Cost Management
Final Exam
Course Introduction
Cost Management is a vital course that explores the principles, techniques, and tools used to plan, monitor, and control business costs effectively. Students will learn about various cost classification methods, cost behavior analysis, budgeting, standard costing, and variance analysis. The course also delves into strategic cost management approaches, such as activity-based costing and target costing, to help organizations enhance profitability and competitiveness. By the end of the course, students will be equipped to make informed decisions regarding resource allocation, pricing, and operational efficiency in both manufacturing and service environments.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis 8th Canadian Edition by Srikant M. Datar
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Chapter 1: The Accountants Vital Role in Decision Making
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Q1) The Global Reporting Initiative (GRI)is a nonprofit organization established to develop guidelines so that reporting on economic, environmental and social performance by all organizations is as routine and comparable as financial reporting.
A)True
B)False
Answer: True
Q2) Financial accounting is concerned primarily with A)cost planning and cost controls.
B)external reporting to investors, government authorities, etc.
C)profitability analysis.
D)providing information for strategic and tactical decisions.
E)providing analysis to facilitate long term decision making.
Answer: B
Q3) List the Five-Step Decision-Making Process in order.
Answer: 1.Identify the problem and uncertainties.2.Obtain information.3.Make predictions about the future.4.Decide on and implement one of the alternatives.5.Implement the decision, evaluate performance, and learn.
Q4) Estimate possible outcomes from outsourcing production to another country. Answer: Answers: C
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) purchase of frozen food for sale to customers by Gregory Food Retailers
Answer: Answers: A
Q2) A manufacturing plant produces two product lines: football equipment and hockey equipment.Direct costs for the football equipment line are the
A)beverages provided daily in the plant break room.
B)monthly lease payments for a specialized piece of equipment needed to manufacture the football helmet.
C)salaries of the clerical staff that work in the company administrative offices.
D)utilities paid for the manufacturing plant.
E)advertising costs.
Answer: B
Q3) Direct materials inventory is products held for resale.
A)True
B)False
Answer: False
Q4) salary of a real estate agent at Larson Real Estate
Answer: Answers: B
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Janets's Custom Golf sells special clubs.Janet is able to purchase equipment from a manufacturing company for $90 each.The equipment is sold for $170 each.Required:
a.What is the break-even in units assuming Janet incurred $4,500 in selling expenses, and there were no other expenses?
b.What would be the break-even in units assuming Janet incurred $4,500 in selling expenses and had $9,000 in other fixed expenses?
Answer: a.Contribution margin = $170 - $90 = $80 per unit
11ea82f3_8b85_3d4b_971a_ed113d323b51_TB3086_00 b.Contribution margin = $170$90 = $80 per unit
11ea82f3_8b85_645c_971a_d3415cb3d2bb_TB3086_00
Q2) Gross margin in a merchandising organization is considered to be
A)the same as the contribution margin.
B)all revenues less costs which do not change with respect to an output-related driver.
C)all revenues less cost of goods sold.
D)all revenues plus costs which change with respect to an output-related driver.
E)all revenues.
Answer: C
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Chapter 4: Job Costing
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Sample Questions
Q1) Which of the following is part of the approach to computing the budgeted indirect cost allocation rate?
A)identify the costs which are part of the indirect cost pool
B)identify costs associated with the direct cost pool
C)estimate the cost items for direct cost pool
D)adjust the cost allocation base for variances
E)divide the total quantity of the cost allocation base into the total costs in the direct cost pool
Q2) The new manager of the insurance division does not understand how the company can have so many overhead rates for assigning costs to the activities of the company's life insurance underwriters.There is one rate schedule for average assignable costs when agents write standard policies.There is another rate schedule which the agents must complete when they write special policies, and these policies are costed out differently from those that are categorized as standard policies.Required: Why might the company have different costing systems with different overhead rates for the standard and specialized policies?
Q3) 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 Management
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Q1) For each of the following activities identify an appropriate activity-cost driver.a.machine maintenance
b.machine setup
c.quality control
d.material ordering
e.production scheduling
f.warehouse expense
g.engineering design
Q2) A division of a company manufactures two products, which are in high demand in the defence industry.Product A is stamped out in a machine press, at the rate of 10,000 per hour.Product B is identical to product A, with the exception that it is made from thicker steel, and requires the machine press to be recalibrated.Product A is produced on the day shift and product B is produced on the afternoon shift, allowing set up changes to be done between shifts.In this case, set up hours are related to which of the following?
A)units of output
B)batches of output
C)the number of customers
D)machine hours
E)labour hours
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) A rolling budget is a budget or plan that
A)rolls several budgets together for forecasting purposes.
B)has one budget category roll into the next category.
C)rolls all budget categories together into a master budget.
D)is always available for a specified future period by replacing time periods as the lapse.
E)is not used to guide operations.
Q2) Cash collections for September are
A)$196,000.
B)$161,400.
C)$199,000.
D)$202,000.
E)$206,000.
Q3) 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.
E)is based upon budget constraints outside of management control.
Q4) Describe the benefits to an organization of preparing an operating budget.
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Chapter 7: Flexible Budgets, Variances, and Management
Control: I
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Sample Questions
Q1) What is the All Good Things Ltd.direct labour input-efficiency variance?
A)$4,200 U
B)$4,200 F
C)$5,000 U
D)$5,000 F
E)$200 U
Q2) June's direct manufacturing labour efficiency variance is
A)$62.50 unfavourable.
B)$62.50 favourable.
C)$128.00 unfavourable.
D)$128.00 favourable.
E)neither favourable nor unfavourable.
Q3) The textbook discusses five levels of variances: Level 0, Level 1, Level 2, Level 3, and Level 4.Briefly explain the meaning of each of those levels and provide an example of a variance at each of those levels.
Q4) The sales-volume variance is the difference between the flexible-budget amount and the static-budget amount; unit selling prices, unit variable costs, and fixed costs are held constant.
A)True
B)False
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Chapter 8: Flexible Budgets, Variances, and Management
Control: II
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Sample Questions
Q1) Which of the following statements is TRUE?
A)The fixed manufacturing sales-volume variance is rarely zero.
B)The difference between the allocated and the budgeted overhead is the production-volume variance.
C)The production-volume variance arises for both fixed and variable costs.
D)The fixed manufacturing overhead sales-volume variance can be written-off to cost of goods sold.
E)The production-volume variance arises only for variable costs.
Q2) Calculate the rate variance for fixed setup overhead costs.
A)$114 unfavourable
B)$150 unfavourable
C)$250 unfavourable
D)$150 favourable
E)$250 favourable
Q3) What is the fixed overhead rate variance?
A)$5,750 unfavourable
B)$5,750 favourable
C)$4,100 favourable
D)$4,100 unfavourable
E)$1,650 unfavourable
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Sample Questions
Q1) What is the absorption costing break-even point in units?
A)917 units
B)1,000 units
C)5,838 units
D)6,000 units
E)4,445 units
Q2) What is the Western Technologies' September cost of goods sold amount if absorption costing is used?
A)$668,380
B)$726,500
C)$632,500
D)$687,500
E)$637,500
Q3) Absorption-costing income statements cannot easily differentiate between variable and fixed costs.
A)True B)False
Q4) Unused capacity is considered wasted resources and the result of poor planning.
A)True B)False
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Chapter 10: Analysis of Cost Behaviour
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Sample Questions
Q1) What is the variable cost per unit sold?
A)$180,000
B)$320
C)$312
D)$240
E)$72
Q2) Disposal of spoiled work in process
Q3) What is the tool crib cycle time for an order?
A)2 minutes per tool
B)3 minutes per tool
C)5 minutes per tool
D)7 minutes per tool
E)4 minutes per tool
Q4) What is the net change in the budget of prevention costs if the procedures are automated in 2018? Will management agree with the changes?
A)$100,000 decrease, yes
B)$90,000 decrease, yes
C)$190,000 increase, no
D)$100,000 increase, yes
E)$90,000 increase, no
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Chapter 11: Decision Making and Relevant Information
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Q1) Local Steel Construction Company produces two products, steel and wood beams.Steel beams have a unit contribution margin of $200, and wood beams have a unit contribution margin of $150.The demand for steel beams exceeds Local Steel Construction Company's production capacity, which is limited by available direct labour and machine-hours.The maximum demand for wood beams is 90 per week.Management desires that the product mix should maximize the weekly contribution toward fixed costs and profits.Direct manufacturing labour is limited to 3,000 hours a week and 1,000 hours is all that the company's outdated machines can run a week.The steel beams require 120 hours of labour and 60 machine-hours.Wood beams require 150 labour hours and 120 machine-hours.Required: Formulate the objective function and constraints necessary to determine the optimal product mix.
Q2) A decision model is a formal method of making a choice that uses only quantitative analyses.
A)True
B)False
Q3) The firm has a $2,000 maintenance contract on its telecommunication system for the current year
Q4) Explain what revenues and costs are relevant when choosing among alternatives.
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Chapter 12: Pricing Decisions, Product Profitability Decisions, and Cost Management
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Q1) What is the unit cost when establishing a long-run price for mopeds?
A)$309.50
B)$325.48
C)$444.50
D)$484.50
E)$470.00
Q2) Max and Marv are starting a new business venture and are in the process of evaluating their product lines.One new product, hand-made wooden tables, has incurred $30,000 in development costs.These costs are to be amortized over a three-year period, the expected product life cycle.The direct costs of each table averages $90.Other costs for making the tables are estimated at $100,000 per year.The current sales program for tables is expected to change every six months.At that time a new pattern will be put in place with $7,000 of setup costs.Each table requires 12 labour hours and 2 machine hours.Current annual sales are expected to be 2,000 units of each table at $140 each.Customer service expenses average $10 per table.Required: What is the life-cycle operating income?
Q3) Including unit fixed costs for pricing is often used because of its simplicity. A)True B)False
Page 14
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Chapter 13: Strategy, Balanced Scorecard, and Profitability Analysis
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Q1) Uncertainty refers to the possibility that an actual amount will be equal to an expected amount.
A)True
B)False
Q2) Measures of the balanced scorecard's financial perspective include all of the following EXCEPT
A)operating income.
B)customer satisfaction.
C)gross profit percentage.
D)cost reductions.
E)return on investment.
Q3) What is the Barry Company's operating income in year 2?
A)$378,600
B)$366,120
C)$1,242,000
D)$403,520
E)$210,000
Q4) Downsizing is also called rightsizing.
A)True B)False
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Chapter 14: Period Cost Allocation
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Q1) The single-rate cost allocation method provides better information for decision making than the dual-rate method.
A)True
B)False
Q2) If the incremental method were used, what amount of cost would be allocated to the start-up business?
A)$10,000
B)$50,000
C)$40,000
D)$42,000
Q3) What is the total cost per hour of use for the Cassette Division assuming budgeted usage is the allocation base and a single-rate method is used?
A)$1,050.00
B)$600.00
C)$982.98
D)$382.98
E)$360.00
Q4) Should a company allocate its corporate costs to divisions?
Q5) To cost inventories for reporting on a company's tax return
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Chapter 15: Cost Allocation: Joint Products and Byproducts
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Q1) Broth from cooking food
Q2) What is the reason that accountants do not like to carry inventory at net realizable value?
A)it is the most difficult costing method
B)income is recognized after the sale is complete
C)income is recognized before sales are made
D)it is never acceptable to the taxing authorities
E)it is more difficult to count the inventory when carrying cost is different than purchase cost
Q3) A company can alter its total gross margin through its selection of joint cost allocation methods.
A)True
B)False
Q4) Byproduct revenues appear in the income statement as a cost increase to the main product and as a separate item of expense.
A)True
B)False
Q5) Cost of moulding plastic for use in making different toys on an assembly line.
Q6) Cost of processing crude oil in a gasoline refinery.
Page 17
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Chapter 16: Revenue and Customer Profitability Analysis
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Q1) Which of the following is NOT a factor that managers should consider in deciding how to allocate resources across customers?
A)short-run and long-run customer profitability
B)customer retention likelihood
C)economic forecasts
D)customer growth potential
E)increases in overall demand from having well-known customers
Q2) Each division manager for a paint manufacturer is provided with a customer profitability analysis for the past year.The managers use the analysis to determine how best to allocate the company's resources within their division, and when a customer is a "loss customer," that customer is dropped.Required:
Advise (briefly)the managers on their strategy of focusing only on profitability over the year, in terms of improving the bottom line of their respective divisions.Include at least three other factors that managers should consider in deciding how to assess customer value.
Q3) The stand-alone revenue allocation method is a weighted-average method.
A)True
B)False
Q4) What actions might be taken with an unprofitable customer?
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Chapter 17: Process Costing
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Q1) Operation-costing differs from pure process-costing in that operation-costing charges each work order separately for direct material cost.
A)True
B)False
Q2) What is the materials cost per unit in January using the FIFO method?
A)$2.00
B)$1.67
C)$2.25
D)$2.50
E)$3.00
Q3) What are the Townsend Company equivalent units for direct materials and conversion costs, respectively, for April?
A)1,350 units; 1,350 units
B)1,850 units; 1,690 units
C)1,600 units; 1,550 units
D)250 units; 200 units
E)1,600 units; 1,350 units
Q4) List and describe the five steps in process costing.
Q5) Compare and contrast process costing and job order costing.
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) The goal of separately identifying abnormal spoilage is to
A)properly cost units in the system.
B)assist in performance measurement.
C)ensure that such units do not reach finished goods inventory.
D)reduce abnormal spoilage to an acceptable level.
E)reduce abnormal spoilage to nil.
Q2) When calculating normal spoilage rates, the base should be the actual units started in production.
A)True
B)False
Q3) Complex defective products such as semiconductors
Q4) What are the amounts of direct materials and conversion costs assigned to ending work-in-process using the weighted-average process-costing method?
A)$6,720; $27,840
B)$27,840; $6,720
C)$27,840; $33,600
D)$33,600; $27,840
E)$633,600; $6,720
Q5) Rock extracted as a result of mining processing
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Chapter 19: Inventory Cost Management Strategies
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Q1) The management accountant must design performance measures to evaluate and control JIT production.One of the dominant sources of information that the management accountant might use for this would be the personal observations of production line workers and team leaders.Another dominant source of information would be
A)inventory turnover ratio.
B)nonfinancial measures of time, inventory and quality.
C)material cost variances.
D)number of units sent to scrap/total scrap costs.
E)total setup time for machines/total number of units started and completed.
Q2) Goal-congruence problems may occur when an inconsistency evolves between the decision model used and the model used to evaluate the performance of the person implementing the decision.
A)True
B)False
Q3) An Enterprise Resource Planning (ERP)System comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities.
A)True
B)False
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Chapter 20: Capital Budgeting: Methods of Investment Analysis
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Q1) Capital cost allowance tax deductions result in tax savings that partially offset the cost of acquiring the capital asset.
A)True
B)False
Q2) After-tax savings from an operating cash inflow are calculated by multiplying the cash flow by (1 - t), where t = the tax rate.
A)True
B)False
Q3) In determining whether to keep a machine or replace it, the original cost of the machine is always a relevant factor.
A)True
B)False
Q4) The consequences of capital expenditures are
A)quantitative and financial.
B)quantitative and qualitative.
C)qualitative and nonfinancial.
D)appropriate and inappropriate.
E)nonfinancial and irrelevant.
Q5) Explain why the term tax shield is used in conjunction with amortization.
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Chapter 21: Transfer Pricing and Multinational Management
Control Systems
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Q1) What is the transfer price per pair of shoes from the Sole Division to the Assembly Division if the transfer price per pair of soles is 125% of full costs?
A)$10.00
B)$12.50
C)$11.25
D)$20.00
E)$8.75
Q2) Physical exertion and mental action towards a goal can best be described as A)motivation. B)effort.
C)goal congruence.
D)incentive.
E)loyalty.
Q3) Some companies use dual pricing, using two separate transfer-pricing methods to price each interdivisional transaction.
A)True
B)False
Q4) Discuss the possible problems a corporation might have if its operations are totally decentralized.
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Chapter 22: Multinational Performance Measurement and Compensation
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Q1) Which of the following is TRUE concerning the ROI performance measure?
A)ROI is based on cash flow.
B)Is also called the accounting rate of return.
C)Some companies use net assets (assets minus liabilities)as the numerator.
D)The usual formulation is [total assets/ income ].
E)Net assets are sometimes used as the denominator, and net assets are sometimes used as the numerator.
Q2) The benefits of tying performance measures more closely to a manager's efforts encourage the use of
A)financial measures.
B)nonfinancial measures.
C)nonfinancial and financial measures.
D)performance input measures.
E)moral measures.
Q3) The only criticism of team-based compensation is that the incentives for individual employees to excel are diminished, harming overall performance.
A)True
B)False
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