Cost Management Exam Preparation Guide
Course Introduction
Cost Management is a comprehensive course designed to introduce students to the principles and techniques of planning, controlling, and reducing costs within an organization. The course covers key concepts such as cost behavior, cost allocation, budgeting, variance analysis, and performance measurement. Emphasis is placed on the use of cost information for decision-making, strategic planning, and effective resource utilization. Through case studies and real-world examples, students learn how to apply cost management tools to enhance organizational efficiency and achieve financial objectives in a competitive business environment.
Recommended Textbook
Cost Accounting A Managerial Emphasis 14th Edition by Charles T. Horngren
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23 Chapters
3902 Verified Questions
3902 Flashcards
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Page 2
Chapter 1: The Accountants Role in the Organization
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195 Verified Questions
195 Flashcards
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Sample Questions
Q1) Management accounting includes all of the following EXCEPT
A)implementing strategies
B)developing budgets
C)preparing special studies and forecasts
D)preparing the statement of cash flows
Answer: D
Q2) Treasury includes banking and short- and long-term financing, investments, and cash management.
A)True
B)False
Answer: True
Q3) The value chain is the sequence of business functions in which:
A)value is deducted from the products or services of an organization
B)value is proportionately added to the products or services of an organization
C)products and services are evaluated with respect to their value to the supply chain
D)usefulness is added to the products or services of an organization
Answer: D
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Misallocated indirect costs may lead to NOT promoting profitability.
A)True
B)False
Answer: True
Q2) For external reporting:
A)costs are classified as either inventoriable or period costs
B)costs reflect current values
C)there are no prescribed rules since no one is exactly sure how investors and creditors will use these numbers
D)costs include amounts that reflect both current and future benefits
Answer: A
Q3) Product costs used for pricing and product-mix decisions generally include:
A)manufacturing costs only
B)design costs plus manufacturing costs
C)all costs incurred along the value chain
D)distribution costs only
Answer: C
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4
Chapter 3: Cost-Volume-Profit Analysis
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207 Verified Questions
207 Flashcards
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Sample Questions
Q1) If variable costs decrease by $1 per unit, the new breakeven point is:
A)1,539 units.
B)492 units.
C)$11,765 in total sales dollars.
D)None of these answers are correct.
Answer: C
Q2) Sensitivity analysis is a "what-if" technique that managers use to examine how a result will change if the originally predicted data are NOT achieved or if an underlying assumption changes.
A)True
B)False
Answer: True
Q3) Which option provides the least amount of risk?
A)Option one
B)Option two
C)Both options provide the same amount of risk.
D)Neither option has risks.
Answer: A
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Chapter 4: Job Costing
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199 Flashcards
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Sample Questions
Q1) Job-costing may only be used by:
A)service companies
B)merchandising companies
C)manufacturing companies
D)All of these may use job-costing.
Q2) Product costing information is used by managers:
A)to make decisions and strategy
B)for planning and control
C)for cost management
D)All of these answers are correct.
Q3) Cost objects may be jobs, products, or customers.
A)True
B)False
Q4) For a given job the direct costs associated with the job are:
A)actual overhead
B)direct material
C)direct manufacturing labor
D)Both b and c are correct.
Q5) Give three examples of costs that can be considered indirect for a product and direct for a department.
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Chapter 5: Activity-Based Costing and Activity-Based Management
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175 Verified Questions
175 Flashcards
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Sample Questions
Q1) What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 100 remote controls are produced? The batch requires 500 parts, 10 direct manufacturing labor hours, and 5 minutes of inspection time.
A)$12.15 per remote control
B)$1215 per remote control
C)$24.30 per remote control
D)$48.60 per remote control
Q2) The primary costs of an ABC system are the measurements necessary to implement the system.
A)True
B)False
Q3) How are cost drivers selected in activity-based costing systems?
Q4) Different products consume different proportions of manufacturing overhead costs because of differences in all of the following EXCEPT:
A)selling prices
B)customers' customization specifications
C)setup times
D)product design
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Chapter 6: Master Budget and Responsibility Accounting
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229 Flashcards
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Sample Questions
Q1) Budgeted production equals:
A)beginning finished goods inventory + budgeted unit sales - targeted ending finished goods inventory
B)targeted ending finished goods inventory + beginning finished goods inventorybudgeted unit sales
C)budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory
D)budgeted unit sales + targeted ending finished goods inventory + beginning finished goods inventory
Q2) When administered wisely, budgets promote communication and coordination among the various subunits of the organization.
A)True
B)False
Q3) The manager of a hobby store that is part of a chain of stores is most likely responsible for a(n):
A)revenue center
B)investment center
C)cost center
D)profit center
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Page 8
Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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180 Verified Questions
180 Flashcards
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Sample Questions
Q1) Regier Company had planned for operating income of $10 million in the master budget but actually achieved operating income of only $7 million.
A)The static-budget variance for operating income is $3 million favorable.
B)The static-budget variance for operating income is $3 million unfavorable.
C)The flexible-budget variance for operating income is $3 million favorable.
D)The flexible-budget variance for operating income is $3 million unfavorable.
Q2) Continuous improvement budgeted costs target price reductions and efficiency improvements.
A)True
B)False
Q3) A variance is the difference between the actual cost for the current and expected (or budgeted)performance.
A)True
B)False
Q4) What is the static-budget variance of variable costs?
A)$200,000 favorable
B)$50,000 unfavorable
C)$250,000 favorable
D)$250,000 unfavorable
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Chapter 8: Flexible Budgets, Overhead Cost Variances,
Management Control
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171 Verified Questions
171 Flashcards
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Sample Questions
Q1) What is the variable overhead efficiency variance?
A)$1,000 favorable
B)$1,450 unfavorable
C)$2,450 unfavorable
D)None of these answers is correct.
Q2) The variable overhead efficiency variance is computed in a different way than the efficiency variance for direct-cost items.
A)True
B)False
Q3) For calculating the costs of products and services, a standard costing system:
A)only requires a simple recording system
B)uses standard costs to determine the cost of products
C)does not have to keep track of actual costs
D)All of these answers are correct.
Q4) For fixed overhead costs, the flexible-budget amount is always the same as the static-budget amount.
A)True
B)False
Page 10
Q5) How is a budgeted fixed overhead cost rate calculated?
Q6) Explain the meaning of a favorable production-volume variance.
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) Practical capacity is the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions, such as scheduled maintenance time, shutdowns for holidays, and so on.
A)True
B)False
Q2) Variable costing:
A)expenses administrative costs as cost of goods sold
B)treats direct manufacturing costs as a product cost
C)includes fixed manufacturing overhead as an inventoriable cost
D)is required for external reporting to shareholders
Q3) Under absorption costing, managers can increase operating income by holding less inventories at the end of the period.
A)True
B)False
Q4) What is the inventoriable cost per unit using variable costing?
A)$32
B)$35
C)$40
D)$60
Q5) Discuss the three methods to dispose of production volume variance.
Page 12
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) Any linear cost function can be graphed by knowing only the slope coefficient.
A)True
B)False
Q2) Multicollinearity is a concern in multiple regression but NOT a concern in simple regression.
A)True
B)False
Q3) Misinterpretation of data can arise when fixed costs are reported on a per unit basis.
A)True
B)False
Q4) A learning curve is a function that measures how labor-hours per unit decrease, as units of production decrease.
A)True
B)False
Q5) What is the slope coefficient per labor-hour?
A)$4.67
B)$3.76
C)$2.40
D)$0.42
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Chapter 11: Decision Making and Relevant Information
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220 Flashcards
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Sample Questions
Q1) Outsourcing is risk free to the manufacturer because the supplier now has the responsibility of producing the part.
A)True
B)False
Q2) The amount paid to purchase equipment last year is an example of a sunk cost.
A)True
B)False
Q3) Decisions about whether a producer of goods or services will insource or outsource are also called make-or-buy decisions.
A)True
B)False
Q4) Smiley Face Company manufactures signs from direct materials to the finished product. This is considered:
A)insourcing
B)outsourcing
C)relevant costing
D)sunk costing
Q5) Why is the book value of old equipment irrelevant to the equipment replacement decision?
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Chapter 12: Pricing Decisions and Cost Management
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Sample Questions
Q1) If Ms. Sushi wanted a long-term commitment for supplying this product, what price would most likely be quoted to her?
A)$580
B)$780
C)$520
D)$1,014
Q2) In cost-plus pricing, the markup component:
A)is a rigid number
B)is ultimately determined by the market
C)provides a means to calculate the actual selling price
D)is the end rather than the start of pricing decisions
Q3) One market-based pricing method is called the time and materials method.
A)True B)False
Q4) Companies that operate in non competitive environments offering products or services that differ from each other can charge a very high price for their products and services.
A)True B)False
Q5) What is price discrimination, and when is it illegal?
Page 15
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Chapter 13: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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171 Verified Questions
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Sample Questions
Q1) What is the cost effect of the growth component for conversion costs?
A)$12,500 U
B)Zero
C)$10,000 U
D)$10,000 F
Q2) Overall, was Meale's strategy successful in 2012?
A)No, because the selling price per unit decreased.
B)Yes, because operating income increased.
C)Yes, because less direct materials were used.
D)No, because more units were produced and sold.
Q3) When implementing a balanced scorecard, the cause-and-effect linkages are always precise.
A)True
B)False
Q4) What is the cost effect of the growth component for direct materials?
A)$15,000 U
B)$10,000 U
C)$10,000 F
D)$16,500 F
Page 16
Q5) Define engineered and discretionary costs and give two examples of each.
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Chapter 14: Cost Allocation, Customer-Profitability Analysis,
and Sales-Variance Analysis
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) Which is the preferred allocation method for performance evaluation?
A)allocating all corporate costs
B)allocating only human resource cost
C)allocating controllable costs
D)allocating uncontrollable costs
Q2) If one of five distribution channels is discontinued, corporate-sustaining costs such as general administration costs will most likely be reduced by 20%.
A)True
B)False
Q3) An activity-based costing system may focus on customers rather than products.
A)True
B)False
Q4) Should a company allocate its corporate costs to divisions?
Q5) What is the total static-budget variance in terms of the contribution margin?
A)$900,000 favorable
B)$700,000 favorable
C)$200,000 unfavorable
D)$360,000 unfavorable
Q6) What actions might be taken with an unprofitable customer?
Q7) Briefly describe the four criteria used to guide cost-allocation decisions. Page 17
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Page 18
Chapter 15: Allocation of Support-Department Costs,
Common Costs, and Revenues
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Sample Questions
Q1) Using the stand-alone method with stand-alone product revenues as the weight for revenue allocation, what amount will be allocated to the refrigerator?
A)$687.50
B)$612.50
C)$625.00
D)$825.00
Q2) Using the direct method, what amount of Maintenance Department costs will be allocated to Department A?
A)$96,000
B)$128,000
C)$166,000
D)$192,000
Q3) When budgeted cost-allocations rates are used:
A)variations in actual usage by one division affect the costs allocated to other divisions
B)the manager of the supplier division bears the risk of unfavorable cost variances
C)user divisions pay for costs that exceed budgeted amounts
D)user divisions pay for inefficiencies of the supplier department
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Page 19
Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) What type of cost is the result of an event that results in more than one product or service simultaneously?
A)byproduct cost
B)joint cost
C)main cost
D)separable cost
Q2) Outputs with zero sales value are accounted for by:
A)listing these various outputs in a footnote to the financial statements
B)including the items as a relatively small portion of the value assigned to the products produced during the accounting period
C)making journal entries to reflect an estimate of possible values
D)None of these answers is correct.
Q3) The net realizable value method is generally used for products or services that are processed and after splitoff additional value is added to the product and a selling price can be determined.
A)True
B)False
Q4) Explain the difference between a joint product and a byproduct. Can a byproduct ever become a joint product?
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Chapter 17: Process Costing
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Sample Questions
Q1) What is the total amount debited to the Work-in-Process account during the month of April?
A)$230,000
B)$430,000
C)$1,875000
D)$2,855,000
Q2) Operating income can differ materially between the results for the weighted-average and FIFO methods when:
A)direct materials or conversion costs per unit vary significantly from period to period B)the physical inventory levels of work in process are large relative to the total number of units transferred out
C)Neither of these answers is correct.
D)Both of these answers is correct.
Q3) The president of the Gulf Coast Refining Corporation wants to know why his golfing partner, who is the chief financial officer of a large construction company, calculates his costs by the job, but his own corporation calculates costs by large units rather than by individual barrel of oil.
Q4) List and describe the five steps in process costing.
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Page 21
Chapter 18: Spoilage, Rework, and Scrap
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Sample Questions
Q1) Spoilage that is an inherent result of the particular production process and arises under efficient operating conditions is referred to as:
A)ordinary spoilage
B)normal spoilage
C)abnormal spoilage
D)None of these answers is correct.
Q2) In accounting for scrap, which one of the following statements is FALSE?
A)Normal scrap is accounted for separately from abnormal scrap
B)In accounting for scrap, there is no distinction between the scrap attributable to a specific job and scrap common to all jobs
C)Initial entries to scrap accounting records are most often made in dollar terms
D)All of these answers are correct.
Q3) What are the objectives in accounting for spoilage?
Q4) Normal spoilage should be computed using as the base the:
A)total units completed
B)total good units completed
C)total actual units started into production
D)None of these answers is correct.
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Chapter 19: Balanced Scorecard: Quality, Time, and the
Theory of Constraints
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Sample Questions
Q1) Cost of Quality financial measures will usually deteriorate when nonfinancial measures of quality are emphasized and improved.
A)True
B)False
Q2) A tool which identifies potential causes of failures or defects is a:
A)control chart
B)Pareto diagram
C)cause-and-effect diagram
D)None of these answers is correct.
Q3) What is the total production per day if the change is made?
A)6400 units
B)800 units
C)880 units
D)1600 units
Q4) A cause-and-effect diagram is used to help identify potential causes of defects.
A)True
B)False
Q5) Three tools used to detect quality problems include control charts, Pareto charts, and cause and effect diagrams. Briefly explain each of these tools.
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Chapter 20: Inventory Management, Just-In-Time, and Simplified Costing Methods
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Sample Questions
Q1) Increases in the carrying cost and decreases in the ordering cost per purchase order result in:
A)smaller EOQ amounts
B)larger EOQ amounts
C)larger relevant total costs
D)smaller relevant total costs
Q2) Quality costs include:
A)purchasing costs
B)ordering costs
C)stockout costs
D)prevention costs
Q3) All of the following are potential financial benefits of just-in-time EXCEPT:
A)lower investments in inventories
B)lower investments in plant space for inventories
C)reducing the risk of obsolescence
D)reducing manufacturing lead time
Q4) The Economic Order Quantity increases with demand and carrying costs and decreases with ordering costs.
A)True
B)False
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Chapter 21: Capital Budgeting and Cost Analysis
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Sample Questions
Q1) In determining whether to keep a machine or replace it, the original cost of the machine is a sunk cost and is NOT a relevant factor.
A)True
B)False
Q2) Assume your goal in life is to retire with two million dollars. How much would you need to save at the end of each year if interest rates average 6% and you have a 20-year work life?
A)$29,130
B)$54,369
C)$240,204
D)$752,952
Q3) There is an INCONSISTENCY between using the net present value method as best for capital budgeting decisions and then using a different method to evaluate performance. A)True
B)False
Q4) What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method?
Q5) How is inflation related to capital budgeting? Discuss.
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Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational
Considerations
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Sample Questions
Q1) The Home Office Company makes all types of office desks. The Computer Desk Division is currently producing 10,000 desks per year with a capacity of 15,000. The variable costs assigned to each desk are $300 and annual fixed costs of the division are $900,000. The computer desk sells for $400. The Executive Division wants to buy 5,000 desks at $280 for its custom office design business. The Computer Desk manager refused the order because the price is below variable cost. The executive manager argues that the order should be accepted because it will lower the fixed cost per desk from $90 to $60 and will take the division to its capacity, thereby causing operations to be at their most efficient level.
Required:
a. Should the order from the Executive Division be accepted by the Computer Desk Division? Why?
b. From the perspective of the Computer Desk Division and the company, should the order be accepted if the Executive Division plans on selling the desks in the outside market for $420 after incurring additional costs of $100 per desk?
c. What action should the company president take?
Q2) Briefly explain each of the three methods used to determine a transfer price.
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Page 26
Chapter 23: Performance Measurement, Compensation, and Multinational Considerations
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Sample Questions
Q1) Moral hazard describes contexts in which an employee prefers to exert less effort than the effort that the owner wants because the employee's effort CANNOT be accurately monitored and enforced.
A)True
B)False
Q2) The "four levers" of control are diagnostic control systems, boundary systems, belief systems, and interactive control systems.
A)True
B)False
Q3) Which of the following statements about designing an accounting-based performance measure is FALSE?
A)The steps may be followed in a random order.
B)The issues considered in each step are independent.
C)Management's beliefs are present during the analyses.
D)Behavioral criteria are important when evaluating the steps.
Q4) When using the historical cost of assets for calculation of return on investment, is it better to use the gross book value of the assets or the net book value of the assets ? Discuss.
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