Cost Accounting
Textbook Exam Questions
Course Introduction
Cost Accounting provides an in-depth understanding of the principles, techniques, and applications of cost measurement and analysis within organizations. The course covers key topics such as cost behavior, cost allocation methods, job and process costing, budgeting, standard costing, and variance analysis. Students will learn how to use cost information for planning, control, and decision-making to improve operational efficiency and profitability. Emphasis is placed on practical applications, including the preparation and interpretation of cost reports, and the role of cost accounting in supporting strategic management objectives.
Recommended Textbook
Managerial Accounting 2nd Edition by Charles E. Davis
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Page 2
Chapter 1: Accounting As a Tool for Management
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Sample Questions
Q1) Two ways to develop a competitive advantage is through product differentiation and low-cost production.List three examples of managerial accounting information a company might need to monitor each of these strategies.
Answer: Answers will vary.Common examples may include the following.
\(\begin{array}{ll}
\textbf{ Product Differentiation } & \textbf{ Low-Cost Production } \\
~\text { Defect rates } & ~\text { Product process } \\
~\text { Percentage of on-time deliveries } & ~\text { Product quality } \\
~\text { Customer satisfaction } &~ \text { Product cost } \\
~\text { Competitor actions } & ~\text { Competitor actions } \\
~\text { Product } & \end{array}\)
Q2) When using just-in-time inventory management,a company puts good into production
A)In anticipation of customer orders.
B)When inventory levels drop below specified levels.
C)When customer orders are received and goods are received.
D)When the warehouse has enough space to accommodate additional inventory.
Answer: C
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Page 3
Chapter 2: Cost Behavior and Cost Estimation Summary of
Questions by Objectives and Blooms Taxonomy
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Sample Questions
Q1) Contribution margin = Sales revenue - Total variable costs.
A)True
B)False Answer: True
Q2) An example of a committed fixed cost is when a company signs a 10-year lease on an office building.
A)True
B)False Answer: True
Q3) If activity level decreases,what happens to the total fixed cost?
A)It remains the same.
B)It decreases.
C)It increases.
D)It depends on how much the activity level increases. Answer: A
Q4) Contribution margin is the amount of revenue that remains to cover fixed costs and provide a profit.
A)True
B)False Answer: True
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Chapter 3: Cost-Volume-Profit Analysis and Pricing
Decisions
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Sample Questions
Q1) Assume a sales volume of 6,000 units, unit selling price of $20, unit variable cost of $12, and total fixed costs of $20,000. What is the margin of safety in sales dollars?
A)$25,000
B)$50,000
C)$70,000
D)$120,000
Answer: C
Q2) Which of the following is \(\textbf{ not }\) an assumption about the data when using CVP analysis?
A)All costs can be easily and accurately separated into fixed and variable components.
B)Total fixed costs remain at a constant level and variable costs per
C)A linear relationship exists between variable costs and sales activity over the relevant range of interest.
D)Inventory is sold in the period following purchase or manufacture.
Answer: D
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5
Chapter 4: Product Costs and Job Order Costing
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Sample Questions
Q1) Which of the following is \(\textbf{ not }\) classified as a variable period cost?
A)Sales commissions
B)Packaging for delivery
C)Depreciation on delivery trucks
D)All of these ans choices are variable period costs.
Q2) Your friend who has had the first accounting course understands the items that appear on the balance sheet and income statement.However,when you told her your homework involved preparing a Schedule of Cost of Goods Manufactured she was confused and ask if that was the cost of goods sold that appears on the income statement.Explain to your friend the purpose of the Schedule of Cost of Goods Manufactured,how it is prepared,and its relationship to the balance sheet and income statement.
Q3) At the end of the accounting period after adjusting journal entries have been made,the manufacturing Overhead Control account is generally
A)Overapplied.
B)Underapplied.
C)Zero.
D)None of these ans choices are correct.
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Chapter 5: Planning and Forecasting
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Sample Questions
Q1) Morgan Manufacturing is preparing its cash budget for the second quarter.The inventory manager has provided the following amounts budgeted for materials purchases
\[\begin{array} { | l | r | }
\hline \text { April } & \$ 62,880 \\
\hline \text { May } & 44,960 \\
\hline \text { June } & 47,360 \\
\hline
\end{array}\] The controller reports that Morgan pays for 20% of its purchases in the month of purchase,60% in the month following purchase,and 20% in the second month after purchase.What are Morgan's budgeted cash payments for purchases in June?
A) $39,552
B) $49,022
C) $89,912
D) $9,472
Q2) Simple Styles is a dress manufacturer.The company purchases fabric with a list price of $200 per bolt and pays shipping charges of $3 per bolt.Each bolt contains 100 yards of fabric.Simply Styles receives a volume discount of 15% per bolt.Each dress uses a standard quantity of 2 yards of fabric.
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Page 7
Chapter 6: Performance Evaluation: Variance Analysis
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Sample Questions
Q1) Adler Industries uses a standard cost system in which direct material is carried at standard cost. Adler has established the following standards: standard quantity of 8 pounds per unit, standard price $1.80 per pound. During January, Adler purchased 160,000 pounds of direct material at a cost of $304,000 and used 142,500 pounds in production of 18,700 units.
Required:
Calculate the direct materials quantity variance and indicate whether the variance is favorable or unfavorable.
Q2) R&N Sports has budgeted $57,000 for fixed overhead for the period. This budget was based on the following items: depreciation of $24,000, rent of $4,000, executive salaries of $27,000 and other fixed costs of $2,000. Actual overhead incurred is $52,000. Production was budgeted at 8,000 units while actual production is 8,100.
Required:
Calculate the fixed overhead spending variance.
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Chapter 7: Activity-Based Costing and Activity Based Management
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Sample Questions
Q1) Place an "X" in the column that corresponds to the type of activity level referred to in the following hospital setting.
\[\begin{array} { | l | l | l | l | l | l | }
\hline & \textbf { Unit } & \textbf { Batch } & \textbf { Protuct } & \textbf { Customer } &
\textbf { Organizational } \\
\hline \text { Film in a radiology exam } & & & & & \\
\hline \text { Salary of radiologists } & & & & & \\
\hline \text { Patient billing based on patient days } & & & & & \\
\hline \text { TV advertising for hospital heart center } & & & & & \\
\hline \text { Cost of lawn service } & & & & & \\
\hline
\end{array}\]
Q2) In an activity-based costing system,which of the following is \(\textbf{ not }\) a category in which activities are classified?
A)Variable-level
B)Batch-level
C)Product-level
D)Organization-level
Q3) What is an activity cost pool and how are activity cost pool rates calculated?
Page 9
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Chapter 8: Using Accounting Information to Make Managerial Decisions
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Sample Questions
Q1) The Robinson-Patman Act of 1936 prohibits companies from engaging in price discrimination - that is,offering the same item to different customers at different prices.
A)True
B)False
Q2) Which of the following would \(\textbf{ not }\) be a relevant cost in a special order of expensive clocks?
A)Direct materials
B)Direct labor
C)Variable overhead
D)Fixed overhead
Q3) Sometimes companies will accept new business at a loss with the expectation that certain customers can influence other potential customers.
A)True
B)False
Q4) A type of analysis that helps decision makers understand the impact of their choices is referred to as incremental analysis.
A)True
B)False
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Chapter 9: Capital Budgeting
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Sample Questions
Q1) In calculating the net present value of a project,the appropriate discount rate should be similar across companies.
A)True
B)False
Q2) Betty's Bakery needs to purchase a new oven costing $8,000 to replace her old oven that cannot be repaired.The new oven has several features that the old oven did not have and is expected to have a useful life of 12 years.Betty does not expect the oven will have any salvage value at the end of its life.
a.If Betty's required rate of return is 8%,what level of annual cash savings must the oven generate to be considered an acceptable investment under the net present value method?
b.If Betty decides the cash savings will not be sufficient to justify the cost of the new oven,list two alternatives she might consider.
Q3) The accounting rate of return is also known as the
A)Internal rate of return.
B)Unadjusted rate of return.
C)Return on investment.
D)None of these ans choices are correct.
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Chapter 10: Decentralizing and Performance Evaluation
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Sample Questions
Q1) The goal of the cost center manager is to minimize total costs and to maximize profit.
A)True
B)False
Q2) Which of the following items would \(\textbf{ not}\) appear on a segment margin income statement?
A)Direct material
B)Traceable fixed costs
C)Selling expense
D)Common fixed costs
Q3) The formula for calculating ROI is
A)Segment margin divided by internal rate of return.
B)Internal rate of return divided by average operating assets.
C)Operating income divided by average operating assets.
D)None of these ans choices are correct.
Q4) In calculating EVA,invested capital is the company's total assets minus its total liabilities.
A)True
B)False
Q5) What is EVA and how is it calculated?
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Chapter 11: Performance Evaluation Revisited: a Balanced Approach
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Sample Questions
Q1) Manufacturing cycle efficiency is calculated as
A)Value-added processing time divided by non-valued added processing time.
B)Non-value-added processing time divided by total manufacturing cycle time.
C)Value-added processing time divided by total manufacturing cycle time.
D)Direct cost of manufacturing divided by total manufacturing cost.
Q2) Building a balanced scorecard involves
A)Clarifying strategies.
B)Translating strategies into operational objectives.
C)Selecting measures that provide evidence of objectives achievements.
D)All of these ans choices are correct.
Q3) The time between an order's placement and its shipment is referred to as the delivery cycle time.
A)True
B)False
Q4) Which of the following is \(\textbf{ not }\) an example of an employee-oriented nonfinancial measure?
A)Absenteeism
B)Labor productivity
C)Accidents per month
D)Employee empowerment
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) Another term for vertical analysis is
A)Common-size analysis.
B)Liquidity analysis.
C)Horizontal analysis.
D)Leverage analysis.
Q2) Utica Corporation reported the following financial information:
\[\begin{array} { l c c c } & \underline{2012} & \underline{2013} & \underline{2014} \\
\text { Cash } & \$ 30,000 & \$ 54,000 & \$ 10,000 \\
\text { Inventory } & \$ 80,000 & \$ 88,000 & \$ 94,000 \\ \text { Sales } & \$ 640,000 & \$ 580,000 & \$ 460,000 \end{array}\]
a.What is the trend percentage for cash in 2014 with 2012 as the base year?
b.What is the trend percentage for inventory in 2014 with 2012 as the base year?
Q3) In preparing a common-size income statement,you express all revenue and expense account as a percentage of
A)Net income.
B)Operating income.
C)Gross profit.
D)Net sales revenue.
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) The two approaches to presenting cash flows provided by operating activities in the statement of cash flows are the internal approach and the external approach.
A)True
B)False
Q2) Using the direct method of preparing the statement of cash flows,which of the following is not an activity generating operating cash flows?
A)Issuance of debt
B)Payments to suppliers
C)Payments for income taxes
D)Payments for operating expenses
Q3) On the cash flow statement,the gain on the sale of a delivery truck is an investing activity.
A)True
B)False
Q4) One would expect a company's primary source of cash is from borrowing and investor contributions.
A)True
B)False
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Page 15
Chapter 14: Topic Focus: Process Costing
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Sample Questions
Q1) Which of the following costs are incurred in a process costing system?
A)Direct material
B)Direct labor
C)Manufacturing overhead
D)All of these ans choices are correct
Q2) At the end of January, Monroe Industries had completed 65,000 units and left 8,000 units in Work In process, 60% complete with respect to materials and 80% complete with respect to conversion. How many equivalent units will be used to determine the cost per equivalent unit for materials?
A) 66,600
B) 68,200
C) 69,800
D) 71,400
Q3) The objective of process costing is the same as job order costing: to assign all costs to specific jobs.
A)True
B)False
Q4) List three goods or services likely to use a process costing system and three that are likely to use a job order costing system.
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Chapter 15: Topic Focus Variable and Absorption Costing
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Sample Questions
Q1) To make predictions about costs and income,you must first separate costs by their behavior.
A)True
B)False
Q2) Variable costing is acceptable for which of the following purposes?
A)GAAP reporting
B)Internal reporting
C)Reporting to the IRS
D)All of these ans choices are correct
Q3) The difference between absorption and variable costing is the timing difference in the expensing of fixed overhead costs.
A)True
B)False
Q4) The matching principle states that
A)Expenses should be matched with specific jobs.
B)Expenses should be matched with revenues they generate.
C)Revenues should be recorded in the period in which the payment is received.
D)Expenses should be matched to assets which generated the expenses.
Q5) Describe the format for a variable costing income statement.
Q6) What managerial behavior does variable costing render ineffective?
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Chapter 16: Topic Focus Standard Costing Systems
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Sample Questions
Q1) Answer the following questions regarding costing systems.
a. What is the difference between a normal costing system and a standard costing system?
b. What adjustments are required at the end of each period for each?
c. What is an advantage of standard costing?
d. Are inventory and costs of goods sold accounts reported on financial statements at actual cost or standard cost?
Q2) An advantage of standard costing is that it gives visibility to the variances that arise in the production process.
A)True
B)False
Q3) Manufacturing Overhead is a temporary account that must have a zero balance at the end of the accounting period.
A)True
B)False
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18
Chapter 17: Topic Focus Customer Profitability
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Sample Questions
Q1) The measure that divides customer net profit by customer revenues is referred to as
A)Customer revenue margin
B)Times revenue earned per customer
C)Customer profit margin
D)Customer net profit
Q2) If the sales revenue a customer generates exceeds the cost of goods sold,the customer is considered
A)Profitable
B)Not profitable
C)A "best customer"
D)Cannot determine from the information given
Q3) Unprofitable customers should be
A)Dropped immediately.
B)Evaluated for implications that any action will have on the customer,other customers and the company.
C)Evaluated for implications that any action will have on the company only.
D)Required to reimburse the company for any losses
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