER amortization is $160,000, the rate of return on average net book value for 19X1 is
A) 6.3 percent.
B) 32.0 percent.
C) 16.8 percent.
D) 16.0 percent.
Q4) Net income less "imputed" interest.
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Q5) The decision-making power of segment managers.
Q6) Income divided by revenue.
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