Advanced Cost Accounting Solved
Exam Questions
Course Introduction
Advanced Cost Accounting delves into the sophisticated principles and practices of cost accumulation, allocation, and analysis in modern organizations. The course explores advanced costing systems such as activity-based costing, process and job-order costing, standard costing, and variance analysis. Emphasis is placed on how cost information supports strategic decision-making, budgeting, and performance measurement. Topics also include cost behavior analysis, transfer pricing, relevant costs for decision making, and the integration of cost management with enterprise resource planning systems. Students gain practical skills to analyze, interpret, and communicate complex cost data for managerial planning and control in a dynamic business environment.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis 16th Edition by Srikant M. Datar
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Page 2
Chapter 1: The Manager and Management Accounting
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Sample Questions
Q1) Control measures should ________.
A) be set and not changed until the next budget cycle so as to provide an effective benchmark
B) be set by excluding nonfinancial information
C) be kept confidential from employees so that competitors don't have an opportunity to gain a competitive advantage
D) be linked by feedback to help learning and future planning
Answer: D
Q2) A report showing the actual financial results for a period compared to the budgeted financial results for that same period would most likely be called a ________.
A) strategic plan
B) management forecast
C) performance report
D) revised plan
Answer: C
Q3) A budget can only be used as a planning tool.
A)True
B)False
Answer: False
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Page 3
Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Which of the following would be considered an actual cost of a current period?
A) The $25 of materials in a manufactured chair that is ready to be shipped to the customer
B) The $22 of direct material cost per unit assumed in the actual budget of a manufacturer of chairs
C) The expected cost of materials for a chair as a result of engineering specifications
D) The average of historical material cost data for a chair manufactured in several past accounting periods
Answer: A
Q2) A common classification of costs is by business function. Which of the following classifications is not by business function?
A) cost object
B) research and development
C) distribution
D) production
Answer: A
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4
Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Gross margin is ________.
A) sales revenue less variable costs
B) sales revenue less cost of goods sold
C) contribution margin less fixed costs
D) contribution margin less variable costs
Answer: B
Q2) In the graph method of CVP analysis, ________.
A) The total revenue line starts at the origin and the total costs line starts at the fixed intercept.
B) The operating income line starts at the origin and the total costs line starts at the fixed intercept.
C) The breakeven point is at the fixed intercept where the total revenues line intersects.
D) The operating income area is the section where the total costs line is above the total revenues line.
Answer: A
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Chapter 4: Job Costing
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Sample Questions
Q1) Direct costs are traced the same way for actual costing and normal costing.
A)True
B)False
Q2) The budgeted direct-labor cost rate includes ________.
A) budgeted total costs in indirect cost pool
B) budgeted total direct-labor costs in the denominator
C) budgeted total direct-labor costs in the numerator
D) budgeted total direct-labor hours in the numerator
Q3) The budgeted indirect cost rate is actual indirect costs divided by budgeted quantity of the cost allocation base.
A)True
B)False
Q4) Managers and accountants collect most of the cost information that goes into their systems through ________.
A) an information data bank
B) computer programs
C) source documents
D) time surveys
Q5) What are the direct costs of a job and in which source documents are they recorded?
6
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) ________ costs support the organization as a whole.
A) Unit-level
B) Batch-level
C) Product-sustaining
D) Facility-sustaining
Q2) Activity-based costing attempts to identify the most relevant cause-and-effect relationship for each activity pool without restricting the cost driver to only units of output or variables related to units of output.
A)True
B)False
Q3) Managers should look for evidence of cause-and-effect when choosing a cost driver with the driver being the cause and the effect being the cost incurred.
A)True
B)False
Q4) ABC and traditional systems are quite similar in ________.
A) the treatment of direct costs
B) the allocation of overheads
C) evaluating performance
D) the identification of cost pools
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) Which of the following departments is most likely to be a cost center?
A) sales department of a company selling industrial tools
B) call center of a company that serves customers and cross-sells other products
C) maintenance department of a luxury resort
D) research department of a company providing consultancy services
Q2) One of the benefits of a well implemented and executed budget is communication. Which of the following best describes communication within the budgetary cycle?
A) meshing and balancing of all aspects of production or service
B) making each manager aware of the plan and allowing each manager to understand the importance of the plan
C) allocation of scarce resources across all functional areas of the company
D) the calculation of deviations from plan
Q3) Orange Corporation has budgeted sales of 23,000 units, targeted ending finished goods inventory of 9,000 units, and beginning finished goods inventory of 6,000 units. How many units should be produced next year?
A) 38,000 units
B) 32,000 units
C) 26,000 units
D) 23,000 units
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Page 8
Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Sample Questions
Q1) Static-budget variance for operating income is calculated by taking a difference between static-budget operating income and actual operating income.
A)True
B)False
Q2) Which of the following information is needed to prepare a flexible budget?
A) actual units sold
B) actual variable cost
C) actual selling price per unit
D) actual fixed cost
Q3) These questions refer to flexible-budget variance formulas with the following descriptions for the variables: A = Actual; B = Budgeted; P = Price; Q = Quantity. The best label for the formula [(AP)(AQ) - (BP)(BQ)] is the ________.
A) efficiency variance.
B) price variance
C) total flexible-budget variance
D) spending variance
Q4) What is benchmarking, and how is it useful to a company?
Q5) Describe the purpose of variance analysis.
Page 9
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Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
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Sample Questions
Q1) If the production planners set the budgeted machine hours standards too loose, one could anticipate there would be a favorable fixed overhead efficiency variance.
A)True
B)False
Q2) Which of the following is the correct mathematical expression is used to calculate variable overhead efficiency variance?
A) (Actual rate ? Budgeted rate) × Budgeted quantity
B) (Actual quantity × Budgeted rate) - (Budgeted input quantity allowed for actual output × Budgeted rate)
C) (Actual quantity ÷ Budgeted rate) ? (Budgeted quantity ÷ Budgeted rate)
D) (Actual quantity ÷ Budgeted rate) × Budgeted quantity allowed for actual output
Q3) Which of the following is the correct mathematical expression to calculate the fixed overhead spending variance?
A) Static-budget amount - Flexible-budget amount
B) Actual costs incurred - Flexible-budget amount
C) Static-budget amount - Fixed overhead allocated for actual output
D) Flexible-budget amount - Fixed overhead allocated for actual output
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Page 10
Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) The contribution-margin format of the income statement distinguishes manufacturing costs from nonmanufacturing costs.
A)True
B)False
Q2) ________ is the level of capacity utilization that managers expect for the current budget period, which is typically one year.
A) Practical capacity
B) Master-budget capacity utilization
C) Theoretical capacity
D) Normal capacity utilization
Q3) Discuss the three methods to dispose of production volume variance.
Q4) When production is less than sales, operating income will be the same regardless of whether variable cost or absorption costing is used.
A)True
B)False
Q5) Under variable costing, lease charges paid on the factory building is an inventoriable cost.
A)True
B)False
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) If cost accountants decide to use production of prior periods as a cost driver for repair cost of the current period they understand that
A) there is no correlation between repair costs and levels of production
B) repair costs tend to lag periods of high production
C) cost accountants do not need to understand operations
D) there is no cause-and-effect between production and repair costs
Q2) What are the three criteria a company should use to evaluate and choose a cost driver? Briefly explain each of the three criteria.
Q3) The coefficient of determination (r²) measures the percentage of variation in X (the independent variable) explained by Y (the dependent variable).
A)True
B)False
Q4) Outside of the relevant range, variable and fixed cost-behavior patterns change, causing costs to become nonlinear.
A)True
B)False
Q5) List and briefly describe the six steps in estimating a cost function under quantitative analysis.
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) Under what conditions might a manufacturing firm sell a product for less than its long-term price? Why?
Q2) Under the opportunity-cost approach, the relevant cost of any alternative is the incremental of the alternative plus the opportunity cost of the profit foregone from choosing the alternative.
A)True
B)False
Q3) How does a manager go about choosing which of three products to produce and sell when each product uses a single machine with a limited capacity?
Q4) Sunk costs are irrelevant to decision making.
A)True
B)False
Q5) Which of the following is true of historical costs?
A) They are useful for making future predictions.
B) They are relevant for decision making.
C) They are always accounted as opportunity costs.
D) They cannot be fixed costs.
Q6) Explain why sunk costs are not considered relevant when choosing among alternatives with example.
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Chapter 12: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Sample Questions
Q1) Discretionary costs are not easily controllable compared to engineered costs.
A)True
B)False
Q2) Feedback on how a company is doing from the perspectives of financial, customer, internal business processes, and learning and growth.
A) Master budget
B) Product differentiation
C) Differential report
D) Balanced scorecard
Q3) Total factor productivity (TFP) is easy to compute for a single-product company. When dealing with a multiproduct company, one of two adjustments must be made. What are these potential adjustments?
Q4) Higher selling prices, rather than unique products or services, provide a competitive advantage for the cost leader companies.
A)True
B)False
Q5) What is re-engineering. Can you contrast a re-engineering approach to change with a kaizen approach to change?
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Chapter 13: Pricing Decisions and Cost Management
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Sample Questions
Q1) In setting prices for products and services, managers may attempt to charge what the customer is willing to pay however, too high a price may ________.
A) deter a customer from purchasing a product and seek alternatives
B) increase demand and demand for the product
C) indicate supply is too plentiful
D) decrease a competitor's market share
Q2) Customer life-cycle costs focus on the total costs incurred by a customer to acquire, use, maintain, and dispose of a product or service.
A)True
B)False
Q3) When the price of a product does not change as a result of changes in demand, the price insensitivity to demand is called demand inelasticity.
A)True
B)False
Q4) Supervision costs can have both value-added and non-value-added components.
A)True
B)False
Q5) What is the primary reason a firm would adopt target costing?
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Chapter
14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $13,000,000 bond issuance, the Electric Mixer Division used $9,500,000 and the Electric Lamp Division used $3,500,000 for expansion. Interest costs on the bond totaled $975,000 for the year. What amount of interest costs should be allocated to the Electric Mixer Division? (Round any intermediary calculations two decimal places and your final answer to the nearest dollar.)
A) $563,333
B) $711,750
C) $3,500,000
D) $9,500,000
Q2) It is possible that the smallest customer in terms of revenue is the most profitable customer.
A)True
B)False
Q3) Which of the following is an example of division-sustaining costs?
A) research and development cost
B) corporate administration costs
C) corporate brand advertising
D) shipment costs
Q4) Should a company allocate its corporate costs to divisions?
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Chapter 15: Allocation of Support-Department Costs, Common
Costs, and Revenues
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Sample Questions
Q1) Which of the following is an advantage of using practical capacity to allocate costs?
A) is that it allows a downward supply spiral to develop
B) is that it focuses management's attention on managing unused capacity
C) is that budgets are much easier to develop
D) is that it results in departments bearing a lower percentage of fixed costs
Q2) Which of the following statements is false with regards to departmental cost allocations?
A) amounts allocated to departments will most likely differ depending on the cost allocation method used
B) the total amount allocated among departments will differ in total depending on the cost allocation method used
C) the reciprocal method is usually the most conceptually precise method because it considers mutual services provided among all support departments
D) the step-down and direct methods are simple for managers to compute and understand relative to the reciprocal method
Q3) There is uncertainty in defense contracts about the final cost to produce a new weapon or equipment. Explain.
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Page 17
Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) The only allowable method of joint cost allocation is net realizable value which is specified by FASB.
A)True
B)False
Q2) If the value of a byproduct drops significantly, it could also be viewed as a joint product.
A)True
B)False
Q3) The sales value at split-off method of joint cost allocation involves computation of the relative amounts of the sales value of the amount of each joint product sold during the period.
A)True
B)False
Q4) The production method for recognizing byproducts is simpler and is often used in practice, primarily because the dollar amounts of byproducts are immaterial.
A)True
B)False
Q5) What are the reasons for allocating joint costs to individual products or services?
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Chapter 17: Process Costing
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Sample Questions
Q1) Equivalent units is a derived measure of output calculated by converting the quantity of inputs into the amount of completed output that could be produced with that quantity of input.
A)True
B)False
Q2) High Universal Industries operates a division in Brazil, a country with very high inflation rates. Traditionally, the company has used the same costing techniques in all countries to facilitate reporting to corporate headquarters. However, the financial accounting reports from Brazil never seem to match the actual unit results of the division. Management has studied the problem and it appears that beginning inventories may be the cause of the unmatched information. The reason for this is that the inventories have a different financial base because of the severe inflation.
Required: How can process costing assist in addressing the problem facing Universal Industries?
Q3) Underestimating the degree of completion of ending work in process leads to increase in operating income.
A)True
B)False
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) If the rework is abnormal ________.
A) it is debited to Wages Payable Control
B) it is credited to Wages Payable Control
C) it is credited to Loss from Abnormal Rework
D) it is debited to Loss from Abnormal Rework
Q2) Dynalia Florists operate a flower shop. Because most of their orders are via telephone or fax, numerous orders have to be reworked. The average cost of the reworked orders is $5.25: $3.50 for labor, $1.25 for more flowers, and $0.50 for overhead. This ratio of costs holds for the average original order. On a recent day, the shop reworked 40 orders out of 250. The original cost of the 40 orders totaled $700. The average cost of all orders is $18.34, including rework, with an average selling price of $25. Required:
Prepare the necessary journal entry to record the rework for the day if the shop charges such activities to Arrangement Department Overhead Control. Prepare a journal entry to transfer the finished goods to Finished Goods Inventory.
Q3) Abnormal spoilage is spoilage inherent in a particular production process.
A)True
B)False
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Chapter 19: Balanced Scorecard: Quality and Time
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Sample Questions
Q1) Warranty repair cost is an example of which of the following?
A) prevention costs
B) appraisal costs
C) internal failure costs
D) external failure costs
Q2) A quality improvement program is very costly to implement across a large corporation. Why do they do it? Explain.
Q3) The implication of controlling a process at a Six Sigma level is that the process produces only 3.4 defects per million products produced.
A)True
B)False
Q4) One way to increase capacity is to reduce the time it takes for setups and processing.
A)True
B)False
Q5) In the banking industry, depositing a customer's check into the wrong bank account is an example of quality of design failure.
A)True
B)False
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Chapter 20: Inventory Management, Just-in-Time, and Simplified Costing Methods
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Sample Questions
Q1) A grouping of all the different types of equipment used to make a given product is referred to as ________.
A) total quality management
B) materials requirements planning
C) manufacturing cells
D) economic order quantity
Q2) Sharing sales information throughout the supply chain leads to which of the following?
A) larger stockouts
B) increased manufacturing of products not immediately needed by retailers
C) fewer manufacturing orders that had to be expedited
D) higher inventories held by each company in the supply chain
Q3) What are the principles of lean accounting? Are there any limitations? Discuss.
Q4) The purchase-order lead time is the ________.
A) time between placing an order and its delivery
B) time between receiving a customer order and producing the products
C) time between receiving a customer order and delivering the items
D) time required to correct errors in the defective products
Q6) What are five features of a just-in-time manufacturing system? Page 22
Q5) Lean accounting is much simpler than traditional product costing. Why?
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Page 23
Chapter 21: Capital Budgeting and Cost Analysis
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Sample Questions
Q1) Capital budgeting is the process of making long-run planning decisions for investments in projects.
A)True
B)False
Q2) The Ambitz Corporation has an annual cash inflow from operations from its investment in a capital asset of $44,000 (excluding the deprecation) each year for seven years. The corporation's income tax rate is 35%. Calculate the total after-tax cash inflow from operations for seven years.
A) $308,000
B) $308,002
C) $200,200
D) $44,000
Q3) As cash flows and time value of money are central to capital budgeting decisions, the AARR method is regarded as better than the IRR method.
A)True
B)False
Q4) What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method?
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24
Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational
Considerations
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Q1) The president of Silicon Company has just returned from a week of professional development courses and is very excited that she will not have to change the organization from a centralized structure to a decentralized structure just to have responsibility centers. However, she is somewhat confused about how responsibility centers relate to centralized organizations where a few managers have most of the authority.
Required:
Explain how a centralized organization might allow for responsibility centers.
Q2) Effort refers to physical exertion, such as a worker producing at a faster rate, but excludes non-physical aspects like acumen and diligence of a worker.
A)True
B)False
Q3) Dual pricing insulates managers from the realities of the marketplace because costs, not market prices, affect the revenues of the supplying division.
A)True
B)False
Q4) Negotiated transfer prices are often employed when market prices are stable. A)True
B)False
25
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Chapter 23: Performance Measurement, Compensation, and Multinational Considerations
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Q1) An important element in designing accounting-based performance measures is choosing the time horizon of the performance measures. Discuss.
Q2) Team incentives encourage cooperation by ________.
A) identifying an efficient and a nonefficient employee
B) enhancing the incentives of individual employees leading to overall positive performance
C) letting individuals help one another as they strive toward a common goal
D) rewarding all teams by the same margin
Q3) Using residual income as a measure of performance rather than return on investment promotes goal congruence because residual income ________.
A) places importance on the reduction of underperforming assets
B) calculates a percentage return rather than an absolute return
C) concentrates on maximizing an absolute amount of dollars
D) concentrates on maximizing the return on sales
Q4) Intrinsic motivation comes from being given greater responsibility, doing interesting and creative work, and having pride in doing that work.
A)True
B)False
Page 26
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