Cost Accounting Question Bank
Course Introduction
Cost Accounting is a comprehensive course that examines the principles, methodologies, and techniques involved in measuring, analyzing, and controlling costs within an organization. The course explores key topics such as cost behavior, cost allocation, job order and process costing, activity-based costing, standard costing, and budgeting. Emphasis is placed on the role of cost accounting in managerial decision-making, planning, and performance evaluation, enabling students to understand how cost information is used to improve operational efficiency and achieve organizational objectives. Through practical examples and case studies, students develop the skills necessary to apply cost accounting concepts in both manufacturing and service environments.
Recommended Textbook
Managerial Accounting 12th Edition by Carl S. Warren
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Page 2
Chapter 2: Job Order Costing
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Sample Questions
Q1) A job order cost system would be appropriate for a crude oil refining business.
A)True
B)False
Answer: False
Q2) For the manufacturing business, inventory which is in the process of being manufactured is referred to as:
A) supplies inventory
B) work in process inventory
C) finished goods inventory
D) direct materials inventory
Answer: B
Q3) Activity-based costing is a method of accumulating and allocating costs by department.
A)True
B)False
Answer: False
Q4) Factory overhead is applied to production using a predetermined overhead rate.
A)True
B)False
Answer: True
Page 3
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Chapter 3: Process Cost Systems
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Sample Questions
Q1) Conversion costs are generally added evenly throughout the process.
A)True
B)False Answer: True
Q2) Gilbert Corporation had 25,000 finished units and 8,000 units were 35% complete. The equivalent units totaled 30,200.
A)True
B)False Answer: False
Q3) In a process costing system, the cost per equivalent unit is computed before computing equivalent units.
A)True
B)False Answer: False
Q4) Once equivalent units are calculated for materials, this number will also be used for direct labor and factory overhead.
A)True
B)False Answer: False
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Chapter 4: Cost Behavior and Cost-Volume-Profit Analysis
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Sample Questions
Q1) In a cost-volume-profit chart, the
A) total cost line begins at zero.
B) slope of the total cost line is dependent on the fixed cost per unit.
C) total cost line begins at the total fixed cost value on the vertical axis.
D) total cost line normally ends at the highest sales value.
Q2) The three most common cost behavior classifications are:
A) variable costs, product costs, and sunk costs
B) fixed costs, variable costs, and mixed costs
C) variable costs, period costs, and differential costs
D) variable costs, sunk costs, and opportunity costs
Q3) The ratio that indicates the percentage of each sales dollar available to cover the fixed costs and to provide operating income is termed the contribution margin ratio.
A)True
B)False
Q4) If fixed costs are $450,000 and the unit contribution margin is $50, the sales necessary to earn an operating income of $50,000 are 10,000 units.
A)True
B)False
Q5) The cost graphs in the illustration below shows various types of cost behaviors.
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Chapter 5: Variable Costing for Management Analysis
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Sample Questions
Q1) In the absorption costing income statement, deduction of the cost of goods sold from sales yields gross profit.
A)True
B)False
Q2) Contribution margin reporting and analysis is appropriate only for manufacturing firms, not for service firms.
A)True
B)False
Q3) The amount of income under absorption costing will be more than the amount of income under variable costing when units manufactured:
A) exceed units sold
B) equal units sold
C) are less than units sold
D) are equal to or greater than units sold
Q4) On the variable costing income statement, deduction of the variable cost of goods sold from sales yields manufacturing margin.
A)True
B)False
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Chapter 6: Budgeting
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Sample Questions
Q1) Employees view budgeting more positively when goals are established for them by senior management.
A)True
B)False
Q2) Mandy Corporation sells a single product. Budgeted sales for the year are anticipated to be 640,000 units, estimated beginning inventory is 98,000 units, and desired ending inventory is 80,000 units. The quantities of direct materials expected to be used for each unit of finished product are given below. Material A .50 lb. per unit @ $ .60 per pound
Material B 1.00 lb. per unit @ $1.70 per pound
Material C 1.20 lb. per unit @ $1.00 per pound
The dollar amount of direct material C used in production during the year is:
A) $746,400
B) $724,800
C) $824,400
D) $758,160
Q3) The production budget is the starting point for preparation of the direct labor cost budget.
Q4) Why is the sales budget usually prepared first?
Q5) What is a capital expenditures budget?
Page 7
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Chapter 7: Performance Evaluation Using Variances From
Standard Costs
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Sample Questions
Q1) Which of the following is not a reason for a direct materials quantity variance?
A) Malfunctioning equipment
B) Purchasing of inferior raw materials
C) Increased material cost per unit
D) Spoilage of materials
Q2) Define nonfinancial performance measures. What are they used for and what are some common examples?
Q3) The formula to compute direct labor rate variance is to calculate the difference between
A) actual costs + (actual hours * standard rate)
B) actual costs - standard cost
C) (actual hours * standard rate) - standard costs
D) actual costs - (actual hours * standard rate)
Q4) The standard price and quantity of direct materials are separated because:
A) GAAP reporting requires this separation
B) direct materials prices are controlled by the purchasing department, and quantity used is controlled by the production department
C) standard quantities are more difficult to estimate than standard prices
D) standard prices change more frequently than standard quantities
8
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Chapter 8: Performance Evaluation for Decentralized Operations
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Sample Questions
Q1) Which is the best example of a decentralized operation?
A) One owner who prepares plans and makes decisions for the entire company.
B) Each unit is responsible for their own operations and decision making.
C) In a major company, operating decisions are made by top management.
D) None of the above. All are examples of a centralized management.
Q2) The major advantage of the rate of return on investment over income from operations as a divisional performance measure is that divisional investment is directly considered and thus comparability of divisions is facilitated.
A)True
B)False
Q3) It is beneficial for divisions in a company to negotiate a transfer price when the supplying division has unused capacity in its plant.
A)True
B)False
Q4) The negotiated price approach allows the managers of decentralized units to agree among themselves as to the transfer price.
A)True
B)False
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Chapter 9: Differential Analysis and Product Pricing
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Sample Questions
Q1) Make or buy options often arise when a manufacturer has excess productive capacity in the form of unused equipment, space, and labor.
A)True
B)False
Q2) A business is considering a cash outlay of $300,000 for the purchase of land, which it could lease for $36,000 per year. If alternative investments are available which yield an 18% return, the opportunity cost of the purchase of the land is:
A) $54,000
B) $36,000
C) $18,000
D) $72,000
Q3) A business is considering a cash outlay of $250,000 for the purchase of land, which it could lease for $35,000 per year. If alternative investments are available which yield an 18% return, the opportunity cost of the purchase of the land is:
A) $35,000
B) $45,000
C) $10,000
D) $6,300
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Chapter 10: Capital Investment Analysis
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Sample Questions
Q1) Which of the following are two methods of analyzing capital investment proposals that both ignore present value?
A) Internal rate of return and average rate of return
B) Net present value and average rate of return
C) Internal rate of return and net present value
D) Average rate of return and cash payback method
Q2) The expected average rate of return for a proposed investment of $8,000,000 in a fixed asset, using straight line depreciation, with a useful life of 20 years, no residual value, and an expected total net income of $12,000,000 is:
A) 15%
B) 12%
C) 40%
D) 7.5%
Q3) The computations involved in the net present value method of analyzing capital investment proposals are less involved than those for the average rate of return method.
A)True
B)False
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Chapter 11: Cost Allocation and Activity-Based Costing
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Sample Questions
Q1) When a plantwide factory overhead rate is used, overhead costs are applied to all products by a single rate.
A)True
B)False
Q2) The Kaumajet Factory produces two products - table lamps and desk lamps. It has two separate departments - finishing and production. The overhead budget for the finishing department is $550,000, using 500,000 direct labor hours. The overhead budget for the production department is $400,000 using 80,000 direct labor hours. If the budget estimates that a desk lamp will require 1 hours of finishing and 2 hours of production, what is the total amount of factory overhead to be allocated to desk lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours, if 26,000 units are produced?
A) $540,000
B) $187,200
C) $475,000
D) $288,600
Q3) Activity cost pools are cost accumulations associated with a given activity.
A)True
B)False
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Page 12
Chapter 12: Cost Management for Just-In-Time
Environments
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Sample Questions
Q1) Which of the following is characteristic of a just-in-time (JIT) production layout?
A) Decentralized maintenance
B) Small production batches
C) Organization around processes
D) Both A and B
Q2) Which of the following is not a prevention cost?
A) preventive maintenance
B) operator training
C) design engineering
D) testing finished products
Q3) Prevention costs and appraisal costs are considered costs of controlling quality.
A)True
B)False
Q4) In a push manufacturing system, raw materials are released to production based on actual customer orders.
A)True
B)False
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) The direct method of preparing the operating activities section of the statement of cash flows reports major classes of gross cash receipts and gross cash payments.
A)True
B)False
Q2) Net income for the year was $29,500. Accounts receivable increased $2,500, and accounts payable increased $5,400. Under the indirect method, the cash flow from operations is $32,400.
A)True
B)False
Q3) The manner of reporting cash flows from investing and financing activities will be different under the direct method as compared to the indirect method.
A)True
B)False
Q4) To determine cash payments for operating expenses for the cash flow statement using the direct method, a decrease in accrued expenses is added to operating expenses other than depreciation.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) The purpose of an audit is to
A) determine whether or not a company is a good investment.
B) render an opinion on the fairness of the statements.
C) determine whether or not a company complies with corporate social responsibility.
D) determine whether or not a company is a good credit risk.
Q2) When a company changes from one acceptable accounting method to another, the change is reported
A) in the statement of retained earnings, as a correction to the beginning balance.
B) in the income statement, below income from continuing operations.
C) in the income statement, above income from continuing operations
D) through a retroactive restatement of prior period earnings.
Q3) The excess of current assets over current liabilities is referred to as working capital.
A)True B)False
Q4) A clean audit opinion is the same as a qualified audit opinion.
A)True
B)False
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15
Chapter 15: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) Which of the following is the principle reason for preparing managerial accounting reports?
A) Usefulness to management
B) Cost of preparation
C) Clarity
D) GAAP
Q2) Planning is the process of monitoring operating results and comparing actual results with the expected results.
A)True
B)False
Q3) In most business organizations, the chief accountant is called the treasurer.
A)True
B)False
Q4) Period costs are operating costs that are expensed in the period in which the goods are sold.
A)True
B)False
Q5) Product costs are also referred to as inventoriable costs.
A)True
B)False
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