Cost Analysis and Control Final Exam Questions
Course Introduction
Cost Analysis and Control explores the methods and tools used to determine, analyze, and manage costs within organizations. The course covers fundamental concepts of cost behavior, cost allocation, budgeting, and variance analysis, equipping students with the skills to make informed financial decisions. Emphasis is placed on the strategic role of cost control techniques in planning, monitoring, and improving business operations. Students learn to apply various costing systems, such as job-order and process costing, and to use cost information to support managerial decision-making, enhance efficiency, and achieve organizational objectives.
Recommended Textbook Cornerstones of Cost Management 2nd Edition by Don R. Hansen
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Chapter 1: Introduction to Cost Management
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Sample Questions
Q1) Inspecting units produced to determine if they meet specifications is an example of A) planning.
B) control.
C) decision making.
D) both a and c.
Answer: B
Q2) Currently, the activity found LEAST often within the controller's department is A) updating the general ledger.
B) budget preparation.
C) maintaining accounts receivable records.
D) establishing and maintaining a market for the organization's debt and equity securities.
Answer: D
Q3) For each certification, all an applicant has to do is meet specific educational and experience requirements.
A)True
B)False
Answer: False
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Chapter 2: Basic Cost Management Concepts
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Q1) Which of the following is NOT an example of a difference between the income statement of a service organization and the income statement of a manufacturing organization?
A) A service company will never have work in process.
B) The service company will not have a finished goods inventory.
C) Fulfillment costs may be added to cost of goods sold of a service company.
D) Research and development expenses are not usually a major component of a service organization.
Answer: A
Q2) __________ means the consumer cannot see, hear, feel, or taste a service before it is bought.
Answer: Intangibility
Q3) The accounting information subsystem that is primarily concerned with producing outputs for external users is called:
A) cost management information system
B) computer system
C) internal accounting system
D) financial accounting information system
Answer: D
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Page 4
Chapter 3: Cost Behavior
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Q1) Weaknesses of the high-low method include all of the following EXCEPT
A) only two observations are used to develop the cost function.
B) the high and low activity levels may not be representative.
C) the method does not detect if the cost behavior is nonlinear.
D) the method is relatively complex and difficult to apply.
Answer: D
Q2) What does a correlation coefficient near -1 mean?
A) Two variables are moving in the opposite direction.
B) Two variables are moving in the same direction.
C) Two variables are unrelated.
D) One variable is not a good predictor of the other.
Answer: A
Q3) Which of the following is an example of a committed fixed expense?
A) depreciation on a factory building
B) supervisor's salary
C) direct labor
D) insurance on a building
Answer: A
Q4) __________ are costs incurred that provide long-term activity capacity.
Answer: Committed resources
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Chapter 4: Activity-Based Costing
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Q1) Maintenance of the production equipment would be classified as a A) unit-level activity.
B) product-level activity.
C) cell-level activity.
D) facility-level activity.
Q2) The grouping of logically related information is called:
A) activity driver
B) data set
C) cost objective
D) both a and c
Q3) Activity __________ helps management achieve objectives such as product or customer costing and continuous improvement.
Q4) If activity-based costing is used, materials handling would be classified as a A) unit-level activity.
B) batch-level activity.
C) product-level activity.
D) facility-level activity.
Q5) The use of __________ activity drivers to assign costs tends to __________ high-volume products. or
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Chapter 5: Product and Service Costing: Job-Order System
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Sample Questions
Q1) In a traditional enterprise, the flow of costs through the system is
A) materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold.
B) materials inventory, work-in-process inventory, cost of goods sold, finished goods inventory.
C) work-in-process inventory, materials inventory, finished goods inventory, cost of goods sold.
D) work-in-process inventory, materials inventory, finished goods.
Q2) Manufacturers producing unique or customized products would employ a(n)
A) process costing system.
B) job-costing system.
C) homogeneous costing system.
D) all of the above.
Q3) The maximum output that can be realized if everything operates efficiently is referred to as:
A) Expected activity level
B) Normal activity level
C) Theoretical activity level
D) Practical activity level
Q4) __________ is the recognition and recording of costs.
Page 7
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Chapter 6: Process Costing
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Sample Questions
Q1) The costs included in the cost per equivalent unit using the weighted average method are
A) current costs.
B) beginning work in process.
C) ending work in process.
D) both a and b.
Q2) In process costing, costs are accounted for by A) job.
B) batch.
C) process.
D) year.
Q3) For beginning work-in-process category using FIFO, the manufacturing cost is the sum of the current-period __________ and the current __________ to complete the BWIP.
Q4) The appropriate cost accounting system to use when inventory items are produced on an assembly line is A) weighted average.
B) job-order costing.
C) process costing.
D) perpetual method.
Page 8
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Chapter 7: Allocating Costs of Support Departments and Joint Products
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Q1) Fixed support department costs should be allocated based on
A) current actual usage of service.
B) current budgeted usage of service.
C) practical capacity of user departments.
D) all of the above.
Q2) Which of the following would be the most appropriate base for allocating the costs of the maintenance department?
A) machine hours
B) direct labor hours
C) number of employees
D) square feet
Q3) The __________ charging rate combines variable and fixed costs of support departments.
Q4) What is the most likely action to be taken by a company when a support department is NOT as cost effective as an outside source?
A) The company may force managers to use the internal support department.
B) The company may force managers to use an external source for the service.
C) The company may elect not to supply the service internally.
D) all of the above
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Chapter 8: Budgeting for Planning and Control Key
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Q1) Colorado Corporation has the following sales forecast for the next quarter: July, 4,000 units; August, 4,800 units; September, 5,600 units
Sales totaled 3,200 units in June. The June ending finished goods inventory was 800 units. End-of-month finished goods inventory levels are planned to be equal to 30 percent of the next month's planned sales. Records showed that each unit is budgeted at 2 pounds of materials costing $3 per pound. Direct labor was budgeted at .5 direct labor hours per unit at a wage of $20 per hour. Budgeted variable overhead is $1.50 per direct labor hour. Fixed overhead is budgeted at $250,000 for the year, and 50,000 units are expected to be produced.
The beginning finished inventory is valued at $31,320.
After preparing a finished goods inventory budget for August, what is the cost of goods sold for August?
A) $104,400
B) $109,620
C) $67,860
D) $140,940
Q2) A static budget is one developed for a single level of activity.
A)True
B)False
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Page 10
Chapter 9: Standard Costing: a Functional-Based Control Approach
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Q1) In setting price standards, the purchasing manager must consider A) freight.
B) quality.
C) discounts.
D) all of these.
Q2) __________ standards are the standards used for continuous improvement.
Q3) Standard costing is used in process industries because it's more difficult to utilize.
A)True
B)False
Q4) The formula for the fixed overhead spending variance is:
A) Standard fixed overhead rate ´ Standard Hours
B) AFOH - BFOH
C) Applied fixed overhead - budgeted fixed overhead
D) (AH - SH) ´ SVOR
Q5) Developing standards for input prices and quantities allows for a more detailed understanding of flexible budget variances.
A)True
B)False
Q6) Compare and contrast mix and yield variances.
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Chapter 10: Decentralization:
Responsibility Accounting, Performance Evaluation, and Transfer Pricing
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Q1) The minimum transfer price is the absolute maximum price that can be accepted. A)True
B)False
Q2) __________ managers can make better decisions using __________ information.
Q3) Lowellson Company had sales of $200,000, net income of $10,000, and an asset base of $300,000. Its margin is A) 66.7%.
B) 5.0%.
C) 3.3%.
D) 150.0%.
Q4) The delegation of decision-making authority to successively lower management levels is called __________ .
Q5) A type of fringe benefit received over and above salary is(are) called:
A) Bonus based on net income
B) Cash compensation
C) Perquisites
D) EVA
Q7) __________ are a noncash benefit received over and above salary. Page 12
Q6) Investments are not controlled by managers of a __________ center.
Q8) How are accountability, information, and responsibility, related?
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Chapter 11: Strategic Cost Management
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Q1) Value-chain analysis is identifying and exploiting internal and external linkages to achieve strong strategic positions.
A)True
B)False
Q2) Strategic cost management is the identification of strategies to develop a competitive advantage.
A)True
B)False
Q3) Which of the following is NOT a trait of a traditional manufacturing system?
A) push-through system
B) short-term supplier contracts
C) value-added focus
D) total quality control
Q4) Which of the following is NOT a stage of the consumable life-cycle viewpoint?
A) disposal
B) maintaining
C) logistics
D) purchasing
Q5) The creation of customer value for same or lower cost than competitors is called __________ advantage.
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Chapter 12: Activity-Based Management
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Q1) Which of the following is a reason for managerial activity to be considered a value-added activity?
A) It is an enabling resource for operational activities that bring about a change of state.
B) Managing activities brings order by changing the state from uncoordinated activities to coordinated activities.
C) Both are reasons for classifying managerial activities as value-added activity.
D) Neither is a reason for classifying managerial activities as value-added activity.
Q2) Describe how the activity-based management model combines the process and costing views. What are the steps involved in each? What are the objectives of the activity-based management system?
Q3) Financial measures of performance focus on the dollar effect of activity performance changes.
A)True
B)False
Q4) The process of improving performance and constantly eliminating waste is known as __________ .
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Chapter 13: The Balanced Scorecard: Strategic-Based Control
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Q1) Strategic-based performance measures are balanced measures. Give examples of four types of balanced measures.
Q2) For purposes of strategic alignment, incentive compensation should be based upon A) expected performance of weighted targets for a given period.
B) expected financial performance of the company.
C) actual performance compared to weighted target values for a given period.
D) actual financial performance of the company.
Q3) The critical performance measures of the Balanced Scorecard have some special properties. Which of the following is NOT one of those properties?
A) scorecard measures are linked by cause-and-effect relationships
B) performance measures are derived from strategy
C) benchmarking plays a critical role
D) performance measures should be balanced between outcome and lead measures
Q4) Activity-based responsibility accounting adds which of the following to the financial-based responsibility accounting perspective?
A) consumer perspective
B) functional perspective
C) process perspective
D) learning perspective
Page 16
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Chapter 14: Quality and Environmental Cost Management
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Questions
Q1) The lowest environmental costs are attainable at the __________ point.
Q2) In a quality cost report, quality costs are grouped into categories and then each category of quality costs is expressed as a percentage of
A) total quality costs.
B) total costs.
C) total sales.
D) total defective units.
Q3) In activity-based management, which quality cost would NOT be considered value-added?
A) recruiting
B) quality circles
C) supplier certification
D) inspection of materials
Q4) Quality experts maintain that total quality costs should NOT exceed
A) 2 to 4 percent of sales.
B) 2 to 4 percent of total costs.
C) 2 to 4 percent of profit.
D) profit.
Q5) Environmental cost redesign would not be a part of an __________ report.
Q6) Costs which exist because poor quality may or does exits are called __________ .
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Chapter 15: Lean Accounting and Productivity Measurement
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Q1) Emphasis on departmental efficiency
A) causes bottleneck departments to over-produce and build work-in-process inventories.
B) causes stock outs related to demand-pull systems.
C) is a critical component of a lean accounting system.
D) none of the above.
Q2) The quantitative assessment of productivity changes is called __________ measurement.
Q3) What approach is normally used to calculate product costs when products in a value stream are heterogeneous?
A) variable costing
B) features and characteristics costing
C) absorption costing
D) functional costing
Q4) The order fulfillment value stream focuses on
A) developing new products for new customers.
B) providing current products to current customers.
C) providing current products to new customers and new products to new customers.
D) the production, sale, and delivery of products.
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Chapter 16: Cost-Volume-Profit Analysis
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Q1) The operating leverage shows how far the company's actual sales or units are from the break-even point.
A)True
B)False
Q2) Which of the following statements is TRUE in a cost-volume-profit graph?
A) The slope of the total cost line is dependent on the variable cost per unit.
B) The total cost line normally begins at zero.
C) The total revenue line typically begins above zero.
D) The slope of the total revenue line is the contribution margin per unit.
Q3) Nonesuch Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales. What is the sales dollars level required to break even at the old price of $7.50?
A) $50,000
B) $12,000
C) $18,000
D) $75,000
Q4) Target after-tax profit must be converted into __________ profit to calculate units or revenue needed.
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Chapter 17: Activity Resource Usage Model and Tactical
Decision
Making
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Q1) Noreaster Company produces a product that has a regular selling price of $360 per unit. At a typical monthly production volume of 2,000 units, the product's average unit cost of goods sold amounts to $270. Included in this average is $120,000 of fixed manufacturing costs. All selling and administrative costs are fixed and amount to $30,000 per month. Noreaster Company has just received a special order for 1,000 units at $240 per unit. The buyer will pay transportation, and the regular selling price will not be affected if Noreaster accepts the order.
Assuming Noreaster Company has excess capacity, the effect on profits of accepting the order would be a
A) $30,000 increase.
B) $30,000 decrease
C) $60,000 increase.
D) $60,000 decrease..
Q2) The cost of acquiring activity capacity is called __________ spending.
Q3) Which of the following items would be classified as flexible resources?
A) salaried employees
B) depreciation on building
C) fuel to generate electricity internally
D) lease on machinery
Page 20
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Chapter 18: Pricing and Profitability Analysis
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Q1) Scottish Company manufactures a variety of toys and games. John Chisholm, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in 2014 when 30,000 were projected. Sales for 2015 look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed. What is the profit (loss) from Option Three?
A) $110,000
B) $1,200,000
C) $215,000
D) ($60,000)
Q2) The sales price variance is created by a difference between:
A) actual and standard contribution margin.
B) actual and expected sales price.
C) expected and standard net income.
D) actual and expected sales volume.
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Chapter 19: Capital Investment
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Q1) Laramie Corporation is considering an investment in equipment for $20,000. Laramie uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 40 percent, and the life of the equipment is five years with no salvage value. The expected income before depreciation and taxes is projected to be $10,000 per year. The cost of capital is 20 percent. What is the net present value of the investment?
A) $(1,366)
B) $2,732
C) $22,991
D) $22,000
Q2) Accelerated methods of __________ are preferred because of the tax benefits created.
Q3) The present value of $4,000 to be received each year for three years and earning a 10 percent return (rounded) is
A) $11,120.
B) $9,948.
C) $9,822.
D) $9,200.
Q4) NVP measures the __________ in a firm's wealth caused by a project.
Q5) Mutually exclusive projects do not affect the __________ of other projects.
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Chapter 20: Inventory Management: Economic Order
Quantity, Jit, and the Theory of Constraints
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Q1) One of the traditional reasons for holding finished goods inventories is to ensure a firm's ability to meet delivery dates. The JIT solution is to
A) reduce setup costs.
B) reduce lead time.
C) use total preventive maintenance.
D) use total quality control.
Q2) Which of the following elements could be determined by using the economic order quantity formula?
A) the optimum size of production run
B) reorder point
C) safety stock
D) annual demand
Q3) The focus on the goal of making money now and in the future by managing constraints is called the __________ .
Q4) The economic order quantity is the order quantity that results in
A) the minimum total annual inventory costs.
B) the maximum total annual inventory costs.
C) no inventory shortages.
D) minimum ordering costs.
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