Cost Accounting Practice Exam
Course Introduction
Cost Accounting is a specialized field of accounting focused on the recording, analysis, and management of costs associated with producing goods or providing services. This course covers the principles and techniques used to determine the cost of products, projects, and processes, including methods such as standard costing, activity-based costing, and job-order costing. Students will explore cost behavior, cost allocation, budgeting, and performance evaluation, with an emphasis on the use of cost information for planning, controlling, and decision-making within organizations. The course prepares students to analyze financial data, improve operational efficiency, and contribute to strategic business decisions.
Recommended Textbook
Cost Management Measuring Monitoring and Motivating Performance 2nd Canadian Edition by
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Chapter 1: The Role of Ethical Accounting Information in Management Decision Making
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Sample Questions
Q1) Lori is deciding whether to go to school full-time at the local community college or get a full time job. Which of the following is not relevant to her decision?
A)Tuition costs
B)Potential salary she could earn in a full-time job
C)Cost of books
D)Monthly rent on her apartment
Answer: D
Q2) Which of the following is least likely to be an open-ended problem?
A)How to contribute as a team member
B)Choice of career
C)How to study for a course
D)Identification of required courses for a college degree
Answer: D
Q3) Uncertainties are:
A)Issues about which we have doubt
B)Foreseeable factors
C)Not usually part of decision-making
D)Biased information
Answer: A
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Chapter 2: Cost Concepts, Behaviour, and Estimation
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Sample Questions
Q1) List one assumption made when a linear cost function is developed and describe a circumstance in which that assumption would not hold.
Answer: Students are asked to list only one assumption and to describe a circumstance in which that assumption will not hold. Below are examples of circumstances for all 3 assumptions; students will think of other circumstances. Fixed costs remain constant in total: Variable costs often decrease with volume because of discounts.
Variable costs remain constant per unit of the cost driver: Fixed costs change because they include utilities and so vary with weather or other factors that are unrelated to production volumes.
Operations in the relevant range: Business volumes might become unusually high or low due to changes in economic conditions, moving operations into a new relevant range.
Q2) Reviewing the pattern of a cost over time is a critical step in determining an engineered cost estimate.
A)True
B)False
Answer: False
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) ZTL Corporation produces three products. Cost, price, and volume data is shown below: Total Fixed costs $2,400
Tax rate 40%
Picture Candle CD
Holders Holders Holders
Normal volume 300 150 200
Price per unit $5 $7 $10
Variable cost per unit 2 3 4
The weighted average contribution margin ratio, rounded to the nearest whole percent, is:
A)57%
B)59%
C)60%
D)Some other number
Answer: B
Q2) A linear revenue function is one of the assumptions involved in CVP analysis.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Relevant Information for Decision Making
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Sample Questions
Q1) The shadow price of a slack variable in a linear programming solution that maximizes the total contribution margin reflects:
A)The amount of excess capacity available for the associated constraint
B)The decrease in contribution margin that occurs if a unit of the associated product is produced
C)The contribution margin returned by the firm's profitable product
D)The increase in contribution margin that would occur if another unit of the constrained resource were available
Q2) If financial statement data are used to evaluate a decision to discontinue a business:
A)Average costs are often mistakenly included as relevant information
B)Average costs are often correctly included as relevant information
C)Qualitative factors are irrelevant
D)Financial statement data is useless in this decision-making context
Q3) The general rule is to discontinue a segment of the business when its total contribution margin does not cover avoidable fixed costs.
A)True
B)False
Q4) Describe the costs that are usually relevant to a make or buy decision.
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Chapter 5: Job Costing
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Sample Questions
Q1) Overhead is typically allocated to jobs in a job costing system, rather than being traced directly.
A)True
B)False
Q2) The denominator in an overhead allocation rate for normal costing is:
A)Actual overhead costs
B)Estimated activity level
C)Estimated overhead costs
D)Actual activity level
Q3) Both actual costing and normal costing systems use the actual quantity of the allocation base to assign overhead costs to jobs.
A)True
B)False
Q4) If scrap can be traced to a specific job, revenue from the scrap is:
A)Debited to work in process
B)Debited to finished goods
C)Credited to work in process
D)Credited to finished goods
Q5) Can overhead be over- or underapplied in an actual job costing system? Explain.
Q6) Explain, in general terms, the steps taken to implement a job costing system.
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Chapter 6: Process Costing
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Sample Questions
Q1) Miramar, Inc. uses a weighted-average process costing system which recognizes normal spoilage as 5% of good output. During the current period, 14,000 units were started and 10,000 units completed. Materials are added at the beginning of the process, conversion costs occur uniformly, and the inspection point is at the 70% point. Beginning work in process was 6,000 units, 40% complete, and ending work in process 9,000 units, 80% complete. The cost per equivalent unit for material was $1.00 and for conversion costs $3.00. The number of equivalent units of conversion costs was:
A)17,200
B)19,700
C)20,000
D)17,900
Q2) Direct materials are added at the beginning of the process. There are 10,000 units in ending WIP inventory that are 75% complete with regard to conversion costs. The equivalent units in ending WIP are: Direct Materials Conversion Costs
A)10,000 7,500
B)7,500 7,500
C)10,000 10,000
D)7,500 10,000
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Page 8
Chapter 7: Activity-Based Costing and Management
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Sample Questions
Q1) Operating efficiency improves with ABM through the use of ABC information to better manage:
A)Customer profitability
B)Direct material costs
C)Advertising costs
D)Budgets
Q2) Uncertainties associated with ABC and ABM include:
I. The appropriate choice of activities
II. The appropriate choice of cost drivers
III. Employee response to the system
A)I, II, and III
B)I and III only
C)I and II only
D)II and III only
Q3) GPK uses proportional costs, not variable costs.
A)True
B)False
Q4) Explain why measurement error could increase as the number of cost pools increase in an ABC system.
Q5) List the four types of quality-related activities and give one example of each.
Page 9
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Chapter 8: Measuring and Assigning Support Department
Costs
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Sample Questions
Q1) Which departments in an organization produce services for external clients?
A)Support departments
B)Operating departments
C)Dual-rate departments
D)Value-added departments
Q2) The stand-alone method:
A)Is not a recognized method for allocating support department costs
B)Eliminates uncertainty when allocating support department costs
C)Cannot be used in retail organizations
D)Allocates common costs based on information about individual users
Q3) Support departments:
A)Do not provide services to other support departments
B)Provide services to other departments within an organization
C)Generate revenue for the organization
D)Are not necessary in very large organizations
Q4) List two factors that should be considered when choosing allocation bases.
Q5) The calculations for the reciprocal method are more complex than for other support department cost allocation methods.
A)True
B)False
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Chapter 9: Joint Product and By-Product Costing
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Q1) Describe the split-off point and explain its significance for joint product costing.
Q2) A joint input costing $500 results in four distinct products at the point of split-off. Products J, K and L are main products, and product M is a by-product. Relevant data follows: Sales Value Separable Sales Value After Product at Split-Off Cost Further Processing
J (main)$200 $100 $400
K (main)300 200 600
L (main)100 -- --
M (by-product)20 10 40
If the revenue from product M is recognized at the time of sale, what amount will be recorded as the cost of product M inventory at the time of split-off?
A)$0
B)$10
C)$20
D)$30
Q3) Costs allocated to joint products are generally referred to as separable costs.
A)True
B)False
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Chapter 10: Static and Flexible Budgets
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Q1) Under which of the following types of budgeting must managers justify their budget requests each year as if prior information did not exist?
A)Activity-based
B)Participative
C)Zero-based
D)Flexible
Q2) List two methods that organizations could use to minimize budgetary slack.
Q3) The chief financial officer of a large law firm has advocated the use of flexible budgets. Explain the nature of flexible budgets, and present one argument in favour of using them.
Q4) In a recent accounting period, Donio Company experienced a $12,000 unfavourable variance for variable production costs. Explain the meaning of an unfavourable variance. Suggest two possible reasons why a manufacturing company might experience an unfavourable variable production cost variance.
Q5) Which of the following is not required to develop a budgeted income statement?
A)Sales forecast
B)Cash budget
C)Production budget
D)Marketing budget
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Chapter 11: Standard Costs and Variance Analysis
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Sample Questions
Q1) Welch Company budgeted the following cost standards for the current year: Direct materials = 1.40 kilograms per unit @ $1.50 per kilogram
Direct labour = 0.75 hours per unit @ $6 per hour
Actual production and costs were as follows:
Units produced = 2,800
Direct materials used = 4,500 kg.
Direct materials purchased = 5,000 kg. @ a cost of $5,850
Direct labour incurred = 2,000 hours at a cost of $13,000
The material price variance for materials purchased was:
A)$1,650 F
B)$870 U
C)$2,520 U
D)$780 F
Q2) The direct labour efficiency variance compares:
A)The standard cost for direct labour and the actual cost
B)The labour hours used to allocate fixed overhead and the actual labour hours used
C)The standard direct labour hours used for the output produced and the actual labour hours used
D)Direct labour hours and the supervisor's hours
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Chapter 12: Strategic Investment Decisions
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Q1) (Appendix 12A)In a capital budgeting analysis, nominal cash flow is generally calculated as:
A)Real cash flow × (1 + inflation rate)<sup>t</sup>
B)Real cash flow / (1 + inflation rate)<sup>t</sup>
C)Real cash flow <sup>(1 + inflation rate)×t</sup>
D)(1 + inflation rate)× t × real cash flow
Q2) In January, Wilson Company purchased a new machine for $80,000 that has a useful life of 10 years and a terminal value of $5,000. Annual cash operating savings from the machine are $20,000. The income tax rate is 40%. What is the after-tax payback period?
A)4)00 years
B)5)26 years
C)4)85 years
D)6)67 years
Q3) Which of the following is the best example of a capital budgeting decision?
A)Deciding the price of a product for the next six months
B)Forecasting accrual basis profits for the next five years
C)Purchasing a piece of equipment with an expected life of eight years
D)Deciding which product to emphasize when there are constrained resources
Q4) Distinguish between NPV and IRR. Give one pro and one con for each method.
Page 14
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Chapter 13: Pricing Decisions
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Sample Questions
Q1) Market-based prices are influenced by all of the following except:
A)Customer demand
B)Product differentiation
C)Competition
D)Allocated costs
Q2) Which of the following is a formal method for incorporating demand into prices?
A)Cost-based pricing
B)Market-based pricing
C)Price elasticity of demand
D)Price elasticity of supply
Q3) The most commonly used pricing method in Canada is:
A)Market-based pricing
B)Life cycle pricing
C)Zero-based pricing
D)Cost-based pricing
Q4) Other than cost-based prices, list and discuss three options managers have for setting transfer prices and suggest a setting that might be appropriate for each.
Q5) Define transfer prices in your own words. Describe one conflict that arises in setting transfer prices between two divisions.
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Chapter 14: Strategic Management of Costs
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Sample Questions
Q1) List the three product characteristics that a target costing design team would choose to enhance or minimize as they make trade-offs to achieve the target cost. Describe two of the types of trade-offs they may consider.
Q2) Roland's Recycling accepts and recycles or disposes of hazardous waste for the city. It charges the city for waste disposal based on the amount of waste handled. Its contract specifies that the sites that have been set up for waste drop-off will be cleaned up completely when the contract eventually expires. The owners of Roland's have been contacted by the county to set up a similar service for people who live in the county. Roland's accountant is preparing an analysis for the owners. Recommend an appropriate costing method. Describe the method and explain the reasons for your choice.
Q3) Life cycle costing can be used to identify unprofitable products due to high costs at the end of a product's life. Which of the following is the best example of such a product?
A)Nuclear reactors
B)Cherry orchards
C)CPA firms
D)Universities
Q4) List one advantage and one disadvantage for using target and kaizen costing.
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Chapter 15: Measuring and Assigning Costs for Income Statements
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Sample Questions
Q1) Rubble Enterprises develops an annual overhead budget at the start of each year (which has remained unchanged for the last 2 years), and closes any over- or underapplied overhead at year-end. For the firm's single product the following ending inventory levels have been experienced during the last 7 months: Month Units
December 31 300
January 31 300
February 28 200
March 31 400
April 30 300
May 31 400
June 30 500
For how many months would variable costing income be higher than absorption? A)1
Q2) In the long run, there is little difference between absorption and variable costing. Explain what this means.
Q3) Compare and contrast actual costing and normal costing.
Page 17
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Chapter 16: Performance Evaluation and Compensation
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Sample Questions
Q1) Which of the following best describes "general knowledge" in a decision-making context?
A)Detailed information about manufacturing processes
B)Customer lists and preferences kept by individual departments in retail sales
C)Knowledge that is easily transferred between employees
D)Knowledge that can be obtained only outside the organization
Q2) Clark and Lana are product managers at SML Corporation. They are considering two potential investments, data for which are estimated below:
Project A Project B
Operating income $ 600 $ 750
Adjusted after-tax operating income 500 700
Adjusted total assets 1,000 3,500
Average operating assets 1,200 4,000
Current liabilities 800 500
Revenue 1,000 1,200
SML's weighted average cost of capital, which also serves as its required rate of return, is 12%.
If Clark and Lana can invest in only one project, which should they choose? Why?
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Chapter 17: Strategic Performance Measurement
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Sample Questions
Q1) The financial perspective analyzes:
A)The economic impact of operations and decisions
B)Aspects of operations that cannot be measured in dollars
C)Market share
D)Defects rates
Q2) Once the vision has been clarified and strategies have been developed:
A)Management tells each department exactly how to implement the scorecard
B)A process of communication begins between subunits and management to develop local performance measures that relate to the overall strategy
C)Each subunit uses the same performance measures
D)A few subunits develop measures for all of the other subunits
Q3) Western Manufacturing has a strategic objective to become the highest quality manufacturer in its industry. Which of the following measures would best monitor progress toward this objective?
A)Customer satisfaction ratings
B)Number of defective units produced
C)Defect rate per 100 units produced
D)Employee training in quality control
Q4) What are operating plans, and how are they linked to organizational strategies?
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Chapter 18: Sustainability Management
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Sample Questions
Q1) In recent times, all companies have organizational strategies for communicating information about sustainability efforts and performance, called sustainability reporting.
A)True
B)False
Q2) How can companies reduce accusations of greenwashing?
Q3) Greenwashing is
A)Using environmentally safe cleaning products
B)Publicizing environmental friendly policies without making substantive changes in their environmental impact
C)Ensuring that produce is washed and does not contain e-coli
D)When carwashes reuse the water, rather than using new water for each car washed.
Q4) Which of the following systems motivates managers to prioritize and coordinate financial, environmental and social value systems?
A)Belief systems
B)Interactive control systems
C)Diagnostic control systems
D)Boundary systems
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