Introduction to Cost Management Test Bank
Course Introduction
Introduction to Cost Management provides students with a fundamental understanding of how organizations plan, control, and reduce costs to operate efficiently and competitively. The course covers key concepts such as cost behavior, cost allocation, budgeting, standard costing, and variance analysis. Through real-world examples and case studies, students learn to analyze costing information for decision-making, implement cost control strategies, and evaluate the impact of different costing methods on organizational performance. This course equips students with practical tools to support effective financial management within various business environments.
Recommended Textbook
Cornerstones of Cost Management 2nd Edition by Don R. Hansen
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Page 2
Chapter 1: Introduction to Cost Management
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Sample Questions
Q1) What can a company do to increase the likelihood of its employees being ethical in all their undertakings?
Answer: Companies can establish a culture and atmosphere of ethical business practices by rewarding those employees who are honest, fair, and act with integrity. They can establish their own code of professional conduct that sets out the organizational purpose, beliefs, values, and expectations of employees. The code of conduct should be known, visible, and enforced. Companies should hire certified professionals, when appropriate. Certified professionals have codes of conduct and standards appropriate to their duties. Companies can incorporate ethical values into the selection criteria for employee recruitment.
Q2) One of the major advances in information technology that affects firms is the emergence of electronic commerce.
A)True
B)False
Answer: True
Q3) The cost management subsystem designed to assign costs to individual products and services is called the __________ information system.
Answer: cost accounting
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3
Chapter 2: Basic Cost Management Concepts
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Sample Questions
Q1) Which of the following costs would be included as part of factory overhead?
A) depreciation of plant equipment
B) direct labor
C) depreciation on the corporation's office building
D) paper used in the production of books
Answer: A
Q2) The three methods of cost assignment are direct tracing, driver tracing, and allocation.
A)True
B)False
Answer: True
Q3) The cost of goods manufactured represents the total manufacturing cost of goods completed during the current period.
A)True
B)False
Answer: True
Q4) Generally, more managerial objectives can be met with an activity-based system than with a _________ system.
Answer: traditional
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Chapter 3: Cost Behavior
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Sample Questions
Q1) The experience curve relates cost to increased efficiency, such that the more a task is performed, the lower the cost of doing will be.
A)True
B)False
Answer: True
Q2) A nursing home requires one nurse for each six patients. This is an example of a
A) fixed cost.
B) variable cost.
C) step cost.
D) mixed cost.
Answer: C
Q3) __________ explain changes in costs as units produced change.
Answer: Unit level drivers
Q4) A coefficient of determination of 0.91 means
A) the two variables move together in the same direction and have a strong relationship.
B) the parameter is not significant.
C) the model is significant 91 percent of the time.
D) that the independent variable explains 91 percent of the cost.
Answer: D
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Chapter 4: Activity-Based Costing
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Sample Questions
Q1) If unit-based product costing is used, which of the following would be traced directly to the product?
A) setup costs
B) direct labor
C) maintenance of machinery
D) inspection costs
Q2) Management information systems can be divided into a unit-based type and activity-based type.
A)True
B)False
Q3) Offering greater product accuracy than an activity-based costing system is not a characteristic of a __________ costing system. or
Q4) Activity __________ helps management achieve objectives such as product or customer costing and continuous improvement.
Q5) The formula Budgeted annual overhead/Budgeted annual driver level is used to calculate a __________ rate.
Q6) The proportion of an overhead activity consumed by a product is the __________ ratio.
Page 6
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Chapter 5: Product and Service Costing: Job-Order System
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Sample Questions
Q1) Direct labor costs are assigned to individual jobs using a source document known as a
A) job-order cost sheet.
B) payroll check.
C) time sheet.
D) requisition form.
Q2) In developing unit costs, overhead costs should be assigned using activity drivers. Which would be the likely activity driver for a production process using a lathe?
A) units produced
B) direct labor hours
C) machine hours
D) direct materials cost
Q3) For a manufacturer, the three inventory accounts on the balance sheet are
A) Materials, Finished Goods, and Cost of Goods Sold.
B) Materials, Overhead, and Cost of Goods Sold.
C) Materials, Direct Labor, and Overhead.
D) Materials, Work-in-Process, and Finished Goods.
Q4) Why are unit costs important? Why do full-cost unit costs change from accounting period to accounting period.
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Chapter 6: Process Costing
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Sample Questions
Q1) The unit-costing method that excludes prior-period work and costs in computing current-period unit work and costs is called the __________ costing method.
Q2) The FIFO costing method recognizes that the work and costs carried over from the prior period legitimately belong to that period.
A)True
B)False
Q3) Transferred-in costs are accounted for in the same manner as
A) materials added at the beginning of the process.
B) materials added at the end of the process.
C) conversion costs.
D) labor costs.
Q4) When products and their costs are moved from one process to the next process, these costs are referred to as
A) unit costs.
B) transferred-in costs.
C) WIP inventory costs.
D) equivalent unit costs.
Q5) The cost assigned to goods from a prior process is called the __________ cost. or
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Chapter 7: Allocating Costs of Support Departments and Joint Products
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Sample Questions
Q1) Figure 7-3 Hanover and Trust, a large law firm, utilizes an internal centralized printing center to serve its three departments: Individuals, Corporate, Trust. The costs of the printing department include fixed costs of $69,190 and variable costs of $0.04 per page. Total estimated print pages are estimated to be 330,000 pages. Individuals are estimated to use 130,000; Corporate will use 165,000 and 35,000 from the trust area.
Refer to Figure 7-3. Assuming a single charging rate is used, what would be the charge per page? (round to the nearest cent)
A) $.04
B) $.25
C) $.21
D) none of the above amounts
Q2) The choice of allocation method depends on an evaluation of costs and benefits, and circumstances.
A)True
B)False
Q3) Products produced simultaneously by the same process up to a point are called __________ products.
Q4) Compare and contrast the various methods of accounting for joint product costs.
Page 9
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Chapter 8: Budgeting for Planning and Control Key
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Sample Questions
Q1) Which of the following is NOT an advantage of participative budgeting?
A) encourages incrementalism
B) encourages communication
C) encourages responsibility
D) encourages creativity
Q2) The sales budget shows the expected sales quantity and price of each product or service.
A)True
B)False
Q3) A budget that is developed around one particular level of activity is
A) a static budget.
B) a continuous budget.
C) an incremental budget.
D) none of these.
Q4) Cash disbursements and cash excess or deficiency are components of the __________ budget.
Q5) The activity-based budget begins with output and then determines the resources necessary to create that output.
A)True
B)False
10
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Chapter 9: Standard Costing: a Functional-Based Control Approach
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Sample Questions
Q1) The three-variance method requires dividing costs into fixed and variable amounts.
A)True
B)False
Q2) Using more highly skilled direct laborers might affect which of the following variances?
A) direct materials usage variance
B) direct labor efficiency variance
C) variable manufacturing overhead efficiency variance
D) all of these
Q3) The sum of the standard plus allowable deviation is called the upper __________ .
Q4) The document that shows the amount and cost of direct materials, direct labor, and overhead to make a unit of output is called the standard __________ .
Q5) The formula for the fixed overhead spending variance is:
A) Standard fixed overhead rate ´ Standard Hours
B) AFOH - BFOH
C) Applied fixed overhead - budgeted fixed overhead
D) (AH - SH) ´ SVOR
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Chapter 10: Decentralization: Responsibility Accounting, Performance
Evaluation, and Transfer Pricing
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Sample Questions
Q1) A type of fringe benefit received over and above salary is(are) called:
A) Bonus based on net income
B) Cash compensation
C) Perquisites
D) EVA
Q2) Cognitive limitations mean it is difficult for central managers to be fully knowledgeable about all products and markets.
A)True
B)False
Q3) Which of the following departments would NOT be a cost center?
A) advertising department
B) city police department
C) building and grounds department
D) sales department
Q4) When top management controls the major functions of an organization it is called:
A) Centralization
B) Decentralization
C) Optimization
D) An unfavorable overhead variance
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Chapter 11: Strategic Cost Management
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Sample Questions
Q1) When a computer company maintains the internal storage space for a lower price, it is following a
A) focusing strategy.
B) cost leadership strategy.
C) differentiation strategy.
D) strategic positioning strategy.
Q2) Life-cycle cost management emphasizes
A) cost control.
B) cost reduction.
C) normal costing.
D) process costing.
Q3) The structural and executional factors that determine the long-term cost structure of an organization are called:
A) Organizational activities
B) Operational cost drivers
C) Operational activities
D) Organizational cost drivers
Q4) Accounting is simplified in the JIT system by the use of backflush costing.
A)True
B)False
Page 13
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Chapter 12: Activity-Based Management
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Sample Questions
Q1) Activities that contribute to customer value and are necessary to remain in business are called __________ activities.
Q2) Which of the following is a financial measure of activity efficiency?
A) activity flexible budgeting
B) trends in activity costs
C) benchmarking
D) all of these
Q3) Which of the following is NOT an objective of activity-based management?
A) to improve decision making through better cost information
B) to increase the number of activities necessary to perform processes
C) to encourage cost reduction through continuous improvement
D) to increase profitability
Q4) Each unit of product requires 16 pounds of material. Due to scrap and rework, each unit has been averaging 18 pounds of material. The material costs $4 per pound. The non-value-added costs are
A) $8.
B) $4.
C) $64.
D) $72.
Q5) What is process value analysis?
14
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Chapter 13: The Balanced Scorecard: Strategic-Based Control
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Sample Questions
Q1) From the customer perspective, which of the following might be an appropriate measure for improving product quality?
A) customer profitability
B) cost per customer
C) percentage of returns
D) number of patents pending
Q2) Lead measures
A) are the measures with the highest priority.
B) are generic to different strategies.
C) are based on performance drivers.
D) represent the desired outcomes.
Q3) Lead measures are critical to strategy because
A) they are based on actual activity.
B) they are an independent part of the system.
C) there should be a causal linkage with strategy.
D) they are outcome measures.
Q4) Setting balanced objectives, target values, and rewards are steps in developing the
Page 15
Q5) Training hours is an example of a(n) __________ measure.
Q6) Dissatisfied customers are an example of a __________ measure.
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Page 16
Chapter 14: Quality and Environmental Cost Management
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Sample Questions
Q1) The lowest environmental costs are attainable at the A) zero prevention point.
B) zero damage point.
C) revalorizing point.
D) sustainable development point.
Q2) The predetermined amount of defective product that a company permits to be sold is called:
A) Zero defects
B) Kaizen
C) Acceptable quality level
D) Taguchi quality loss function
Q3) Costs which exist because poor quality may or does exits are called __________ .
Q4) The costs of a consumer complaint department are
A) external failure costs.
B) internal failure costs.
C) appraisal costs.
D) prevention costs.
Q5) Cost-volume-profit analysis relies on analysis of fixed and variable costs.
A)True
B)False
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Chapter 15: Lean Accounting and Productivity Measurement
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Sample Questions
Q1) The two lean accounting approaches are average-costing and value-stream cost reporting.
A)True
B)False
Q2) In the calculation of product costs for value streams with multiple products, units shipped instead of units produced is used as the denominator because
A) it reduces conversion costs assigned to the value stream.
B) it motivates managers to reduce inventories.
C) units shipped are always greater than units produced.
D) units shipped is not used.
Q3) Reducing the time it takes to configure equipment to produce a different product is an example of
A) cellular manufacturing.
B) batch processing.
C) reduced setup/changeover times.
D) value flow stream.
Q4) __________ allocation is the only allocation used regularly in a value stream cost assignment.
Q5) Describe the objectives and characteristics of a Lean Manufacturing system.
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Chapter 16: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Target after-tax profit must be converted into __________ profit to calculate units or revenue needed.
Q2) Nonesuch Company sells only one product at a regular price of $7.50 per unit.
Variable expenses are 60 percent of sales and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales. What sales dollar level is needed to obtain a before-tax profit of $60,000 when the selling price is $6.00 per unit?
A) $90,000
B) $120,000
C) $72,000
D) $360,000
Q3) Using cost-volume-profit analysis, we can conclude that a 20 percent reduction in variable costs will
A) reduce the break-even sales volume by 20 percent.
B) reduce total costs by 20 percent.
C) reduce the slope of the total cost line by 20 percent.
D) not affect the break-even sales volume if there is an offsetting 20 percent increase in fixed costs.
Q4) In cost-volume-profit analysis income taxes __________ the break even point.
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Chapter 17: Activity Resource Usage Model and Tactical
Decision Making
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Sample Questions
Q1) Firms may be asked to accept a special order of their product for a reduced price if A) it can be concealed from the government.
B) excess capacity exists.
C) the order is small.
D) the plant is producing at maximum capacity.
Q2) A keep-or-drop decision uses irrelevant cost analysis to determine whether to continue or discontinue a segment or line of business.
A)True
B)False
Q3) Future costs that differ across alternatives describe A) relevant costs.
B) target cost.
C) full costs.
D) activity-based costs.
Q4) A special-order decision focuses on whether a specially priced order should be accepted or rejected.
A)True
B)False
Page 20
Q5) Past cost __________ represents an allocation of a cost already incurred.
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Chapter 18: Pricing and Profitability Analysis
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Sample Questions
Q1) Price skimming occurs in which of the following life-cycle stages?
A) Introduction
B) Growth
C) Maturity
D) Decline
Q2) The pricing of a new product at a low initial price to build market share quickly is called __________.
Q3) Custom Choppers, Inc. produces two types of motorcycles, a standard model which sells for $5,000, and a customized model which sells for $10,000. Budgeted sales for the year are 300 standard models and 100 customized models. Variable expenses are $1,500 for the standard model and $3,500 for the customized model. Actual sales were 500 standard models at $6,000 and 150 customized models at $12,000.
Calculate:
a. Contribution Margin Variance
b. Budgeted Average Unit Contribution Margin
c. Contribution Margin Volume Variance
Indicate whether Favorable (F) or Unfavorable (U)
SUPPORTING CALCULATIONS:
Q4) Discuss the limitation of profit measurement.
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Chapter 19: Capital Investment
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Sample Questions
Q1) Bodacious Company is considering the purchase of a new machine for $80,000. The machine would generate an annual cash flow before depreciation and taxes of $28,778 for five years. At the end of five years, the machine would have no salvage value. The company's cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate. What is the annual net after-tax cash flow (rounded)?
A) $23,667
B) $8,633
C) $6,400
D) $28,778
Q2) Capital investment decisions are concerned with planning, setting goals, arranging financing, and the selection of __________ assets. or
Q3) The present value of $4,000 to be received each year for three years and earning a 10 percent return (rounded) is
A) $11,120.
B) $9,948.
C) $9,822.
D) $9,200.
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Page 22
Chapter 20: Inventory Management: Economic Order
Quantity, Jit, and the Theory of Constraints
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Sample Questions
Q1) One of the traditional reasons for holding inventory is to avoid shutdowns due to defective parts. The JIT solution is to
A) reduce setup costs.
B) reduce lead time.
C) use total preventive maintenance.
D) use total quality control.
Q2) The JIT approach to inventory management
A) allows greater flexibility as to when products can be manufactured.
B) results in higher inventory levels but reduces ordering and setup costs.
C) results in lower inventory carrying costs.
D) none of these.
Q3) The drum-buffer-rope system is another name for
A) a traditional inventory system.
B) a JIT inventory system.
C) a TOC inventory system.
D) both a and b.
Q4) The __________ is the amount of inventory needed to keep the constrained resource busy for a specified time interval.
Q5) The costs of holding inventory are called __________ costs.
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