Strategic Cost Management Exam Review
Course Introduction
Strategic Cost Management explores the methodologies and tools that organizations use to manage costs as a source of competitive advantage. The course emphasizes the integration of cost management with strategic planning and decision-making, examining the role of cost analysis in shaping business strategies, optimizing resource allocation, and improving operational efficiency. Topics include activity-based costing, value chain analysis, target costing, benchmarking, and performance measurement. Through case studies and real-world examples, students learn to apply cost management techniques to support strategic objectives and drive organizational success in dynamic market 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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Sample Questions
Q1) Refer to the figure.What is the cost of goods sold?
A)$565,000
B)$950,000
C)$965,000
D)$980,000
Answer: C
Q2) Which of the following items would appear on an income statement of a production company and not a service organization?
A)selling expenses
B)cost of goods sold
C)administrative expenses
D)gross margin
Answer: B
Q3) In a cost management system,what does the cost view NOT include?
A)resources
B)activities
C)driver analysis
D)products and customers
Answer: C
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Page 3
Chapter 1: B: Basic Cost Management Concepts
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Sample Questions
Q1) What is the role of the controller in an organization? Describe some of the activities over which he or she has control.
Answer: The controller is responsible for both internal and external accounting.These responsibilities usually include diverse activities such as taxes,provincial securities commission reports,cost accounting,budgeting,internal auditing,financial accounting,and systems accounting.
Q2) Explain the relationship between the financial accounting system and the cost management system.
Answer: A financial accounting system is mainly concerned with producing information for the company's external users.Financial accounting information is used for investment decisions,stewardship evaluation,activity monitoring,and regulatory measures.The rules that govern a financial accounting system are defined by the provincial securities commissions.Outputs of a financial accounting system include the standard financial statements,which include the income statement,balance sheet,and statement of cash flows.The cost management system is concerned with producing information for the company's internal users and is designed to meet management objectives.A cost management system has three broad objectives-to provide information on costing of products and services,planning and control activities,and decision-making activities.
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Chapter 2: Cost Behaviour
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Sample Questions
Q1) If all the activity capacity acquired is not used,what is this an example of?
A)practical capacity
B)activity capacity
C)unused capacity
D)ideal capacity
Answer: C
Q2) Refer to the figure.What does the coefficient of determination in this model indicate?
A)The slope is 14.05,which is the variable costs.
B)The intercept is 100.41,which is the fixed costs.
C)Eighty percent of the variation in overhead variable is explained by DLH.
D)The slope is 14.05 and it is significant.
Answer: C
Q3) What is the appropriate range for the coefficient of correlation (r)?
A)0 \(\le\) r \(\le\) 1
B)-% \(\le\) r \(\le\) +%
C)-1 \(\le\) r \(\le\) 1
D)-1 \(\le\) r \(\le\) +%
Answer: C
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Refer to the figure.What is the break-even point in units for Kringel?
A)33,334 units
B)40,000 units
C)100,000 units
D)200,000 units
Q2) What is the sales dollars level required to break even at the old price of $7.50?
A)$12,000
B)$18,000
C)$50,000
D)$75,000
Q3) Assuming all other things are the same,what must have happened to the selling price per unit if there was a decrease in the break-even point?
A)It remained the same.
B)It increased first,then decreased.
C)It increased.
D)It decreased.
Q4) In the cost-volume-profit analysis,what are two ways management can deal with risk and uncertainty?
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6
Chapter 4: Job-Order Costing Systems
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Sample Questions
Q1) For which of the following would process costing be most applicable?
A)producing electronics
B)machining custom components
C)constructing high-rise buildings
D)performing CPA audits
Q2) Which of the following systems assigns costs by the job?
A)the process costing system
B)the job-order costing system
C)the project costing system
D)the batch costing system
Q3) What is the principal difficulty with normal costing?
A)The unit cost information is not received on a timely basis.
B)It can result in fluctuating per-unit overhead costs.
C)It often results in underapplied or overapplied overhead.
D)The tracing of the direct materials is complex.
Q4) What document identifies each product and accumulates its manufacturing costs?
A)job-order cost sheet
B)control account
C)production order
D)bill of materials
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Chapter 5: Process Costing
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Sample Questions
Q1) Which of the following determines whether the costs assigned to units transferred out and to units in ending work in process are equal to the costs in beginning work in process plus the manufacturing costs incurred in the current period?
A)equivalent unit of output
B)cost reconciliation
C)batch production process
D)transferred-in costs
Q2) "Total costs to account for" does NOT include which of the following costs?
A)direct materials requisitioned for the department
B)prior department costs transferred in
C)ending work-in-process balance
D)beginning work-in-process balance
Q3) Refer to the figure.There were 2,500 units that were 80 percent complete remaining in Mixing at October 31.What is the amount of total costs to account for?
A)$360,000
B)$396,000
C)$454,050
D)$545,505
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8
Chapter 6: Activity-Based Costing
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Sample Questions
Q1) When can product costs be distorted if a unit-based activity driver is used?
A)when non-unit-based overhead costs are an insignificant proportion of total overhead
B)when the consumption ratios differ between unit-based and non-unit-based input categories
C)when the amount of overhead that each product consumes is insignificant
D)when the degree of product diversity produced is small
Q2) Which of the following is a unit-based activity driver?
A)number of setups
B)number of direct labour hours
C)number of inspections
D)number of material moves
Q3) In a department that is drilling holes in materials,which activity base is likely to be most appropriate for assigning overhead costs?
A)units produced
B)direct labour hours
C)machine hours
D)number of batches
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9
Chapter 7: Allocating Costs of Support Departments and Joint Products
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Sample Questions
Q1) What joint cost allocation method would assign the same amount of cost per unit to two joint products that sell for $10 and $40,respectively?
A)sales-value-at-split-off method
B)direct allocation method
C)net realizable value method
D)physical unit method
Q2) Which of the following would NOT be a criterion used to rank departments to determine the order of allocation under the sequential method?
A)Rank the supporting departments in order of the amount of service rendered,from the greatest to the least.
B)Rank the supporting departments in order of the support services rendered,measured by the direct costs of each support department with the department with the highest cost rendering the greatest service.
C)Determine the total cost of a support department,both direct and allocated from other support departments,before ranking.
D)Rank the supporting departments based on a percentage of service they render to other service departments.
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Chapter 8: Budgeting for Planning and Control
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Sample Questions
Q1) What does the ideal budget system create in managers?
A)goal congruence and extreme caution
B)drive and risk avoidance
C)goal congruence and drive
D)drive and extreme caution
Q2) What is the cash balance at the end of January,assuming that cash is received only from customers and that $48,000 is paid out during January?
A)$19,400
B)$20,600
C)$21,000
D)$23,400
Q3) Which of the following is an example of a negative incentive?
A)promotion
B)nonfinancial incentive
C)feedback reports
D)termination of employment
Q4) Compare and contrast static budgets,flexible budgets,and activity-based budgets.
Q5) Define budgeting and control.How are budgets used in planning? How are budgets used to control? What are some of the reasons for budgeting?
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Chapter 9: Standard Costing: a Functional-Based Control Approach
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Sample Questions
Q1) Roberts Company uses a standard costing system.The following information pertains to direct materials for the month of July: \(\begin{array}{lr}
\text { Standard price per kg } & \$ 18.00 \\
\text { Actual purchase price per kg } & \$ 16.50 \\
\text { Quantity purchased } & 3,100 \mathrm{~kg} \\
\text { Quantity used } & 2,950 \mathrm{~kg} \\
\text { Standard quantity allowed for actual output } & 3,000 \mathrm{~kg} \\
\text { Actual output } & 1,000 \text { units }
\end{array}\) Roberts Company reports its material price variances at the time of purchase.
What is the standard quantity of direct materials per unit for Roberts Company?
A)3.00 kg
B)3.10 kg
C)3.25 kg
D)3.50 kg
Q2) Which of the following factors would cause a labour quantity variance?
A)ordering the wrong quality of materials
B)ordering from the wrong supplier
C)not taking a quantity discount
D)requiring labourers to work overtime
Page 12
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Chapter 10: Responsibility Accounting,performance
Evaluation,and
Transfer Pricing
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Sample Questions
Q1) Refer to the figure.The company uses the opportunity cost approach to transfer pricing.What is the minimum transfer price in Case 2?
A)$58
B)$68
C)$74
D)$75
Q2) Which of the following is an example of an investment centre?
A)a production department
B)a company
C)a marketing department
D)a credit department
Q3) Which of the following is a disadvantage of both residual income and ROI?
A)They are both absolute measures of return.
B)They are both difficult to calculate.
C)They both do not discourage myopic behaviour.
D)They both result in a percentage.
Q4) Discuss the differences between centralized and decentralized decision making.Why would a firm decentralize its operations?
Q5) How are information,responsibility,and accountability related?
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Chapter 11: Tactical Decision Making
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Sample Questions
Q1) Which costs are important when making a decision between two alternatives?
A)Variable costs may not be relevant when the decision alternatives have the same activity levels.
B)Variable costs are not relevant when the decision alternatives have different activity levels.
C)Sunk costs are always relevant.
D)Fixed costs are never relevant.
Q2) If a wholesaler offered to buy 4,500 units for $100 each,what would be the effect of the special order on income?
A)$45,000 increase
B)$90,000 decrease
C)$153,000 increase
D)$450,000 increase
Q3) What is the term for a decision to make or eliminate an unprofitable product?
A)special-order decision
B)keep-or-drop a product-line decision
C)make-or-buy decision
D)process further decision
Q4) 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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Sample Questions
Q1) Which of the following costs are excluded from inventory under absorption costing?
A)direct materials
B)direct labour
C)fixed selling expenses
D)fixed factory overhead
Q2) Refer to the figure.What is the markup based on materials?
A)42.9%
B)71.4%
C)185.7%
D)400.0%
Q3) What is the equivalent of gross margin on a variable costing income statement?
A)gross profit
B)contribution margin
C)net income
D)territory margin
Q4) What are some of the pricing practices regulated by law?
Q5) Compare and contrast the various pricing policies used by companies.
Q6) Discuss the limitation of profit measurement.
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Chapter 13: Strategic Cost Management
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Sample Questions
Q1) What is the term for the use of cost data to develop and identify superior strategies that will produce a sustainable competitive advantage?
A)strategic decision making
B)strategic cost management
C)competitive advantage
D)customer value
Q2) Which of the following are stages of the marketing viewpoint of the product life cycle?
A)decline,growth,maturity
B)production,growth,maturity
C)decline,production,maturity
D)decline,growth,production
Q3) What is the operational activity of setting up equipment classified as?
A)a unit-level activity
B)a batch-level activity
C)a product-level activity
D)a facility-level activity
Q4) Explain the difference between acceptable quality level and total quality control.
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Page 16
Chapter 14: Activity-Based Management
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Sample Questions
Q1) What incentive specifically relates to sharing the gains from improvements in projects?
A)bonuses
B)stock options
C)profit sharing
D)gainsharing
Q2) A company has 5 days of finished goods inventory on hand to avoid stockouts.The carrying costs of the inventory average $5,000 per day.What are the value-added costs?
A)$1,000
B)$5,000
C)$15,000
D)$25,000
Q3) What are the results or products of an activity?
A)activity inputs
B)activity outputs
C)driver analyses
D)value-added activities
Q4) What is kaizen costing? How does activity analysis help reduce costs?
Q5) What is process value analysis?
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Chapter 15: The Balanced Scorecard: Strategic-Based Control
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Sample Questions
Q1) Which feature is related solely to strategic-based responsibility and not to activity-based responsibility?
A)financial perspective
B)process perspective
C)team accountability
D)customer perspective
Q2) Which is the most important requirement of the Balanced Scorecard?
A)scorecard measures are linked by cause-and-effect relationships
B)performance measures are derived from strategy
C)benchmarking plays a critical role
D)performance measures should be balanced between outcome and lead measures
Q3) Which of the following are major enabling factors of the learning and growth perspective?
A)customer attributes,information system capabilities and employee attitudes
B)information system capabilities,customer attributes,employee capabilities
C)information system capabilities,employee attitudes,employee capabilities
D)information system capabilities,employee attitudes,customer attributes
Q4) Strategic-based performance measures are balanced measures.Give examples of four types of balanced measures.
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Q5) Compare and contrast activity-based measures and strategic-based measures.
Chapter 16: Quality and Environmental Cost Management
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Sample Questions
Q1) Refer to the figure.For the current year,what percentage of sales are external failure costs?
A)1.50%
B)2.50%
C)2.75%
D)4.25%
Q2) What does the total quality approach do?
A)It sets a robust zero-defect standard.
B)It allows a certain number of defective products.
C)It provides no encouragement for continuous improvement.
D)It sets a currently attainable standard.
Q3) In an environmental cost report,environmental costs are grouped into categories.Each category of environmental costs is then expressed as a percentage of which of the following?
A)total quality costs
B)total costs
C)total sales
D)total operating costs
Q4) What does quality mean and how has improving quality increased firm value?
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Chapter 17: Lean Accounting and Productivity Measurement
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Sample Questions
Q1) What is the usual formula for calculating product costs for value streams with multiple products?
A)Total value stream cost of period/Units shipped for period
B)Budgeted value stream cost of period/Units shipped for period
C)Total value stream cost of period/Units sold for period
D)Budgeted value stream cost of period/Forecasted units shipped for period
Q2) What is characteristic of lean manufacturing setup?
A)There is significant move and wait time.
B)Organization is by function into departments.
C)Products are produced in large batches.
D)Employees are empowered.
Q3) Refer to the figure.By how much did profits change as a result of changes in productivity related to labour?
A)$175 decrease
B)$175 increase
C)$100 decrease
D)$100 increase
Q4) Discuss the advantages and disadvantages of partial productivity measures.
Page 20
Q5) Explain the difference between technical and input trade-off efficiency.
Q6) Explain the difference between partial and total measures of productivity.
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Page 21
Chapter 18: Inventory Management: Economic Order
Quantity,jit,and the Theory of Constraints
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Sample Questions
Q1) Refer to the figure.If there is a delay in shipping the item,approximately how many days can be covered by the safety stock?
A)4 days
B)25 days
C)30 days
D)100 days
Q2) Refer to the figure.Which of the following statements represent the information in the table?
1. The materials constraint favours Trailer B over Trailer A.
2. The time constraint favours Trailer A over Trailer \( B \).
3. The material constraint favours Trailer A over Trailer B.
4. The objective function favours Trailer B over Trailer A.
A)1 and 2
B)2 and 3
C)3 and 4
D)1 and 3
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