Strategic Cost Management
Chapter Exam Questions
Course Introduction
Strategic Cost Management focuses on the role of cost information in the formulation and implementation of organizational strategy. The course explores frameworks and techniques for analyzing, managing, and reducing costs throughout the value chain, supporting decision-making to create sustainable competitive advantage. Students learn to integrate cost data with strategic objectives, assess cost drivers, and implement cost management systems such as activity-based costing and target costing. Emphasis is placed on linking cost management practices to broader business goals, performance measurement, and continuous improvement in diverse organizational settings.
Recommended Textbook
Cost Accounting 15th Edition by Charles T. Horngren
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Chapter 1: The Manager and Management Accounting
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Q1) Management accounting information helps managers calculate a target cost for a product ________.
A) by subtracting from the target price the operating income per unit of product that the company wants to earn
B) by subtracting from the target price the net income per unit of product that the company wants to earn
C) by subtracting profit margin per unit from the target price of product that the company wants to earn
D) by adding the operating income per unit and the contribution margin per unit
Answer: A
Q2) Increased global competition is placing pressure on companies to reduce costs. A)True
B)False Answer: True
Q3) Cost management not only helps reducing costs but also improving customer satisfaction and the quality of a firm's products.
A)True
B)False
Answer: True
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Chapter 2: An Introduction to Cost Terms and Purposes
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Q1) The determination of a cost as either direct or indirect depends upon the
A) accounting standards
B) tax system chosen
C) inventory valuation
D) cost object chosen
Answer: D
Q2) The following information pertains to the Emerald Corp: \[\begin{array} { l r }
\text { Beginuning work-in-process inventory } & \$ 75,000 \\
\text { Ending work-in-process inventory } & 85,000 \\
\text { Beginuning finished goods inventory } & 175,000 \\
\text { Ending finished goods inventory } & 200,000 \\
\text { Cost of goods manufactured } & 1,200,000
\end{array}\] What is cost of goods sold?
A) $1,210,000
B) $1,175,000
C) $1,185,000
D) $1,225,000
Answer: B
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4
Chapter 3: Cost-Volume-Profit Analysis
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Q1) Margin of safety measures the difference between budgeted revenues and breakeven revenues.
A)True
B)False
Answer: True
Q2) The number of units that High Corp must sell to reach targeted operating income of $25,000 is ________.
A) 6,000 units
B) 7,500 units
C) 3,334 units
D) 4,334 units
Answer: B
Q3) ________ is the process of varying key estimates to identify those estimates that are the most critical to a decision.
A) The graph method
B) A sensitivity analysis
C) The degree of operating leverage
D) Sales mix
Answer: B
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Chapter 4: Job Costing
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Q1) One reason for using longer time periods to calculate indirect-cost rates is seasonal cost fluctuations.
A)True
B)False
Q2) Under the proration approach,the sum of the amounts shown in the subsidiary ledgers will not match the amounts shown in the general ledger because no adjustments from budgeted to actual manufacturing overhead rates are made in the individual job-cost records.
A)True
B)False
Q3) Costs that are subject to short-run fluctuations for given jobs are ________.
A) actual costs
B) budgeted direct costs
C) budgeted indirect costs
D) normal costs
Q4) Each indirect-cost pool of a manufacturing firm ________.
A) utilizes a separate cost-allocation rate
B) is a subset of total direct costs
C) relates to multiple cost centres
D) utilizes the same cost-allocation rate for all costs incurred
Page 6
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Q1) What is the cost driver rate if manufacturing overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity?
A) $0.10 per page
B) $0.07 per page
C) $0.70 per page
D) $0.05 per page
Q2) Is it advisable to ignore facility-sustaining cost drivers during product costing?
Q3) As product diversity and indirect costs increase,it is usually best to switch away from a broad averaging system to an activity-based cost system.
A)True
B)False
Q4) Nichols' management is considering to implement ABC system because
A) ABC system can be implemented cheaply
B) ABC system provides more accurate direct cost figures
C) ABC system is a highly refined costing system
D) ABC system requires minimal expertise to operate
Q5) Explain how a top-selling product may actually result in losses for the company.
Q6) How does ABC costing system help service companies?
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Chapter 6: Master Budget and Responsibility Accounting
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Q1) The budgeting process is most strongly influenced by ________.
A) the capital budget
B) the budgeted statement of cash flows
C) the sales forecast
D) the production budget
Q2) Cash collections for September are ________.
A) $143,000
B) $170,000
C) $186,000
D) $204,000
Q3) Operating decisions primarily deal with ________.
A) the best use of scarce resources
B) how to obtain funds to acquire resources
C) acquiring equipment and buildings
D) satisfying stockholders
Q4) Budgets should ________.
A) be flexible
B) be administered rigidly
C) only be developed for short periods of time
D) include only variable costs
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Chapter 7: Flexible Budgets, direct-Cost Variances, and Management Control
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Q1) September's direct material flexible-budget variance is ________.
A) $100.00 unfavorable
B) $150.00 favorable
C) $50.00 unfavorable
D) $575 favorable
Q2) The use of high-quality raw materials is likely to result in a favorable efficiency variance and an unfavorable price variance.
A)True
B)False
Q3) The flexible-budget variance for materials is ________.
A) $2,700 favorable
B) $2,700 unfavorable
C) $3,300 unfavorable
D) $3,300 favorable
Q4) The direct labor efficiency variance during September is ________.
A) $260.00 favorable
B) $250.00 unfavorable
C) $280.00 favorable
D) $210.00 unfavorable
Q5) What is benchmarking,and how is it useful to a company?
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Chapter 8: Flexible Budgets, overhead Cost Variances, and Management Control
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Sample Questions
Q1) What is the flexible-budget amount for variable manufacturing overhead?
A) $6,500 unfavorable
B) $6,500 favorable
C) $11,250 unfavorable
D) $11,250 favorable
Q2) Xenon Company makes watches.The fixed overhead costs for 2015 total $648,000.The company uses direct labor-hours for fixed overhead allocation and anticipates 21,600 hours during the year for 540,000 units.An equal number of units are budgeted for each month.
During October,48,000 watches were produced and $52,000 was spent on fixed overhead.
Required:
a.Determine the fixed overhead rate for 2015 based on the units of input.
b.Determine the fixed overhead static-budget variance for October.
c.Determine the production-volume overhead variance for October.
Q3) Which of the following is a component of sales-volume variance?
A) Net-income volume variance
B) Operating-income volume variance
C) Taxable-income volume variance
D) Budgeted revenue variance
Page 10
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Chapter 9: Inventory Costing and Capacity Analysis
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Q1) How does the capacity level chosen to compute the budgeted fixed overhead cost rate affect the production-volume variance?
Q2) The basis of the difference between variable costing and absorption costing is how fixed manufacturing costs are accounted for.
A)True
B)False
Q3) What is the total throughput contribution?
A) $2,640,000
B) $3,190,000
C) $3,520,000
D) $4,070,000
Q4) It is most difficult to estimate ________ because of the need to predict demand for the next few years.
A) practical capacity
B) theoretical capacity
C) master-budget capacity utilization
D) normal capacity utilization
Q5) Briefly explain why many companies use absorption costing for external reporting as well as internal accounting.
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Chapter 10: Determining How Costs Behave
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Q1) Which cost estimation method is being used by Verill Company?
A) the regression analysis method
B) the marginal costing method
C) the conference method
D) the operating costing method
Q2) Write a linear cost function equation for each of the following conditions.Use y for estimated costs and X for activity of the cost driver.
a.Direct materials cost is $1.70 per pound
b.Total cost is fixed at $8,000 per month regardless of the number of units produced.
c.Auto rental has a fixed fee of $80.00 per day plus $2.00 per mile driven.
d.Machine operating costs include $1,000 of maintenance per month,and $12.00 of coolant usage costs for each day the machinery is in operation.
Q3) What is the slope coefficient?
A) $52.00
B) $43.75
C) $30.00
D) $40.00
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Chapter 11: Decision Making and Relevant Information
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Q1) Feedback from previous decisions uses historical information and,therefore,is irrelevant for making future predictions.
A)True
B)False
Q2) Place the following steps from the five-step decision process in order:
\(A =\) Obtain information including historical costs
\(\mathrm { B } =\) Evaluate performance to provide feed back
\(\mathrm { C } =\) Make decisions choosing among altematives
\(D =\) Make predictions about the future
\(\mathrm { E } =\) Identify the problem and uncertainties
A) \( A, E, D, B, C \)
B) \( \mathrm{C}_{,} \mathrm{D}_{,} \mathrm{E}_{,} \mathrm{~A}_{,} \mathrm{~B} \)
C) \( \mathrm{E}_{,} \mathrm{~A}_{,} \mathrm{D}, \mathrm{C}, \mathrm{B} \)
D) D, \( C_{,} B_{,} A_{,} E \)
Q3) ________ is relevant in a decision to replace equipment.
A) Warehouse rent costs
B) Book value of old equipment
C) Accumulated depreciation on old equipment
D) Salvage value
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Chapter 12: Strategy, balanced Scorecard, and Strategic
Profitability Analysis
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Q1) Total factor productivity will increase if ________.
A) technical productivity occurs
B) the company uses more total inputs per output
C) the company incurs fewer costs per input
D) current technology becomes obsolete
Q2) ________ is an organization's ability to offer products or services that are perceived by its customers as being superior and unique relative to those of its competitors.
A) Strategy
B) Product differentiation
C) Cost leadership
D) The balanced scorecard
Q3) ________ is a measure of the balanced scorecard's financial perspective.
A) Service response time
B) Number of new patents
C) Operating income
D) Defect rates
Q4) What are the four key perspectives in the balanced scorecard?
Q5) Define engineered and discretionary costs and give two examples of each.
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Chapter 13: Pricing Decisions and Cost Management
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Q1) Which of the following can be used to arrive at the target rate of return on investment?
A) dividing target annual operating income by invested capital
B) multiplying target annual operating income by the rate of fixed preference dividend
C) dividing invested capital by estimated dividend rate
D) multiplying earnings available to equity stakeholders by price-equity ratio
Q2) To prove predatory pricing,one of conditions established by the U.S.Supreme Court is that the company should be charging a price below 60% of its total costs.
A)True
B)False
Q3) Predatory pricing occurs when companies in an industry conspire in their pricing and production decisions to achieve a price above the competitive price and so restrain trade.
A)True
B)False
Q4) Value engineering cannot decrease value-added costs.
A)True
B)False
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Chapter 14: Cost Allocation, customer-Profitability Analysis, and Sales-Variance
Analysis
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Q1) How can a company's revenues and costs differ across customers?
Q2) What actions might be taken with an unprofitable customer?
Q3) Under the cause and effect criterion,reasonableness is a matter of judgment rather than an operational criterion.
A)True
B)False
Q4) A challenge to using cost-benefit criteria for allocating costs is that ________.
A) the costs of designing and implementing complex cost allocations are not readily apparent
B) the benefits of making better-informed pricing decisions are difficult to measure C) cost systems are being simplified and fewer multiple cost-allocation bases are being used
D) the costs of collecting and processing information keep spiraling upward
Q5) Companies that want to calculate the full cost of products must allocate all corporate costs to divisions.
A)True
B)False
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Chapter 15: Allocation of Support-Department Costs, common
Costs, and Revenues
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Q1) To discourage unnecessary use of a support department,management might
A) allocate user department costs based upon support department usage
B) allocate support department costs based upon user department usage
C) allocate a fixed amount of support department costs to each and every department
D) allocate a fixed amount of user department costs to each and every department
Q2) The stand-alone cost allocation method ranks the individual users of a cost object in order of users most responsible for a common cost and then uses these rankings to allocate the costs among the users.
A)True
B)False
Q3) If the stand-alone method were used,what amount of cost would be allocated to the start-up business?
A) $70,000
B) $66,000
C) $60,000
D) $74,000
Q4) What is an operating department and how is it different from a support department? Give examples of each.
Page 17
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Q1) All separable costs in joint-cost allocations are always incremental costs.
A)True
B)False
Q2) When a product is the result of a joint process,the decision to process the product past the splitoff point further should be influenced by the ________.
A) total amount of the joint costs
B) portion of the joint costs allocated to the individual products
C) extra revenue earned past the splitoff point
D) extra operating income earned past the splitoff point
Q3) How much is the ending inventory for the byproduct if byproducts are recognized in the general ledger at the point of sale?
A) $0
B) $375
C) $1,500
D) $2,500
Q4) Under the benefits-received criterion,the physical-measure method is much less desirable than the sales value at splitoff method.Why?
Q5) Explain why some companies choose not to allocate joint costs to products.
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Chapter 17: Process Costing
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Q1) Job-costing and process-costing are mutually exclusive,hence a hybrid costing system that combines elements of both job and process costing cannot be used.
A)True
B)False
Q2) Transferred-in costs are treated as if they are ________.
A) conversion costs added at the beginning of the process
B) costs of beginning inventory added at the beginning of the process
C) direct labor costs added at the beginning of the process
D) a separate direct material added at the beginning of the process
Q3) What is the total conversion costs for the month of July?
A) $1,700
B) $1,500
C) $1,300
D) $1,000
Q4) What is the balance in ending work-in-process inventory?
A) $25,500
B) $19,250
C) $15,600
D) $14,175
Q5) List and describe the five steps in process costing.
Page 19
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Chapter 18: Spoilage, rework, and Scrap
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Q1) Shazam Machines produces numerous types of money change machines.All machines are made in the same production department and many use exactly the same processes.Because customers have such different demands for the machine characteristics,the company uses a job-costing system.Unfortunately,some of the production managers have been upset for the last few months when their jobs were charged with the spoilage that occurred over an entire processing run of several types of machines.Some of the best managers have even threatened to quit unless the accounting system is changed.
Required:
What recommendations can you suggest to improve the accounting for spoilage?
Q2) Companies that attempt to achieve zero defects in the manufacturing process treat spoilage as ________.
A) scrap
B) reworked units
C) abnormal spoilage
D) indirect spoilage
Q3) How do job-costing systems account for spoilage?
Q4) Costs are assigned to scrap only if it is abnormal scrap.
A)True
B)False
Page 20
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Chapter 19: Balanced Scorecard: Quality and Time
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Q1) The time from which a machine setup begins for an order until the product is delivered to the customer is the ________.
A) delivery time only
B) manufacturing time plus the waiting time
C) manufacturing time plus the delivery time
D) customer-response time minus the receipt time
Q2) What would be the change in the external failure budget,if 600,000 units are used and assuming external failures are reduced by 10%.
A) $40,000 increase
B) $250,000 decrease
C) $240,000 decrease
D) $320,000 decrease
Q3) As per control charts,nonrandom variations occurs when ________.
A) there is a sudden increase in production
B) chance fluctuations in the speed of equipment cause defective products to be produced
C) defective products are produced as a result of a systematic problem
D) there is a sudden increase in sales
Q4) Manufacturing cycle times affect both revenues and costs.Explain.
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Chapter 20: Inventory Management, just-In-Time, and Simplified Costing Methods
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Q1) The annual relevant carrying costs of inventory consists of the sum of the
A) relevant ordering costs and the relevant costs of quality
B) relevant ordering costs plus the relevant opportunity costs of capital
C) relevant incremental costs plus the relevant opportunity costs of capital
D) relevant incremental costs plus the relevant ordering costs
Q2) Beryl Company sells 500 flash drives per week.Purchase-order lead time is 1 1/2 weeks and the economic-order quantity is 1,125 units.What is the reorder point?
A) 1,687.5 units
B) 937.5 units
C) 750 units
D) 1,125 units
Q3) The opportunity cost of the stockout includes lost contribution margin on the sale not made plus any contribution margin lost on future sales due to customer ill will.
A)True
B)False
Q4) Why do conflicts arise between the EOQ model's optimal order quantity and the order quantity that managers regard as optimal?
Page 22
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Chapter 21: Capital Budgeting and Cost Analysis
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Q1) Diamond Manufacturing Company provides glassware machines for major department store retailers.The company has been investigating a new piece of machinery for its production department.The old equipment has a remaining life of four years and the new equipment has a value of $87,776 with a four-year life.The expected additional cash inflows are $32,000 per year.What is the internal rate of return?
A) 10%
B) 12%
C) 17%
D) 20%
Q2) Which of the following is a stage of the capital budgeting process that determines which investment yields the greatest benefit and the least cost to an organization?
A) make decisions by choosing among alternatives stage
B) make predictions stage
C) identify projects stage
D) implement the decision, evaluate performance, and learn stage
Q3) What conflicts can arise between using discounted cash flow methods for capital budgeting decisions and accrual accounting for performance evaluation? How can these conflicts be reduced?
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Chapter 22: Management Control Systems, transfer Pricing, and
Multinational Considerations
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Q1) Sandra's Sheet Metal Company has two divisions.The Raw Material Division prepares sheet metal at its warehouse facility.The Finishing Division prepares the cut sheet metal into finished products for the air conditioning industry.No inventories exist in either division at the beginning of 20X8.During the year,the Raw Material Division prepared 450,000 square feet of sheet metal at a cost of $1,800,000.All the sheet metal was transferred to the Finishing Division,where additional operating costs of $1.50 per square foot were incurred.The 450,000 square feet of finished fabricated sheet metal products were sold for $3,875,000.
Required:
a.Determine the operating income for each division if the transfer price from Raw Material to Finishing is at a cost of $4 per square foot.
b.Determine the operating income for each division if the transfer price is $6 per square foot.
c.Since the Raw Materials Division sells all of its sheet metal internally to the Finishing Division,does the Raw Materials manager care what price is selected? Why? Should the Raw Materials Division be a cost center or a profit center under the circumstances?
Q2) What is decentralization and what are its benefits?
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Chapter 23: Performance Measurement, compensation, and
Multinational Considerations
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Q1) Interactive control system ________.
A) ensure to adhere to legal or ethical accounting policies and procedures
B) ensure prompt and severe reprimand of unethical conduct, regardless of the benefits that might accrue to the company from unethical action
C) ensure employees' intrinsic motivation, the desire to achieve self-satisfaction for performing well regardless of external rewards such as bonuses or promotion
D) ensure frequent face-to-face communications among managers and employees regarding the critical uncertainties
Q2) What is the EVA for St.Louis?
A) $127,870
B) $163,730
C) $196,270
D) $360,000
Q3) Customer-satisfaction measures are an example of the ________.
A) goal-congruence approach
B) balanced scorecard approach
C) financial report scorecard approach
D) investment success approach
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