Cost Accounting Question
Bank
Course Introduction
Cost Accounting is a specialized branch of accounting that focuses on the recording, analysis, and management of costs associated with the production of goods or services. This course covers fundamental concepts such as cost classification, allocation, and behavior, as well as methods like job order, process, and activity-based costing. Students will learn how to prepare cost statements, analyze variances, and use cost information for planning, budgeting, and decision-making. Emphasis is placed on the practical application of costing techniques to improve organizational efficiency and support strategic management objectives.
Recommended Textbook
Cost Accounting A Managerial Emphasis 14th Edition by Charles T. Horngren
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Page 2
Chapter 1: The Accountants Role in the Organization
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Sample Questions
Q1) Ethical challenges for management accountants include:
A)whether to accept gifts from suppliers, knowing it is an effort to indirectly influence decisions
B)whether to report unfavorable department information that may result in unfavorable consequences for a friend
C)whether to file a tax return this year
D)Both A and B are correct.
Answer: D
Q2) Which of the following issues is NOT addressed by the Sarbanes-Oxley legislation?
A)improving internal control
B)corporate governance
C)disclosure practices of public corporations
D)disclosure practices of private companies
Answer: D
Q3) Staff management should NOT provide advice and assistance to line management.
A)True
B)False
Answer: False
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Chapter
2:
An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) For last year, Wampum Enterprises reported revenues of $420,000, cost of goods sold of $108,000, cost of goods manufactured of $101,000, and total operating costs of $70,000. Gross margin for last year was:
A)$319,000
B)$312,000
C)$249,000
D)$242,000
Answer: B
Q2) What are the period costs per unit associated with Product ICT101?
A)$4
B)$16
C)$20
D)$52
Answer: C
Q3) What is gross margin for 20X3?
A)$283,000
B)$355,000
C)$230,000
D)$257,000
Answer: C
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Bassman Company operates on a contribution margin of 30% and currently has fixed costs of $400,000. Next year, sales are projected to be $2,000,000. An advertising campaign is being evaluated that costs an additional $60,000. How much would sales have to increase to justify the additional expenditure?
A)$120,000
B)$180,000
C)$200,000
D)$600,000
Answer: C
Q2) Which of the following will increase a company's breakeven point?
A)increasing variable cost per unit
B)increasing contribution margin per unit
C)reducing its total fixed costs
D)increasing the selling price per unit
Answer: A
Q3) Breakeven point is NOT a good planning tool since the goal of business is to make a profit.
A)True
B)False
Answer: False
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Chapter 4: Job Costing
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Sample Questions
Q1) Actual costing systems are NOT commonly found in practice because actual costs CANNOT be computed in a timely manner.
A)True
B)False
Q2) ________ costing is used by a business to price homogeneous products.
A)Actual
B)Job
C)Process
D)Traditional
Q3) When actual indirect costs exceed allocated indirect costs, indirect costs have been underapplied.
A)True
B)False
Q4) The ending balance of work-in-process inventory is:
A)$438,500
B)$146,500
C)$130,000
D)$422,000
Q5) Explain how a budgeted indirect-cost rate is determined.
Q6) What is the difference between an actual cost system and a normal cost system?
Page 6
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) How can the need for a more refined costing system be identified?
Q2) Simply because activity-based costing systems employ more activity-cost drivers, they provide more accurate product costs than traditional systems.
A)True
B)False
Q3) Activity-based costing is most likely to yield benefits for companies with all of the following characteristics EXCEPT:
A)numerous products that consume different amounts of resources
B)operations that remain fairly consistent
C)a highly competitive environment, where cost control is critical
D)accessible accounting and information systems expertise to maintain the system
Q4) Logical cost allocation bases include:
A)cubic feet of packages moved to measure distribution activity
B)number of setups used to measure setup activity
C)number of design hours to measure designing activity
D)All of these answers are correct.
Q5) ABC systems are a further refinement of department-costing systems.
A)True
B)False
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) What is budgeted sales for 2012?
A)$291,200
B)$262,080
C)$252,000
D)$280,000
Q2) What is budgeted cost of goods sold for March 2011?
A)$588,060
B)$592,000
C)$600,000
D)$594,000
Q3) For January, budgeted cash payments for purchases are:
A)$14,000
B)$70,000
C)$60,000
D)None of these answers are correct.
Q4) Financing decisions primarily deal with:
A)the use of scarce resources
B)how to obtain funds to acquire resources
C)acquiring equipment and buildings
D)preparing financial statements for stockholders
Page 8
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Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Sample Questions
Q1) The only difference between the static budget and flexible budget is that the static budget is prepared using planned output.
A)True
B)False
Q2) The flexible-budget variance is:
A)$4,000 favorable
B)$28,000 unfavorable
C)$32,800 unfavorable
D)$4,800 favorable
Q3) A company would NOT need to use a flexible budget if it had perfect foresight about actual output units.
A)True
B)False
Q4) An unfavorable variance may be due to poor planning rather than due to inefficiency.
A)True
B)False
Q5) One problem with benchmarking is ensuring that numbers are comparable.
A)True
B)False
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Chapter
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Sample Questions
Q1) The variable overhead flexible-budget variance measures the difference between:
A)actual variable overhead costs and the static budget for variable overhead costs
B)actual variable overhead costs and the flexible budget for variable overhead costs
C)the static budget for variable overhead costs and the flexible budget for variable overhead costs
D)None of these answers is correct.
Q2) In the above chart, the amounts for (A)and (B), respectively, are:
A)$21,000 U; $110,000 U
B)$21,000 U; Zero
C)Zero; $110,000 U
D)Zero; Zero
Q3) What is the budgeted variable overhead cost rate per output unit?
A)$10.75
B)$11.00
C)$32.25
D)$48.40
Q4) Explain the meaning of a favorable production-volume variance.
Q5) How is a budgeted fixed overhead cost rate calculated?
Page 10
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) What is the total throughput contribution?
A)$1,000,000
B)$2,000,000
C)$450,000
D)$750,000
Q2) If the capacity level chosen to calculate the budgeted fixed overhead cost rate is more than the actual production, an unfavorable production-volume variance will result.
A)True
B)False
Q3) It is most difficult to estimate ________ because of the need to predict demand for the next few years.
A)practical capacity
B)theoretical capacity
C)master-budget capacity utilization
D)normal capacity utilization
Q4) The income under variable costing will always be the same as the income under absorption costing.
A)True B)False
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) If the number of employees is considered the cost driver, what amount of personnel costs will be allocated to Department A?
A)$24,000
B)$10,667
C)$102,400
D)$40,000
Q2) Discuss the potential use of nonlinear curves in cost functions and cost analysis. Give some examples.
Q3) Roger Moon has just purchased the film studio of a movie company that specializes in comedies. He found that the company did not try to estimate the cost of making a movie. Instead, it just gave the producer a budget and told him/her to make a movie within budget. Mr. Moon does not like the former movie-budget concept and desires to establish a formal cost estimation system.
Required:
What are some of the potential problems that may be encountered in changing from a budget to a cost estimation movie making system?
Q4) List and briefly describe the six steps in estimating a cost function under quantitative analysis.
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Page 12
Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) Relevant costs are expected future costs that differ among alternatives.
A)True
B)False
Q2) When using the five-step decision process, which one of the following steps should be done first?
A)Obtain information
B)Choose an alternative
C)Evaluation and feedback
D)Implementing the decision
Q3) A mathematical inequality or equality that must be appeased is known as a(n):
A)objective function
B)constraint
C)operating policy
D)business function
Q4) The contribution per machine-hour is:
A)$18 for Standard, $20 for Premium
B)$54 for Standard, $80 for Premium
C)$15 for Standard, $16 for Premium
D)$6 for Standard, $5 for Premium
Q5) Explain what revenues and costs are relevant when choosing among alternatives.
Page 13
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Chapter 12: Pricing Decisions and Cost Management
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Sample Questions
Q1) A product's markup percentage needs to cover operating profits when the cost base is:
A)the full cost of the product
B)the variable cost of the product
C)variable manufacturing costs
D)All of these answers are correct.
Q2) Competitors:
A)with alternative products can force a company to lower its prices
B)can gain a competitive pricing advantage with knowledge of your costs and operating policies
C)may span international borders
D)All of these answers are correct.
Q3) In some industries, such as legal and consulting, most costs are locked in:
A)when they are incurred
B)during the design stage
C)during the customer-service stage
D)during the marketing stage
Q4) Peak-load pricing is a form of price discrimination and is illegal.
A)True
B)False
Page 14
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Chapter 13: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Sample Questions
Q1) Which of the following is NOT true of a good balanced scorecard?
A)It tells the story of a company's strategy by articulating a sequence of cause-and-effect relationships.
B)It helps to communicate corporate strategy to all members of the organization.
C)It identifies all measures, whether significant or small, that help to implement strategy.
D)It uses nonfinancial measures to serve as leading indicators of future financial performance.
Q2) What is the change in operating income from 2011 to 2012?
A)$1,440,000 F
B)$1,804,500 F
C)$364,500 F
D)$200,000 F
Q3) Although total factor productivity (TFP)measures are comprehensive, operations personnel find financial TFP measures more difficult to understand and less useful than physical partial productivity measures in performing their tasks.
A)True
B)False
Q4) Explain the product differentiation and the cost leadership strategies.
Page 15
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Chapter 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) To guide cost allocation decisions, the fairness or equity criterion is:
A)the criterion often cited in government contracts
B)superior when the purpose of cost allocation is for economic decisions
C)used more frequently than the other criteria
D)the primary criterion used in activity-based costing
Q2) It is possible that the smallest customer in terms of revenue is the most profitable customer.
A)True
B)False
Q3) What is the contribution margin for the flexible budget?
A)$1,200,000
B)$4,200,000
C)$5,200,000
D)$5,400,000
Q4) A common finding in many studies is that a high percentage of operating income is:
A)contributed by a small number of customers
B)contributed to evenly by most customers
C)the result of high discounting
D)the result of cooperative efforts by many low-volume customers
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Chapter 15: Allocation of Support-Department Costs,
Common Costs, and Revenues
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Sample Questions
Q1) Why would businesses want to sell bundled products? What benefits, if any, are there for the consumer?
Q2) When budgeted cost-allocations rates are used:
A)variations in actual usage by one division affect the costs allocated to other divisions
B)the manager of the supplier division bears the risk of unfavorable cost variances
C)user divisions pay for costs that exceed budgeted amounts
D)user divisions pay for inefficiencies of the supplier department
Q3) Give examples of bundled products for each of the following industries:
a. Resort hotel
b. Bank
c. Restaurant
d. Computer store
e. Gasoline service station/convenience store
f. Software manufacturer
Q4) What is a "common cost"? What are two methods that a manager can use to allocate common costs to two or more users?
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Page 17
Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) The juncture in a joint production process when two products become separable is the byproduct point.
A)True
B)False
Q2) How much (if any)extra income would Morton earn if it produced and sold all of the Xyla from the condensed goat milk? Allocate joint processing costs based upon relative sales value on the splitoff. (Extra income means income in excess of what Morton would have earned from selling condensed goat milk.)
A)$106,126
B)$508,426
C)$402,300
D)$193,574
Q3) What are the four methods of allocating joint costs to individual products? Which of these methods is preferred, and what are two advantages of this method?
Q4) The constant gross-margin percentage NRV method is the only method of allocating joint costs under which products may receive negative allocations.
A)True
B)False
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Chapter 17: Process Costing
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Sample Questions
Q1) Equivalent units are calculated separately for each input.
A)True
B)False
Q2) What is the balance in ending work-in-process inventory?
A)$82,000
B)$120,000
C)$155,000
D)$170,000
Q3) An operation-costing system is a hybrid-costing system applied to batches of similar, but NOT identical, products.
A)True
B)False
Q4) A distinctive feature of the FIFO process costing method is that the work done on beginning inventory before the current period is kept separate from work done in the current period.
A)True
B)False
Q5) 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) Valentine Florists operate a flower shop. Because most of their orders are via telephone or fax, numerous orders have to be reworked. The average cost of the reworked orders is $6: $3.75 for labor, $1.50 for more flowers, and $0.75 for overhead. This ratio of costs holds for the average original order. On a recent day, the shop reworked 48 orders out of 249. The original cost of the 48 orders totaled $720. The average cost of all orders is $16.16, including rework, with an average selling price of $30
Required:
Prepare the necessary journal entry to record the rework for the day if the shop charges such activities to Arrangement Department Overhead Control. Prepare a journal entry to transfer the finished goods to Finished Goods Inventory.
Q2) Recognizing the value of scrap in the accounting records is always done at the time the scrap is produced.
A)True
B)False
Q3) Scrap is usually divided between normal and abnormal scrap.
A)True
B)False
Q4) Distinguish among spoilage, reworked units, and scrap. Give an example of each.
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Page 20
Chapter 19: Balanced Scorecard: Quality, Time, and the
Theory of Constraints
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Sample Questions
Q1) A tool which identifies potential causes of failures or defects is a:
A)control chart
B)Pareto diagram
C)cause-and-effect diagram
D)None of these answers is correct.
Q2) When considering customer needs and wants, only financial measures can be used, since they are easily measured.
A)True
B)False
Q3) Quality is defined as the total features and characteristics of a product or a service made or performed according to specifications to satisfy customers at the time of purchase and during use.
A)True
B)False
Q4) What is the cycle time for an order?
A)1 minutes per tool
B)1.5 minutes per tool
C)2.5 minutes per tool
D)3.5 minutes per tool
21
Q5) Discuss the methods used to identify quality problems.
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Chapter 20: Inventory Management, Just-In-Time, and Simplified Costing Methods
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Sample Questions
Q1) The costs that result when a company holds an inventory of goods for sale:
A)purchasing costs
B)carrying costs
C)opportunity costs
D)interest costs
Q2) Increases in the carrying cost and decreases in the ordering cost per purchase order result in:
A)smaller EOQ amounts
B)larger EOQ amounts
C)larger relevant total costs
D)smaller relevant total costs
Q3) Lean accounting is a costing method that supports creating value for the customer by costing the entire value stream, NOT individual products or departments, thereby eliminating waste in the accounting process.
A)True
B)False
Q4) A financial benefit of a just-in-time system is that inventory carrying costs are reduced.
A)True
B)False
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Chapter 21: Capital Budgeting and Cost Analysis
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Sample Questions
Q1) Sam's Structures desires to buy a new crane and accessories to help move and install modular buildings. The machine sells for $75,000 and requires working capital of $10,000. Its estimated useful life is six years and it will have a salvage value of $17,560. Recovery of working capital will be $10,000 at the end of its useful life. Annual cash savings from the purchase of the machine will be $20,000.
Required:
a. Compute the net present value at a 12% required rate of return.
b. Compute the internal rate of return.
c. Determine the payback period of the investment.
Q2) Internal rate of return is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time.
A)True
B)False
Q3) In calculating the net initial investment cash flows, any increase in working capital required for the project should be included.
A)True
B)False
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23
Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational
Considerations
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Q1) An advantage of using budgeted costs for transfer pricing among divisions is that:
A)overall corporate profitability is usually higher
B)it usually provides a basis for optimal decision making
C)the divisions know the transfer price in advance
D)it promotes subunit autonomy
Q2) Cost based transfer prices are the only price that a firm should use when transferring goods from one subunit to another subunit.
A)True
B)False
Q3) What is the transfer price per pair of shoes from the Sole Division to the Assembly Division per pair of soles if the transfer price per pair of soles is 125% of full costs?
A)$20
B)$25
C)$26
D)$30
Q4) Discuss the possible problems a corporation might have if its operations are totally decentralized.
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Chapter 23: Performance Measurement, Compensation, and Multinational Considerations
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Sample Questions
Q1) The "four levers" of control are diagnostic control systems, boundary systems, belief systems, and interactive control systems.
A)True
B)False
Q2) Designers of executive compensation plans emphasize which of the following factors?
A)achievement of organizational goals
B)administrative ease
C)the probability that the executives affected by the plan will perceive the plan as fair D)All of these answers are correct.
Q3) Using net book value as an investment base is consistent with the amount of total assets shown in the conventional balance sheet.
A)True
B)False
Q4) Investment turnover is calculated as revenue divided by investment.
A)True B)False
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