Strategic Cost Management Exam Solutions
Course Introduction
Strategic Cost Management explores the conceptual and practical aspects of cost analysis, control, and reduction from a strategic perspective. The course delves into how organizations use cost information for decision-making, competitive positioning, and strategic planning. Students learn methods such as value chain analysis, activity-based costing, target costing, and lifecycle costing to align cost management initiatives with broader business strategies. Emphasis is placed on understanding how cost structures affect organizational performance, profitability, and long-term sustainability in dynamic business environments.
Recommended Textbook Cost Management Measuring Monitoring and Motivating Performance 2nd Canadian Edition by
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Page 2
Chapter 1: The Role of Ethical Accounting Information in Management Decision Making
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Sample Questions
Q1) Relevant cash flows are
A)Avoidable
B)Incremental
C)Both of the above
D)None of the above
Answer: C
Q2) Incremental cash flows are relevant for decision-making.
A)True
B)False
Answer: True
Q3) Which of the following influences organizational strategies?
A)Organizational vision
B)Financial statement results
C)Computer software
D)Number of employees
Answer: A
Q4) Open-ended problems are not often seen in business.
A)True
B)False
Answer: False
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Chapter 2: Cost Concepts, Behaviour, and Estimation
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Sample Questions
Q1) Cosby Company is attempting to develop the cost function for repair costs. The following past data are available: Machine Hours Repair Costs
4,800 $6,385
3,400 4,585
4,000 5,285
5,900 7,085
Using the high-low method, what is the fixed repair cost?
A)$1,185
B)$850
C)$475
D)$565
Answer: A
Q2) Past costs are irrelevant for decision-making, but may be relevant for predicting future costs.
A)True
B)False
Answer: False
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) At the breakeven point, the contribution margin equals total:
A)Variable costs
B)Sales revenues
C)Selling and administrative costs
D)Fixed costs
Answer: D
Q2) Howe Hinges Co. manufactures and sells a single product. This product has the following operational data: Unit sales price $ 30
Variable manufacturing cost per unit 17
Fixed manufacturing costs 72,000
Variable selling cost per unit 1
Fixed selling costs 27,000
Marginal tax rate 40%
What amount of total revenue would be needed to meet an after-tax profit target of $48,000?
A)$365,000
B)$547,500
C)$630,000
D)$447,500
Answer: D
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Page 5
Chapter 4: Relevant Information for Decision Making
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Sample Questions
Q1) Why are qualitative factors often difficult to identify?
A)They are unimportant in decision making
B)No set formula provides assurance that managers have considered the correct issues
C)They are only important when a company operates internationally
D)Qualitative factors are not difficult to identify
Q2) If financial statement data are used to evaluate a decision to discontinue a business:
A)Average costs are often mistakenly included as relevant information
B)Average costs are often correctly included as relevant information
C)Qualitative factors are irrelevant
D)Financial statement data is useless in this decision-making context
Q3) If a service organization is at capacity, it would only accept a special order for service if it was priced at or above the price that regular customers pay for the service. A)True
B)False
Q4) List two different types of nonroutine operating decisions and give an example of each one for a retail hardware store.
Q5) Describe the costs that are usually relevant to a make or buy decision.
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Page 6
Chapter 5: Job Costing
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Sample Questions
Q1) Underapplied and overapplied overhead arise because:
A)The actual amount of overhead costs are known at the beginning of the period
B)An estimate of production volume is used for the denominator quantity
C)The actual production volume is known at the beginning of the period
D)Estimates of direct materials costs are used
Q2) To develop a cost allocation rate for overhead, normal costing uses:
A)Actual costs and the actual volume of the allocation base
B)Estimated costs and estimated volumes of the allocation base
C)Actual costs and estimated volumes of the allocation base
D)Estimated costs and actual volumes of the allocation base
Q3) In a normal costing system, an immaterial amount of overapplied overhead is allocated 100% to:
A)Work in process
B)Finished goods
C)Retained earnings
D)Cost of goods sold
Q4) In actual costing systems, overhead is allocated using the following formula: actual allocation base volume \(\div\) actual allocation rate.
A)True
B)False
Page 7
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Chapter 6: Process Costing
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Sample Questions
Q1) When standard costs are used as benchmarks, they are compared to actual costs using either weighted average or FIFO costs.
A)True
B)False
Q2) The weighted average method:
A)Considers only this period's costs and work
B)Includes beginning WIP costs in the equivalent unit cost calculations
C)Uses standard costs to allocate cost to units
D)Excludes ending WIP units and costs
Q3) A costing system that determines an average cost for all units of product in a particular time period is:
A)Job costing system
B)Batch costing system
C)Process costing system
D)Direct costing system
Q4) In the weighted average method, cost per equivalent unit is often calculated separately for materials costs and conversion costs.
A)True
B)False
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Chapter 7: Activity-Based Costing and Management
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Sample Questions
Q1) The costs of designing and implementing an ABC system include employee time and training.
A)True
B)False
Q2) Which of the following is performed first in setting up an ABC system?
A)Identify relevant cost objects
B)Assign costs to the costs pools
C)Identify activities that are part of the manufacturing or service delivery process
D)Allocate activity costs to the cost objects
Q3) In an ABC system, flexible costs:
A)Vary with activity levels
B)Remain fixed regardless of activity levels
C)Should not be included in ABC cost pools
D)Are related to capacity
Q4) Accountants normally can determine cost drivers for all cost pools on their own, without consulting other employees in the organization.
A)True
B)False
Q5) Why might an organization want to track customer-related costs?
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Chapter 8: Measuring and Assigning Support Department
Costs
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Sample Questions
Q1) Pardee, Inc. allocates engineering costs on the basis of the supervisor's time and administration costs on the basis of the number of employees. The company's accountant determined that engineering provides more services to administration than administration provides to engineering. The following data have been collected: Support Departments Operating Departments
Engineering Administration Assembly Finishing
Direct costs $25,000 $15,000 $200,000 $350,000
Number of employees 15 10 300 450
Engineering supervisor's time 30% 15% 35% 20%
If the step-down method is used and engineering costs are allocated first, the fraction of engineering costs allocated to the assembly department will be:
A)35/55
B)35/100
C)35/70
D)35/85
Q2) Single-rate allocations are unlikely to reflect actual resource usage.
A)True
B)False
Q3) List two factors that should be considered when choosing allocation bases.
Page 10
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Chapter 9: Joint Product and By-Product Costing
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Sample Questions
Q1) By-products can only be recognized at the time of sale.
A)True
B)False
Q2) Managers should choose a joint cost allocation method to:
A)Justify dropping an unprofitable product
B)Minimize the total joint cost allocated to all products
C)Maximize the organization's overall profitability
D)Avoid giving the mistaken impression that one or more products are sold at a loss
Q3) The joint cost allocation method affects the:
A)Apparent profitability of different products
B)Total profit of an organization
C)Revenue generated by an individual product
D)Total revenue of an organization
Q4) Joint costs are allocated to individual products primarily to meet requirements for:
A)Ethical decision making
B)Financial accounting
C)Variance analysis
D)Budgeting
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Chapter 10: Static and Flexible Budgets
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Sample Questions
Q1) The actual preparation of a budget usually begins with the:
A)Production budget
B)Cash budget
C)Sales budget
D)Direct materials budget
Q2) Which of the following must managers develop prior to preparing a budgeted income statement?
A)Cash budget
B)Budgeted balance sheet
C)Support department budgets
D)Support department cost allocations
Q3) The ending inventories budget is typically expressed in terms of costs, while the production budget is typically expressed in units.
A)True
B)False
Q4) Favourable variances are positive amounts; unfavourable variances are negative amounts.
A)True
B)False
Q5) List two methods that organizations could use to minimize budgetary slack.
Page 12
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Chapter 11: Standard Costs and Variance Analysis
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Sample Questions
Q1) The fixed overhead spending variance measures:
A)The difference between what was spent and what was expected to be spent on fixed overhead
B)The fixed overhead rate this period compared to the rate last period
C)The difference between the labour hours used to allocate fixed costs and actual labour hours used
D)The difference between actual and expected utilities costs
Q2) The expected costs per unit of input are called:
A)Standard costs
B)Standard prices
C)Standard quantities
D)Standard cost allowed
Q3) The production volume variance provides information about:
A)Capacity utilization
B)Variable overhead costs which vary with volume
C)Fixed overhead costs which vary with volume
D)Sales levels
Q4) (Appendix 11A)How are the revenue sales quantity variance and sales price variance related?
Q5) Why would favourable variances be investigated?
Page 13
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Chapter 12: Strategic Investment Decisions
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Sample Questions
Q1) Qualitative factors often influence strategic investment decisions. Which of the following is the best example of such a factor?
A)Changes in product prices based on consumer demand
B)Changes in consumer demand based on product prices
C)Increased ability to ship product in a timely manner
D)Discount rate estimates
Q2) (Appendix 12A)If nominal cash flow is calculated as real cash flow × (1 + i)<sup>t</sup> in an NPV analysis, i denotes the:
A)Weighted average cost of capital
B)Risk-free interest rate
C)Discount rate
D)Rate of inflation
Q3) Appendix 12A)Which of the following NPV analysis methods requires adjustment of a project's terminal value for inflation? Real Nominal
A)Yes Yes
B)No No
C)Yes No
D)No Yes
Q4) Distinguish between NPV and IRR. Give one pro and one con for each method.
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Chapter 13: Pricing Decisions
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Sample Questions
Q1) Companies sometimes use competitors' prices to establish their own prices.
A)True
B)False
Q2) The Internet:
A)Makes it more difficult to use JIT production systems
B)Has not affected the relationship between manufacturers and suppliers
C)Allows suppliers to monitor their customers' inventory levels and provide new inventories just as needed
D)Makes it more difficult to practice target costing
Q3) The Internet is likely to:
A)Decrease price elasticity of demand because transactions are numerous and quick
B)Have no impact on price elasticity of demand because few people do business on the Internet
C)Increase price elasticity of demand because of the availability of substitute products
D)Decrease price elasticity of demand because of the availability of complementary products
Q4) Explain why market-based pricing has increased in recent years.
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Chapter 14: Strategic Management of Costs
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Sample Questions
Q1) Give a complete but concise explanation of the target costing cycle.
Q2) BBM Corporation's managers are attempting to build a new product, a better mousetrap. They began by determining the features customers wanted and what they would pay for those features. BBM's engineers then reverse-engineered a competitor's product to understand its design and related production processes. Their analysis indicated that customers would pay $10.00 for a better mousetrap. If BBM's required profit margin is 25%, the target cost of a better mousetrap is:
A)$2.50
B)$7.50
C)$12.50
D)None of the above
Q3) The target costing cycle:
A)Focuses on reducing costs in the design phase of a product and manufacturing process
B)Is a cost-based pricing method
C)Is finished when the product is designed
D)Considers cost over the life cycle of the product
Q4) Life cycle costing is used when a product is initially sold at a high profit.
A)True
B)False
Page 16
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Chapter 15: Measuring and Assigning Costs for Income Statements
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Sample Questions
Q1) Identify two possible reasons why managers might choose absorption costing to prepare income statements.
Q2) Under absorption costing, production overhead is allocated to inventory so that:
A)Expenses are matched to revenues
B)Inventory costs can be used in decision-making
C)All product-related and period-related costs will be absorbed into inventory cost on the income statement and balance sheet
D)Product costs consist solely of variable costs
Q3) Under which costing method(s)are administrative and selling costs considered period expenses?
I. Absorption costing
II. Throughput costing
III. Variable costing
A)I and II only
B)II and III only
C)I and III only
D)I, II, and III
Q4) Distinguish between variable costing and throughput costing.
Q5) Compare and contrast actual costing and normal costing.
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Chapter 16: Performance Evaluation and Compensation
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Sample Questions
Q1) An advantage of centralized decision making is:
A)More motivated employees
B)More rapid decision-making in all contexts
C)Greater effectiveness in volatile environments
D)Less monitoring of decisions
Q2) KNY Corporation reported operating income of $80,000 and average operating assets of $120,000 in a recent accounting period. Which of the following transactions would definitely increase KNY's return on investment?
A)Increasing product prices
B)Switching suppliers for raw materials
C)Collecting accounts receivable
D)Decreasing research and development expense
Q3) Compare and contrast return on investment, residual income, and economic value added. Which method is best for evaluating investment centre managers? Explain your reasoning.
Q4) Responsibility accounting is the process of using financial information to justify pay increases and promotions for managers.
A)True
B)False
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Chapter 17: Strategic Performance Measurement
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Sample Questions
Q1) Post-sales service includes:
A)Providing warranty work for the product
B)Designing the product
C)Manufacturing the product
D)Determining customer preferences
Q2) The purpose of a balanced scorecard is to translate organizational vision and strategies into performance objectives that can be monitored over time.
A)True
B)False
Q3) The balanced scorecard emphasizes linkages between the organization's vision and its operations. Strategic objectives link down to:
A)Strategic goals
B)Strategic objectives
C)Measures
D)Employees
Q4) Nonfinancial measures are typically not objective enough to serve as effective performance measures.
A)True
B)False
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Chapter 18: Sustainability Management
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Sample Questions
Q1) Fines, lawsuits and clean up costs are an example of hidden costs.
A)True
B)False
Q2) In Canada, most aspects of sustainability reporting are voluntary and unregulated.
A)True
B)False
Q3) Products with higher environmental and social costs may appear to be more profitable when these costs are allocated to products using traditional allocation methods.
A)True
B)False
Q4) Tracking and tracing sustainability costs, and identifying cost pools and related cost drivers, are crucial for sustainability management accounting purposes.
A)True
B)False
Q5) How do firms generally evaluate organizational sustainability performance?
Q6) Differentiate between internal impacts and external impacts.
Q7) Describe greenwashing.
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