Strategic Cost Analysis
Practice Questions
Course Introduction
Strategic Cost Analysis is a course that equips students with advanced tools and techniques for understanding, managing, and leveraging cost information to support organizational strategy and decision-making. The course covers the principles of cost behavior, cost allocation, activity-based costing, and the use of cost data in pricing, budgeting, and performance evaluation. Emphasizing a strategic perspective, students learn to analyze cost structures and identify opportunities for competitive advantage across various business contexts. Real-world case studies and hands-on assignments provide practical experience in applying cost analysis concepts to support business planning and drive organizational success.
Recommended Textbook
Cost Accounting Foundations and Evolutions 9th Edition by Kinney
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Chapter 1: Introduction to Cost Accounting
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Sample Questions
Q1) What four areas are covered by the Standards of Ethical Conduct for Certified Management Accountants? How are these areas defined?
Answer: The four areas covered by the Standards of Ethical Conduct for Certified Management Accountants are:competence,confidentiality,credibility,and integrity.Competence means having the capacity to function in a particular manner.Confidentiality means having the ability to maintain or keep information undisclosed.Credibility means having the ability to communicate information fairly and objectively.Integrity is the ability to mitigate actual conflicts of interest and to refrain from engaging in any conduct that would prejudice carrying out duties ethically and/or discredit the profession.
Q2) Managerial accounting is most concerned with meeting the needs of internal users. A)True
B)False Answer: True
Q3) Financial accounting is most concerned with meeting the needs of external users. A)True
B)False
Answer: True
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Chapter 2: Cost Terminology and Cost Behaviors
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Q1) Which of the following costs would be considered overhead in the production of chocolate chip cookies?
A)flour
B)chocolate chips
C)sugar
D)oven electricity
Answer: D
Q2) Davis Company manufactures desks.The beginning balance of Raw Material Inventory was $4,500;raw material purchases of $29,600 were made during the month.At month end,$7,700 of raw material was on hand.Raw material used during the month was A)$26,400.
B)$34,100.
C)$37,300.
D)$29,600.
Answer: A
Q3) A production plant could be a cost object.
A)True
B)False
Answer: True
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Chapter 3: Predetermined Overhead Rates, Flexible
Budgets, and Absorptionvariable Costing
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Sample Questions
Q1) Lawson Corporation
Lawson Corporation has the following data for use of its machinery <table > <tbody> <tr> <td> Month</td> <td> Usage</td> <td> Cost</td> </tr> <tr> <td> Jun</td> <td> 600</td> <td> $750</td> </tr> <tr> <td> Jul</td> <td> 650</td> <td> 775</td> </tr> <tr> <td> Aug</td> <td> 420</td> <td> 550</td> </tr> <tr> <td> Sept</td> <td> 500</td> <td> 650</td> </tr> <tr> <td> Oct</td> <td> 450</td> <td> 570</td> </tr> </tbody></table>
Refer to Lawson Corporation.Using the high-low method,compute the fixed cost element (to the nearest whole dollar).
A)$225
B)$138
C)$411
D)$364
Answer: B
Q2) If actual overhead exceeds applied overhead,factory overhead is said to be
Answer: underapplied
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Chapter 4:
Activity-Based Management and Activity-Based Costing
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Q1) Activity based costing is most effective when it is implemented in an environment that supports total quality management
A)True
B)False
Q2) An activity center is an organizational unit
A)that makes a single product or performs a single service.
B)in which only value-added activities are performed.
C)that incurs only unit,batch,or product/process level costs.
D)for which management wants separate activity information.
Q3) Mass customization can be achieved through the use of
A)activity-based costing.
B)just-in-time inventory.
C)flexible manufacturing systems.
D)all of the above.
Q4) Activity-based costing conforms to GAAP with regard to which costs should be expensed.
A)True
B)False
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Q5) Costs that support a product type or process are referred to as
Chapter 5: Job Order Costing
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Sample Questions
Q1) Peoria Company
Peoria Company has two departments (Processing and Packaging)and uses a job-order costing system.Peoria applies overhead in Processing based on machine hours and on direct labor cost in Packaging.The following information is available for August: \(\begin{array}{llc}
\text { Machine hours } & \frac{\text { Processing }}{3,600} & \frac{\text { Packagin }}{1,500} \\
\text { Directlabor cost } & \$ 47,600 & \$ 24,000 \\
\text { Applied overhead } & \$ 60,500 & \$ 54,750 \end{array}\)
Refer to Peoria Company.What is the overhead application rate per machine hour for Processing?
A)$ 0.79
B)$ 1.27
C)$13.22
D)$16.81
Q2) Discuss actual costing,normal costing,and standard costing.
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Chapter 6: Process Costing
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Q1) List and explain the six steps of cost assignment when using process costing.How does cost assignment differ between the weighted average and FIFO methods?
Q2) Process costing is most appropriate when manufacturing large batches of homogenous products.
A)True
B)False
Q3) Continuous production losses are assumed to occur at the end of a process.
A)True
B)False
Q4) The FIFO method separates beginning inventory and current production to compute cost per unit of production.
A)True
B)False
Q5) In a cost of production report using process costing,transferred-in costs are similar to the
A)cost of material added at the beginning of production.
B)conversion cost added during the period.
C)cost transferred out to the next department.
D)cost included in beginning inventory.
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Chapter 7: Standard Costing and Variance Analysis
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Q1) An unfavorable fixed overhead volume variance is most often caused by
A)actual fixed overhead incurred exceeding budgeted fixed overhead.
B)an over-application of fixed overhead to production.
C)an increase in the level of the finished inventory.
D)normal capacity exceeding actual production levels.
Q2) In analyzing manufacturing overhead variances,the volume variance is the difference between the A)amount shown in the flexible budget and the amount shown in the debit side of the overhead control account.
B)predetermined overhead application rate and the flexible budget application rate times actual hours worked.
C)budget allowance based on standard hours allowed for actual production for the period and the amount budgeted to be applied during the period.
D)actual amount spent for overhead items during the period and the overhead amount applied to production during the perioD.
Q3) Unfavorable variances are represented by debit balances in the overhead account.
A)True
B)False
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Chapter 8: The Master Budget
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Q1) Which of the following represents a proper sequencing in which the budgets below are prepared?
A)Direct Material Purchases,Cash,Sales
B)Production,Sales,Income Statement
C)Sales,Balance Sheet,Direct Labor
D)Sales,Production,Manufacturing Overhead
Q2) Managers may be more willing to accept a budget if A)it is continuous.
B)it is imposed.
C)it is very hard to attain.
D)they can participate in its development.
Q3) Balances for Accounts Receivable and Sales Discounts are projected after the cash collections schedule is prepared.
A)True
B)False
Q4) A budget that is prepared by adding a new budget month as each month expires is referred to as a(n)______________________________.
Q5) List and describe the pro-forma financial statements that are prepared at the end of the budgeting process.
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Chapter 9: Break-Even Point and Cost-Volume-Profit Analysis
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Q1) What are the major assumptions of CVP analysis?
Q2) In a CVP graph,the area between the total cost line and the total revenue line represents total
A)contribution margin.
B)variable costs.
C)fixed costs.
D)profit.
Q3) When using CVP analysis to determine sales level for a desired amount of profit,the profit is treated as an additional cost to be covered.
A)True
B)False
Q4) Which of the following factors is involved in studying cost-volume-profit relationships?
A)product mix
B)variable costs
C)fixed costs
D)all of the above
Q5) Contribution margin divided by revenue is referred to as the _______________.
Q6) The formula for margin of safety is _____________.
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Chapter 10: Relevant Information for Decision Making
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Q1) The relative product quantities composing a company's total sales is referred to as a company's __________.
Q2) Which of the following are relevant in a make or buy decision?
Variable Avoidable fixed Unavoidable fixed \(\text {\underline{ costs}
}\) \(\text {\underline{ costs} }\) &nb sp; \(\text {\underline{ costs} }\)
A)no yes yes
B)yes no yes
C)no no yes
D)yes yes no
Q3) In setting compensation structures,fixed salary expense is normally not considered. A)True
B)False
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Chapter 11: Allocation of Joint Costs and Accounting for
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Q1) The net realizable value approach requires that the net realizable value of by-products and scrap be treated as a reduction in joint costs allocated to primary products.
A)True
B)False
Q2) Industrial Solutions Company
Industrial Solutions Company produces three products from the same process that has joint processing costs of $4,100.Products R,S,and T are produced in the following quantities: 250 gallons,400 gallons,and 750 gallons.Industrial Solutions Company also incurred advertising costs of $60,000.The ad was used to run sales for all three products.The three products occupy floor space in the following ratio: 5:4:9.(Round all answers to the nearest dollar. )
Refer to Industrial Solutions Company.Using gallons as the physical measurement,what amount of joint processing cost is allocated to Product R?
A)$2,196
B)$1,171
C)$1,367
D)$ 732
Q3) Two incidental products of a joint process are __________ and ___________.
Page 13
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Chapter 12: Introduction to Cost Management Systems
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Q1) Reducing the time-to-market for a new product
A)is only possible if a company has formed strategic alliances with its suppliers.
B)generally increases long-run product costs because of the need to develop new production processes.
C)results in the ability of a firm to pursue a cost leadership competitive strategy.
D)may result in design flaws,a need for engineering change orders,and customer "bad will."
Q2) Performance reports are useful only to the extent that performance is measured against
A)a meaningful benchmark.
B)the performance of all other units or managers.
C)the budget as adopted for the period.
D)competitors' achievements.
Q3) Which of the following is not a primary goal of a cost management system?
A)use cost drivers to develop product costs
B)improve understanding of activities
C)develop organizational strategies
D)measure performance
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Chapter 13: Responsibility Accounting,support Department
Allocations,and Transfer Pricing
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Q1) An internal reconciliation account is not required for internal transfers based on A)market value.
B)dual prices.
C)negotiated prices.
D)cost.
Q2) When using a market-based transfer price,a decision must be made which market price to use.
A)True
B)False
Q3) If a division is set up as an autonomous profit center,then goods should not be transferred
A)in at a cost-based transfer price.
B)out at a cost-based transfer price.
C)in or out at cost-based transfer price.
D)to other divisions in the same company.
Q4) The manager of a profit center has the ability to set selling prices. A)True
B)False
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Q5) What are the advantages and disadvantages of market value as a transfer price?
Chapter 14: Performance Measurement, balanced
Scorecards, and Performance Rewards
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Sample Questions
Q1) Which of the following statements is true about the values statement of an organization?
A)It is used to formulate the mission statement.
B)It reflects the organization's culture by identifying beliefs about what is important to the organization.
C)It focuses on long-range plans for the organization.
D)The values contained in the statement must be quantifiable.
Q2) An organization typically develops a values statement before developing a mission statement.
A)True
B)False
Q3) Internal performance measures focus on the efficiency and effectiveness of an organization's production process.
A)True
B)False
Q4) What items affect comparability of different divisions within the same company on the basis of EVA,ROI and RI?
Q5) Identify the steps to follow in establishing the performance reward system for a company.
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Chapter 15: Capital Budgeting
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Sample Questions
Q1) Griffith Corporation
Griffith Corporation is considering an investment in a labor-saving machine.Information on this machine follows:
\(\begin{array}{ll}
\text { Cost } & \$ 30,000 \\
\text {Salvage value in five years } & \$0 \\
\text { Estimatedlife } &5 years \\
\text { Annual depreciation} &\$6,000 \\
\text { Anmual reduction in existing costs } &\$8,000 \\ \end{array}\)
Refer to Griffith Corporation.What is the payback period on this investment?
A)4 years
B)2.14 years
C)3.75 years
D)5 years
Q2) Project funding is an investing decision.
A)True
B)False
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Chapter 16: Managing Costs and Uncertainty
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Q1) A coefficient of determination has a value between 0 and +1.
A)True
B)False
Q2) The benefits of discretionary costs are usually measurable in monetary terms. A)True
B)False
Q3) The portion of variance in a dependent variable explained by an independent variable is referred to as the _________________________________________.
Q4) Costs that are necessary to sustain an organization's operations are referred to as ____________________________.
Q5) Supply chain management can reduce the processing time for an organization to obtain raw materials.
A)True
B)False
Q6) Having sufficient cash to pay liabilities as they become due is referred to as an organization's ________________________.
Q7) Explain the meaning of the coefficient of determination in cost estimation.
Q8) What are the usual sources for cash in an organization?
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Chapter 17: Implementing Quality Concepts
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Q1) Production quality is affected by
A)worker productivity.
B)the amount of failure costs incurred.
C)worker skill level.
D)just-in-time suppliers.
Q2) Which of the following is the first element of knowledge needed by a company wanting to pursue total quality management?
A)what the company's customers want
B)who the company's customers are
C)how the company's processes are designed
D)what the components of the company's product are
Q3) What are the four tenets of total quality management (TQM)?
Q4) The two costs of compliance are ______________________________ and ______________________________.
Q5) A benchmarking process that focuses on how best-in-class companies achieve their results is referred to as ___________________________________.
Q6) Discuss increased competition and improved problem solving skills as they relate to benchmarking.
Q7) How do control charts mesh with the concept of total quality control (TQC)?
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Chapter 18: Inventory and Production Management
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Q1) In a push system of production control,inventory is produced in anticipation of customer or work center demand.
A)True
B)False
Q2) Why is it important for a company to be (geographically)close to its suppliers to implement a JIT inventory control system?
Q3) The theory that the flow of goods through a production process cannot be at a faster rate than the slowest constraint in the process is known as ________________________________________. or
Q4) Backflush costing requires fewer allocations than traditional accounting methods.
A)True
B)False
Q5) In a pull system of production control,inventory is produced in anticipation of customer or work center demand.
A)True B)False
Q6) What does the term "pull" mean in the context of production control?
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Chapter 19: Emerging Management Practices
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Q1) Strategic alliances take the form of
A)joint ventures.
B)technology swaps.
C)licensing.
D)all of the above.
Q2) To increase the probability of success,it is important to involve customers in business processing reengineering (BPR)projects.
A)True
B)False
Q3) Disclosing detailed financial information to all employees is a characteristic of A)open-book management.
B)data mining.
C)diversity.
D)strategic alliance.
Q4) One method to improve the effectiveness of open-book management is through game playing.
A)True
B)False
Q5) Define business process reengineering (BPR).
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