Cost Management Systems
Test Bank
Course Introduction
Cost Management Systems explores the foundational concepts, methodologies, and applications involved in tracking, controlling, and analyzing costs within organizations. The course examines various costing methods including job order costing, process costing, activity-based costing, and standard costing. It emphasizes the role of cost information in strategic planning, budgeting, performance evaluation, and decision-making processes. Students will learn how to design and implement effective cost management systems that support organizational objectives, facilitate operational efficiency, and provide insights for managerial decisions. Real-world cases and projects are integrated to illustrate the practical applications of cost management in diverse business environments.
Recommended Textbook
Cornerstones of Cost Accounting 1st Canadian Edition by Don Hansen
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Page 2
Chapter 1: A: Basic Cost Management Concepts
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Q1) Newton Company recently had a fire in its accounting office,destroying most of its records.Only the following information could be salvaged for the year: \(\begin{array}{lr}
\text { Direct labour } & \$ 400,000 \\
\text { Factory overhead } & 200,000 \\
\text { Cost of goods sold } & 800,000 \\
\text { Work in process, January 1 } & 80,000 \\
\text { Finished goods, January 1 } & 160,000 \\
\text { Work in process, December 31 } & 100,000 \\
\text { Finished goods, December 31 } & 120,000
\end{array}\)
What is the cost of direct materials used in production during the year?
A)$140,000
B)$180,000
C)$200,000
D)$260,000
Answer: B
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Chapter 1: B: Basic Cost Management Concepts
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Q1) Explain the differences between direct tracing,driver tracing,and allocation.
Answer: Direct tracing is the process of identifying and assigning costs to a cost object that are specifically or physically associated with the cost object.Driver tracing is assigning costs using drivers,which are causal factors.The driver approach relies on identification of factors that allegedly capture the causal relationship.Allocation is the assignment of indirect costs to cost objects based on convenience or assumed linkages.
Q2) Discuss how the goal of profit maximization is affected by ethical considerations.What incentives are there for managers to manipulate accounting data in unethical ways in order to increase profits?
Answer: The objective of profit maximization should be constrained by the requirement that profits are achieved through legal and ethical means.Because performance evaluation and rewards for managers often are linked to reported profits,managers might manipulate accounting data to show increased profits in order to increase their own bonuses.The evaluation and reward system should be designed to discourage unethical behaviour.
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Chapter 2: Cost Behaviour
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Q1) What type of incurred cost provides long-term activity capacity,usually as the result of strategic planning?
A)discretionary fixed expenses
B)committed fixed expenses
C)mixed costs
D)step-variable costs
Answer: B
Q2) A manufacturing company pays an assembly line worker $10 per hour.What is the proper classification of this labour cost?
A)fixed cost
B)semi-variable cost
C)variable cost
D)mixed cost
Answer: C
Q3) What is a supervisor's salary of $2,000 per month an example of?
A)fixed cost
B)variable cost
C)step cost
D)mixed cost
Answer: A
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Chapter 3: Cost-Volume-Profit Analysis
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Q1) Assuming all other things are the same,what must have happened to the variable cost per unit if there was an increase in the break-even point?
A)It remained the same.
B)It increased first,then decreased.
C)It increased.
D)It decreased first,then increased.
Q2) Xi Company is the exclusive Iowa distributor of lawn mowers for a small manufacturing company.It sells only one model at $600 per unit and for which Xi pays $250.Xi's other variable costs amount to $50 per unit.Fixed costs are $2,000.In October,Xi sold 15 lawn mowers and it sold 20 in November.
Calculate the following values:
a.Monthly break-even point in sales dollars
b.Monthly break-even point in units
c.Monthly income for October
d.Monthly income for November
e.Margin of safety for October
Q3) In the cost-volume-profit analysis,what are two ways management can deal with risk and uncertainty?
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Chapter 4: Job-Order Costing Systems
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Q1) What is the term for the average activity that a firm experiences in the long term (more than one year)?
A)expected activity level
B)normal activity level
C)theoretical activity level
D)practical activity level
Q2) Refer to the figure.What is the total amount credited to materials inventory for Walter?
A)$110,000
B)$140,000
C)$170,000
D)$480,000
Q3) What source document is used to assign the cost of the components to a job?
A)job cost sheet
B)control account
C)production order
D)materials requisition form
Q4) Compare and contrast perishability and intangibility in an automobile oil lubrication shop and architectural design firms.
Q5) Explain why actual costing systems are rarely used in practice.
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Chapter 5: Process Costing
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Q1) What happens when conversion costs are uniform?
A)Materials,labour,and overhead are applied at different rates throughout the process.
B)Materials,labour,and overhead are added throughout the process at the same rate.
C)Labour and overhead are added at the same rate but different materials are added at a different point.
D)Materials and labour are added at the same rate but overhead is applied uniformly.
Q2) Refer to the figure.What are the equivalent units for materials in the Finishing Department? \(\text { Weighted Average } \quad \quad \quad \text { FIFO }\)
A)4,000 2,000
B)4,800 3,200
C)6,000 3,000
D)8,000 8,000
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Chapter 6: Activity-Based Costing
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Q1) Refer to the figure.What is the allocation rate per labour transaction using ABC?
A)$16
B)$40
C)$8,000
D)$29,000
Q2) Refer to the figure.What is the activity rate for responding to requests?
A)$21
B)$25
C)$35
D)$50
Q3) How should material amounts of underapplied or overapplied overhead be disposed of?
A)treated as an adjustment to cost of goods sold
B)treated as an adjustment to work in process
C)allocated to direct materials,work in process,and finished goods
D)allocated to work in process,finished goods,and cost of goods sold
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Chapter 7: Allocating Costs of Support Departments and Joint Products
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Q1) Which of the following is the cost of crude oil used in producing gasoline products an example of?
A)joint costs
B)a by-product
C)joint products
D)common cost allocation
Q2) What amount of joint costs will be allocated to No.2 common using the constant gross margin percentage method?
A)$37,800
B)$67,200
C)$192,000
D)$300,000
Q3) Which of the following is not a major objective of allocation as identified by the IMA?
A)to value inventory
B)to obtain a mutually agreeable price
C)to compute product-line profitability
D)to detect fraud
Q4) Describe the differences between support and producing departments.Give three examples of each.
10
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Chapter 8: Budgeting for Planning and Control
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Q1) Refer to the figure.What are the total assets at the end of July?
A)$439,000
B)$446,500
C)$515,500
D)$654,500
Q2) Refer to the figure.The following variances were given in the activity performance report: \(\begin{array}{llr}
\text { Design } &?\\
\text { Machining } &\$40F\\
\text {Setups } &\$15 F\\
\text { Purchasing} &?
\end{array}\)
What is the activity variance for design?
A)$15 F
B)$30 U
C)$40 F
D)$100 U
Q3) Compare and contrast static budgets,flexible budgets,and activity-based budgets.
Q4) Discuss the features of an ideal budgetary process.
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Chapter 9: Standard Costing: a Functional-Based Control Approach
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Q1) How are standards developed? What is the difference between ideal and currently attainable standards?
Q2) Which of the following is an acceptable method of disposing of variances?
A)closing them to cost of goods sold only
B)closing them to raw materials,work in process,and finished goods
C)closing them to raw materials,finished goods,and cost of goods sold
D)closing them to raw materials
Q3) Harry Company's standard variable overhead rate is $6 per direct labour hour,and each unit requires 2 standard direct labour hours.During March,Harry recorded 6,000 actual direct labour hours,$37,000 actual variable overhead costs,and 2,900 units of product manufactured. What is the variable overhead efficiency variance for March for Harry?
A)$600 (U)
B)$1,200 (U)
C)$2,200 (U)
D)$2,200 (F)
Q4) Compare and contrast mix and yield variances.
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Chapter 10: Responsibility Accounting,performance
Evaluation,and Transfer Pricing
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Q1) What is the term for the right to buy a certain number of shares of a company's stock at a particular price?
A)stock option
B)cash compensation
C)stock-based compensation
D)perquisite
Q2) What is the term for the transfer price that would leave the buying division no worse off if an input is purchased from an internal division?
A)the negotiated transfer price
B)the minimum transfer price
C)the maximum transfer price
D)the coordinated transfer price
Q3) Refer to the figure.What are the average operating assets for Division Z?
A)$75,000
B)$187,500
C)$500,000
D)$1,250,000
Q4) Compare and discuss the advantages and disadvantages of the following performance measures: ROI,EVA,and Residual Income.
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Chapter 11: Tactical Decision Making
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Q1) Refer to the figure.How much will income change if the special order is accepted?
A)decrease by $80,000
B)increase by $111,600
C)decrease by $180,000
D)increase by $398,400
Q2) The speakers are currently unpackaged.Packaging them individually would increase costs by $1.20 per unit.However,the units could then be sold for $33.00.All other information remains the same as the original data.What is the effect on profits if Miller Company packages the speakers?
A)decrease of $24,000
B)decrease of $36,000
C)increase of $36,000
D)no change
Q3) How is understanding of committed resources and flexible resources important to the activity resource usage model? How does this relate to relevance?
Q4) Describe the steps in the decision-making process.What is the role of qualitative factors in tactical decision making?
Q5) What are relevant costs? How do they relate to decision making?
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Chapter 12: Pricing and Profitability Analysis
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Q1) Refer to the figure.There were no beginning inventories for January,and all units were sold for $50.Costs are stable over the three months. What is the March ending inventory for Steele Corporation using the variable costing method?
A)$15,000
B)$104,000
C)$120,000
D)$260,000
Q2) Refer to the figure.What is the net income for Barmore Company?
A)$20,500
B)$32,500
C)$150,000
D)$300,000
Q3) What is the definition of markup?
A)The markup is a percentage applied to base cost.
B)The markup is an absolute rule.
C)A major advantage of markup pricing is that standard markups are easy to apply.
D)The markup can be calculated using a variety of bases.
Q4) Compare and contrast the various pricing policies used by companies.
Q5) What are some of the pricing practices regulated by law?
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Chapter 13: Strategic Cost Management
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Q1) What activities are included in the industry value chain?
A)shareholder value chain activities as well as firm activities
B)buyer and supplier value chain activities as well as firm activities
C)only firm activities
D)only firm production activities
Q2) Which of the following is considered a direct product cost if JIT manufacturing is used and each manufacturing cell produces a single product?
A)overtime wages for accounting department workers
B)the salary of the plant supervisor
C)the salary of the cell supervisor
D)the cost of heating the CEO's office
Q3) Which of the following are stages of the production life-cycle viewpoint?
A)purchasing,production,logistics
B)planning,purchasing,logistics
C)planning,production,logistics
D)planning,production,purchasing
Q4) Explain the difference between acceptable quality level and total quality control.
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Chapter 14: Activity-Based Management
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Q1) Sasha Cat Company sells one of its products for $100 each.Sales volume averages 750 units per year.Recently,its main competitor reduced the price of its product to $80.Sasha Cat Company expects sales to drop dramatically unless it matches the competitor's price.In addition,the current profit per unit must be maintained.Information about the product (for production of 750)is as follows: \(\begin{array}{lrrr} &\underline{\text { SQ}}&\underline{\text { AQ}}& \underline{\text { Actual Cost}}\\
\text { Materials (kilograms) } & 2,000 & 2,500 & \$ 25,000 \\
\text { Labour (hours) } & 450 & 500 & 12,500 \\
\text { Setups (hours) } & 0 & 600 & 7,500 \\
\text { Material handling (moves) } & 0 & 300 & 3,750 \\
\text { Warranties (number repaired) } & 0 & 200 & 15,000 \end{array}\)
What is the non-value-added cost per unit?
A)$38.33
B)$40.47
C)$41.67
D)$43.33
Q2) What is kaizen costing? How does activity analysis help reduce costs?
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Chapter 15: The Balanced Scorecard: Strategic-Based Control
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Q1) The balanced scorecard becomes a means of communicating the strategy of the organization to its employees and managers.What might be a downside of communicating this information?
A)Employees will need direction about what is to be done.
B)Employees will need to understand where the organization is headed.
C)Employees may allow sensitive information may end up in the hands of competitors.
D)Employees can be informed of objectives using video or newsletters.
Q2) Which of the following is NOT a step in developing the Balanced Scorecard?
A)setting balanced objectives
B)outlining control procedures
C)setting target values
D)establishing a reward program
Q3) Why does the Balanced Scorecard differ from company to company? Whose responsibility is the implementation?
Q4) Which of the following would be a nonfinancial measure?
A)customer profitability
B)dissatisfied customers
C)return on investment
D)cost per unit
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Chapter 16: Quality and Environmental Cost Management
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Q1) Refer to the figure.What is the fines cost per unit for toxic releases of Product X1?
A)$0.008
B)$0.040
C)$0.080
D)$0.100
Q2) Refer to the figure.What are the environmental costs as a percentage of sales for 20X4?
A)7%
B)14.29%
C)72.73%
D)142%
Q3) Even under a zero-defects approach to quality,what types of quality costs will still remain?
A)internal detection costs
B)internal detection and appraisal costs
C)prevention and appraisal costs
D)prevention and internal detection costs
Q4) Define environmental costs and identify the four categories of environmental costs.Give an example of each category.
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Chapter 17: Lean Accounting and Productivity Measurement
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Q1) What is the term for the point at which,for any mix of inputs that will produce a given output,no more of any one input is used than is absolutely necessary?
A)input trade-off efficiency
B)productivity
C)total productive efficiency
D)technical efficiency
Q2) Refer to the figure.How long does it take to produce a batch of 20 units under a traditional manufacturing approach?
A)335 minutes
B)300 minutes
C)15 minutes
D)12 minutes
Q3) What two types of efficiencies are achieved at the point of total productive efficiency?
A)cost and profit efficiency
B)technical and allocative efficiency
C)sales and profit efficiency
D)maintenance and profit efficiency
Q4) Explain the difference between technical and input trade-off efficiency.
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Chapter 18: Inventory Management: Economic Order
Quantity,jit,and the Theory of Constraints
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Q1) A linear programming problem has the following objective function: 20X + 40Y + 60Z. If the optimal solution provided by the model is to produce and sell 100,200,and 300 units of X,Y,and Z,respectively,what is the expected return?
A)$120
B)$24,000
C)$28,000
D)$36,000
Q2) Which of the following are strategic objectives of JIT?
A)increasing inventory
B)improving a firm's competitive position
C)increasing inventory cost
D)improving a firm's non-value-added activities
Q3) Refer to the figure.What is the constraint on machine hours for Tiffany Manufacturing Company?
A)1X + 2Y \(\leq \)200
B)1X + 2Y\(\leq \) 400
C)5X + 1Y \(\leq \) 400
D)10X + 90Y\(\leq \) 200
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