Cost Analysis and Control Final Exam Questions
Course Introduction
Cost Analysis and Control explores the principles and practices involved in identifying, measuring, evaluating, and managing costs within an organization. The course covers essential topics such as cost behavior, cost allocation methods, budgeting techniques, variance analysis, and standard costing. Students learn how to use cost information for decision-making, performance evaluation, and strategic planning, with a focus on both manufacturing and service environments. Through case studies and practical exercises, the course equips students with the analytical tools necessary to improve operational efficiency and support financial decision-making.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis 16th Edition by Srikant M. Datar
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Chapter 1: The Manager and Management Accounting
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Sample Questions
Q1) Financial accounting is concerned primarily with ________.
A) external reporting to investors, creditors, and government authorities
B) cost planning and cost controls
C) product design and marketing strategies
D) providing information for strategic and tactical decisions
Answer: A
Q2) Sustainability is a strategy to achieve long term ________.
A) cost reductions and efficiency objectives.
B) financial and quality goals.
C) financial, social, and environmental goals.
D) innovation and technology goals.
Answer: C
Q3) Increased global competition is placing pressure on companies to reduce costs.
A)True
B)False
Answer: True
Q4) Financial accounting information focuses on internal reporting.
A)True
B)False
Answer: False
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Chapter 2: An Introduction to Cost Terms and Purposes
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Q1) A common classification of costs is by business function. Which of the following classifications is not by business function?
A) cost object
B) research and development
C) distribution
D) production
Answer: A
Q2) Prime costs include ________.
A) direct materials and direct manufacturing labor costs
B) direct manufacturing labor and manufacturing overhead costs
C) direct materials and manufacturing overhead costs
D) only direct materials
Answer: A
Q3) Which of the following is not an inventoriable cost of a manufacturer?
A) Sales commissions paid to sales representatives who sell the products made by the manufacturer
B) Wages paid to assembly-line workers
C) Plant depreciation incurred
D) Property taxes on plant
Answer: A
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) If a company would like to increase its degree of operating leverage it should
A) increase its sales relative to its fixed costs
B) increase its sales relative to its variable costs
C) increase its variable costs relative to its fixed costs
D) increase its fixed costs relative to its variable costs
Answer: D
Q2) Assume the sales mix consists of three units of Product A and one unit of Product B. If the sales mix shifts to four units of Product A and one unit of Product B, then the weighted-average contribution margin will ________.
A) increase per unit
B) stay the same
C) decrease per unit
D) cannot be determined from this information
Answer: C
Q3) Contribution margin = Contribution margin percentage × Revenues (in dollars).
A)True
B)False
Answer: True
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Chapter 4: Job Costing
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Sample Questions
Q1) Which of the following companies will use a process costing system?
A) an oil refining company
B) a manufacturer of ships
C) a custom kitchen cabinet company
D) an advertising firm
Q2) The cost-allocation base is a systematic way to link an indirect cost or group of indirect costs to cost objects.
A)True
B)False
Q3) The approach often used when dealing with small amounts of underallocated or overallocated overhead is the ________.
A) adjusted allocation-rate approach
B) proration approach
C) write-off to cost of goods sold approach
D) adjusted write-off approach
Q4) A budgeted indirect-cost rate is computed for each cost pool using budgeted indirect costs and the budgeted quantity of the cost-allocation base.
A)True
B)False
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Q1) Managers should look for evidence of cause-and-effect when choosing a cost driver with the driver being the cause and the effect being the cost incurred.
A)True
B)False
Q2) ABC systems and department costing systems use totally different approaches towards indirect cost allocation and can never be used together.
A)True
B)False
Q3) In activity based costing systems, limiting cost-allocation bases to only units of output strengthens the cause-and-effect relationship between the cost-allocation base and the costs in a cost pool.
A)True
B)False
Q4) Which of the following has accelerated need for refined cost systems?
A) global monopolies
B) rising prices
C) intense competition
D) a shift toward increased direct costs
Page 7
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Chapter 6: Master Budget and Responsibility Accounting
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Questions
Q1) Distinguish between controllable and uncontrollable aspects of revenue and costs. Can a manager totally control all revenue and costs? Why or why not?
Q2) The revenues budget is prepared after all other operating budgets are prepared as it is at that point that the amount of projected expenses are known and so a target revenue can be calculated to cover those expenses and provide a target profit.
A)True
B)False
Q3) Kaizen budgeting involves ________.
A) large cost reductions
B) management directed improvements
C) continual small cost reductions
D) continual small revenue increases
Q4) Participation of employees in the budgeting process helps ________.
A) create greater commitment towards the budget
B) create demanding but achievable budget
C) decrease deviations from the budget
D) secure communication of sensitive information
Q5) Describe some of the drawbacks of using the operating budget as a control device.
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Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Sample Questions
Q1) Variances are used for evaluating performance and for motivating managers.
A)True
B)False
Q2) Which of the following statements is true of benchmarking?
A) It is a systematic approach of optimizing business processes.
B) It fails to help to improve organizational performance as benchmarking data does not provide insight into why costs or revenues differ across companies.
C) It is difficult to ensure that the benchmark numbers are comparable due to the existence of differences across companies.
D) It considers four major business aspects such as financial, customer, internal business processes, and learning and growth.
Q3) Which of the following statements is true about analyzing a single variance?
A) It should be overemphasized to take proper decision.
B) It should be evaluated in isolation from other variances.
C) It can lead to different other variances.
D) It should be used for quality evaluation.
Q4) What is benchmarking, and how is it useful to a company?
Q5) Describe the purpose of variance analysis.
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Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
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Sample Questions
Q1) Explain how service-sector companies can benefit from variance analysis.
Q2) An unfavorable production-volume variance indicates an overallocation of fixed overhead costs.
A)True
B)False
Q3) Explain two concerns when interpreting the production-volume variance as a measure of the economic cost of unused capacity.
Q4) Which of the following is the correct mathematical expression is used to calculate variable overhead efficiency variance?
A) (Actual rate ? Budgeted rate) × Budgeted quantity
B) (Actual quantity × Budgeted rate) - (Budgeted input quantity allowed for actual output × Budgeted rate)
C) (Actual quantity ÷ Budgeted rate) ? (Budgeted quantity ÷ Budgeted rate)
D) (Actual quantity ÷ Budgeted rate) × Budgeted quantity allowed for actual output
Q5) What are the two components of sales-volume variance? Explain why sales-volume variance could be helpful to managers.
Q6) List the four steps to develop budgeted variable overhead cost-allocation.
Page 10
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) The only real challenge in planning and controlling capacity costs is with the denominator as the numerator of a budgeted fixed manufacturing cost allocation rate is rarely the issue.
A)True
B)False
Q2) U.S. tax reporting requires end-of-period reconciliation between actual and applied indirect costs using the adjusted allocation-rate method or the proration method.
A)True
B)False
Q3) To reduce the undesirable incentives to build up inventories that absorption costing can create, a number of companies use variable costing for internal reporting.
A)True
B)False
Q4) Explain three methods under absorption costing that managers can use to improve operating income.
Q5) Should a company with high fixed costs and unused capacity raise selling prices to try to fully recoup its costs?
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) The major advantages of quantitative methods are that they are objective, so managers can use them to evaluate different cost drivers.
A)True
B)False
Q2) Which of the following statements shows a difference between simple regression and multiple regression?
A) Simple regression uses more than one dependent and independent variables, whereas multiple regression uses only one dependent and independent variable.
B) Simple regression uses only the independent variables, whereas multiple regression uses only dependent variables.
C) Simple regression uses only one dependent and one independent variable, whereas multiple regression uses one dependent and more than one independent variable.
D) Simple regression uses only one dependent variable and more than one independent variables, whereas multiple regression uses more than one dependent variable and only one independent variable.
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) To maximize profits, managers should produce more of the product with the greatest contribution margin per unit of the constraining resource.
A)True
B)False
Q2) Past costs are also called sunk costs because they are unavoidable and cannot be changed no matter what action is taken.
A)True
B)False
Q3) Qualitative factors are important in the decision-making process even though they cannot be measured numerically.
A)True
B)False
Q4) In the decision making of a one-time-only special order, it is assumed that accepting the special order is not expected to affect the selling price to other customers.
A)True
B)False
Q5) Why is the depreciation of an old equipment irrelevant to decision making?
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Chapter 12: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Sample Questions
Q1) Can a company identify unused capacity and, if so, how can unused capacity be managed?
Q2) The partial productivity of overhead resources can be measured by considering the cost driver as ________.
A) budgeted input
B) the denominator
C) the fixed input
D) the numerator
Q3) Successful re-engineering efforts generally involve changing the roles and responsibilities of employees.
A)True
B)False
Q4) A company pursuing cost leadership may try to further analyze the change in operating income even when the growth component is highly favorable. Why?
Q5) Engineered costs contain a higher level of uncertainty than discretionary costs. A)True
B)False
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Q6) What is re-engineering. Can you contrast a re-engineering approach to change with a kaizen approach to change?
Chapter 13: Pricing Decisions and Cost Management
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Q1) Which of the following examples would have as its purpose the allocation of costs to motivate employees?
A) deciding on a selling g price for a product
B) encouraging sales representatives to emphasize high-margin products
C) to cost products a a "fair" price under a government contract
D) to cost inventories for reporting to external parties
Q2) In case of pricing for special orders, managers include all future costs, variable costs, and costs that are fixed in the short run.
A)True
B)False
Q3) Which of the following is true of target costing?
A) the target cost is the target price minus the target operating income per unit
B) the target cost includes all past costs to produce the product
C) input from suppliers and distributors are not relevant.
D) a key goal is to minimize value added activities of a product.
Q4) Rework is an example of a value-added cost.
A)True
B)False
Q5) What is the primary reason a firm would adopt target costing?
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Chapter 14:
Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $16,000,000 bond issuance, the Electric Mixer Division used $9,600,000 and the Electric Lamp Division used $6,400,000 for expansion. Interest costs on the bond totaled $1,000,000 for the year. What amount of interest costs should be allocated to the Electric Lamp Division? (Round any intermediary calculations two decimal places and your final answer to the nearest dollar.)
A) $400,000
B) $600,000
C) $625,000
D) $6,400,000
Q2) To guide cost allocation decisions, the cause-and-effect criterion ________. A) is used less frequently than the other criteria
B) is the primary criterion used in activity-based costing
C) considers fairness as a matter of judgment rather than an operational criterion
D) advocates allocating costs in proportion to the cost object's ability to bear costs allocated to it
Q3) Should a company allocate its corporate costs to divisions?
Q4) How can a company's revenues and costs differ across customers?
Page 16
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Chapter 15: Allocation of Support-Department Costs, Common
Costs, and Revenues
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Q1) Why do organizations use budgeted rates instead of actual rates to allocate the costs of support departments to each other and to user departments and divisions? Explain.
Q2) Which of the following is a disadvantage of a dual-rate method?
A) It allocates fixed costs on the basis of budgeted long-run usage, which may tempt some managers to underestimate their planned usage.
B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest.
C) It allocates fixed and variable-cost pool using the same cost-allocation base, which will mislead managers in making decisions.
D) It does not guide department managers to make decisions that benefit both the organization as a whole and each department.
Q3) The single cost-allocation method makes no distinction between fixed and variable costs.
A)True
B)False
Q4) There is uncertainty in defense contracts about the final cost to produce a new weapon or equipment. Explain.
Page 17
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Q1) The sales method for recognizing byproducts is conceptually correct because it is consistent with the matching principle.
A)True
B)False
Q2) The constant gross-margin percentage NRV method is the only method whereby products can receive negative allocations.
A)True
B)False
Q3) Before the split-off point, decisions relating to the sale or further processing of each identifiable product cannot be made independently of decisions about the other products.
A)True
B)False
Q4) The production method for recognizing byproducts reduces the cost of manufacturing the main or joint products in the income statement.
A)True
B)False
Q5) What are the reasons for allocating joint costs to individual products or services?
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Chapter 17: Process Costing
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Q1) Both, the standard-costing method and FIFO, assumes that the earliest equivalent units in beginning work in process are completed first.
A)True
B)False
Q2) Bright Colors Company placed 315,000 gallons of direct materials into the mixing process. All direct materials are placed in mixing at the beginning of the process and conversion costs occur evenly during the process. Bright Colors uses weighted-average costing. The initial forecast for the end of the month was to have 75,000 gallons still in process, 15% converted as to labor and factory overhead.
Required:
a.Determine the total equivalent units (in process and transferred out) for direct materials and for conversion costs, assuming there was no beginning inventory.
b.With the installation of a new paint processing filtration device, the forecast for the end of the month was to have 50,000 gallons still in process, 70% converted as to labor and factory overhead. In this event, determine the equivalent units (in process and transferred out) for direct materials and for conversion costs, assuming there was no beginning inventory.
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) Spoilage always occurs at beginning stages of a production process and can be detected only at the end of process.
A)True
B)False
Q2) The standard-costing method ________.
A) adds a layer of complexity to the calculation of equivalent-unit costs in a process-costing environment
B) makes calculating equivalent-unit costs unnecessary
C) requires an analysis of the spoilage costs in beginning inventory
D) requires an analysis of the spoilage costs in ending inventory
Q3) Normal spoilage costs are usually deducted from the costs of good units.
A)True
B)False
Q4) There is no difference between scrap which can be sold for relatively small amount and a byproduct.
A)True
B)False
Q5) Costs of abnormal spoilage are separately accounted for as losses of the period.
A)True
B)False
20
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Chapter 19: Balanced Scorecard: Quality and Time
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Q1) Tran-North American Industries Inc. is looking at a change in its manufacturing process that will cause manufacturing cycle time to increase from 250 hours to 425 hours. The increase in the manufacturing time will result in an estimated loss in revenues of $19,000. Carrying costs are estimated at $2.00 per hour and the controller estimates that 44 orders for raw materials are expected for the year. What is the expected change in revenues as a result of the increase in manufacturing cycle time? (Round the final answer to the nearest whole dollar.)
A) $34,400
B) $37,400
C) $19,000
D) $3000
Q2) External failure costs are costs incurred on defective products after they have been shipped to customers.
A)True
B)False
Q3) The financial cost of quality measures serves as a common denominator for evaluating trade-offs among prevention costs and failure costs.
A)True
B)False
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Chapter 20: Inventory Management, Just-in-Time, and Simplified Costing Methods
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Q1) The reorder point is the quantity level of inventory at which a new purchase order is made.
A)True
B)False
Q2) All of the following are reasons why a company might carry a safety stock except:
A) a buffer against unexpected increases in demand
B) a contingency against the uncertainty about lead time
C) a strategy to lower the carrying cost of inventory
D) a way of softening the impact of sudden unavailability of stock from suppliers
Q3) The costs that result from theft of inventory are ________.
A) shrinkage costs
B) external failure costs
C) stockout costs
D) costs of quality
Q4) What are five features of a just-in-time manufacturing system?
Q5) Discuss considerations that should be fully taken into account when developing inventory related relevant costs for use in an economic order quantity (EOQ) model.
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Chapter 21: Capital Budgeting and Cost Analysis
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Q1) The galaxy Corporation disposes a capital asset with an original cost of $180,000 and accumulated depreciation of $91,000 for $47,000. The company's tax rate is 40%.
Calculate the after-tax cash inflow from the disposal of the capital asset.
A) $16,800
B) ($16,800)
C) $63,800
D) $89,000
Q2) Which of the following is another term for required rate of return?
A) hurdle rate
B) total cost rate
C) variance rate
D) predetermined overhead rate
Q3) The nominal approach to incorporating inflation into the net present value method predicts cash inflows in real monetary units and uses a real rate as the required rate of return.
A)True
B)False
Q4) What are the strengths and weaknesses of the accrual accounting rate-of-return (AARR) method for evaluating long-term projects?
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Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational
Considerations
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Q1) Both the market-based transfer pricing approach and cost-based methods are useful for evaluating subunit performance.
A)True
B)False
Q2) Which of the following helps in avoiding costly transfer-pricing disputes between taxpayers and tax authorities?
A) transfer price redressal panel
B) grievance redressal forum
C) transfer price agreements
D) advanced pricing agreements
Q3) In markets that are not perfectly competitive, ________.
A) the selling division will not have any unused capacity
B) companies can increase their capacity utilization only by decreasing their prices
C) minimum transfer price will equal the incremental cost per unit incurred up to the point of transfer
D) the opportunity cost will equal the minimum contribution margin
Q4) Dual pricing is not widely used. Explain its disadvantages.
Q5) What is decentralization and what are its benefits?
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Chapter 23: Performance Measurement, Compensation, and Multinational Considerations
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Q1) In an EVA calculation, the measure of the invested capital for a division would be that division's assets minus that division's long-term liabilities.
A)True
B)False
Q2) Bob's Cellular Phone Company uses ROI to measure divisional performance. Annual ROI calculations for each division have traditionally employed the ending amount of invested capital along with annual operating income and net revenue. The Dupont method is generally used. The company's Phone Accessories Division had the following results for the last two years:
2015 ROI = ($2,000,000/$20,000,000) × ($20,000,000/$10,000,000) = 0.20
2016 ROI = ($2,400,000/$25,000,000) × ($25,000,000/$15,000,000) = 0.16
Corporate management was disappointed in the performance of the division for 2016, since it had made an additional investment in the division that was budgeted for a 23% ROI.
Required:
a.Discuss some factors that may have contributed to the decrease in ROI for 2016.
b.Would there have been any substantial difference if average capital had been used?
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