Cost Management Exam Review
Course Introduction
Cost Management is a comprehensive course that explores the principles, methods, and techniques used to control and reduce business costs while achieving organizational objectives. The course covers essential topics such as cost behavior, cost allocation, budgeting, standard costing, variance analysis, and the use of cost information for decision-making. Students will learn to apply various costing methods including job order, process, and activity-based costing, and develop skills to analyze and interpret cost data to improve efficiency and profitability. Emphasis is placed on the strategic role of cost management in planning, monitoring, and enhancing the overall performance of an organization.
Recommended Textbook
Cost Management Measuring Monitoring and Motivating Performance 2nd Canadian Edition by
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Chapter 1: The Role of Ethical Accounting Information in Management Decision Making
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116 Verified Questions
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Sample Questions
Q1) Employees will always make ethical decisions if they act in the best interests of shareholders.
A)True
B)False
Answer: False
Q2) Ethical decision-making:
A)Does not include ongoing improvement
B)Considers the well-being of those affected by the decision
C)Has little to do with professional reputation
D)Is not important for accountants
Answer: B
Q3) When learning cost accounting, it is sufficient to learn the mechanics of applying cost accounting methods.
A)True
B)False Answer: False
Q4) Uncertainty and bias reduce decision quality.
A)True
B)False Answer: True
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Chapter 2: Cost Concepts, Behaviour, and Estimation
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Sample Questions
Q1) A p-value of 89% for the slope coefficient in a regression of a cost driver against a cost indicates:
A)The true variable costs are statistically significantly different from zero
B)There is only an 11% chance the true variable costs are zero
C)The relationship between the cost and the cost driver is nonlinear
D)None of the above
Answer: D
Q2) Past costs are irrelevant for decision-making, but may be relevant for predicting future costs.
A)True
B)False
Answer: False
Q3) A scatter plot provides helpful information about the relationship between a cost and a potential cost driver.
A)True
B)False
Answer: False
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) The breakeven sales volume of the Tuck Co. is 800,000 units. If the variable cost per unit increases by $1.50 and the selling price per unit increases by $2 next year, then the new breakeven point will be:
A)The same
B)Higher
C)Lower
D)Cannot be determined
Answer: C
Q2) Grady, Inc. produces a single product and projects the following costs for a normal month in which 100 units are produced and sold: Manufacturing Non-manufacturing Fixed costs $8,000 $5,000
Total variable costs 7,700 6,050
The selling price per unit is $300. What volume, in units, must Grady sell to break even?
A)36
B)58
C)80
D)90
Answer: C
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Page 5
Chapter 4: Relevant Information for Decision Making
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Sample Questions
Q1) PQK Corporation produces and sells bookends. Its managers are considering whether to outsource the task of cutting the wood for the bookends to DLN Corporation. Which of the following is most likely to be a qualitative factor that managers will consider in making the decision?
A)Cost of delivery
B)Timeliness of delivery
C)Whether DLN will outsource the delivery process
D)Amortization on DLN's fleet of delivery trucks
Q2) In making a special order decision, which of the following is a relevant fixed cost?
A)Incremental fixed costs associated with current business
B)Contribution margin of any current business replaced
C)Amortization on existing production equipment
D)Incremental fixed costs associated with the order
Q3) To make a decision about a special order, managers need to know whether:
A)The order replaces regular business
B)The customer will buy the same product in the future
C)The customer is a not-for-profit organization
D)The order has a long-term strategic effect
Q4) Describe the costs that are usually relevant to a make or buy decision.
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Chapter 5: Job Costing
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Sample Questions
Q1) Star Company's accountants estimate total overhead for each month will be $64,000. They will allocate overhead on the basis of direct labour cost. During the current month, 3 jobs were worked on: Job 745 Job 746 Job 747
Direct material $36,000 $56,000 $24,000
Direct labour $56,000 $72,000 $40,000
Job 745 was completed and sold, Job 746 was completed and Job 747 is still in process. Budgeted direct labour cost for the month was $160,000 and actual overhead was $65,800.
The amount of over- or underapplied overhead for the month was:
A)$1,400 overapplied
B)$1,800 underapplied
C)$4,848 overapplied
D)$8,000 underapplied
Q2) Which of the following statements regarding overhead allocation is true?
A)Actual job costs are almost always higher than estimated job costs
B)Actual job costs are almost always lower than estimated job costs
C)Actual job costs are almost always the same as estimated job costs
D)Actual job costs are almost always different from estimated job costs
Q3) Explain the difference between normal and abnormal spoilage.
Q4) Can overhead be over- or underapplied in an actual job costing system? Explain.
Page 7
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Chapter 6: Process Costing
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Sample Questions
Q1) Conversion costs may be separated into direct labour and overhead when it is relatively easy to track direct labour, and the use of labour occurs in a different pattern than the use of overhead resources.
A)True
B)False
Q2) Assume there were 6,000 units in beginning work in process, 60% complete. 20,000 units were completed during the month. Ending work in process is 40% complete, which is equivalent to 3,200 units for conversion costs. Materials are added at the beginning of the process. The standard cost method is used. The number of equivalent units of conversion costs is:
A)23,200
B)17,680
C)19,600
D)21,280
Q3) Process costing is simplified when a company uses just-in-time inventory methods.
A)True B)False
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Chapter 7: Activity-Based Costing and Management
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Sample Questions
Q1) All of the following are quality-related activities except:
A)Prevention activities
B)Production activities (spoilage and rework)
C)Activities undertaken to advertise high quality
D)Post-sales activities
Q2) In an ABC system, a "cost object" could be a unit of product, a product line, or a customer.
A)True
B)False
Q3) The cost hierarchy for an ABC system includes:
I. Unit-level activities
II. Marketing activities
III. Product-sustaining activities
IV. Administrative activities
A)I and III only
B)II and IV only
C)I and II only
D)III and IV only
Q4) Describe customer-sustaining activities and give one example.
Q5) Why might an organization want to track customer-related costs?
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Chapter 8: Measuring and Assigning Support Department
Costs
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Sample Questions
Q1) The step-down method allocates one support department's cost at a time.
A)True
B)False
Q2) Which of the following is the most appropriate cost allocation base for a purchasing department?
A)Time spent speaking with other department heads on the telephone
B)Hours of training provided to purchasing department employees
C)Allocated costs of other departments
D)Number of purchase requisitions
Q3) Which departments in an organization provide services internal to the organization?
A)Non-value-added departments
B)Value-added departments
C)Support departments
D)Operating departments
Q4) Managers often allocate support department costs as a means of motivating employees.
A)True
B)False
Page 10
Q5) Explain the difference between operating departments and support departments.
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Chapter 9: Joint Product and By-Product Costing
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Sample Questions
Q1) Daisy Dairy produces cheese. The cheese manufacturing process yields whey, which is either disposed of or sold cheaply as animal feed. Identify the main product and by-product at Daisy Dairy and explain your reasoning.
Q2) When deciding whether to process a product beyond the split-off point:
A)Joint costs are relevant
B)Joint costs are irrelevant
C)Separable costs are irrelevant
D)Revenue is irrelevant
Q3) Joint processes can result in:
I. Products
II. Services
III. Intangible assets
A)I only
B)II only
C)I and III only
D)I and II only
Q4) Managers sometimes erroneously include joint cost allocations in the information they use for short term decision-making, such as product emphasis. Explain why this practice could lead to suboptimal decisions.
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Chapter 10: Static and Flexible Budgets
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Sample Questions
Q1) Budget variances cannot be calculated from a static budget.
A)True
B)False
Q2) Kelita, Inc., projects sales for its first three months of operation as follows: October November December
Credit sales $100,000 $150,000 $200,000
Cash sales 40,000 60,000 50,000
Total Sales $140,000 $210,000 $250,000
Inventory on October 1 is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale.
(Appendix 10A)What are the anticipated cash disbursements for October?
A)$120,000
B)$180,000
C)$140,000
D)$60,000
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Page 12
Chapter 11: Standard Costs and Variance Analysis
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Sample Questions
Q1) For overhead variances, the difference between the flexible budget amounts and actual costs incurred is called the:
A)Efficiency variance
B)Budget variance
C)Favourable variance
D)Quantity variance
Q2) Which department is customarily responsible for an unfavourable material price variance?
A)Sales
B)Purchasing
C)Engineering
D)Production
Q3) Variance analysis is used for monitoring and performance evaluation.
A)True
B)False
Q4) A standard cost variance is a difference between a standard cost and an actual cost.
A)True
B)False
Q5) Provide one pro and one con for building waste into cost standards.
Page 13
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Chapter 12: Strategic Investment Decisions
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Sample Questions
Q1) The City of Brandon is considering the purchase of new road repair equipment costing $40,000 to achieve cash savings of $8,000 per year in operating costs. The estimated useful life is 10 years, with no terminal value. The city's minimum expected return is 14%.
a)What is the net present value of this investment?
b)What is the internal rate of return?
c)What is the accounting rate of return based on the initial investment?
d)What is the payback period?
Q2) In general, the initial project investment does not require discounting in a net present value analysis.
A)True
B)False
Q3) Qualitative factors that might override the acceptance of a positive NPV project include:
A)The time value of money
B)A negative environmental impact that could harm an organization's reputation
C)The discount rate
D)The risk free rate
Q4) List one pro and one con for using the payback method.
Q5) Distinguish between NPV and IRR. Give one pro and one con for each method.
Page 14
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Chapter 13: Pricing Decisions
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Sample Questions
Q1) The sensitivity of sales to price increases is called the price elasticity of demand.
A)True
B)False
Q2) Certain highways in British Columbia require users to pay a toll for their use. Toll prices vary according to the time of day, demonstrating the use of:
A)Penetration pricing
B)Cost-based pricing
C)Price skimming
D)Peak load pricing
Q3) A penetration price is the price charged for transactions that take place within a single organization.
A)True
B)False
Q4) Which of the following is an example of a product with elastic demand?
A)Cigarettes
B)Customized homes
C)Gasoline
D)High fashion clothing
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Chapter 14: Strategic Management of Costs
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Sample Questions
Q1) Which of the following industries is least likely to implement target costing?
A)Food products and beverages
B)Heavy equipment manufacturers
C)Car manufacturers
D)Bicycle manufacturers
Q2) Life cycle costing considers cash flows over the entire life of products that have high development or decommissioning costs.
A)True
B)False
Q3) Roland's Recycling accepts and recycles or disposes of hazardous waste for the city. It charges the city for waste disposal based on the amount of waste handled. Its contract specifies that the sites that have been set up for waste drop-off will be cleaned up completely when the contract eventually expires. The owners of Roland's have been contacted by the county to set up a similar service for people who live in the county. Roland's accountant is preparing an analysis for the owners. Recommend an appropriate costing method. Describe the method and explain the reasons for your choice.
Q4) Kaizen costing relies on price forecasts.
A)True
B)False
Page 16
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Chapter 15: Measuring and Assigning Costs for Income Statements
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Sample Questions
Q1) In a throughput costing income statement, the throughput contribution is calculated as revenues - direct materials costs.
A)True
B)False
Q2) During its second month of operations, MLS Corporation produced 300 units and sold 280 units at $40 each. The beginning inventory comprised 50 units, and costs were unchanged from the previous month. MLS uses a FIFO cost flow assumption to account for inventory. Costs incurred during the second month were:
Direct materials per unit produced $3
Direct labour per unit produced $5
Variable overhead per unit produced $7
Variable selling and administrative cost per unit sold $5
Total fixed production overhead $6,000
Total fixed selling and administrative costs $3,000
a)Reconcile MLS' income based on absorption costing and variable costing.
b)Reconcile MLS' income based on variable costing and throughput costing.
Q3) Budgeted capacity is always greater than normal capacity.
A)True
B)False
Page 17
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Chapter 16: Performance Evaluation and Compensation
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Sample Questions
Q1) Decision-making based on general knowledge is more likely to occur in this type of organization:
A)Centralized
B)Decentralized
C)Effective
D)Ineffective
Q2) To protect shareholders from excessive compensation practices, executive compensation packages are best set by:
A)The board of directors
B)A committee of primarily outside members of the board of directors
C)A committee of top management employees
D)The external auditors
Q3) Which of the following responsibility centres can be evaluated using residual income?
A)Cost centres
B)Profit centres
C)Revenue centres
D)Investment centres
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18
Chapter 17: Strategic Performance Measurement
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Sample Questions
Q1) An advantage of the balanced scorecard is:
A)The organizational dialogue that takes place about vision, strategies, goals, and objectives
B)It is rarely time consuming
C)It is easy to determine the measures and weights for the measures in compensation contracts
D)The benefits always exceed the costs
Q2) The balanced scorecard's financial perspective is immediately supported by which other perspective?
A)Learning and growth
B)Innovation
C)Internal business processes
D)Customer
Q3) A disadvantage with the balanced scorecard is:
A)Employees throughout the organization have a better understanding of how their efforts affect operations
B)Rewards are provided for activities that should lead to long-term success
C)Benchmarks for internal business processes can be set using industry averages
D)Managers may choose measures for their most successful current activities
Q4) List two strengths and two weaknesses of the balanced scorecard approach.
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Chapter 18: Sustainability Management
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Sample Questions
Q1) Which of the following internal costs is the most difficult to measure?
A)Image and relationship costs
B)Conventional costs
C)Contingent costs
D)Hidden costs
Q2) Internal impacts are also called:
A)Direct impacts
B)Private impacts
C)None of the above
D)Both
Q3) The feedback loop is only intended to involve an organization's managers.
A)True
B)False
Q4) Fines, lawsuits and clean up costs are an example of hidden costs.
A)True
B)False
Q5) The triple bottom line refers to the effect in which a company's profit increases by three-fold when they begin to consider environmental and social aspects.
A)True
B)False
Page 20
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