Cost Accounting Practice Questions
Course Introduction
Cost Accounting is a foundational course that introduces students to 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 and process costing, activity-based costing, budgeting, standard costing, and variance analysis. Students learn how to use cost data to assist in planning, controlling, and decision-making processes within organizations, with a focus on enhancing operational efficiency and profitability.
Recommended Textbook
Managerial Accounting 2nd Edition by Ronald Hilton
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Page 2
Chapter 1: The Changing Role of Managerial Accounting
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Q1) The concept of employee empowerment does not involve encouraging and authorizing workers to take initiatives to:
A)improve operations.
B)reduce costs.
C)improve product quality.
D)improve customer service.
E)perform in strict adherence to the budget.
Answer: E
Q2) Which of the preceding activities would likely not be considered a major step in the value chain of Roots Canada?
A)Research and development.
B)Production.
C)Product design.
D)Distribution and sales.
E)Activity-based costing.
Answer: E
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3
Chapter 2: Basic Cost Management Concepts
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Q1) Manufacturers have established a cost classification called product costs. Define the term "product cost" and note where these costs appear in the financial statements. Be specific.
Answer: Product costs are costs that relate to the manufacturing process and consist of direct materials, direct labour, and manufacturing overhead. Simply stated, these are costs incurred to make a product. Product costs are attached to the units produced (i.e., work in process) and, thus, inventoried on the balance sheet. These costs are later charged to finished goods when the goods are completed. Another transfer occurs when the finished units are sold, with the costs now transferred to cost of goods sold on the income statement.
Q2) Product costs are:
A)expensed when incurred.
B)inventoried.
C)treated in the same manner as period costs.
D)treated in the same manner as advertising costs.
E)subtracted from cost of goods sold.
Answer: B
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Chapter 3: Product Costing and Cost Accumulation
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Q1) Grumpy's Manufacturing recently sold goods that cost $30,000 for $40,000 cash. The journal entries to record this transaction would include:
A)a credit to Work-in-Process Inventory for $30,000.
B)a debit to Sales Revenue for $40,000.
C)a credit to Profit on Sale for $10,000.
D)a debit to Finished-Goods Inventory for $30,000.
E)a credit to Sales Revenue for $40,000.
Answer: E
Q2) If a company sells goods that cost $70,000 for $82,000, the firm will:
A)reduce Finished-Goods Inventory by $70,000.
B)reduce Finished-Goods Inventory by $82,000.
C)report sales revenue on the balance sheet of $82,000.
D)reduce Cost of Goods Sold by $70,000.
E)reduce Finished-Goods Inventory by $82,000 and report sales revenue of $70,000.
Answer: A
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Chapter 4: Process Costing and Hybrid Product-Costing Systems
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Sample Questions
Q1) Windsor Corporation, which adds materials at the beginning of production, uses a weighted-average process costing system. Consider the data that follow:
\(\begin{array} { | l | c | r | r | }
\hline & \text { Number of Units } & { \text { Cost of Materials } } \\
\hline \text { Beginning work in process } & 40,000 & \$ 80,600 & \\
\hline \text { Started in June } & 60,000 & 124,400 & \\
\hline \text { Production completed } & 75,000 & & \\
\hline \text { Ending work in process } & 25,000 & & \\
\hline
\end{array}\) The company's cost per equivalent unit for materials is:
A)$1.24.
B)$1.66.
C)$1.67.
D)$2.05.
E)$8.20.
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Chapter 5: Activity-Based Costing and Management
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Sample Questions
Q1) Purdy Manufacturing produces flat-screen computer monitors. Consider the following selected costs that arose during the current year:
1. Direct materials used: $4,440,000
2. Plant rent, utilities, and taxes: $1,300,000
3. New technology design engineering: $2,030,000
4. Materials receiving: $418,000
5. Manufacturing-run/set-up charges: $215,000
6. Equipment depreciation: $92,000
7. General management salaries: $1,560,000
Required:
A. Briefly distinguish between batch-level and facility-level activities.
B. Determine the cost of the firm's unit-level, batch-level, product-sustaining, and facility-level activities.
Q2) Which of the following can have a positive impact on a sale's profitability?
A)Number of required sales contacts (phone calls, visits, etc.).
B)Special shipping instructions.
C)Accounts receivable collection time.
D)Purchase-order changes.
E)Minimal contact with sales personnel.
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Page 7
Chapter 6: Activity Analysis, Cost Behaviour, and Cost
Estimation
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Sample Questions
Q1) What type of cost exhibits the behaviour that follows? \(\begin{array} { | c | c | }
\hline \begin{array} { c }
\text { Manufacturing } \\
\text { Volume } \\
\text { (Units) }
\end{array} & \text { Cost Per Unit } \\
\hline 50.000 & \$ 1.95 \\
\hline 70.000 & 1.95 \\
\hline \end{array}\)
A)Variable cost.
B)Fixed cost.
C)Curvilinear cost.
D)Discretionary fixed cost.
E)Step-fixed cost.
Q2) Compare and contrast the following types of costs: (1) variable and step-variable and (2) fixed and step-fixed.
Q3) Distinguish between least-squares regression and multiple regression as cost estimation methods.
Page 8
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Chapter 7: Cost-Volume-Profit Analysis, Absorption and Variable Costing
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Sample Questions
Q1) The budget of Nightingale Company for the upcoming year revealed the following figures: sales revenue $900,000; contribution margin $604,000; net income $58,000. If the company's break-even sales total $800,000, Nightingale's safety margin would be:
A)$58,000.
B)$100,000.
C)$196,000.
D)$296,000.
E)$742,000.
Q2) Which of the following would take place if a company experienced an increase in fixed costs, all other things remaining constant?
A)The net income would increase.
B)The break-even point would increase.
C)The contribution margin would increase.
D)The contribution margin would decrease.
E)The break-even point would decrease.
Q3) Maddox Corporation's Product No. H647 has a negative contribution margin. How can such a situation arise? Should the company continue to stock and sell Product No. H647?Explain.
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Chapter 8: Profit Planning and Activity-Based Budgeting
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Sample Questions
Q1) If a manager builds slack into a budget, how would that manager handle estimates of revenues and expenses?
A)Revenues: Underestimate, Expenses: Underestimate
B)Revenues: Underestimate, Expenses: Overestimate
C)Revenues: Overestimate, Expenses: Underestimate
D)Revenues: Overestimate, Expenses: Overestimate
E)Revenues: Estimate correctly, Expenses: Estimate correctly
Q2) At Lakeside Manufacturing, budgets are the responsibility of everyone. Each department collaborates in determining its expected needs, and sales personnel determine the likely sales volume. Ed Tucker, one of the production managers, believes in building plenty of slack into everything, including his estimates of ending inventory of work in process.
Required:
You are the accounting manager. Write a memo to Mr. Tucker. Explain why the ending inventory figure should be extremely accurate, with as little slack as possible.
Q3) List several factors that an organization might consider when developing a sales forecast.
Q4) Sushi House has budgeted sales revenues for 2012 as follows:
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Page 10
Chapter 9: Standard Costing and Flexible Budgeting
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Q1) Smithville uses labour hours to apply variable overhead to production. If the company's workers were very inefficient during the period, which of the following statements would be true about the variable-overhead efficiency variance?
A)The variance would be favourable.
B)The variance would be unfavourable.
C)The nature of the variance (favourable or unfavourable) would be unknown based on the facts presented.
D)The variance would be the same amount as the labour efficiency variance.
E)The variance would be the same amount as the fixed overhead volume variance.
Q2) A standard cost:
A)is the "true" cost of a unit of production.
B)is a budget for the production of one unit of a product or service.
C)can be useful in calculating equivalent units.
D)is normally the average cost within an industry.
E)is almost always the actual cost from previous years.
Q3) Briefly explain the nature of the fixed-overhead volume variance. Be sure to address the issue of capacity utilization in your response.
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Chapter 10: Cost Management Tools
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Sample Questions
Q1) To assess costs incurred with respect to raw materials and scrap, management may study:
A)the number of inventoried parts.
B)the number of warranty claims.
C)the number of defects found.
D)the quality of raw material.
E)the number of customer complaints.
Q2) Which of the following fails to be captured and reported by a company's accounting system as an environmental cost?
A)Monitoring costs.
B)Abatement costs.
C)Opportunity costs.
D)On-site remediation costs.
E)Off-site remediation costs.
Q3) Costs incurred to reduce or eliminate pollution are commonly known as:
A)monitoring costs.
B)abatement costs.
C)on-site remediation costs.
D)off-site remediation costs.
E)opportunity costs.
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Chapter 11: Responsibility Accounting, Investment Centres, and Transfer Pricing
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Sample Questions
Q1) Mobile Minx Incorporated is in the process of overhauling the performance evaluation system for its Mississauga Manufacturing Division, which produces and sells materials that are popular in the textiles industry. Which of the following is least likely to be chosen to evaluate the overall operations of the Mississauga Division?
A)Cost centre.
B)Revenue centre.
C)Profit centre.
D)Investment centre.
E)The profit centre and investment centre are equally unlikely to be chosen.
Q2) Common costs:
A)are always traceable to a segment's activities:
B)are easily related to a segment's activities.
C)are charged to a company's operating segments when preparing a segmented income statement.
D)are not charged to a company's operating segments when preparing a segmented income statement.
E)are not easily related to a segment's activities and are not charged to a company's operating segments when preparing a segmented income statement.
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Chapter 12: Decision Making: Relevant Costs and Benefits
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Q1) Which of the following statements is true with respect to activity-based costing?
A)The concept of relevant costs and benefits cannot be used in conjunction with an activity-based costing system.
B)The concept of relevant costs and benefits must be modified for use with an activity-based costing system.
C)The concept of relevant costs and benefits can only be used with an activity-based costing system for short-run decisions.
D)The concept of relevant costs and benefits can only be used with an activity-based costing system for outsourcing decisions
E)Generally speaking, the decision maker can better associate relevant costs with the activities that drive them under an activity-based costing system than under a conventional product-costing system.
Q2) Capacity restrictions often change the way that managers make decisions. For example, consider a retailer that has limited square footage in its store. What guideline should be used in deciding which new products to carry? How would this differ, say, from a concert promoter that desires to bring a rock group to an arena-type facility?
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Chapter 13: Target Costing and Cost Analysis for Pricing Decisions
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Sample Questions
Q1) The following data pertain to Kluver Business Solutions Inc.: variable manufacturing cost $60; variable selling and administrative cost $30; applied fixed manufacturing cost $30; allocated fixed selling and administrative cost $12. What price will the company charge if the firm uses cost-plus pricing based on absorption manufacturing cost and a markup percentage of 80%?
A)$90.
B)$108.
C)$135.
D)$162.
E)$216.
Q2) Fourteenth Street Ltd. desires to enter the market with a new product. If the Company uses target costing, which task would the company perform first?
A)Design and engineer the product.
B)Determine the products cost.
C)Determine the desired profit margin.
D)Determine the suggested selling price.
E)Research the market.
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15
Chapter 14: Capital Expenditure Decisions
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Sample Questions
Q1) In Canada, the allowable deduction for depreciation expense in the calculation of taxable income is called:
A)depreciation expense.
B)the CCA tax shield.
C)the present value of the CCA tax shield.
D)capital cost allowance.
E)undepreciated capital cost.
Q2) Custom Plastics plans to purchase $4.5 million of equipment in the not-too-distant future. The equipment will have a $600,000 salvage value and will be depreciated over a six-year service life by the straight-line method. Custom is subject to a 30% income tax rate.
The company's accountant is about to perform a net-present-value analysis, assuming a 10% after-tax hurdle rate.
Required:
A. Determine the discounted cash flows that would be reflected in the analysis in year 0 and year 1.
B. Determine the discounted cash flow that would be reflected in the analysis in year 6, assuming that Custom sells the equipment for only $450,000 because of a recent change in market conditions.
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Page 16
Chapter 15: Allocation of Support Activity Costs and Joint Costs
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Sample Questions
Q1) Quickdraw Corporation has two service departments (Accounting and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. \(\begin{array} { l r }
\text { Accounting } & 10 \\
\text { Human Resources } & 20 \\
\text { Machining } & 150 \\
\text { Assembly } & 100
\end{array}\) Quickdraw uses the step-down method of cost allocation and allocates cost on the basis of employees. Human Resources and Accounting cost amounts to $2,400,000 and $1,300,000 respectively. Management believes that the Human Resources department provides more service to the firm than Accounting. How much Human Resources cost would be allocated to Machining?
A)$0.
B)$1,285,714.
C)$1,333,333.
D)$1,384,615.
E)$1,440,000.
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