Strategic Cost Management
Question Bank
Course Introduction
Strategic Cost Management focuses on the use of cost information to support strategic decision-making within organizations. The course examines how cost structures and management accounting systems can be designed and implemented to achieve competitive advantage, improve operational efficiency, and drive long-term profitability. Topics include activity-based costing, value chain analysis, target costing, and the integration of cost data with strategic planning. Through case studies and real-world examples, students learn to critically analyze cost behavior, assess performance, and recommend strategies that align with business objectives in dynamic environments.
Recommended Textbook
Cornerstones of Cost Management 2nd Edition by Don R. Hansen
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20 Chapters
3210 Verified Questions
3210 Flashcards
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Page 2
Chapter 1: Introduction to Cost Management
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Sample Questions
Q1) Changes in the way business is conducted worldwide have broadened the focus of cost management accounting systems.
A)True
B)False
Answer: True
Q2) Which of the following statements is TRUE?
A) The service sector comprises approximately three quarters of the United States' economy and employment.
B) The service sector comprises approximately 20 percent of the United States' economy and employment.
C) Traditional smokestack industries have increased in importance in recent years.
D) The service sector has decreased in importance in recent years.
Answer: A
Q3) The __________ is a method used to continuously improve manufacturing and nonmanufacturing activities.
Answer: theory of constraints
Q4) Only Certified Public Accountants are permitted by law to serve as __________ .
Answer: external auditors
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Chapter 2: Basic Cost Management Concepts
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Sample Questions
Q1) The income statement prepared for external parties is frequently referred to as absorption-costing income, or full costing income.
A)True
B)False
Answer: True
Q2) The cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future benefit to the organization is/are called:
A) Expenses
B) Cost
C) An activity
D) A loss
Answer: B
Q3) Which type of inventory is normally sold to other organizations?
A) direct materials
B) factory supplies
C) work in process
D) finished goods
Answer: D
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Chapter 3: Cost Behavior
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Sample Questions
Q1) Marlowe Company currently leases a delivery truck from Burton Enterprises for a fee of $250 per month plus $0.40 per mile. Management is evaluating the desirability of switching to a modern, fuel-efficient truck, which can be leased from Goliath, Inc., for a fee of $600 per month plus $0.05 per mile. All operating costs and fuel are included in the rental fees. In general, a lease from A) Goliath, Inc., is economically preferable to a lease from Burton Enterprises regardless of the monthly use.
B) Burton Enterprises is economically preferable below 1,000 miles per month.
C) Burton Enterprises is economically preferable to a lease from Goliath, Inc., regardless of the monthly use.
D) Burton Enterprises is economically preferable above 1,000 miles per month. Answer: B
Q2) Methods of estimating costs used by companies include the industrial engineering method, the account analysis method, and the instant decision method.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Activity-Based Costing
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Sample Questions
Q1) The grouping of logically related information is called:
A) activity driver
B) data set
C) cost objective
D) both a and c
Q2) Common measures of production activity include
A) units produced.
B) direct labor hours.
C) machine hours.
D) all of these.
Q3) Using the before-the-fact simplification method TDABC eliminates the need for detailed interviewing and surveying to determine resource drivers.
A)True
B)False
Q4) In the time-driven ABC systems, managers
A) assign resources to departments, then activities.
B) assign resource costs first to activities, then to products.
C) directly estimate the resource demands imposed by each product.
D) none of these.
Q5) 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) Why are unit costs important? Why do full-cost unit costs change from accounting period to accounting period.
Q2) The __________ activity level is the production level a firm expects to attain for the coming year.
Q3) The entry that captures the flow of material from the storeroom to work-in-process is called the __________ inventory account. or
Q4) Service firms produce intangible products that are not separable from the customer. A)True B)False
Q5) Purchases of direct materials are recorded as a debit to the __________ account.
Q6) The defective units due to the exacting nature of a particular job is called
Q7) An actual overhead rate can be calculated
A) at the beginning of the year.
B) at the end of each month.
C) at the beginning of each month.
D) either at the beginning of the year or at the beginning of the month.
Page 7
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Chapter 6: Process Costing
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Sample Questions
Q1) For the receiving department, transferred in goods are added at the __________ of the process.
Q2) The cost assigned to goods from a prior process is called the __________ cost. or
Q3) Spoilage in a process costing process means that more units enter the process than leave it.
A)True
B)False
Q4) The usual approach in process manufacturing is to treat transferred-in goods as a separate material category when calculating __________ .
Q5) If beginning inventory contained 3,000 units of product that were judged to be 60 percent complete as to labor, the equivalent units of production for labor during the current period under the FIFO method for these 3,000 units are
A) 3,000 units.
B) 1,200 units.
C) 1,800 units.
D) 500 units.
Q6) A key input to the cost of production report is __________ costs.
Q7) In a __________ costing system, production costs are accumulated by process.
Page 8
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Chapter 7: Allocating Costs of Support Departments and Joint Products
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Sample Questions
Q1) What is one of the potential disadvantages of NOT allocating support department costs to production departments?
A) total costs would not be accumulated
B) managers may tend to overconsume these services
C) this would encourage managers to monitor support department performance
D) managers will use a support service at a more efficient level
Q2) Algonquin Products produces two products, X and Y, in a single process. In 2011, the joint costs of this process were $25,000. In addition, 4,000 units of X and 6,000 units of Y were produced. Separable processing costs beyond the split-off point were X-$10,000; Y-$20,000. X sells for $10.00 per unit; Y sells for $7.50 per unit. What is the gross profit of product Y assuming the net realizable value method is used?
A) $45,000
B) $16,364
C) $13,636
D) $30,000
Q3) Support department fixed costs are allocated on the basis of original capacity. A)True B)False
Q4) __________ are mutually beneficial costs to joint product costing.
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Chapter 8: Budgeting for Planning and Control Key
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Sample Questions
Q1) Static budgets show costs for varying levels of activities.
A)True
B)False
Q2) Which of the following factors is NOT an advantage of preparing operating budgets?
A) It provides resource information that can be used to improve decision making.
B) It improves communication and coordination.
C) It aids in the use of resources and employees by setting a benchmark that can be used for the subsequent evaluation of performance.
D) It saves time and resources.
Q3) The process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates significantly from planned performance.
A) Control
B) Monitoring
C) Eye balling
D) Comparing
Q4) A flexible budget compares actual costs to budgeted costs.
A)True
B)False
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Chapter 9: Standard Costing: a Functional-Based Control Approach
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Sample Questions
Q1) Quantity price standards
A) are standard price multiplied by standard quantity.
B) specify how much of the quantity of input should be used for the standard price.
C) specify how much should be paid for the quantity of input to be used.
D) specify how much of the quantity of input should be used for the actual price.
Q2) The standard cost sheet includes all of the following EXCEPT
A) the standard quantity per unit.
B) the standard material costs per unit.
C) the standard cost per unit.
D) the standard labor hours allowed for actual production.
Q3) The standard cost sheet includes all of the following EXCEPT
A) the standard cost per unit.
B) the standard quantity allowed for actual production.
C) the standard price.
D) the standard quantity per unit.
Q4) Compare and contrast mix and yield variances.
Q5) All variances accounts are __________ at the end of the operating year.
Page 11
Q6) __________ standards are the standards used for continuous improvement.
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Chapter 10: Decentralization: Responsibility
Accounting, Performance Evaluation, and Transfer Pricing
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Sample Questions
Q1) __________ limitations make it difficult for any central manager to know everything about all products and markets.
Q2) Economic value added (EVA) is after-tax operating income minus the total annual cost of capital.
A)True
B)False
Q3) Division 'A' produces a component and wants to sell it to Division 'B'. The transfer price is
A) revenue to Division 'A' and a cost to Division 'B'
B) revenue to Division 'B' and a cost to Division 'A'
C) revenue to Division 'A' and no effect on Division 'B'
D) a cost to Division 'B' and no effect on Division 'A'
Q4) Responsibility accounting is a system that does NOT consider
A) responsibility.
B) accountability.
C) performance evaluation.
D) static budgeting.
Q5) The delegation of decision-making authority to successively lower management levels is called __________ .
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Chapter 11: Strategic Cost Management
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Sample Questions
Q1) Which of the following is NOT a stage of the marketing viewpoint of the product life cycle?
A) decline
B) growth
C) maturity
D) production
Q2) In a JIT manufacturing environment, product-costing information is used mainly for all of the following EXCEPT
A) product costing of inventory for financial reporting purposes.
B) pricing decisions.
C) product profitability analysis.
D) make-or-buy decisions.
Q3) When a computer company increases the internal storage space for the same price, it is following a A) focusing strategy.
B) low-cost strategy.
C) differentiation strategy.
D) strategic positioning strategy.
Q4) The stage during which a product loses market acceptance is called the __________ stage.
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Chapter 12: Activity-Based Management
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Sample Questions
Q1) The process that focuses on non-value-added activities is called:
A) Activity sharing
B) Activity reduction
C) Activity selection
D) Activity elimination
Q2) Process value consists of three elements: .driver analysis, activity analysis, and performance measurement.
A)True
B)False
Q3) Which of the following process dimensions of the activity-based management model deals with "how well"?
A) resources
B) driver analysis
C) activities
D) performance measures
Q4) What is process value analysis?
Q5) The responsibility accounting system that uses both operational and financial measures is called __________ responsibility. or
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Chapter 13: The Balanced Scorecard: Strategic-Based Control
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Sample Questions
Q1) The strategy map connects the balanced scorecard strategy with an organization's administration.
A)True
B)False
Q2) Outcome measures that are expressed in monetary terms are called __________ measures.
Q3) Which of the following is a perspective of strategic-based responsibility accounting but is NOT a perspective of activity-based responsibility accounting?
A) financial perspective
B) process perspective
C) customer perspective
D) all of the above
Q4) A testable strategy is a set of linked objectives aimed at an overall goal.
A)True B)False
Q5) To link measures to a strategy, they must be derived from management and be balanced.
A)True B)False
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Chapter 14: Quality and Environmental Cost Management
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Sample Questions
Q1) Quality cost performance reports contain two essential elements: actual and expected outcomes.
A)True
B)False
Q2) Define environmental costs and identify the four categories of environmental costs. Give an example of each category.
Q3) Activity-based costing facilitates environmental costing by tracing costs to the responsible products.
A)True
B)False
Q4) The method which assumes that the total failure cost is some multiplier of measured failure costs is called:
A) Taguchi quality loss function
B) Market research method
C) Process acceptance sampling
D) Multiplier method
Q5) Costs incurred and paid for by the company are called __________ costs.
Q6) The __________ report is used to evaluate budgeted quality costs goals.
Q7) Environmental cost redesign would not be a part of an __________ report.
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Chapter 15: Lean Accounting and Productivity Measurement
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Sample Questions
Q1) The process of producing output efficiently, using the least quantity of inputs possible is(are) called:
A) Productivity measurement
B) Partial productivity measures
C) Profile measurement
D) Productivity
Q2) Which of the following is true in regards to a lean accounting system?
A) The cost of people with specialized skills, such as industrial engineers, are allocated to all manufacturing cells based on an activity driver.
B) Workers are multiskilled and responsible for setting up equipment, maintaining equipment, and operating equipment.
C) Implementing a value stream system will require more workers.
D) Workers are highly skilled in one specialized area or activity and are not expected to spend time on other value-added activities.
Q3) The departments or cells that contain all the related operations needed to produce a family of products are called __________ .
Q4) The process of producing output efficiently using the least amount of inputs is called __________ .
17
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Chapter 16: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Biscuit Company sells its product for $50. In addition, it has a variable cost ratio of 55 percent and total fixed costs of $6,875. How many units must be sold in order to obtain a before-tax profit of $12,000?
A) 480 units
B) 240 units
C) 600 units
D) 839 units
Q2) Nonesuch Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales. What is the contribution margin ratio when the selling price is reduced to $6 per unit?
A) 40%
B) 25%
C) 75%
D) 60%
Q3) The profit-volume graph depicts the relationship among cost, volume, and profit.
A)True
B)False
Q4) The __________ ratio expresses variable costs in terms of sales dollars.
Page 18
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Chapter 17: Activity Resource Usage Model and Tactical Decision Making
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Sample Questions
Q1) The use of relevant cost data to identify the alternative that provides the greatest benefit to the organization describes
A) target cost analysis.
B) functional cost analysis.
C) activity cost analysis.
D) tactical cost analysis.
Q2) Which of the following costs is NOT relevant for special decisions?
A) incremental costs
B) sunk costs
C) avoidable costs
D) all of the above costs are relevant for special decisions
Q3) If a firm is at full capacity, the minimum special order price must cover
A) variable costs associated with the special order.
B) variable and fixed manufacturing costs associated with the special order.
C) variable and incremental fixed costs associated with the special order.
D) variable costs and incremental fixed costs associated with the special order plus foregone contribution margin on regular units not produced.
Q4) What are relevant costs? How do they relate to decision making?
Q5) Leasing or buying a building are examples of resources.
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Chapter 18: Pricing and Profitability Analysis
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Sample Questions
Q1) The variance that compares actual volume with expected volume multiplied by expected price is the __________ variance.
Q2) What is the primary difference between variable and absorption costing?
A) inclusion of fixed selling expenses in product costs
B) inclusion of variable factory overhead in period costs
C) inclusion of fixed selling expenses in period costs
D) inclusion of fixed factory overhead in product costs
Q3) Taylor Company's budgeted sales were 10,000 units at $200 per unit. Actual sales were 9,200 units at $210 per unit. Taylor's sales volume variance is
A) $68,000 (U).
B) $8,000 (U).
C) $160,000 (U).
D) $168,000 (U).
Q4) The two factors that influence the ability of companies to adjust price are price elasticity and __________ structure.
Q5) The profit history of a product according to four stages is called the product
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Chapter 19: Capital Investment
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Sample Questions
Q1) 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
Q2) Melancholy Company is considering the purchase of production equipment that costs $800,000. The equipment is expected to generate an annual cash flow of $250,000 and have a useful life of five years with no salvage value. The firm's cost of capital is 12 percent. The company uses the straight-line method of depreciation with no mid-year convention. There are no income taxes. The payback period in years for the project is
A) 3.20 years.
B) 3.25 years.
C) 2.90 years.
D) 4.20 years.
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Page 21
Chapter 20: Inventory Management: Economic Order
Quantity, Jit, and the Theory of Constraints
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Sample Questions
Q1) The Kanban system is used to
A) ensure parts or materials are available when needed.
B) signal when preventive maintenance is needed.
C) signal when a defective unit has been produced.
D) ensure idle time of workers is not wasted.
Q2) The theory of constraints focuses on two operational measures of system performance: inventory expenses and operating expenses.
A)True
B)False
Q3) In the graphic method of solving a linear programming problem, which of the following is depicted on the graph?
A) coefficient of correlation
B) constraint
C) least-squares line of best fit
D) break-even point
Q4) The theory of constraints identifies a company's constraints and exploits them.
A)True
B)False
Q5) The costs of holding inventory are called __________ costs.
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