Cost Accounting Practice Questions
Course Introduction
Cost Accounting is a comprehensive course that introduces students to the principles and practices used in the collection, analysis, and application of cost data for internal management purposes. The course covers various cost concepts, including job order costing, process costing, activity-based costing, and standard costing. Students will explore the methods for budget preparation, cost-volume-profit analysis, variance analysis, and the use of cost information for planning, control, and decision-making within organizations. Emphasis is placed on how cost accounting supports strategic management by improving efficiency, controlling expenses, and optimizing financial outcomes.
Recommended Textbook
Financial Managerial Accounting 14th Edition by Carl Warren
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Page 2
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) Within the United States,the dominant body in the primary development of accounting principles is the
A) American Institute of Certified Public Accountants (AICPA)
B) American Accounting Association (AAA)
C) Financial Accounting Standards Board (FASB)
D) Institute of Management Accountants (IMA)
Answer: C
Q2) Assets that are used up during the process of earning revenue are called expenses.
A)True
B)False
Answer: True
Q3) Generally accepted accounting principles regulate how and what financial information is reported by businesses.
A)True
B)False
Answer: True
Q4) Prepare a balance sheet for the current year ended March 31. Answer: 11ea8952_b5d8_f6da_861b_5b75de2a6d66_TB6238_00
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) Proof that the dollar amount of the debits equals the dollar amount of the credits in the ledger means
A) all of the information from the journal was correctly transferred to the ledger
B) all accounts have their correct balances in the ledger
C) only the journal is accurate; the ledger may be incorrect
D) only that the debit dollar amounts equal the credit dollar amounts
Answer: D
Q2) Which of the following situations increase stockholders' equity?
A) Supplies are purchased on account.
B) Services are provided on account.
C) Cash is received from customers on account.
D) Utility bill will be paid next month.
Answer: B
Q3) For a month's transactions for a typical medium-sized business,the salary expense account is likely to have only credit entries.
A)True
B)False
Answer: False
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4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) The estimated amount of depreciation on equipment for the current year is $5,300.Journalize the adjusting entry to record the depreciation.
Answer: 11ea8952_b5af_4f35_861b_bf1b9be339a4_TB6238_00
Q2) Adjusting entries always include
A) only income statement accounts
B) only balance sheet accounts
C) the cash account
D) at least one income statement account and one balance sheet account
Answer: D
Q3) At the end of April,the first month of the company's year,the usual adjusting entry transferring rent earned to a revenue account from the unearned rent account was omitted.Indicate which items will be incorrectly stated,because of the error,on (a)the income statement for April and (b)the balance sheet as of April 30.Also indicate whether the items in error will be overstated or understated.
Answer: 11ea8952_b5b0_39ad_861b_039725080299_TB6238_00
Q4) Adjusting journal entries are dated on the last day of the period.
A)True
B)False
Answer: True
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) After all of the account balances have been extended to the Income Statement columns of the end-of-period spreadsheet,the totals of the Debit and Credit columns are $77,500 and $83,900,respectively.What is the amount of the net income or net loss for the period?
A) $6,400 net income
B) $6,400 net loss
C) $83,900 net income
D) $77,500 net loss
Q2) During the closing process,some balance sheet accounts are closed and end the period with a zero balance.
A)True
B)False
Q3) The dividends account is a temporary account. A)True
B)False
Q4) Journalizing and posting closing entries must be completed before financial statements can be prepared.
A)True
B)False
Q5) Describe a classified balance sheet.
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) Using a perpetual inventory system,the entry to record the return from a customer of merchandise sold on account includes a
A) credit to Customer Refunds Payable
B) debit to Inventory
C) credit to Inventory
D) debit to Cash
Q2) President's salaries,depreciation of office furniture,and office supplies are
A) selling expenses
B) miscellaneous expenses
C) administrative expenses
D) inventory expenses
Q3) Other revenue and expenses are items that are not related to the primary operating activity.
A)True
B)False
Q4) Who is responsible for the freight cost when the terms are FOB destination?
A) the seller
B) the buyer
C) the ultimate customer
D) either the buyer or the seller
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Chapter 6: Inventories
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Sample Questions
Q1) Under a periodic inventory system
A) accounting records continuously disclose the amount of inventory
B) a separate account for each type of merchandise is maintained in a subsidiary ledger
C) a physical inventory is taken at the end of the period
D) inventory is debited when goods are returned to vendors
Q2) Under the _____ inventory method,accounting records maintain a continuously updated inventory value.
A) retail
B) periodic
C) physical
D) perpetual
Q3) The inventory costing method that reports the most current prices in ending inventory is
A) FIFO
B) specific identification
C) LIFO
D) average cost
Q4) Average cost periodic (round average to nearest cent)
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) A bank reconciliation should be prepared
A) whenever the bank refuses to lend the company money
B) to explain any difference between the company's balance per books with the balance per bank
C) by the company's bank
D) by the person who is authorized to sign checks
Q2) Receipts from cash sales of $3,200 were recorded incorrectly in the cash receipts journal as $2,300.This item would be included on the bank reconciliation as a(n)
A) deduction from the balance per company's records
B) addition to the balance per bank statement
C) deduction from the balance per bank statement
D) addition to the balance per company's records
Q3) Entries are made to the petty cash account when
A) making payments out of the fund
B) recording shortages in the fund
C) replenishing the petty cash fund
D) establishing the fund
Q4) List the principal advantages of electronic funds transfers.
Q5) Why would a bank require a company to maintain a compensating balance?
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Chapter 8: Receivables
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Sample Questions
Q1) To record estimated uncollectible receivables using the allowance method,the adjusting entry would be a
A) debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts
B) debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts
C) debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable
D) debit to Loss on Credit Sales and a credit to Accounts Receivable
Q2) A 60-day,12% note for $7,000,dated April 15,is received from a customer on account.The face value of the note is
A) $6,860
B) $7,140
C) $7,840
D) $7,000
Q3) On October 1,Black Company receives a 9% interest-bearing note from Reese Company to settle a $20,000 account receivable.The note is due in six months.At December 31,Black should record interest revenue of
A) $0
B) $450
C) $900
D) $1,800
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Page 10
Chapter 9: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) When a company establishes an outstanding reputation and has a competitive advantage because of it,the company should record goodwill on its financial statements.
A)True
B)False
Q2) Expected useful life is
A) calculated when the asset is sold
B) estimated at the time that the asset is placed in service
C) determined each year that the depreciation calculation is made
D) none of these
Q3) When land is purchased to construct a new building,the cost of removing any structures on the land should be charged to the building account.
A)True
B)False
Q4) Costs associated with normal research and development activities should be treated as intangible assets.
A)True
B)False
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Chapter 10: Liabilities: Current,installment Notes,and
Contingencies
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Sample Questions
Q1) Scott Company sells merchandise with a one-year warranty.Sales consisted of 2,500 units in Year 1 and 2,000 units in Year 2.It is estimated that warranty repairs will average $10 per unit sold,and 30% of the repairs will be made in Year 1 and 70% in Year 2 for the Year 1 sales.Similarly,30% of repairs will be made in Year 2 and 70% in Year 3 for the Year 2 sales.In the Year 3 income statement,how much of the warranty expense shown will be due to Year 1 sales?
A) $6,000
B) $14,000
C) $20,000
D) $0
Q2) During the first year of operations,employees earned vacation pay of $35,000.The vacations will be taken during the second year.The vacation pay expense should be recorded in the second year as the vacations are taken by the employees.
A)True
B)False
Q3) Receiving payment prior to delivering goods or services causes a current liability to be incurred.
A)True
B)False
Page 12
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Chapter 11: Liabilities: Bonds Payable
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Sample Questions
Q1) When the bonds are sold for more than their face value,the carrying amount of the bonds is equal to
A) face value
B) face value plus the unamortized discount
C) face value minus the unamortized premium
D) face value plus the unamortized premium
Q2) Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every 6 months.
A)True
B)False
Q3) Selling the bonds at a premium has the effect of
A) raising the effective interest rate above the stated interest rate
B) attracting investors that are willing to pay a lower rate of interest than on similar bonds
C) causing the interest expense to be higher than the bond interest paid
D) causing the interest expense to be lower than the bond interest paid
Q4) The present value of an annuity is the sum of the present values of each cash flow.
A)True
B)False
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Chapter 12: Corporations: Organization, stock Transactions, and Dividends
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Sample Questions
Q1) A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8.Subsequently,the company declared a 2% stock dividend on a date when the market price was $11 a share.What is the amount transferred from the retained earnings account to paid-in capital accounts as a result of the stock dividend?
A) $3,200
B) $6,400
C) $4,800
D) $8,800
Q2) When a corporation completes a 3-for-1 stock split
A) the ownership interest of current stockholders is decreased
B) the market price per share of the stock is decreased
C) the par value per share is decreased
D) the market price per share of the stock and the par value per share is decreased
Q3) The stock dividends distributable account is listed in the current liability section of the balance sheet.
A)True
B)False
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Page 14
Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) Net income for the year was $45,500.Accounts receivable increased $5,500,and accounts payable increased by $11,200.Under the indirect method,the cash flow from operations is
A) $51,200
B) $45,500
C) $62,200
D) $28,800
Q2) Which of the following should be deducted from net income in calculating net cash flow from operating activities using the indirect method?
A) a decrease in inventory
B) a decrease in accounts payable
C) preferred dividends declared and paid
D) a decrease in accounts receivable
Q3) Under GAAP,cash receipts from interest and dividends are classified as
A) financing activities
B) operating activities
C) investing activities
D) either financing or investing activities
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) In computing the asset turnover ratio,long-term investments are excluded from average total assets.
A)True
B)False
Q2) Based on the data for Privett Company,what is the amount of quick assets?
A) $168,000
B) $96,000
C) $60,000
D) $61,000
Q3) Which of the following is considered an unusual item affecting the prior period's income statement?
A) a change in accounting principles
B) fixed asset impairments
C) sale of company stores in Florida
D) discontinued operations
Q4) The excess of current assets over current liabilities is referred to as working capital.
A)True
B)False
Q5) Define solvency and profitability.How are they alike?
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Chapter 15: Introduction to Managerial Accounting
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Sample Questions
Q1) Product costs are not expensed until the product is sold.
A)True
B)False
Q2) Managerial accounting provides useful information to managers on product costs.
A)True
B)False
Q3) Conversion cost is the combination of direct materials cost and factory overhead cost.
A)True
B)False
Q4) Period costs are operating costs that are expensed in the period in which the goods are sold.
A)True
B)False
Q5) Managerial information is for external as well as internal stakeholders.
A)True
B)False
Q6) Prime costs are the combination of direct materials and direct labor costs.
A)True
B)False
Page 17
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Chapter 16: Job Order Costing
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Sample Questions
Q1) What is the ending balance of Cost of Goods Sold for Adams Company at the end of the first quarter?
A) $456
B) $2,685
C) $1,685
D) $685
Q2) Discuss the use of job order costing for professional services businesses.What are the similarities and differences between service and manufacturing business job order costing?
Q3) Generally accepted accounting principles require companies to use only one factory overhead rate for product costing.
A)True
B)False
Q4) Job order cost accounting systems may be used for planning and controlling a service business.
A)True
B)False
Q5) List the accounts used in the cost flow for (a)a manufacturer and (b)a service provider.
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Chapter 17: Process Cost Systems
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Sample Questions
Q1) The number of equivalent units of production for conversion costs for the period was
A) 29,600
B) 32,400
C) 32,400.
D) 34,000
Q2) The three categories of manufacturing costs comprising the total cost of work in process are direct labor,direct materials,and
A) selling expenses
B) direct expenses
C) accounting salaries expense
D) factory overhead
Q3) Companies that use the average costing method for process costing have unit costs that include costs from more than one accounting period.
A)True
B)False
Q4) Conversion costs are usually incurred evenly throughout a process.
A)True
B)False
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Page 19
Chapter 18: Activity-Based Costing
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Sample Questions
Q1) Service companies can effectively use multiple department overhead rate costing to compute product (service)costs.
A)True
B)False
Q2) Activity rates are determined by
A) dividing the actual cost for each activity pool by the actual activity base for that pool.
B) dividing the cost budgeted for each activity pool by the estimated activity base for that pool.
C) dividing the actual cost for each activity pool by the estimated activity base for that pool.
D) dividing the cost budgeted for each activity pool by the actual activity base in that pool.
Q3) Determine the activity rate for procurement per purchase order.
A) $43.53
B) $18.50
C) $15.42
D) $37.00
Q4) Calculate the cost of services for a highlight.
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Page 20
Chapter 19: Cost-Volume-Profit Analysis
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Sample Questions
Q1) If variable costs per unit decreased because of a decrease in utility rates,the break-even point would
A) decrease
B) increase
C) remain the same
D) increase or decrease,depending upon the percentage increase in utility rates
Q2) If the property tax rates are increased,this change in fixed costs will result in a decrease in the break-even point.
A)True
B)False
Q3) When a business sells more than one product at varying selling prices,the business's break-even point can be determined as long as the number of products does not exceed
A) two
B) three
C) fifteen
D) there is no limit
Q4) If direct materials cost per unit increases,the break-even point will decrease.
A)True
B)False
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Chapter 20: Variable Costing for Management Analysis
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Sample Questions
Q1) Which of the following would be included in the cost of a product manufactured according to variable costing?
A) sales commissions
B) office supply costs
C) interest expense
D) direct materials
Q2) On the variable costing income statement,deduction of the variable cost of goods sold from sales yields gross profit.
A)True
B)False
Q3) On the variable costing income statement,variable costs are deducted from contribution margin to yield manufacturing margin.
A)True
B)False
Q4) Under absorption costing,the cost of finished goods includes direct materials,direct labor,and all factory overhead.
A)True
B)False
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Page 22
Chapter 21: Budgeting
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Sample Questions
Q1) Consider Derek's budget information: materials to be used totals $64,750; direct labor totals $198,400; factory overhead totals $394,800; work in process inventory January 1,$189,100; and work in progress inventory on December 31,$197,600.What is the budgeted cost of goods manufactured for the year?
A) $649,450
B) $657,950
C) $197,600
D) $1,044,650
Q2) Budgeted sales for the month are
A) $3,180,000
B) $5,820,000
C) $1,800,000
D) $8,500,000
Q3) Kid's World Industries has projected sales of 67,000 machines for the current year.The estimated January 1 inventory is 6,000 units,and the desired December 31 inventory is 15,000 units.What is the budgeted production (in units)for the year?
Q4) Describe a master budget and the sequence in which the individual budgets within the master budget are prepared.
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Page 23
Chapter 22: Evaluating Variances From Standard Costs
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Sample Questions
Q1) The formula to the compute direct labor time variance is to calculate the difference between
A) Actual costs - Standard costs
B) Actual costs + Standard costs
C) (Actual hours × Standard rate)- Standard costs
D) Actual costs - (Actual hours × Standard rate)
Q2) Non-financial measures are often linked to the inputs or outputs of an activity or process.
A)True
B)False
Q3) Nonfinancial performance output measures are used to improve the input measures.
A)True
B)False
Q4) Tthe variable factory overhead controllable variance is
A) $8,981.75 favorable
B) $7,280.75 unfavorable
C) $8,981.75 unfavorable
D) $7,280.75 favorable
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Chapter 23: Evaluating Decentralized Operations
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Q1) The balanced scorecard measures four areas of financial and nonfinancial performance of a business.Identify one of the following that is not included as a performance measurement.
A) internal process
B) financial
C) innovation and learning
D) employees
Q2) What will the income of the Super Division be after all service department allocations?
A) $300,000
B) $325,000
C) $550,000
D) $200,000
Q3) Transfer prices may be used when decentralized units are organized as cost,profit,or investment centers.
A)True
B)False
Q4) Office salaries expense for a department store is an indirect expense.
A)True
B)False
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Chapter 24: Differential Analysis and Product Pricing
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Q1) A cost that will not be affected by later decisions is termed a sunk cost.
A)True
B)False
Q2) What is the amount of the income or loss from acceptance of the offer?
A) $125,000 loss
B) $25,000 income
C) $125,000 income
D) $25,000 loss
Q3) The differential cost of producing Product P is $13 per pound.
A)True
B)False
Q4) What cost concept used in applying the cost-plus approach to product pricing includes only total manufacturing costs in the cost amount to which the markup is added?
A) variable cost concept
B) total cost concept
C) product cost concept
D) opportunity cost concept
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Chapter 25: Capital Investment Analysis
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Questions
Q1) Tennessee Corporation is analyzing a capital expenditure that will involve a cash outlay of $109,332.Estimated cash flows are expected to be $36,000 annually for 4 years.The present value factors for an annuity of $1 for 4 years at interest of 10%,12%,14%,and 15% are 3.170,3.037,2.914,and 2.855,respectively.The internal rate of return for this investment is
A) 9%
B) 10%
C) 12%
D) 3%
Q2) The average rate of return method of capital investment analysis gives consideration to the present value of future cash flows.
A)True
B)False
Q3) Also referred to as capital budgeting
A)Capital investment analysis
B)Time value of money concept
C)Net present value method
D)Average rate of return
E)Cash payback period
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Chapter 26: Lean Manufacturing and Activity Analysis
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Q1) A backflush accounting system uses work in process inventories as control points between each process step.
A)True
B)False
Q2) Under a lean environment,employees have the responsibility and authority to A) purchase inventory.
B) determine output amounts.
C) make decisions about operations,rather than waiting for management.
D) make engineering changes.
Q3) Employee involvement in a product-oriented factory emphasizes employee teams,rather than individual employees.
A)True
B)False
Q4) From the above schedule,calculate the external failure costs.
Q5) Reducing wait time is not linked to reducing inventory.
A)True
B)False
Q6) Make-to-order companies produce mainly to stock inventory.
A)True
B)False
Page 28
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