Cost Analysis and Control
Question Bank
Course Introduction
Cost Analysis and Control examines the principles and techniques used to determine, analyze, and manage the costs associated with business operations. The course covers key topics such as cost behavior, cost accounting systems, budgeting, standard costing, variance analysis, and performance measurement. Students gain practical skills in identifying cost drivers, allocating overhead, and using cost information for planning, decision-making, and controlling organizational activities. Through case studies and real-world applications, the course equips students with the tools necessary to support effective financial management and improve organizational efficiency.
Recommended Textbook Cornerstones of Cost Management 2nd Edition by Don
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R. Hansen
Page 2
Chapter 1: Introduction to Cost Management
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Sample Questions
Q1) Discuss the advances of information technology and how these advances might affect the university education supply chain?
Answer: There are three significant advances relating to information technology: (1) the automation and integration of company information; (2) the development of analytic and decision support tools; and (3) the emergence of electronic commerce. Universities are developing integrated databases to better streamline student services (i.e., registration, admissions, and grading). Software applications have been developed to aid in teaching and presenting classroom materials. It is now possible to attend college electronically.
Q2) Which of the following statements is NOT true about world-class firms?
A) World-class firms are firms that are poor in customer support.
B) World-class firms know their market and their products.
C) World-class firms strive continually to improve product design, manufacture, and delivery.
D) World-class firms can compete with the best of the best in a global environment.
Answer: A
Q3) Only Certified Public Accountants are permitted by law to serve as __________ .
Answer: external auditors
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Chapter 2: Basic Cost Management Concepts
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Q1) The resources given up that are expected to bring a current or future benefit to the organization are represented by:
A) Costs
B) Expired costs
C) Expenses
D) Losses
Answer: A
Q2) Factors that cause changes in resource usage, activity usage, costs and revenues are called
A) indirect costs.
B) drivers.
C) assignments.
D) cost objects.
Answer: B
Q3) The least accurate but easiest to apply method of cost assignment is the __________ method.
Answer: allocation
Q4) Expired costs used up in the generation of revenues are called __________ .
Answer: expenses
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Chapter 3: Cost Behavior
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Q1) The plot of data points showing the relationship between materials handling costs and activity output is called a scattergraph.
A)True
B)False
Answer: True
Q2) A feature of regression routines, not provided by the scatter plot of high-low methods, is to provide information to and in the assessment of reliability of the estimated costs formula.
A)True
B)False
Answer: True
Q3) Which of the following decision-making tools would NOT be useful in determining the slope and intercept of a mixed cost?
A) scattergraphs
B) least-squares method
C) high-low method
D) account analysis method
Answer: D
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Chapter 4: Activity-Based Costing
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Q1) If activity-based costing is used, security is an example of a A) unit-level activity.
B) batch-level activity.
C) product-level activity.
D) facility-level activity.
Q2) In the __________ ABC systems, managers directly estimate the resource demands imposed by each product. or
Q3) The use of __________ activity drivers to assign costs tends to __________ high-volume products. or
Q4) A possible solution to overcome distortions caused by unit level rates is
A) assign costs by multiplying activity rates times the amount of activity consumed.
B) calculate individual rates for each activity with activity drivers.
C) increase the number of rates used that reflect the diverse activity and nonunit overhead drivers.
D) all of these.
Q5) A(n) __________ method first traces costs to a department and then to products. or
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Chapter 5: Product and Service Costing: Job-Order System
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Q1) Unit cost is a critical piece of information for a manufacturing business as well as a service company.
A)True
B)False
Q2) __________ is the recognition and recording of costs.
Q3) Perishability refers to the
A) nonphysical nature of services as opposed to products.
B) fact that production and consumption are inseparable for services.
C) greater chances for variation in the performance of services than in the production of products.
D) fact that services cannot be inventoried but must be consumed when performed.
Q4) Which of the following items is a basic costing system record in a job-order costing system?
A) materials requisition form
B) job-order cost sheet
C) job time ticket
D) all of the above
Q5) Compare and contrast perishability and intangibility in an automobile oil lubrication shop and architectural design firms.
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Chapter 6: Process Costing
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Q1) In JIT manufacturing, work cells are created that produce a product from start to finish.
A)True
B)False
Q2) For the receiving department, transferred in goods are added at the __________ of the process.
Q3) In process costing, __________ costing can be used to assign shared overhead to processes. or
Q4) Unit cost of materials for a department using the FIFO method of process costing is found by taking the total cost of materials issued to the department during the year divided by
A) units in process.
B) units started and completed.
C) total units manufactured.
D) equivalent units of output.
Q5) In firms with ending work-in-process inventories, output is measured using equivalent units.
A)True B)False
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Chapter 7: Allocating Costs of Support Departments and Joint Products
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Q1) The weight factor addresses the advantages of the physical units method. A)True
B)False
Q2) Which of the following is NOT a benefit of the costs of support departments being allocated to production departments?
A) The allocation assists producing departments' use of support departments at a more efficient level.
B) Allocation of support department costs encourages managers of production departments to monitor performance of the support department.
C) The allocation helps each department select the correct level of support service consumption.
D) Management will use the information to support out-sourcing all support services.
Q3) The split-off point is the ending point of a joint product process. A)True B)False
Q4) Costs that are easily traced to individual products are called separable costs. A)True B)False
Page 9
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Chapter 8: Budgeting for Planning and Control Key
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Q1) The budgeted income statement depends partly on information in the budgets in the master budget.
A)True
B)False
Q2) Budgeting means to set standards, receive feedback, and executing corrective action.
A)True
B)False
Q3) The budget most appropriate for control purposes is the
A) static budget.
B) flexible budget.
C) continuous budget.
D) incremental budget.
Q4) Refer to Figure 8-2. How many lamps should be produced in October?
A) 10,000 lamps
B) 14,000 lamps
C) 9,500 lamps
D) 10,500 lamps
Q5) Discuss the features of an ideal budgetary process.
Q6) A __________ budget is developed around one particular level of activity.
Page 10
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Chapter 9: Standard Costing: a Functional-Based Control Approach
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Q1) The standard cost sheet shows costs needed to make many units of output.
A)True
B)False
Q2) During January, 7,175 direct labor hours were worked at a standard cost of $20 per hour. If the direct labor rate variance for January was $17,500 favorable, the actual cost per direct labor hour must be
A) $20.50.
B) $25.50.
C) $23.00.
D) $17.56.
Q3) Croissant Company's standard fixed overhead cost is $6 per direct labor hour based on budgeted fixed costs of $600,000. The standard allows 1 direct labor hour per unit. During 2014, Croissant produced 110,000 units of product, incurred $630,000 of fixed overhead costs, and recorded 212,000 actual hours of direct labor. What is Croissant's fixed overhead volume variance for 2014?
A) $60,000 (U)
B) $24,000 (F)
C) $36,000 (U)
D) $60,000 (F)
Page 11
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Chapter 10: Decentralization: Responsibility Accounting, Performance
Evaluation, and Transfer Pricing
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Q1) Which of the following managerial rewards is NOT a short-term reward?
A) stock ownership
B) cash bonuses
C) stock options
D) both a and b
Q2) Responsibility accounting is a system that measures the results of each responsibility center and compares those results with some expected or budgeted outcome.
A)True
B)False
Q3) The price charged for goods produced in one division to another division within the company is called the __________ price.
Q4) Goal congruence can be defined as
A) an incentive plan arranged so the managers' goals are aligned with the shareholders' goals.
B) managers operating the business in the best interest of the shareholders.
C) tying management rewards to shareholder results.
D) all of these are correct.
Page 12
Q5) __________ are a noncash benefit received over and above salary.
Q6) Investments are not controlled by managers of a __________ center.
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Chapter 11: Strategic Cost Management
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Q1) Which of the following is a trait of a traditional manufacturing system?
A) push-through system
B) value-chain focus
C) total quality control
D) high employee involvement
Q2) Which of the following is NOT a stage of the production life-cycle viewpoint?
A) design
B) introduction
C) research
D) testing
Q3) the difference between what the customer receives and gives up is the __________ .
Q4) When a computer company selects a mix of strategies in order to create sustainable competitive advantage, it is following a
A) focusing strategy.
B) low-cost strategy.
C) differentiation strategy.
D) strategic positioning strategy.
Q5) Accounting for the cost accounting cycle in a JIT environment is simplified by using __________ costing.
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Chapter 12: Activity-Based Management
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Sample Questions
Q1) Process improvement can be defined as
A) The performance of a process to achieve major improvements.
B) The adoption of new processes to meet strategic objectives.
C) The incremental or continual increases in the efficiency of a process.
D) The expression of performance measures in financial terms.
Q2) A time-and-motion study revealed that it should take 2 hours to produce a product that currently takes 6 hours to produce. Labor is $8 per hour. The value-added costs are
A) $48.
B) $32.
C) $16.
D) $-0-.
Q3) The process which involves choosing among various sets of activities that are caused by competing strategies.
A) Activity sharing
B) Activity selection
C) Activity elimination
D) Activity reduction
Q4) Activities that contribute to customer value and are necessary to remain in business are called __________ activities.
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Chapter 13: The Balanced Scorecard: Strategic-Based Control
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Q1) In a balanced scorecard, performance expectations are communicated by setting
Q2) Which of the following would NOT be a core outcome measure for employee capabilities?
A) employee satisfaction ratings
B) number of employees
C) employee turnover
D) employee productivity
Q3) An operational measure of quality is
A) defects per unit.
B) number of defective units.
C) pounds of scrap.
D) all of the above.
Q4) The outcome measures that relate to customers are called:
A) External measures
B) Objective measures
C) Financial measures
D) Lag measures
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Q5) Setting balanced objectives, target values, and rewards are steps in developing the
Chapter 14: Quality and Environmental Cost Management
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Q1) According to the robust view, a gain is experienced from varying a product target value.
A)True
B)False
Q2) Costs incurred because products or services fail to meet requirements after delivery to customers are called
A) external failure costs.
B) internal failure costs.
C) appraisal costs.
D) prevention costs.
Q3) Product recalls are A) appraisal costs.
B) internal failure costs.
C) external failure costs.
D) prevention costs.
Q4) The assignment of private and societal costs to products is called __________ costing.
Q5) __________ cost information is used to evaluate overall performance of quality improvement programs.
Q6) The lowest environmental costs are attainable at the __________ point.
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Chapter 15: Lean Accounting and Productivity Measurement
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Q1) The productivity measure(s) that are expressed in physical terms is(are) called:
A) Financial productivity measures
B) Partial productivity measurement
C) Operational productivity measures
D) Productivity measurement
Q2) Changes in product-costing and operational control approaches are crucial to a value-stream based lean manufacturing system.
A)True
B)False
Q3) The new product 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.
Q4) Explain the difference between partial and total measures of productivity.
Q5) Discuss the linkage between quality and productivity.
Q6) The point at which technical and allocative efficiency are achieved is called __________ efficiency.
Page 18
Q7) Explain the difference between technical and input trade-off efficiency.
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Chapter 16: Cost-Volume-Profit Analysis
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Q1) Which of the following is a TRUE statement about sales mix?
A) Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell more of the high contribution margin product.
B) Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell more of the lower contribution margin product.
C) Profits will remain constant with an increase in total dollars of sales if the total sales in units remains constant.
D) Profits will remain constant with a decrease in total dollars of sales if the sales mix also remains constant.
Q2) A decrease in the sales price in the basic cost-volume-profit model would
A) require a recomputation of the gross profit per unit.
B) be offset by an increase in unit costs.
C) decrease the break-even volume.
D) increase the break-even volume.
Q3) The term net income is used to mean operating income before income taxes.
A)True
B)False
Q4) The __________ is where total revenues equal total costs.
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Chapter 17: Activity Resource Usage Model and Tactical
Decision Making
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Q1) A keep-or-drop decision uses irrelevant cost analysis to determine whether to continue or discontinue a segment or line of business.
A)True
B)False
Q2) Relevant costs and revenues are present costs and revenues that differ across alternatives.
A)True
B)False
Q3) In a keep-or-drop decision, the __________ income or loss determines whether a segment is kept or dropped.
Q4) Qualitative factors that should be considered when evaluating a make-or-buy decision are
A) the quality of the outside supplier's product.
B) whether the outside supplier can provide the needed quantities.
C) whether the outside supplier can provide the product when it is needed.
D) all of the above.
Q5) Flexible resources are acquired way ahead of time.
A)True
B)False
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Chapter 18: Pricing and Profitability Analysis
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Q1) The charging of different prices to different customers for essentially the same product is called:
A) Gouging
B) Penetration pricing
C) Skimming
D) Price discrimination
Q2) Monopolistic competition is best defined as
A) a structure that has many buyers and sellers, but the products are differentiated on some basis.
B) a structure where customers are willing to pay a little more for the unique feature that appeals to them.
C) a structure that combines perfect competition and monopoly, but is closer to a competitive situation.
D) all of the above.
Q3) The profit history of a product according to four stages is called the product
Q4) Target costing sets costs based on the price that customers are willing to pay.
A)True
B)False
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Chapter 19: Capital Investment
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Q1) Net present value (NPV) is the difference between the present value of cash inflows and outflows associated with a project.
A)True
B)False
Q2) Discounted cash flows are used by discounting models which are future cash flows expressed in terms of their present value.
A)True
B)False
Q3) If the tax rate is 40 percent and a company has $800,000 of income, a depreciation deduction of $100,000 would result in a tax savings of
A) $34,000.
B) $40,000.
C) $30,000.
D) $66,000.
Q4) The __________ rate of return uses income instead of cash flows.
Q5) the two ways to compute after-tax cash flows are the income method and the composition method.
A)True
B)False
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Chapter 20: Inventory Management: Economic Order
Quantity, Jit, and the Theory of Constraints
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Q1) 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.
Q2) Which of the following equations determines the total annual carrying costs when no safety stock is kept?
A) Cost of placing an order ´ Order quantity
B) Cost of placing an order ´ Number of orders per year
C) Cost of placing an order ´ One-half of the order quantity
D) Unit carrying costs per year ´ One-half of the order quantity
Q3) Comfy Wheels Bus Company produces buses. In order to produce the seats for the buses, special equipment must be set up. The setup cost per frame is $35. The cost of carrying seats in inventory is $6 per seat per year. The company produces 90,000 buses per year. The number of seats that should be produced per setup in order to minimize the total setup and carrying costs is
A) 933 seats.
B) 2,050 seats.
C) 1,025 seats.
D) 513 seats.
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