Strategic Cost Management
Pre-Test Questions
Course Introduction
Strategic Cost Management explores advanced concepts and techniques for managing and analyzing costs within organizations to support strategic decision-making and enhance competitive advantage. The course integrates traditional cost accounting methods with modern strategic frameworks, including activity-based costing, value chain analysis, target costing, and cost driver analysis. Emphasizing the alignment of cost structures with organizational strategy, students learn how to identify cost reduction opportunities, streamline operations, and evaluate the financial implications of strategic initiatives. Case studies and real-world applications are used to illustrate how effective cost management supports long-term business goals in dynamic and competitive environments.
Recommended Textbook
Cornerstones of Cost Management 2nd Edition by Don
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R. Hansen
Page 2
Chapter 1: Introduction to Cost Management
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Q1) Discuss the advances of information technology and how these advances might affect the university education supply chain?
Answer: There are three significant advances relating to information technology: (1) the automation and integration of company information; (2) the development of analytic and decision support tools; and (3) the emergence of electronic commerce. Universities are developing integrated databases to better streamline student services (i.e., registration, admissions, and grading). Software applications have been developed to aid in teaching and presenting classroom materials. It is now possible to attend college electronically.
Q2) The role of __________ accountants is to assist and support those responsible for carrying out an organization's basic objectives.
Answer: cost and management
Q3) Positions that have direct responsibility for basic objectives are referred to as staff positions, and those indirectly responsible are called line positions.
A)True
B)False
Answer: False
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Chapter 2: Basic Cost Management Concepts
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Q1) An example of a tangible product, rather than a service, would be
A) housekeeping.
B) insurance coverage.
C) paper.
D) medical exam.
Answer: C
Q2) In a cost management system, the cost view does NOT include A) resources.
B) activities.
C) driver analysis.
D) products and customers.
Answer: C
Q3) The most likely method to assign the cost of an assembly-line supervisor when the assembly line is the cost object is the:
A) driver tracing method
B) arbitration method
C) allocation method
D) direct tracing method
Answer: D
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Page 4
Chapter 3: Cost Behavior
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Q1) Weaknesses of the high-low method include all of the following EXCEPT
A) only two observations are used to develop the cost function.
B) the high and low activity levels may not be representative.
C) the method does not detect if the cost behavior is nonlinear.
D) the method is relatively complex and difficult to apply.
Answer: D
Q2) Which of the following would be an example of a unit-based cost driver?
A) engineering orders
B) material moves
C) inspection hours
D) direct labor hours
Answer: D
Q3) A correlation coefficient near -1 means that two variables are moving in the __________ direction
Answer: opposite
Q4) The __________ method may be used to determine the activities and amounts for cost behavior.
Answer: industrial engineering
Q5) __________ are costs incurred that provide long-term activity capacity.
Answer: Committed resources
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Chapter 4: Activity-Based Costing
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Q1) An activity-based costing system traces costs to activities and then to products and other cost objects.
A)True
B)False
Q2) For labor-intensive operations, the most appropriate activity driver would be the __________ hours.
Q3) Management information systems can be divided into a unit-based type and activity-based type.
A)True
B)False
Q4) The method that first traces costs to a department and then to products is called:
A) direct costing
B) absorption costing
C) unit-based costing
D) indirect costing
Q5) Unit-based product costing assigns manufacturing and selling costs to products.
A)True
B)False
Q6) A(n) __________ is a grouping of logically related information.
Page 6
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Chapter 5: Product and Service Costing: Job-Order System
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Sample Questions
Q1) Determining the dollar amounts of direct materials, direct labor, and overhead used in production involves __________ .
Q2) Perishability refers to the
A) nonphysical nature of services as opposed to products.
B) fact that production and consumption are inseparable for services.
C) greater chances for variation in the performance of services than in the production of products.
D) fact that services cannot be inventoried but must be consumed when performed.
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) The production level the firm expects to attain for the coming year is called:
A) Practical activity level
B) Normal activity level
C) Theoretical activity level
D) Expected activity level
Q5) The association of production costs with the units produced is called __________ . To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Process Costing
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Q1) The process that produces batches of different products which are identical in many ways but differ in others is called:
A) Operating costing
B) Batch production process
C) Cost reconciliation
D) Equivalent unit of output
Q2) The costing system that uses job-order costing to assign material costs and process costing to assign conversion costs is called:
A) Batch production process
B) Cost reconciliation
C) Operation costing
D) Equivalent unit of output
Q3) In a process costing system, which of the following would be TRUE?
A) There is no need to use time tickets to assign costs to processes.
B) There is no need to track materials to processes.
C) A process costing system is more expensive to maintain because it has more work-in-process accounts.
D) all of the above are true.
Q4) A key input to the cost of production report is __________ costs.
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Chapter 7: Allocating Costs of Support Departments and Joint Products
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Q1) The cost of crude oil used in producing gasoline products is an example of A) joint costs.
B) a by-product.
C) joint products.
D) common cost allocation.
Q2) Which of the following methods allocates a joint cost such that each product has the same cost of goods sold percentage?
A) constant gross margin percentage method
B) net realizable value method
C) physical units method
D) replacement cost method
Q3) Costs that are easily traced to individual products are called separable costs.
A)True
B)False
Q4) Budgeted rates are allocated based on original capacity.
A)True
B)False
Q5) The __________ charging rate combines variable and fixed costs of support departments.
Q6) Departmental __________ is applied to products passing through the department. Page 9
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Chapter 8: Budgeting for Planning and Control Key
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Q1) Which of the following is NOT a component of the master budget?
A) Sales Budget
B) Capital Budget
C) Cost of Goods Sold Budget
D) Budget to Actual Variance Analysis
Q2) Refer to Figure 8-2. How many lamps should be produced in October?
A) 10,000 lamps
B) 14,000 lamps
C) 9,500 lamps
D) 10,500 lamps
Q3) The budget director is responsible for directing and coordinating the budgeting process.
A)True
B)False
Q4) Participative budgeting detracts from a manager's sense of responsibility and creativity.
A)True
B)False
Q5) Discuss the features of an ideal budgetary process.
Q6) Activity-based budgets also focus on __________ processes.
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Chapter 9: Standard Costing: a Functional-Based Control Approach
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Q1) The direct materials price variance is the difference between actual and standard pricing.
A)True
B)False
Q2) The usage variances focus on the difference between
A) actual quantity used and standard quantity allowed for actual production. B) actual costs of inputs and standard costs of inputs.
C) actual quantity used and standard quantity allowed for budgeted production.
D) both a and b.
Q3) The __________ variance show the difference between actual output and expected output for a given amount of input.
Q4) The three-variance method requires dividing costs into fixed and variable amounts.
A)True B)False
Q5) If a company produces fewer units than expected, there will be A) a favorable budget variance.
B) an unfavorable spending variance.
C) a favorable volume variance.
D) an unfavorable volume variance.
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Chapter 10: Decentralization: Responsibility
Accounting, Performance Evaluation, and Transfer Pricing
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Q1) Which of the following is NOT an advantage of ROI?
A) It encourages managers of departments with high ROIs to invest in average ROI projects.
B) It encourages managers to pay careful attention to the relationships among sales, expenses, and investment.
C) It encourages cost efficiency.
D) It discourages excessive investment in operating assets.
Q2) Margin is the ratio of operating income to sales.
A)True
B)False
Q3) Return on investment can be divided into two separate components
A) margin and profit.
B) margin and turnover.
C) value and turnover.
D) liquidity and margin.
Q4) The manager of a profit center is responsible for
A) delivering a quality product or service at reasonable but minimal cost.
B) decisions to invest in capital equipment.
C) decisions regarding revenue generation.
D) both a and c.
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Chapter 11: Strategic Cost Management
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Q1) The length of time a product serves the needs of customers is called the __________ life.
Q2) Which of the following is NOT a stage of the consumable life-cycle viewpoint?
A) disposal
B) maintaining
C) logistics
D) purchasing
Q3) JIT manufacturing uses which of the following philosophies of quality control?
A) just-in-case (JIC)
B) acceptable quality level (AQL)
C) total quality control (TQC)
D) both a and c
Q4) In activity-based costing, supplier costs
A) must be narrower, including only the purchase price.
B) are allocated to products arbitrarily.
C) include costs of quality, reliability and timeliness and are assigned to products on a causal basis.
D) all of these statements are true.
Q5) the difference between what the customer receives and gives up is the
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Chapter 12: Activity-Based Management
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Q1) Your company keeps 15 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average $5,000 per day. A competitor keeps 12 days of inventory on hand, and the competitor's carrying costs average $3,000 per day. The value-added costs are
A) $-0-.
B) $5,000.
C) $30,000.
D) $75,000.
Q2) The following is(are) awards made when performance is maintained or exceeds a specific measure:
A) Profit sharing
B) Stock options
C) Bonuses
D) Gain sharing
Q3) Value-added costs equal standard quantity times
A) non-value-added costs.
B) currently attainable standards.
C) standard price.
D) actual price.
Q4) What is Kaizen costing? How does activity analysis help reduce costs?
Page 15
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Chapter 13: The Balanced Scorecard: Strategic-Based Control
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Q1) Dissatisfied customers are an example of a __________ measure.
Q2) The learning and growth perspective has three major objectives. Which of the following is an objective of the learning and growth process?
A) increase the number of new products
B) increase customer acquisition
C) increase motivation and alignment
D) improve asset utilization
Q3) The outcome measures that are expressed in monetary terms are called:
A) Objective measures
B) External measures
C) Lag measures
D) Financial measures
Q4) Compensation should be based on performance and paid based on percentage of objective achieved.
A)True
B)False
Q5) Compare and contrast activity-based measures and strategic-based measures.
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Q6) Setting balanced objectives, target values, and rewards are steps in developing the
Chapter 14: Quality and Environmental Cost Management
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Q1) Quality cost performance reports have two essential elements.
A) Kaizen standards and Taguchi quality loss function
B) Taguchi quality loss function and AQL
C) actual and expected outcomes
D) Kaizen standards and AQL
Q2) The robust quality model
A) maintains an acceptable quality level.
B) decreases total quality costs by decreasing the number of defective units.
C) balances control costs with failure costs.
D) relies on warranty work.
Q3) An example of additional revenue that might result from environmental activities is A) revenue from recycling.
B) finding new applications for waste.
C) increased sales as a result of improved environmental image.
D) all of the above.
Q4) Customers are concerned with product reliability, durability, fitness for use, and conformance to specifications.
A)True
B)False
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Chapter 15: Lean Accounting and Productivity Measurement
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Q1) Under features and characteristics costing, conversion costs are normally assigned
A) using a predetermined overhead rate.
B) using a labor rate.
C) based on proportion of production.
D) using a conversion ratio that considers different features.
Q2) Emphasis on departmental efficiency
A) causes bottleneck departments to over-produce and build work-in-process inventories.
B) causes stock outs related to demand-pull systems.
C) is a critical component of a lean accounting system.
D) none of the above.
Q3) In a demand-pull system
A) production is triggered by a forecast.
B) production is triggered by a customer order.
C) production is triggered by a vendor shipment.
D) production is triggered by an economic reorder point.
Q4) Implementing the value-stream structure requires an increase in employees.
A)True
B)False
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Chapter 16: Cost-Volume-Profit Analysis
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Q1) When using either the equation or the contribution margin approach, the after-tax profit must be converted to a before-tax profit target.
A)True
B)False
Q2) Assuming all other things are the same, if there was an increase in the break-even point variable cost per unit must have:
A) increased first, then decreased
B) increased
C) remained the same
D) depends on the circumstances
Q3) The break-even point is
A) the volume of activity where all fixed costs are recovered.
B) where fixed costs equal total variable costs.
C) where total revenues equal total costs.
D) where total costs equal total contribution margin.
Q4) CVP analysis is a short-run decision-making tool since some costs are fixed.
A)True
B)False
Q5) The __________ is where total revenues equal total costs.
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Chapter 17: Activity Resource Usage Model and Tactical
Decision
Making
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Q1) Sunk costs are
A) future costs that have no benefit.
B) relevant costs that have only short-run benefits.
C) target costs.
D) always irrelevant.
Q2) A __________ model is a set of procedures that, if followed, will lead to a decision.
Q3) One of Maersk cargo ships hit an iceberg and sank. In deciding whether or not to salvage the ship, its book value is a(n)
A) relevant cost.
B) discretionary cost.
C) opportunity cost.
D) sunk cost.
Q4) Past cost __________ represents an allocation of a cost already incurred.
Q5) Sound tactical decision making
A) only concerns the short run.
B) consists of large scale actions that serve a broad purpose.
C) consists of supporting the strategic objectives of the firm.
D) only concerns the long run.
Q6) Future costs which differ across alternatives are called __________ costs.
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Chapter 18: Pricing and Profitability Analysis
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Q1) An alternative to the limitation of focusing on profits would be
A) communicating other measures are important but continue to base rewards on profits.
B) overstate the value of ending inventory in order to reduce cost of goods sold and improve operating income performance.
C) focus on long-term objectives and appropriate emphasis on profit.
D) analyze the product mix.
Q2) Firms enjoy greater success when they include the impact of profits on their employees and the community.
A)True
B)False
Q3) Monopolistic competition is best defined as
A) a structure that has many buyers and sellers, but the products are differentiated on some basis.
B) a structure where customers are willing to pay a little more for the unique feature that appeals to them.
C) a structure that combines perfect competition and monopoly, but is closer to a competitive situation.
D) all of the above.
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Chapter 19: Capital Investment
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Q1) Net present value (NPV) is the difference between the present value of cash inflows and outflows associated with a project.
A)True
B)False
Q2) Anselmo Corp. is considering the purchase of a new machine for $76,000. The machine would generate an annual cash flow of $23,214 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. What is the payback period in years for the machine approximated to two decimal points, assuming no taxes are paid?
A) 3.00
B) 3.27
C) 9.48
D) 4.00
Q3) When conflicting signals are received from using NPV and IRR, NPV always produces the correct signal to invest.
A)True
B)False
Q4) NVP measures the __________ in a firm's wealth caused by a project.
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Chapter 20: Inventory Management: Economic Order
Quantity, Jit, and the Theory of Constraints
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Q1) Which of the following is NOT considered a carrying cost?
A) insurance on the inventory
B) the opportunity cost of funds invested in inventory
C) storage costs
D) receiving costs
Q2) Which of the following costs are considered in the EOQ model?
A) ordering costs
B) selling costs
C) carrying costs
D) both a and c
Q3) In the economic order quantity equation, the numerator under the square root includes
A) annual demand and cost of placing an order.
B) annual demand and unit carrying cost.
C) unit carrying cost and cost of placing an order.
D) order quantity and cost of placing an order.
Q4) the manufacturing model which shares the same practices as a JIT manufacturing system is called __________ manufacturing.
Page 23
Q5) The system that ensures that parts or materials are available when needed is called the __________ system.
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