Cost Accounting Practice Questions
Course Introduction
Cost Accounting focuses on the principles, methods, and techniques used to gather, analyze, and report cost data for organizations. The course covers topics such as cost behavior, cost allocation, job and process costing, standard costing, variance analysis, and budgeting. Students learn how cost accounting information supports internal decision-making, planning, and control within businesses. Through practical exercises and case studies, the course equips students with the skills to identify, measure, and manage costs effectively, ensuring efficient resource utilization and informed managerial decisions.
Recommended Textbook
Cost Accounting A Managerial Emphasis 6th Canadian Edition by Charles T. Horngren
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Page 2
Chapter 1: The Accountants Vital Role in Decision Making
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Sample Questions
Q1) A budget is a quantitative expression of a proposed plan of action by management.
A)True
B)False Answer: True
Q2) ________ is an operational activity that is essential to corporate performance.
A) Customer focus
B) A key success factor
C) Continuous improvement
D) Supply chain
E) Value chain Answer: B
Q3) Management accountants are required to follow the generally accepted accounting principles that are used for external financial reporting when preparing reports for internal users.
A)True
B)False Answer: False
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Page 3
Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Direct materials inventory is products held for resale.
A)True
B)False
Answer: False
Q2) What is the unit cost for the direct materials for 20X4 assuming direct materials are for the production of 507,000 units?
A) $0.80
B) $0.95
C) $2.00
D) $1.08
E) $1.10
Answer: C
Q3) What is Montreal's cost of goods sold during the year?
A) $260,000
B) $232,000
C) $220,000
D) $200,000
E) $240,000
Answer: A
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Page 4
Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Which of the following statements about sensitivity analysis is true?
A) It is a technique which is used to examine past results.
B) It can be used in CVP to show changes in operating income if variable costs per unit change.
C) It examines the relationship between production and service departments.
D) It shows the impact of a manager's behaviour.
E) It is relevant for isolating conversion costs.
Answer: B
Q2) To calculate the break-even point in a multi-product situation, one must assume that the sales mix of the various products remains constant.
A)True
B)False
Answer: True
Q3) What is the break-even point in units for each option?
A) 96 units and 114 units respectively
B) 120 units and 187 units respectively
C) 56 units and 137 units respectively
D) 200 units and 255 units respectively
E) 156 units and 219 units respectively
Answer: D
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Chapter 4: Job Costing
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Sample Questions
Q1) The objective of allocating indirect costs is to measure the underlying usage of indirect resources by jobs.
A)True
B)False
Q2) Fixed costs remain constant at $200,000 per month. During high-output months variable costs are $160,000, and during low-output months variable costs are $40,000. What are the respective high and low indirect cost allocation rates if professional labour-hours are 8,000 for high-output months and 2,000 for low-output months?
A) $45.00 per hour; $120.00 per hour
B) $45.00 per hour; $45.00 per hour
C) $25.00 per hour; $20.00 per hour
D) $56.20 per hour; $120.00 per hour
E) $25.00 per hour; $100.00 per hour
Q3) Underallocated indirect costs cannot occur when normal costing is used.
A)True
B)False
Q4) What are three possible ways to dispose of underallocated or overallocated overhead costs at the end of a fiscal year? Briefly comment on the theoretical correctness or incorrectness of each method.
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Chapter 5: Activity-Based Costing and Management
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Sample Questions
Q1) According to an ABC system, S5 uses a disproportionately
A) smaller amount of unit-level costs.
B) larger amount of unit-level costs.
C) smaller amount of product-sustaining costs.
D) larger amount of batch-level costs.
E) smaller amount of batch-level costs.
Q2) Which of the following is not a decision within the framework of Activity-based management (ABM)?
A) pricing and product mix
B) smoothing costs
C) reducing costs
D) manufacturing design
E) changing processes
Q3) Describe each of the four cost hierarchies used to define levels for activities in activity-based costing.
Q4) Many companies use multiple cost pools and multiple cost-allocation bases but do not emphasize individual activities.
A)True
B)False
Q5) How are cost drivers selected in activity-based costing systems?
Page 7
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) Kaizen budgeting is a budgetary approach that explicitly incorporates continuous improvement during the budget period into the resultant budget numbers.
A)True
B)False
Q2) A rolling budget encourages management to be thinking about the next 12 months.
A)True
B)False
Q3) What is the amount budgeted for cost of goods sold in 2012?
A) $1,156,000
B) $986,000
C) $840,000
D) $2,400,000
E) $1,020,000
Q4) The budget constraint describes only financial limitations that are within the company's control.
A)True
B)False
Q5) Describe some of the drawbacks of using the operating budget as a control device.
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Chapter 7: Flexible Budgets, Variances, and Management
Control: I
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146 Verified Questions
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Sample Questions
Q1) For the dry ingredients what are the material mix and yield variances respectively?
A) $270 favourable/$270 unfavourable
B) $360 unfavourable/$360 unfavourable
C) $360 favourable/$360 unfavourable
D) $360 favourable/$360 favourable
E) $270 unfavourable/$270 unfavourable
Q2) Describe the purpose of variance analysis.
Q3) Whistler Table Company manufactures tables for schools. The current year operating budget is based on sales of 20,000 units at $100 per table. Operating income is anticipated to be $120,000. Budgeted variable costs are $64 per unit while fixed costs total $600,000.
Actual income for the year was $354,000 on actual sales of 21,000 units. Actual variable costs were $60 per unit and fixed costs totaled $570,000.
Required:
Prepare a variance analysis report with both flexible-budget and sales-volume variances.
Q4) Explain how variance analysis is used in conjunction with activity-based costing.
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Chapter 8: Flexible Budgets, Variances, and Management
Control: II
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Sample Questions
Q1) Variable overhead rate variance is the difference between the actual amount of variable overhead incurred and the budgeted amount allowed for the actual quantity of the variable overhead allocation base used for the actual output units achieved.
A)True
B)False
Q2) An unfavourable variable overhead rate variance can be the result of paying lower prices than budgeted for variable overhead items such as energy.
A)True
B)False
Q3) Managers should use unitized fixed manufacturing overhead costs for planning and control.
A)True
B)False
Q4) The fixed manufacturing overhead efficiency variance is used to analyze overhead costs.
A)True B)False
Q5) How can a standard costing system be useful in negotiating new sales?
Page 10
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Sample Questions
Q1) Master-budget capacity utilization
A) hides the amount of unused capacity.
B) represents the maximum units of production for current capacity.
C) provides the best cost estimate for benchmarking purposes.
D) when used for product costing results in the lowest cost estimate of the four capacity options.
E) represents the long-term utilization expected to meet customer demand.
Q2) Using ________ capacity fixes the cost of capacity at the cost of supplying the capacity regardless of the demand for capacity.
A) practical
B) theoretical
C) supply
D) demand
E) master-budget
Q3) Another common term used by some companies for variable costing is direct costing.
A)True
B)False
Q4) a. Explain the difference between the variable and absorption costing methods. b. Which method(s) are required for external reporting? For internal reporting?
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Chapter 10: Quantitative Analyses of Cost Functions
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Sample Questions
Q1) Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver.
a. Direct manufacturing labour is $10 per hour.
b. Direct materials cost $9.20 per cubic yard.
c. Utilities have a minimum charge of $1,000, plus a charge of $0.05 per kilowatt-hour.
d. Machine operating costs include $200,000 of machine depreciation per year, plus $75 of utility costs for each day the machinery is in operation.
Q2) In multiple regression, when two or more independent variables are correlated with one another, the situation is known as
A) heteroscedasticity.
B) homoscedasticity.
C) spurious correlation.
D) autocorrelation.
E) multicollinearity.
Q3) What are the estimated total costs if Miller's expects to sell 6,500 units next year?
Q4) What were total fixed costs for 2012?
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Page 12
Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) Other than price, what other item should Grant's Kitchens consider before accepting this one-time-only special order?
A) reaction of shareholders
B) management stock options
C) demand for cherry cabinets
D) price is the only consideration
E) reaction of existing customers to the lower price offered to Ms. Wang
Q2) Opportunity cost is the contribution to income that is recognized through the use of limited resources available in the best alternative.
A)True
B)False
Q3) Ted owns a small body shop. His major costs include labour, parts, and rent. In the decision making process, these costs are always considered to be
A) fixed.
B) qualitative factors.
C) quantitative factors.
D) variable.
E) relevant costs.
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13
Chapter 12: Pricing Decisions, Product Profitability Decisions, and Cost Management
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Sample Questions
Q1) A business that engages in predatory pricing violates Canadian law.
A)True
B)False
Q2) Which of the following best describes the cost-plus pricing approach?
A) Cost base + Markup component = Prospective selling price
B) Prospective selling price + Cost base = Markup component
C) Cost base + Gross margin = Prospective selling price
D) Variable cost + Fixed cost + Contribution margin = Prospective selling price
E) Cost base plus markup รท 100% = selling profit percentage
Q3) What is the target cost if the company wants to maintain its same income level, and marketing is correct (rounded to the nearest cent)?
A) $168.75
B) $170.46
C) $185.00
D) $210.00
E) $202.50
Q4) What advice would you give a company to avoid the appearance of predatory pricing?
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Q5) Explain the differences between short-run pricing decisions and long-run pricing decisions.
Chapter 13: Strategy, Balanced Scorecard, and Profitability Analysis
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Sample Questions
Q1) ________ is an organization's ability to offer products or services that are perceived by its customers as being superior and unique relative to those of its competitors.
A) Strategy
B) Product differentiation
C) Cost leadership
D) The balanced scorecard
E) Cost differentiation
Q2) Total factor productivity (TFP) is easy to compute for a single-product company. When dealing with a multiproduct company, one of two adjustments must be made. What are these potential adjustments?
Q3) What is the operating income in year 2?
A) $378,600
B) $366,120
C) $1,242,000
D) $403,520
E) $210,000
Q4) Define engineered and discretionary costs and give two examples of each.
Q6) Identify and explain Porter's Five Forces model. Page 15
Q5) What are the four key perspectives in the balanced scorecard?
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Page 16
Chapter 14: Period Cost Allocation
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Sample Questions
Q1) What is the cost of the Maintenance Department allocated to Department B using the step-down method if the support department with the highest percentage of interdepartmental service to the other support department is allocated first?
A) $16,000
B) $21,333
C) $12,800
D) $32,471
E) $48,000
Q2) Two entities, Cooper Company and Magic Company, share a common warehouse facility. Total costs for the facility are budgeted at $2,000,000. Accountants have estimated that if Cooper Company did not use the facility the cost incurred would be reduced by 30 percent. What amount of the budgeted cost should be allocated, respectively, to Cooper and Magic if the incremental allocation method is used?
A) $0; $1,400,000
B) $0; $2,000,000
C) $1,400,000; $600,000
D) $700,000; $1,300,000
E) $600,000; $1,400,000
Q3) Should a company allocate its corporate costs to divisions?
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Page 17
Chapter 15: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) Explain the difference between a joint product and a byproduct. Can a byproduct ever become a joint product?
Q2) What are separable costs?
Q3) Using the sales value at split off method, the joint costs allocated to Kharton would be:
A) $289,520
B) $115,808
C) $110,480
D) $154,672
E) $405,328
Q4) The products of a joint production process that have low total sales values compared with the total sales value of the main product are called joint products. A)True B)False
Q5) List the reasons that the sales value at splitoff method of joint cost allocation should be used.
Q6) Separable costs include manufacturing costs only. A)True B)False
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Chapter 16: Revenue and Customer Profitability Analysis
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Sample Questions
Q1) A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of using only one cost driver.
A)True
B)False
Q2) A favorable market-size variance results with a decrease in market size.
A)True
B)False
Q3) Costs incurred to handle each unit sold would MOST likely be classified as a
A) customer output unit-level cost.
B) customer batch-level cost.
C) customer-sustaining cost.
D) corporate-sustaining cost.
E) distribution-channel cost.
Q4) What is the market-share variance?
A) $1,000 F
B) $1,100 F
C) $500 U
D) $1,500 U
E) $1,000 U
Q5) What actions might be taken with an unprofitable customer?
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Chapter 17: Process Costing
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Sample Questions
Q1) Calendar Time Company prints calendars. All direct materials are included at the inception of the printing process. There were 20,000 units in beginning inventory with a direct material cost of $1,000 in March. Direct materials totalled $26,000 for the month. work-in-process records revealed that 160,000 calendars were started in March and that a total of 144,000 were completed. Ending work-in-process units are complete in respect to direct materials costs and contain no labour and overhead costs. The weighted-average method is used by Calendar Time.
Required:
a. Determine the equivalent units of materials.
b. What are the material costs assigned to completed calendars?
c. What amount of materials is assigned to the ending work-in-process inventory?
Q2) What is the balance in ending work-in-process inventory?
A) $82,000
B) $120,000
C) $155,000
D) $170,000
E) $174,000
Q3) Standard costing is not possible in a firm that uses process costing.
A)True
B)False
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Chapter 18: Spoilage, Rework, and Scrap
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Sample Questions
Q1) Items with minimal sales value are known as
A) reworked units.
B) scrap.
C) spoilage.
D) ending work in process units.
E) abnormal spoilage.
Q2) What are the normal and abnormal spoilage units, respectively, for February when using FIFO?
A) 1,400 units; 1,480 units
B) 3,280 units; 1,640 units
C) 3,240 units; 7,760 units
D) 3,240 units; 11,000 units
E) 7,760 units; 1,640 units
Q3) Spoilage can be attributed to a particular job in a process costing system.
A)True
B)False
Q4) Scrap has no value (or minimal value) therefore it is not traced back to specific jobs.
A)True
B)False
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Chapter 19: Cost Management: Quality, Time, and the Theory of Constraints
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Sample Questions
Q1) What is the change in the daily contribution margin if the change is made?
A) $(608)
B) $(634)
C) $(672)
D) $800
E) $960
Q2) Statistical quality control includes a control chart that
A) graphs a series of random events of a process.
B) plots each observation relative to specified ranges that represent the expected distribution.
C) plots control observations over various periods of time.
D) plots only those observations outside specified limits.
E) plots only those observations within one standard deviation from the mean.
Q3) The theory of constraints describes methods of reducing bottlenecks by identifying and reducing fixed costs previously viewed as variable.
A)True
B)False
Q4) On-time performance will increase customer satisfaction.
A)True
B)False
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Chapter 20: Inventory Cost Management Strategies
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Sample Questions
Q1) Just-in-Time (JIT) Production is also called "lean production."
A)True
B)False
Q2) Which of the following methods is used when production is driven by downstream workstations?
A) an activity-based systems
B) a just-in-time system
C) a product-need system
D) a station-priority system
E) safety system
Q3) The executive vice president of Robotics, Inc., is concerned because the cost of materials has not been in line with the budget for several periods, even after implementing an EOQ model. The company has the normal direct material variance computations of price and efficiency at the end of each month. The price variance of the direct materials used is usually near expectations. The vice president does not understand how the budget differences are always larger than the material price variances.
Required:
What explanation can you give for the evaluation problems presented?
Q4) The costs associated with storage are an example of which cost category?
Page 23
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Chapter 21: Capital Budgeting: Methods of Investment Analysis
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Sample Questions
Q1) A capital budgeting project is accepted if the required rate of return equals or exceeds the internal rate of return.
A)True
B)False
Q2) Which of the following is not a major category of cash flows in capital budgeting?
A) initial investment in machines
B) recurring operating cash flows
C) cash flows from dispositions of assets
D) management and labour allocation deductions
E) initial working capital investment
Q3) In NPV analysis, if the IRR exceeds the RRR,
A) the project should be rejected.
B) the NPV will be negative (when discounted at the IRR).
C) the NPV is positive when project cash flows are discounted at the IRR.
D) the NPV is positive when project cash flows are discounted at the RRR.
E) the NPV is negative when project cash flows are discounted at the RRR.
Q4) The payback method discounts cash flows prior to the payback date.
A)True
B)False
Page 24
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Chapter 22: Capital Budgeting: a Closer Look
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Sample Questions
Q1) The nominal rate of return would be .38 if
A) the real rate was .20, and the inflation rate was .18.
B) the real rate was .18, and the inflation rate was .20.
C) the real rate was .20, and the inflation rate was .15.
D) the real rate was .20, and the required rate was .15.
E) the real rate was .18 and the inflation rate was .15.
Q2) In case of a sale or trade of a capital asset for another capital asset, the net tax book value of the asset can be ignored for capital budgeting purposes.
A)True
B)False
Q3) The excess present value index is
A) the amount that present value exceeds future value in a decision model divided by the payback period.
B) the total present value of future net cash inflows divided by the total present value of the initial investment.
C) the total value of future cash flows divided by the number of years of the investment. D) the investment divided by the payback period.
E) also called the certainty equivalent approach.
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Chapter 23: Transfer Pricing and Multinational Management Control Systems
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Sample Questions
Q1) A(n) ________ is a binding agreement between a multinational and the United States Internal Revenue Service to obtain approval for a specific transfer price for a number of years.
A) Tax Treaty
B) Advanced Pricing Agreement
C) Revenue Ruling
D) Dual Price Ruling
E) International Transfer Price
Q2) The degree of freedom to make decisions is
A) decentralization.
B) autonomy.
C) centralization.
D) motivation.
E) goal congruence.
Q3) Market price is the only price that a firm should use when transferring goods from one subunit to another subunit.
A)True
B)False
Q4) Transfer prices among divisions within Canada are irrelevant. Do you agree with this statement? Explain.
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Chapter 24: Multinational Performance Measurement and Compensation
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Sample Questions
Q1) The executive vice president of Wicker Pen Company wants to establish an accounting-based performance measurement system for the company's new plant. The company has an accounting information system sufficient to support a fairly sophisticated performance measurement system. The new plant is going to be considered an investment centre since its products will be marketed differently from others the company currently sells and it has no internal dealings with other plants within the company.
Required:
What are some of the key steps that should be undertaken in the establishment of a performance measurement system based on the Performance Measures Decision Process Model?
Q2) What were the sales for Beta Division?
A) $4,333,333
B) $5,952,380
C) $6,500,000
D) $7,151,800
E) $6,326,787
Q3) Residual income is income plus an imputed interest charge for the investment.
A)True
B)False
Page 27
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