Cost Accounting Practice Exam
Course Introduction
Cost Accounting is a foundational course that explores the principles, methods, and techniques used to measure, analyze, and report financial and non-financial information related to the costs of acquiring or producing goods and services. The course covers topics such as cost behavior, cost-volume-profit analysis, job order costing, process costing, activity-based costing, budgeting, and standard costing. Students learn how cost accounting information is used for planning, controlling, and decision-making within various types of organizations, and develop skills to assist management in achieving organizational goals through effective cost management and performance evaluation.
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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Q1) Biases are:
A)Necessary for decision-making
B)Expert opinions
C)Ideas that are adopted without careful thought
D)Always part of decision-making
Answer: C
Q2) Financial accounting is all of the following except:
A)A process of gathering and summarizing information primarily for external reports
B)Preparing financial statements according to Generally Accepted Accounting Principles
C)Information used by shareholders, creditors, and regulators for decision-making
D)Preparing information for internal reporting and decision-making
Answer: D
Q3) Because accounting information is highly objective and quantitative in nature, it is not subject to uncertainties or management bias.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Cost Concepts, Behaviour, and Estimation
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Sample Questions
Q1) Bob and James are installing new flooring in their home. The house has 5 rooms of approximately equal size where the flooring will be replaced. Bob and James spent 3 hours removing the old flooring from the first room. The average time to remove the flooring from 2 rooms is 2.25 hours per room. Determine the learning curve percentage experienced by Bob and James. Below are values that may be useful in answering this question. ln(95%)/ ln(2)= -0.074
Ln(90%)/ ln(2)= -0.152
Ln(85%)/ ln(2)= -0.234
Ln(80%)/ ln(2)= -0.322
Ln(75%)/ ln(2)= -0.415
Ln(70%)/ ln(2)= -0.515
A)70%
B)75%
C)80%
D)Some other percentage Answer: B
Q2) Textbook costs are an opportunity cost of earning a college degree.
A)True
B)False Answer: False
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Page 4
Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Old MacDonald had a farm with expected fixed costs for next year of $91,000. The projected selling price per bushel is $12, with variable costs of $5 per bushel. How much revenue past the breakeven point does MacDonald have to earn to realize a pre-tax profit of $36,000 if variable costs drop to $3 per bushel?
A)$61,718
B)$169,333
C)$48,000
D)$54,000
Answer: C
Q2) The breakeven point can be expressed as a number of units or as total amount of revenue.
A)True
B)False
Answer: True
Q3) Heesacker Co. sells a product with a $2 per unit contribution margin. Fixed costs are $70,000 and the tax rate is 60%. What amount of revenue is needed to obtain an after-tax profit of $30,000 if the unit selling price is $5?
Answer: $30,000 = 0.4 ($2n - $70,000) \(\to\) n = 72,500. Sales = 72,500 x $5 = $362,500
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Chapter 4: Relevant Information for Decision Making
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Q1) When resources are constrained, managers are most likely to use the following method to develop decision making information:
A)Simple or multiple regression
B)Analysis at the account level
C)Linear programming
D)High-low method
Q2) A cost that has been incurred in the past and cannot be changed is a (an):
A)Short-term cost
B)Opportunity cost
C)Sunk cost
D)Variable cost
Q3) In making a decision to drop a product line, variable costs are:
A)Always relevant
B)Never relevant
C)Usually relevant
D)Usually sunk
Q4) Average costs are appropriate to use when deciding whether to keep a product or product line.
A)True
B)False
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Chapter 5: Job Costing
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Q1) Describe one advantage and one disadvantage of using a normal job costing system.
Q2) The total manufacturing costs incurred for the year are $200,000. Overhead cost was 60% of direct labour cost, and direct materials cost was $25,000. Direct labour cost was:
A)$105,000
B)$109,375
C)$ 65,625
D)$ 70,000
Q3) Sludge, Inc. has an ending work in process inventory of $180 and an ending finished goods inventory of $300. Cost of goods manufactured was $630, and cost of goods sold $540. Production costs incurred during the period were $620. What are the beginning inventories for work in process and finished goods, respectively?
A)$l70 and $390
B)$190 and $210
C)$270 and $390
D)$170 and $210
Q4) Provide one reason why normal spoilage is considered part of overhead costs and, therefore, as part of the cost of good units completed.
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Chapter 6: Process Costing
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Q1) Macey Company uses a weighted-average process costing system. Beginning inventory consists of 6,000 units, 40% complete. Units started are 14,000, completed are 10,000, and ending inventories are 9,000 units, 70% complete. Normal spoilage is 5% of the units inspected. Direct material is added at the 75% point and spoilage inspection occurs at the 80% point. The cost per equivalent unit for materials was $1.00 and $3.00 for conversion costs. The cost of the ending work in process was:
A)$30,600
B)$18,900
C)$28,800
D)$36,000
Q2) Process costing is simplified when a company uses just-in-time inventory methods. A)True B)False
Q3) When normal spoilage levels are high, any excess spoilage is classified as abnormal spoilage and recorded as a loss for the period. Managers are likely to be held responsible for these losses. Explain why a manager might prefer to send more units to be reworked when spoilage levels increase.
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Page 8
Chapter 7: Activity-Based Costing and Management
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Q1) List the four types of quality-related activities and give one example of each.
Q2) Describe customer-sustaining activities and give one example.
Q3) Le Château Joyal is an historic hotel in the heart of old Quebec City. It is owned by Riel Hotels, which operates additional properties in Halifax, Montreal, and Winnipeg. Le Château Joyal has 9 floors, with approximately 20 rooms per floor. Facilities also include a workout room, restaurant, and pool. The hotel is organized into 5 departments: front desk, engineering, housekeeping, food & beverage, and customer relations. As part of its operation, Le Château Joyal regularly incurs the following costs: General manager's salary
Housekeeping supplies
Utility costs
Amortization on workout room equipment
Advertising
Food and beverage costs
Amortization on restaurant equipment
Which cost listed above is most likely to be a customer-sustaining cost?
A)Amortization on workout room equipment
B)Utility costs
C)Housekeeping supplies
D)General manager's salary
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Chapter 8: Measuring and Assigning Support Department
Costs
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Q1) Assume the cost of a limousine ride from Toronto's Pearson International Airport to downtown Toronto is $88, plus $10 per person in the taxi, plus $1 for each luggage item in the trunk. Susan is on a trip with George, a business associate from another department. Susan has one luggage item and her associate has three.
a)Compute the portion of the limousine fare allocated to Susan using the stand-alone method.
b)Compute the portion of the limousine fare allocated to Susan using the incremental cost allocation method if Susan is considered the primary user.
c)Compute the portion of the limousine fare allocated to Susan using the incremental cost allocation method if George is considered the primary user.
d)Which method is the most fair? Explain your reasoning.
Q2) When one user is viewed as being more responsible for common costs than other users, managers can allocate support department costs more fairly with the:
A)Stand-alone method
B)Reciprocal method
C)Step-down method
D)Incremental cost allocation method
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Page 10
Chapter 9: Joint Product and By-Product Costing
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Q1) A joint input costing $500 results in four distinct products at the point of split-off. Relevant data follows: Sales Value Separable Sales Value After Product at Split-Off Cost Further Processing
J $200 $100 $400
K 300 200 600
L 100 50 140
M 20 10 40
Assume that after the split-off point one unit of J can be processed directly into one unit of K, and then processed further as shown for product K. For the purpose of making this decision, what is the opportunity cost to be assigned to a unit of J?
A)$400
B)$300
C)$200
D)$100
Q2) When choosing a cost allocation method:
A)Any method that does not distort cost is best
B)The most complex method is usually best
C)The simplest method with least distortion of cost is best
D)No method is better than any other method
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Chapter 10: Static and Flexible Budgets
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Q1) Static budgets:
I. Are based on specific volumes of products
II. May hide variances caused by operational inefficiencies
III. Do not include fixed costs
A)I and III only
B)II and III only
C)I and II only
D)I, II, and III
Q2) Master budgets are often summarized in a company's short-term operating plans.
A)True
B)False
Q3) Expected ending inventory volumes and costs need to be calculated to forecast:
A)Beginning inventory levels for the budget period
B)Cost of goods sold
C)Revenues
D)Overhead costs
Q4) Managers need information from current beginning inventories and required ending inventories to prepare the production budget.
A)True
B)False
Page 12
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Chapter 11: Standard Costs and Variance Analysis
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Q1) Here is information about standard costs for Rusth Manufacturing: Standard Cost per Unit
Direct materials (4 metres @ $6 per metre)$24
Direct labour (? hours @ $? per hour)?
During the current period 3,500 units were produced. Rusth purchased 12,000 metre of material at a cost of $81,000. The direct materials inventory decreased by 1,500 metres during the period. 5,000 hours were used at a cost of $41,250. The direct labour efficiency variance was $2,000 favourable and the combined price and efficiency variances for direct labour were $750 favourable.
a)Determine direct materials price and efficiency variances.
b)Determine the standard cost of direct materials for units produced.
c)Determine the direct labour price variance.
d)Determine the standard price per direct labour hour and the standard number of direct labour hours per unit.
Q2) If more direct materials were used than expected at standard:
A)The direct materials efficiency variance would be favourable
B)The direct labour efficiency variance would be unfavourable
C)The direct materials price variance would be favourable
D)The direct materials efficiency variance would be unfavourable
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Chapter 12: Strategic Investment Decisions
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Q1) Which of the following is not a quantitative technique commonly used in capital budgeting decisions?
A)Net present value
B)Activity-based budgeting
C)Internal rate of return
D)Payback
Q2) Qualitative factors that might override the acceptance of a positive NPV project include:
A)The time value of money
B)A negative environmental impact that could harm an organization's reputation
C)The discount rate
D)The risk free rate
Q3) Which of the following capital budgeting methods ignores the time value of money?
A)Internal rate of return
B)Net present value
C)Profitability index
D)Payback period
Q4) How does sensitivity analysis allow managers to consider uncertainties in capital budgeting decisions?
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Chapter 13: Pricing Decisions
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Q1) Not-for-profit organizations price products in the same manner as for-profit organizations.
A)True
B)False
Q2) Dyggur Traders wishes to earn a 30% return on its $100,000 investment in equipment used to produce dog toys. Based on estimated sales of 10,000 toys next year, the costs per unit would be as follows: Variable cost $5.00
Fixed selling and administrative costs 2.00
Fixed manufacturing cost 1.00
At how much per unit should dog toys be priced for sale?
A)$11.00
B)$9.00
C)$12.00
D)None of the above
Q3) The price does not need to cover costs for what kinds of organizations?
A)All types of for-profit organizations
B)For profit retail sales organizations
C)Not-for-profit organizations
D)For profit manufacturing organizations
Q4) Explain why market-based pricing has increased in recent years.
Page 15
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Chapter 14: Strategic Management of Costs
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Sample Questions
Q1) Which of the following is not typically associated with successful implementation of just-in-time (JIT)systems?
A)Find high quality suppliers
B)Locate suppliers with short transit times
C)Use as many suppliers as possible to minimize the risk of non-delivery
D)Develop management commitment to the JIT process
Q2) Sportstuff, Inc. is investigating the feasibility of adding a new skateboard to its line-up of products. The marketing department believes that 10,000 units can be sold at $90 each. Sportstuff requires a 25% profit margin (i.e. cost is 75% of selling price)on all products. To achieve its goal, Sportstuff must keep per-unit costs equal to or less than:
A)$22.50
B)$67.50
C)$50.63
D)$90.00
Q3) List one advantage and one disadvantage of just-in-time inventory management.
Q4) Compare and contrast target costing with kaizen costing.
Q5) Kaizen costing is a technique aimed at improvement of short-term profitability.
A)True
B)False
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Chapter 15: Measuring and Assigning Costs for Income Statements
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Q1) Zeta Manufacturing is a public company that issues financial statements using generally accepted accounting principles. The company has begun experiencing a slowdown in sales growth. Explain why the managers of Zeta have an incentive to build up unnecessarily high levels of finished goods inventories.
Q2) Throughput costing income statements:
A)Are useful for long-term decision-making
B)Help managers plan for the short term
C)Meet the requirements of generally accepted accounting principles
D)Treat fixed costs as product costs
Q3) Philpott's operating income using absorption costing is $100. Its inventories using both absorption and variable costing are as follows: Beginning of Year End of Year
Absorption costing $98 $86
Variable costing $76 $60
Under variable costing, operating income would be:
A)$102
B)$94
C)$100
D)$96
Q4) Distinguish between variable costing and throughput costing.
Page 17
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Chapter 16: Performance Evaluation and Compensation
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Q1) The Machining Division has a capacity of 2,000 units. Its sales and cost data are:
Selling price per unit $100
Variable manufacturing costs per unit $25
Variable administrative costs per unit $5
Total fixed manufacturing overhead $20,000
Total fixed administrative costs $5,000
Residual income is:
A)The same as return on investment
B)A nonfinancial measure of performance
C)Net operating income minus a required rate of return X average operating assets
D)Sales divided by net operating income
Q2) Suppose an office building is owned for which long-term leases have been signed, the tenants pay utilities and operating costs, and straight-line amortization is taken. The rate of return on the book value of this investment can be expected to:
A)Increase over time
B)Remain constant over time
C)Decrease over timed
D)Vary randomly over time
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Chapter 17: Strategic Performance Measurement
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Sample Questions
Q1) The balanced scorecard's internal business processes perspective is immediately supported by which other perspective?
A)Learning and growth
B)Innovation
C)Customer
D)Financial
Q2) Common biases associated with balanced scorecard projects include:
I. Resistance to change from individuals
II. The balanced scorecard process being viewed as a temporary fad
III. Periodic performance reviews
A)I and II only
B)I and III only
C)II and III only
D)I, II, and III
Q3) Part of strategic decision-making is periodically clarifying organizational vision and core competencies.
A)True
B)False
Q4) What are operating plans, and how are they linked to organizational strategies?
Q5) List two strengths and two weaknesses of the balanced scorecard approach.
Page 19
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Chapter 18: Sustainability Management
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Sample Questions
Q1) Which of the following systems engages in organizational learning by investigating strategic opportunities and threats revealed by differences between planned and actual sustainability performance?
A)Diagnostic control systems
B)Interactive control systems
C)Boundary systems
D)Belief systems
Q2) Material flow accounting differs from material flow cost accounting because material flow accounting is only concerned with inputs and outputs for a manufacturing process, whereas material flow cost accounting is concerned with inputs and outputs for all processes.
A)True
B)False
Q3) Strategies are plans that managers develop to take advantage of core competencies while working toward the organization's vision.
A)True
B)False
Q4) Describe how the role of environmental and social issues in business has changed over the last decade.
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