Cost Accounting
Textbook Exam Questions
Course Introduction
Cost Accounting provides students with an in-depth understanding of the methods and techniques used to determine, record, and analyze the costs associated with producing goods and services. The course covers key topics such as cost behavior, cost allocation, budgeting, standard costing, variance analysis, job and process costing, and activity-based costing. Emphasis is placed on how accurate costing contributes to strategic planning, operational efficiency, performance evaluation, and informed decision-making within organizations. Through real-world case studies and practical exercises, students gain the skills necessary to effectively manage costs and improve overall financial performance in a business setting.
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Managerial Accounting 2nd Edition by Ronald Hilton
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Chapter 1: The Changing Role of Managerial Accounting
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Q1) Which of the following is not an ethical standard of managerial accounting?
A)Competence.
B)Confidentiality.
C)Efficiency.
D)Integrity.
E)Credibility.
Answer: C
Q2) Which of the following can be linked to a wave of corporate scandals that took place in the recent past?
A)Greedy corporate executives.
B)Managers who made over-reaching business deals.
C)Lack of oversight by companies' audit committees and boards of directors.
D)Shoddy work by external auditors.
E)All the answers are correct.
Answer: E
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Chapter 2: Basic Cost Management Concepts
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Q1) Which of the following entities would most likely have raw materials, work in process, and finished goods?
A)Ultramar Corporation.
B)Leon's Furniture Store.
C)Harvey's.
D)West Jet Airlines.
E)Memorial University.
Answer: A
Q2) The salary that is sacrificed by a college student who pursues a degree full time is a(n):
A)sunk cost.
B)out-of-pocket cost.
C)opportunity cost.
D)differential cost.
E)marginal cost.
Answer: C
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Chapter 3: Product Costing and Cost Accumulation
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Q1) Which of the following is the correct method to calculate a predetermined overhead rate?
A)Budgeted total manufacturing cost ÷ Budgeted amount of cost driver.
B)Budgeted manufacturing overhead cost ÷ Budgeted amount of cost driver.
C)Budgeted amount of cost driver ÷ Budgeted overhead cost.
D)Actual overhead cost ÷ Budgeted amount of cost driver.
E)Actual overhead cost ÷ Actual amount of cost driver.
Answer: B
Q2) If the amount of effort and attention to products varies substantially throughout a company's various manufacturing operations, the company might consider the use of:
A)a plantwide overhead rate.
B)departmental overhead rates.
C)actual overhead rates instead of predetermined overhead rates.
D)direct labour hours to determine the overhead rate.
E)machine hours to determine the overhead rate.
Answer: B
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Chapter 4: Process Costing and Hybrid Product-Costing Systems
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Q1) Maybe Garments Inc. manufactures a variety of fabrics. All materials are introduced at the beginning of production; conversion costs are incurred evenly throughout the manufacturing process. The Weaving Department had 1,000 units of work in process on November 1 that were 60% complete as to conversion costs. During November, 11,000 units were completed and on November 30, 5,000 units remained in production, 20% complete with respect to conversion costs. Calculate the equivalent units of direct materials for November total.
A)11,000.
B)16,000.
C)16,600.
D)17,000.
E)17,600.
Q2) Unit costs in a process-costing system are derived by using:
A)in-process units.
B)completed units.
C)physical units.
D)equivalent units.
E)a measure of activity other than those listed above.
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Chapter 5: Activity-Based Costing and Management
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Q1) X-Ray Machines Ltd. manufactures three product lines: Standard, Deluxe, and Superior. The company, which uses activity-based costing, has identified five activities (and related cost drivers). Each activity, its budgeted cost, and related cost driver is identified below. The following information pertains to the three product lines for next year: \(\begin{array}{|l|r|r|r|}
\hline & \text { Standard } & \text { Deluxe } & \text { Supe rior } \\
\hline \text { Units to be produced } & 15,000 & 10,000 & 7,000 \\
\hline \text { Orders to be shipped } & 1,000 & 500 & 500 \\
\hline \text { Number of parts per unit } & 10 & 15 & 25 \\
\hline \text { Machine hours per unit } & 3 & 5 & 7 \\
\hline \text { Labour hours per unit } & 2 & 2 & 2 \\
\hline
\end{array}\) Under an activity-based costing system, what is the per-unit cost of Standard?
A)$73.88.
B)$96.88.
C)$157.88.
D)$160.88.
E)165.88.
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Chapter 6: Activity Analysis, Cost Behaviour, and Cost
Estimation
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Q1) Which of the following costs changes in total in direct proportion to a change in the activity level?
A)Variable cost.
B)Fixed cost.
C)Semi-variable cost.
D)Step-variable cost.
E)Step-fixed cost.
Q2) Song Inc., uses the high-low method to analyze cost behaviour. The company observed that at 22,000 machine hours of activity, total maintenance costs averaged $33.40 per hour. When activity jumped to 25,000 machine hours, which is still within the relevant range, the total maintenance costs averaged $30.40 per machine hour. On the basis of this information, the variable cost per machine hour is:
A)$8.40.
B)$22.00.
C)$25.00.
D)$30.40.
E)$33.40.
Q3) Define the term "relevant range" and explain its importance in understanding cost behaviour.
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Chapter 7: Cost-Volume-Profit Analysis, Absorption and Variable Costing
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Q1) At a volume level of 500,000 units, Sullivan reported the following information: sales price $60; variable cost per unit $20; fixed cost per unit $20. Sullivan's contribution margin ratio is:
A)0.33.
B)0.40.
C)0.50.
D)0.67.
E)0.83.
Q2) Contemporary Corp. sells a single product for $80. Variable costs are 40%% of the selling price, and the company has fixed costs that amount to $500,000. Current sales total 18,000 units. Each unit that Contemporary sells will:
A)contribute to overall profitability by $20.
B)contribute to overall profitability by $32.
C)contribute to overall profitability by $48.
D)contribute to overall profitability by $28.
E)contribute to overall profitability by some other amount.
Q3) Discuss a company's choice to use either absorption or variable costing is as their costing system for internal decision making. Why do many firms maintain accounting records under both systems?
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Chapter 8: Profit Planning and Activity-Based Budgeting
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Q1) Andrews McNeel Inc. plans to sell 200,000 units of finished product in July 2012. Management anticipates a growth rate in sales of 3% per month thereafter and desires a monthly ending finished-goods inventory (in units) of 60% of the following month's estimated sales. There are 200,000 completed units in the June 30, 2012 inventory. Each unit of finished product requires three pounds of direct material at a cost of $2.50 per pound. There are 600,000 pounds of direct material in inventory on June 30, 2012.
Required:
A. Prepare a production budget for the quarter ended September 30, 2012. Note: For both part "A" and part "B" of this problem, prepare your budget on a quarterly (not monthly) basis.
B. Independent of your answer to part "A," assume that Andrews McNeel plans to produce 200,000 units of finished product for the quarter ended September 30. If the firm desires to stock direct materials at the end of this period equal to 20% of current production usage, compute the cost of direct material purchases for the quarter.
Q2) Sushi House has budgeted sales revenues for 2012 as follows:
Q3) Discuss the importance of budgeting and identify five purposes of budgeting systems.
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Chapter 9: Standard Costing and Flexible Budgeting
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Q1) Which of the following variances would be useful to help control overhead spending?
A)Variable-Overhead Spending Variance, Fixed-Overhead Budget Variance, and Fixed-Overhead Volume Variance.
B)Variable-Overhead Spending Variance, and Fixed-Overhead Budget Variance.
C)Variable-Overhead Spending Variance.
D)Variable-Overhead Spending Variance, and Fixed-Overhead Volume Variance.
E)Fixed-Overhead Budget Variance.
Q2) Which of the following should have the strongest cause and effect relationship with overhead costs?
A)Cost followers.
B)Non-value-added costs.
C)Cost drivers.
D)Value-added costs.
E)Units of output.
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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Q1) Clean-up costs are commonly classified as:
A)monitoring costs.
B)abatement costs.
C)remediation costs.
D)internal failure costs.
E)external failure costs.
Q2) Which of the following perspectives is normally absent in a balanced scorecard?
A)External operations and processes.
B)Learning and growth.
C)Internal operations and processes.
D)Customer satisfaction.
E)Financial performance.
Q3) Which of the following is a danger in Process Re-engineering?
A)Non-value-added activities may be eliminated.
B)Additional non-value activities may be added
C)Employee morale may suffer.
D)Some resources may no longer be required.
E)New creative ways are found to accomplish an objective.
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Chapter 11: Responsibility Accounting, Investment Centres, and Transfer Pricing
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Q1) Midland Division, which is part of Courtyard Enterprises, recently reported a sales margin of 30%, ROI of 21%, and residual income of $220,000. Courtyard uses an imputed interest rate of 10%.
Required:
A. Briefly define sales margin, capital turnover, and return on investment.
B. Compute Midland's capital turnover and invested capital.
C. Ignoring your work in requirement "B," assume that invested capital amounted to $2,500,000. On the basis of this information, calculate income and sales revenue.
Q2) 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.
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Chapter 12: Decision Making: Relevant Costs and Benefits
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Q1) A technique that is useful in exploring what would happen if a key decision prediction or assumption proved wrong is termed:
A)sensitivity analysis.
B)uncertainty analysis.
C)project analysis.
D)linear programming.
E)the theory of constraints.
Q2) Worldwide Enterprises has been approached about providing a new service to its clients. The company will bill clients at the rate of $150 per hour; the related hourly variable and fixed operating costs will be $65 and $28, respectively. If all employees are currently working at full capacity on other client matters, the per-hour opportunity cost of being unable to provide this new service is:
A)$0.
B)$57.
C)$85.
D)$93.
E)$150.
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Chapter 13: Target Costing and Cost Analysis for Pricing Decisions
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Q1) Which of the following cost-reduction and process-improvement techniques is often used in conjunction with target costing?
A)Linear programming.
B)Deterministic simulations.
C)Cost allocation.
D)Budgetary padding.
E)Value engineering.
Q2) The following costs relate to JB Contraction Company: Variable manufacturing cost, $20; variable selling and administrative cost, $11; applied fixed manufacturing overhead, $12; and allocated fixed selling and administrative cost, $3. If JB uses absorption manufacturing-cost pricing formulas, the company's markup percentage would be computed on the basis of:
A)$15.
B)$20.
C)$31.
D)$32.
E)$46.
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Chapter 14: Capital Expenditure Decisions
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Q1) Lorax Corporation is considering the acquisition of a new machine that is expected to produce annual savings in cash operating costs of $30,000 before income taxes. The machine costs $100,000, has a useful life of five years, and no salvage value. Lorax uses straight-line depreciation on all assets, is subject to a 30% income tax rate, and has an after-tax hurdle rate of 8%.
Required:
A. Compute the machine's payback period.
B. Compute the machine's accounting rate of return on the initial investment.
C. Compute the machine's net present value.
Q2) Union Jack Company is considering the purchase of equipment that costs $60,000 and promises to reduce annual cash operating costs by $10,000 over each of the next five years. Which of the following is a proper way to evaluate this investment if the company desires a 10% return on all investments?
A)$60,000 vs. $10,000 x 5.
B)$60,000 vs. $60,000 x 0.621.
C)$60,000 vs. $60,000 x 3.791.
D)$60,000 vs. $10,000 x 3.791.
E)$60,000 x 0.909 vs. $10,000 x 3.791.
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Chapter 15: Allocation of Support Activity Costs and Joint Costs
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Q1) Companies are free to use the direct, step-down, and reciprocal allocation methods when dealing with service-department costs.
Required:
A. How does the direct method work? What is its chief limitation?
B. Is the step-down method an improvement over the direct method? Explain.
C. Which of the three methods is the most correct from a conceptual viewpoint? Why?
Q2) Which of the following methods ignores the fact that some service departments provide service to other service departments?
A)Direct method.
B)Indirect method.
C)Step-down method.
D)Reciprocal method.
E)Dual-cost allocation method.
Q3) Many companies use the dual-cost method of cost allocation.
Required:
A. How does the dual-cost method work?
B. Is there any advantage of the dual-cost method over a method that uses a combined, lump-sum single rate? Briefly explain.
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