Cost Management Exam Questions
Course Introduction
Cost Management explores the principles and techniques involved in planning, monitoring, and controlling the costs of business operations and projects. The course covers topics such as cost estimation, budgeting, standard costing, variance analysis, and activity-based costing. Students will learn how to analyze cost behavior, allocate resources efficiently, and utilize cost information for strategic decision-making. Emphasis is placed on the role of cost management in enhancing organizational performance, competitiveness, and value creation. Practical case studies and real-world examples are incorporated to provide a comprehensive understanding of cost management practices in various industries.
Recommended Textbook
Cost Accounting A Managerial Emphasis 14th Edition by Charles T. Horngren
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Chapter 1: The Accountants Role in the Organization
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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)profitability analysis
D)providing information for strategic and tactical decisions
Answer: A
Q2) Customer relationship management initiatives use technology to coordinate all:
A)production activities
B)research activities
C)customer-facing activities
D)inventory management activities
Answer: C
Q3) It is difficult to control activities without a budget.
A)True
B)False
Answer: True
Q4) Financial accounting is broader in scope than management accounting.
A)True
B)False
Answer: False
Page 3
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Finished goods inventory would normally include:
A)direct materials in stock and awaiting use in the manufacturing process
B)goods partially worked on but not yet fully completed
C)goods fully completed but not yet sold
D)products in their original form intended to be sold without changing their basic form
Answer: C
Q2) Fixed costs:
A)may include either direct or indirect costs
B)vary with production or sales volumes
C)include parts and materials used to manufacture a product
D)can be adjusted in the short run to meet actual demands
Answer: A
Q3) The variable cost per unit of a product should stay the same throughout the relevant range of production.
A)True
B)False Answer: True
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4
Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) "Uncertainty" may be defined as:
A)the possibility that an actual amount will be the same as an expected amount
B)the possibility that an actual amount will be either higher or lower than the expected amount
C)the possibility that a budgeted amount will be higher than the estimated amount
D)the possibility that the budgeted amount will be lower than the estimated amount
Answer: B
Q2) If the contribution margin ratio is 0.25, targeted operating income is $25,000, and targeted sales volume in dollars is $200,000, then total fixed costs are:
A)$50,000
B)$100,000
C)$75,000
D)$25,000
Answer: D
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Chapter 4: Job Costing
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Sample Questions
Q1) The actual indirect-cost rate is calculated by dividing actual total indirect costs by the actual total quantity of the cost-allocation base.
A)True
B)False
Q2) Stewart Company's actual manufacturing overhead is $2,800,000. Overhead is allocated on the basis of direct labor hours. The direct labor hours were 50,000 for the period. What is the manufacturing overhead rate?
A)$47.00
B)$56.00
C)$75.00
D)None of the above are correct.
Q3) Direct costs are allocated to the cost object using a cost-allocation method. A)True B)False
Q4) Indirect manufacturing costs are debited to Manufacturing Overhead Control. A)True B)False
Q5) Describe job-costing and process-costing systems. Explain when it would be appropriate to use each.
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) Using an ABC system, next year's estimates show manufacturing overhead costs will total $228,300 for 52,000 T-shirts. If all other T-shirt costs and sales prices remain the same, the profitability that can be expected is:
A)$5.41 per t-shirt
B)$4.39 per t-shirt
C)$1.11 per t-shirt
D)($0.81)per t-shirt
Q2) According to an ABC system, S5 uses a disproportionately:
A)smaller amount of unit-level costs
B)larger amount of unit-level costs
C)smaller amount of batch-level costs
D)larger amount of batch-level costs
Q3) Under the revised ABC system, overhead costs per unit for the Sweatshirts will be:
A)$1.39 per unit
B)$1.60 per unit
C)$2.19 per unit
D)$2.47 per unit
Q4) Explain how a top-selling product may actually result in losses for the company.
Q5) How can the need for a more refined costing system be identified?
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) A master budget:
A)includes only financial aspects of a plan and excludes nonfinancial aspects
B)is an aid to coordinating what needs to be done to implement a plan
C)includes broad expectations and visionary results
D)should not be altered after it has been agreed upon
Q2) Budgeting helps management anticipate and adjust for trouble spots in advance.
A)True
B)False
Q3) A budget:
A)is the quantitative expression of a proposed plan of action by management
B)is an aid to coordinate what needs to be done
C)generally includes both financial and nonfinancial aspects of the plan
D)All of the above are correct.
Q4) Rolling budgets help management to:
A)better review the past calendar year
B)deal with a 5-year time frame
C)focus on the upcoming budget period
D)rigidly administer the budget
Q5) Describe operating and financial budgets and give at least two examples of each discussed in the textbook.
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Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Sample Questions
Q1) June's direct material price variance is:
A)$1,960 unfavorable
B)$600 favorable
C)$1,360 favorable
D)None of these answers are correct.
Q2) For any actual level of output, the efficiency variance is the difference between actual quantity of input used and the budgeted quantity of input allowed to produce actual output, multiplied by the budgeted price.
A)True
B)False
Q3) An unfavorable variance is conclusive evidence of poor performance.
A)True
B)False
Q4) The direct manufacturing labor price variance is likely to be unfavorable if lower-skilled workers are put on a job.
A)True
B)False
Q5) Give at least three good reasons why a favorable price variance for direct materials might be reported.
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Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
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Sample Questions
Q1) Can the variable overhead efficiency variance
a. be computed the same way as the efficiency variance for direct-cost items?
b. be interpreted the same way as the efficiency variance for direct-cost items? Explain.
Q2) What is the flexible-budget amount?
A)$248,033
B)$252,000
C)$248,000
D)$279,000
Q3) What is the variable overhead spending variance?
A)$3,750 favorable
B)$16,875 unfavorable
C)$13,125 unfavorable
D)$30,375 unfavorable
Q4) Fixed overhead costs:
A)never have any unused capacity
B)should be unitized for planning purposes
C)are unaffected by the degree of operating efficiency in a given budget period
D)Both A and B are correct.
Q5) Explain why sales-volume variance could be helpful to managers.
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) The marketing manager's performance evaluation is most fair when based on a denominator level using:
A)practical capacity
B)theoretical capacity
C)master-budget capacity utilization
D)normal capacity utilization
Q2) Throughput costing is also referred to as super-variable costing.
A)True
B)False
Q3) The contribution-margin format of the income statement:
A)is used with absorption costing
B)highlights the lump sum of fixed manufacturing costs
C)distinguishes manufacturing costs from nonmanufacturing costs
D)calculates gross margin
Q4) ________ is a method of inventory costing in which only variable manufacturing costs are included as inventoriable costs.
A)Fixed costing
B)Variable costing
C)Absorption costing
D)Mixed costing
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) A major concern that arises with multiple regression is multicollinearity, which exists when:
A)in simple regression, when the dependent variable is not normally distributed
B)in simple regression, when the R2 statistic is low
C)in multiple regression, when the R2 statistic is low
D)in multiple regression, when two or more independent variables are correlated with one another
Q2) An inaccurate cost function with a slope coefficient that is estimated too low may most likely result in:
A)predicting total costs that are too high
B)initiating cost cutting measures when they are unnecessary
C)evaluating a weak manager as having strong performance
D)promoting a product that is actually more profitable than budgeted
Q3) A linear cost function can only represent fixed cost behavior.
A)True
B)False
Q4) An "economy of scale" function is an example of a linear cost function.
A)True
B)False
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) If Pizza For Everyone replaces the existing delivery van with the new one, over the next 10 years operating income will:
A)decrease by $90,000
B)increase by $75,000
C)decrease by $75,000
D)None of these answers is correct.
Q2) A mathematical inequality or equality that must be appeased is known as a(n):
A)objective function
B)constraint
C)operating policy
D)business function
Q3) One-time-only special orders should only be accepted if:
A)incremental revenues exceed incremental costs
B)differential revenues exceed variable costs
C)incremental revenues exceed fixed costs
D)total revenues exceed total costs
Q4) Managers tend to favor alternatives that make their own performance look better.
A)True
B)False
Q5) Explain what revenues and costs are relevant when choosing among alternatives.
Page 13
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Chapter 12: Pricing Decisions and Cost Management
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Sample Questions
Q1) One market-based pricing method is called the time and materials method.
A)True
B)False
Q2) What is the markup percentage as a percentage of cost for Thornton Company?
A)22.0%
B)18.0%
C)14.8%
D)12.9%
Q3) When target costing and target pricing are used together:
A)the target cost is established first, then the target price
B)the target cost is the estimated long-run cost that enables a product or service to achieve a desired profit
C)the focus of target pricing is to undercut the competition
D)target costs are generally higher than current costs
Q4) What is the target rate of return on investment for Timothy Company?
A)15.0%
B)17.6%
C)10.0%
D)11.1%
Q5) What is price discrimination, and when is it illegal?
Page 14
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Chapter 13: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Sample Questions
Q1) The balanced scorecard measures an organization's performance from all of the following perspectives EXCEPT:
A)financial
B)government
C)customer
D)learning and growth
Q2) To further company strategy, measures on the balanced scorecard would most likely include:
A)number of process improvements
B)manufacturing quality
C)yield
D)an increase in operating income from productivity gains
Q3) Discretionary costs arise from periodic (usually yearly)decisions regarding the maximum amount to be incurred.
A)True
B)False
Q4) Explain the product differentiation and the cost leadership strategies.
Q5) The productivity component of operating income focuses exclusively on revenues. A)True
B)False
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Chapter 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) What is the total sales-volume variance in terms of the contribution margin?
A)$216,000 unfavorable
B)$216,000 favorable
C)$556,000 favorable
D)$896,000 favorable
Q2) Which purpose of cost allocation is used to cost inventories for reporting to tax authorities?
A)to provide information for economic decisions
B)to motivate managers and other employees
C)to justify costs or compute reimbursement
D)to measure income and assets for reporting to external parties
Q3) Indirect costs:
A)often comprise a large percentage of overall costs assigned to a cost object
B)specifically exclude marketing costs
C)cannot be used for external reporting
D)are treated as period costs and not as product costs
Q4) A customer cost hierarchy may include customer-sustaining costs.
A)True
B)False
Q5) Should a company allocate its corporate costs to divisions?
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Chapter 15: Allocation of Support-Department Costs,
Common Costs, and Revenues
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Sample Questions
Q1) If a dual-rate cost-allocation method is used, what amount of copying facility costs will be budgeted for the Operations Department?
A)$57,000
B)$56,400
C)$60,490
D)$59,890
Q2) The incremental method of allocating common costs often creates the incentive to be the first-ranked user.
A)True
B)False
Q3) The costs of unused capacity are highlighted when:
A)actual usage based allocations are used
B)budgeted usage allocations are used
C)practical capacity-based allocations are used
D)the dual-rate cost-allocation method allocates fixed costs based on actual usage
Q4) What is a "common cost"? What are two methods that a manager can use to allocate common costs to two or more users?
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) If the sales value at splitoff method is used, what is the approximate production cost for each pencil casing?
A)$0.0250
B)$0.0255
C)$0.0335
D)$0.0357
Q2) What are the two methods to account for byproducts. Which is the more appropriate method to use and why?
Q3) The Arvid Corporation manufactures widgets, gizmos, and turnbols from a joint process. May production is 2,000 widgets; 3,500 gizmos; and 4,000 turnbols. Respective per unit selling prices at splitoff are $30, $20, and $10. Joint costs up to the splitoff point are $75,000. If joint costs are allocated based upon the sales value at splitoff, what amount of joint costs will be allocated to the widgets?
A)$30,882
B)$26,471
C)$17,647
D)$28,125
Q4) What are a joint cost and a splitoff point?
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Chapter 17: Process Costing
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Sample Questions
Q1) Ford Motor Company is said to use a hybrid costing system. What is a hybrid costing system, and what would be the advantage to Ford of such a system?
Q2) A major advantage of the weighted-average process costing is that it provides managers with information about changes in the costs per unit from one period to the next.
A)True
B)False
Q3) Under standard costing the cost per equivalent-unit calculation is more difficult than in either weighted average or FIFO.
A)True
B)False
Q4) What were the equivalent units for conversion costs during February?
A)83,500
B)85,000
C)75,000
D)79,500
Q5) Standard costing is NOT possible in a firm that uses process costing.
A)True
B)False
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Chapter 18: Spoilage, Rework, and Scrap
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Sample Questions
Q1) When the dollar amount of scrap is immaterial, the simplest accounting is to record the physical quantity of scrap returned to the storeroom and to regard scrap sales as a separate line item in the income statement.
A)True
B)False
Q2) Under efficient operating conditions, all spoilage is considered to be abnormal spoilage.
A)True
B)False
Q3) What costs would be associated with normal and abnormal spoilage, respectively, using the FIFO method of process costing?
A)$25,142; $60,216
B)$60,216; $25,142
C)$2,514; $6,020
D)$16,000; $8,000
Q4) An item classified as spoilage has no value.
A)True
B)False
Q5) Distinguish among spoilage, reworked units, and scrap. Give an example of each.
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Chapter 19: Balanced Scorecard: Quality, Time, and the Theory of Constraints
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Sample Questions
Q1) Warranty costs are an example of internal failure costs.
A)True
B)False
Q2) How much do external failure costs change if all changes are as anticipated with the new prevention procedures? Assume all units produced are sold and there are no ending inventories.
A)$121,500 decrease
B)$121,500 increase
C)$243,000 decrease
D)None of these answers is correct.
Q3) In the banking industry, depositing a customer's check into the wrong bank account is an example of quality of design failure.
A)True
B)False
Q4) A control chart identifies potential causes of failures or defects.
A)True
B)False
Q5) Write a paragraph outlining how a manufacturer of personal computers such as Dell Computer can benefit from the introduction of a quality improvement program.
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Chapter 20: Inventory Management, Just-In-Time, and Simplified Costing Methods
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Sample Questions
Q1) Obsolescence is an example of which cost category?
A)carrying costs
B)labor costs
C)ordering costs
D)quality costs
Q2) The simplest version of the Economic Order Quantity model incorporates only ordering costs, carrying costs, and purchasing costs into the calculation.
A)True
B)False
Q3) A conflict between the EOQ model's optimal order quantity and the order quantity the purchasing manager, evaluated on conventional accounting numbers, regards as optimal is considered a(n):
A)problem for the chief financial officer to resolve
B)problem for the performance evaluation system to resolve
C)goal congruence
D)opportunity cost
Q4) A trigger point refers to the inventory level at which a reorder is generated.
A)True
B)False
22
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Chapter 21: Capital Budgeting and Cost Analysis
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Sample Questions
Q1) Which of the following is NOT an appropriate term for the required rate of return?
A)discount rate
B)hurdle rate
C)cost of capital
D)All of these answers are correct.
Q2) The net present value (NPV)method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows back to the present point in time using the required rate of return.
A)True
B)False
Q3) The minimum annual acceptable rate of return on an investment is the:
A)accrual accounting rate of return
B)hurdle rate
C)internal rate of return
D)net present value
Q4) A capital budget spans only a one-year period.
A)True
B)False
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) DesMoines Valley Company has two divisions, Computer Services and Management Advisory Services. In addition to their external customers, each division performs work for the other division. The external fees earned by each division in 20X5 were $200,000 for Computer Services and $350,000 for Management Advisory Services. Computer Services worked 3,000 hours for Management Advisory Services, who, in turn, worked 1,200 hours for Computer Services. The total costs of external services performed by Computer Services were $110,000 and $240,000 by Management Advisory Services.
Required:
a. Determine the operating income for each division and for the company as a whole if the transfer price from Computer Services to Management Advisory Services is $15 per hour and the transfer price from Management Advisory Services to Computer Services is $12.50 per hour.
b. Determine the operating income for each division and for the company as a whole if the transfer price between divisions is $15 per hour.
c. What are the operating income results for each division and for the company as a whole if the two divisions net the hours worked for each other and charge $12.50 per hour for the one with the excess? Which division manager prefers this arrangement?
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Chapter 23: Performance Measurement, Compensation, and Multinational Considerations
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Sample Questions
Q1) Team incentives encourage cooperation by:
A)forcing people to work together on difficult tasks
B)improving morale
C)letting individuals help one another as they strive toward a common goal
D)rewarding all teams the same amount
Q2) Examples of "cooking the books" are understated assets and overstated liabilities.
A)True
B)False
Q3) One way to achieve greater comparability of historical cost-based ROIs for a company's foreign division is to restate performance in dollars.
A)True
B)False
Q4) Investment turnover is calculated as revenue divided by investment.
A)True
B)False
Q5) The economic value added concept has attracted considerable attention in recent years. Explain the attractiveness of this number as a measure of performance.
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