Cost Accounting Exam Practice Tests
Course Introduction
Cost Accounting is an essential course that introduces students to the fundamental concepts, methods, and techniques used to determine, record, and control costs in business operations. The course covers cost classification, cost behavior analysis, and the preparation of cost statements, alongside techniques such as job costing, process costing, and activity-based costing. Emphasis is placed on understanding how cost information supports managerial decision-making, budgeting, and performance evaluation in organizations. Through real-world examples and practical exercises, students gain the analytical skills necessary to use cost data for strategic planning and effective resource management.
Recommended Textbook Cornerstones of Cost Management 2nd Edition by Don R. Hansen
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Chapter 1: Introduction to Cost Management
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Sample Questions
Q1) Which of the following is NOT part of the financial accounting information system?
A) filing reports with the SEC
B) reporting a large contingent liability to current and potential shareholders
C) determining the future cash flows of a proposed flexible manufacturing system
D) preparing GAAP financial statements
Answer: C
Q2) Preparing reports for division managers is an activity associated with the cost management information system.
A)True
B)False Answer: True
Q3) The Controller of a company supervises all the accounting departments and is often viewed as a member of the top management team.
A)True
B)False
Answer: True
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) __________ means the consumer cannot see, hear, feel, or taste a service before it is bought.
Answer: Intangibility
Q2) In deciding whether to implement a(n) __________ cost management system, managers must evaluate the trade-off between costs of measurement and cost of errors.
or
Answer: activity-based activity based
Q3) Which of the following costs is NOT a period cost?
A) receptionist's salary
B) steel used in steel railings
C) depreciation on sales staffs' cars
D) sales commission
Answer: B
Q4) Which of the following costs is a period cost?
A) depreciation of factory equipment
B) transportation-in for material shipments
C) amortization of a patent for the company's product
D) depreciation of office computers
Answer: D
Page 4
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Chapter 3: Cost Behavior
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Sample Questions
Q1) Figure 3-3 The Sandoval Company has four process engineers that are each able to process 1,500 design changes. Last year 5,250 design changes were produced by the four engineers. Each engineer is paid $60,000 per year.
Refer to Figure 3-3. Calculate the unused capacity.
A) 750 change orders
B) 1,375 change orders
C) 4,000 change orders
D) 2,000 change orders
Answer: A
Q2) The cost function derived by the least-squares cost estimation method
A) is linear.
B) must be tested for minima and maxima.
C) is parabolic.
D) is quadratic.
Answer: A
Q3) Managerial judgement includes the possibility of mixed costs.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Activity-Based Costing
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Sample Questions
Q1) A predetermined overhead rate is calculated using which of the following formulas?
A) Actual annual overhead / budgeted annual driver level
B) Budgeted annual overhead / budgeted annual driver level
C) Budgeted annual overhead / actual annual driver level
D) Actual annual overhead / actual annual driver level
Q2) A costing system that uses actual costs for direct materials and labor and predetermined overhead rates to apply overhead is called a(n)
A) actual costing system.
B) standard costing system.
C) normal costing system.
D) activity-based costing system.
Q3) The proportion of an overhead activity consumed by a product is the
A) overhead ratio.
B) consumption ratio.
C) quick ratio.
D) fixed ratio.
Q4) For labor-intensive operations, the most appropriate activity driver would be the __________ hours.
Q5) A(n) __________ is a grouping of logically related information.
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Chapter 5: Product and Service Costing: Job-Order System
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Sample Questions
Q1) Companies operating in job-order industries produce a wide variety of products or jobs that are quite different from each other.
A)True
B)False
Q2) Normal costing uses which cost in work in process?
A) applied direct materials
B) actual overhead
C) applied overhead
D) budgeted overhead
Q3) A journal entry debiting Work-in-Process would normally NOT be accompanied by a credit to
A) Materials Inventory.
B) Finished Goods.
C) Overhead Control.
D) Wages Payable.
Q4) A debit to Materials Inventory indicates materials were
A) ordered.
B) requisitioned.
C) put into production.
D) purchased.
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Chapter 6: Process Costing
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Sample Questions
Q1) The production report is the document that summarizes the manufacturing activity that takes place in a work-in-process department.
A)True
B)False
Q2) When manufacturing companies exhibit characteristics of both job and process environments, they use batch production processes.
A)True
B)False
Q3) Abnormal spoilage is treated differently from normal spoilage in what way?
A) Equivalent units are calculated for abnormal spoilage but not for normal spoilage.
B) Equivalent units are calculated for normal spoilage but not for abnormal spoilage.
C) Normal spoilage is absorbed as part of the product cost but abnormal spoilage costs are treated separately.
D) Abnormal spoilage is not assigned costs but normal spoilage is.
Q4) When spoilage is due to the exacting nature of a particular job it is called __________ spoilage.
Q5) A key input to the cost of production report is __________ costs.
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Page 8
Chapter 7: Allocating Costs of Support Departments and Joint Products
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Sample Questions
Q1) Which of the following cost categories would most likely use machine hours as its activity driver?
A) personnel
B) maintenance
C) purchasing
D) both a and b
Q2) Producing departments create products and services to make and sell.
A)True
B)False
Q3) The weight factor addresses the advantages of the physical units method.
A)True
B)False
Q4) After allocation, total overhead in producing department is divided by the budgeted measure of activity to get the __________ overhead rate.
Q5) Support department fixed costs are allocated on the basis of original capacity. A)True B)False
B)False Page 9
Q6) Departmental overhead is applied to products passing through the department. A)True
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Page 10
Chapter 8: Budgeting for Planning and Control Key
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Sample Questions
Q1) The budgets that are comprehensive financial plans made up of various individual departmental and activity budgets are the:
A) Operating budgets
B) Master budgets
C) Financial budgets
D) Continuous budgets
Q2) 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
Q3) A flexible budget compares actual costs to budgeted costs.
A)True
B)False
Q4) Cash disbursements and cash excess or deficiency are components of the __________ budget.
Q5) A __________ budget is developed around one particular level of activity.
Q6) The __________ income statement is the culmination of the operating budget.
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Chapter 9: Standard Costing: a Functional-Based Control Approach
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Sample Questions
Q1) A materials price variance would NOT be caused by
A) ordering the wrong quality of materials.
B) ordering from the wrong supplier.
C) not taking a quantity discount.
D) requiring laborers to work overtime.
Q2) The standard overhead cost assigned to each unit of product manufactured is called the
A) total manufacturing cost.
B) predetermined overhead cost.
C) applied overhead cost.
D) estimated overhead cost.
Q3) The direct materials price variance is the difference between actual and standard pricing.
A)True
B)False
Q4) The factors where actual performance differs from planned are called: __________ .
Q5) A production __________ would most likely be responsible for an unfavorable variable overhead efficiency variance.
Q6) __________ standards are the standards used for continuous improvement. Page 12
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Chapter 10: Decentralization: Responsibility Accounting, Performance
Evaluation, and Transfer Pricing
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Sample Questions
Q1) The transfer price is revenue to the selling division and cost to the buying division.
A)True
B)False
Q2) The __________ transfer price is the minimum price acceptable when transferring a product.
Q3) Transfer pricing exists when one division of a company produces a product that can be used in the production by a different division.
A)True
B)False
Q4) Firms encourage goal congruence by constructing management early retirement programs.
A)True
B)False
Q5) A manager of a profit center does not control:
A) Revenues
B) Costs
C) Profits
D) Investments
Q6) __________ managers can make better decisions using __________ information. Page 14
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Page 15
Chapter 11: Strategic Cost Management
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Sample Questions
Q1) Plant layout, quality management systems, and providing capacity are examples of A) executional activities.
B) structural activities.
C) operational activities.
D) both a and b.
Q2) If traditional manufacturing is used, which of the following is considered direct costs?
A) setup costs
B) direct labor
C) maintenance of machinery
D) inspection costs
Q3) Exploiting customer linkages is not important since customers do not affect profitability.
A)True
B)False
Q4) A major difference between traditional and JIT environments is the degree of responsibility given to workers in the organization.
A)True
B)False
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Chapter 12: Activity-Based Management
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Sample Questions
Q1) The process which refers to the performance of a process in a new way to achieve major improvements is called:
A) Process improvement
B) Process creation
C) Process innovation
D) Process efficiency
Q2) Process value analysis maximizes systemwide performance by emphasizing activity management.
A)True
B)False
Q3) Financial-based responsibility accounting focuses on functional organizational units.
A)True
B)False
Q4) 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
Page 17
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Chapter 13: The Balanced Scorecard: Strategic-Based Control
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Sample Questions
Q1) Lead measures are critical to strategy because
A) they are based on actual activity.
B) they are an independent part of the system.
C) there should be a causal linkage with strategy.
D) they are outcome measures.
Q2) 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
Q3) Compare and contrast activity-based measures and strategic-based measures.
Q4) 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
Page 18
Q5) Dissatisfied customers are an example of a __________ measure.
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Chapter 14: Quality and Environmental Cost Management
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Sample Questions
Q1) Labor and overhead incurred for rework of defective products found by an inspector is a(n)
A) external failure cost.
B) internal failure cost.
C) appraisal cost.
D) prevention cost.
Q2) Which of the following is NOT a detection activity?
A) inspecting products and processes
B) developing environmental performance measures
C) testing for contamination
D) operating pollution control equipment
Q3) A quality report that compares current actual quality costs with budgeted quality costs for the future is the
A) interim quality performance report.
B) one-year quality performance report.
C) multiple-period quality trend report.
D) long-range quality performance report.
Q4) A quality product or service is one that meets or exceeds customer expectations. A)True
B)False
Page 19
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Chapter 15: Lean Accounting and Productivity Measurement
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Sample Questions
Q1) Why might labor costs be reduced in a value stream system?
A) The elimination of the need for any specialized skilled employees such as industrial engineers or production schedulers.
B) The labor costs of industrial engineers and production schedulers can be pooled and allocated to the value streams.
C) Some of the workers can be cross-trained to perform value-added activities within the value stream.
D) none of the above.
Q2) The processing department can produce one unit every 5 minutes and is the last department before the finishing department. Under traditional manufacturing where a batch equals 10 units, how long will it be before the first unit in the batch can move from the processing department to the finishing department?
A) 5 minutes
B) 50 minutes
C) 10 minutes
D) not enough information is given
Q3) The worth of one or more features of a product for which customers are willing to pay is called __________ .
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Chapter 16: Cost-Volume-Profit Analysis
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Sample Questions
Q1) In 2014, Samantha's Bath and Body Shop had variable costs of $27,000, fixed costs of $18,000, and a net loss of $4,500. Samantha's 2014 break-even sales volume was
A) $36,000.
B) $54,000.
C) $49,500.
D) $37,500.
Q2) The break-even point in units can be calculated using the contribution margin approach in the formula
A) Total Costs / Unit Contribution Margin.
B) Total Costs / Fixed Costs.
C) Fixed Costs / Selling Price per unit.
D) Fixed Costs / Unit Contribution Margin.
Q3) The operating leverage shows how far the company's actual sales or units are from the break-even point.
A)True
B)False
Q4) CVP analysis is a short-run decision-making tool since some costs are fixed.
A)True
B)False
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Chapter 17: Activity Resource Usage Model and Tactical
Decision
Making
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Sample Questions
Q1) Describe the steps in the decision-making process. What is the role of qualitative factors in tactical decision-making?
Q2) An irrelevant cost is one that is the same for more than one alternative and has no bearing on future decisions.
A)True
B)False
Q3) Which of the following costs is NOT relevant to a make-or-buy decision?
A) $20,000 of direct labor used to manufacture the parts
B) $25,000 in rent from leasing the production space to another company if the part is purchased from an outside supplier
C) the supervisor's salary of $35,000 that will be avoided if the part is purchased from an outside supplier
D) $40,000 of depreciation on the plant used to manufacture the parts
Q4) Changes in cost of an activity can occur if the demand for the resource exceeds the supply or if the demand for the resource drops.
A)True
B)False
Q5) Past cost __________ represents an allocation of a cost already incurred.
Page 22
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Chapter 18: Pricing and Profitability Analysis
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Sample Questions
Q1) 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).
Q2) Compare and contrast the various pricing policies used by companies.
Q3) Under absorption costing, when production is less than sales volume, the profits, using variable costing procedures, will be:
A) less than
B) greater than
C) equal to
D) randomly different than
Q4) The contribution margin variance is the difference between the actual contribution margin and the:
A) actual unit price
B) budgeted contribution margin
C) budgeted variable expenses
D) actual variable expenses
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Chapter 19: Capital Investment
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Sample Questions
Q1) the two ways to compute after-tax cash flows are the income method and the composition method.
A)True
B)False
Q2) If the tax rate is 40 percent and a company has $800,000 of income, a depreciation deduction of $160,000 would result in a tax savings of
A) $105,600.
B) $96,000.
C) $64,000.
D) $54,400.
Q3) Which of the following methods consider the time value of money?
A) payback and accounting rate of return
B) payback and internal rate of return
C) internal rate of return and accounting rate of return
D) internal rate of return and net present value
Q4) Net present value (NPV) is the difference between the present value of cash inflows and outflows associated with a project.
A)True
B)False
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Chapter 20: Inventory Management: Economic Order
Quantity, Jit, and the Theory of Constraints
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Sample Questions
Q1) One of the traditional reasons for holding finished goods inventories is to ensure a firm's ability to meet delivery dates. The JIT solution is to
A) reduce setup costs.
B) reduce lead time.
C) use total preventive maintenance.
D) use total quality control.
Q2) The focus on the goal of making money now and in the future by managing constraints is called the __________ .
Q3) If the objective is to maximize profits in a linear programming problem, the coefficients of the variables in the objective function should be the A) selling price per unit.
B) variable costs per unit.
C) contribution margin per unit.
D) fixed costs per unit.
Q4) Ordering costs are costs of placing and receiving an order and setup costs are the costs of getting equipment and facilities to produce products.
A)True
B)False
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