Cost Analysis and Control Solved Exam Questions
Course Introduction
Cost Analysis and Control explores the fundamental concepts, methodologies, and tools necessary for understanding and managing costs within an organization. This course covers cost behavior patterns, cost allocation techniques, budgeting processes, and standard costing systems. Students will learn how to analyze cost data for decision-making, evaluate variances, implement effective cost control measures, and support strategic planning. Emphasis is placed on practical applications through case studies and real-world scenarios to prepare students for roles in managerial accounting and financial management.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis16th Global Edition by Srikant M. Datar
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Chapter 1: The Manager and Management Accounting
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Q1) Which of the following reports to the CFO?
A)external auditor
B)distribution manager
C)production manager
D)treasurer
Answer: D
Q2) Which of the following is a guideline used by management accountants to assist in strategic and operational decision making?
A)employing a cost-benefit approach
B)employing a supply chain approach
C)employing a six sigma approach
D)employing a regression approach
Answer: A
Q3) As per IMA statement of ethical professional practice,integrity refers to disclosing all relevant information that could reasonably be expected to influence an intended user's understanding of the reports,analyses,or recommendations is a responsibility.
A)True
B)False
Answer: False
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Which of the following statements is true?
A)A direct cost of one cost object will always be a direct cost of another cost object.
B)Because of a cost-benefit tradeoff,some direct costs may be treated as indirect costs.
C)All fixed costs are indirect costs.
D)All direct costs are variable costs.
Answer: B
Q2) A unit cost is also called an average cost.
A)True
B)False
Answer: True
Q3) Indirect manufacturing costs such as rent,factory supervisor salary,and depreciation on production equipment are always costs of the period in which they are incurred and are not associated with inventories.
A)True
B)False
Answer: False
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Ruben is a travel agent.He intends to sell his customers a special round-trip airline ticket package.He is able to purchase the package from the airline for $140 each.The round-trip tickets will be sold for $230 each and the airline intends to reimburse Ruben for any unsold ticket packages.Fixed costs include $5,500 in advertising costs.How many ticket packages will Ruben need to sell in order to achieve $60,000 of operating income?
A)62 packages
B)667 packages
C)285 packages
D)728 packages
Answer: D
Q2) Which of the following is an assumption of CVP analysis?
A)Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
B)When graphed,total costs curve upward.
C)The unit-selling price is variable as it is subject to demand and supply.
D)Total costs can be divided into inventoriable and period costs with respect to the level of output.
Answer: A
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Chapter 4: Job Costing
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Sample Questions
Q1) Work-in-Process Control will be decreased (credited)for the amount of direct-labor costs incurred.
A)True
B)False
Q2) Explain the procedure how overhead indirect costs become a part of work-in process inventory.
Q3) A local accounting firm employs 28 full-time professionals.The budgeted annual compensation per employee is $41,000.The average chargeable time is 430 hours per client annually.All professional labor costs are included in a single direct-cost category and are allocated to jobs on a per-hour basis.
Other costs are included in a single indirect-cost pool,allocated according to professional labor-hours.Budgeted indirect costs for the year are $787,000,and the firm expects to have 95 clients during the coming year.
What is the budgeted indirect-cost rate per hour?
A)$6.86 per hour
B)$65.37 per hour
C)$28.10 per hour
D)$19.27 per hour
Q4) Differentiate between a cost pool and a cost-allocation base.
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) Identification of a cost-allocation base is not a critical element when using a strategy that will refine a costing system.
A)True
B)False
Q2) Quality-inspection costs is an example of batch-level costs.
A)True
B)False
Q3) Indirect labor and distribution costs would most likely be in the same activity-cost pool.
A)True
B)False
Q4) The goal of a properly constructed ABC system is to ________.
A)have the most accurate cost system
B)identify more indirect costs
C)develop the best cost system that meets the cost/benefit test
D)have separate allocation rates for each department
Q5) Product-cost cross-subsidization is very common when costs are uniformly spread across various products.
A)True
B)False
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) ERP systems store vast quantities of information about the materials,machines and equipment,labor,power,maintenance,and setups needed to manufacture different products.This helps simplify the budgeting process as ERP systems ________.
A)can quickly calculate the manufacturing and nonmanufacturing costs based on a given sales quantity
B)automatically identify and record changes in processes involved in producing products
C)identify which underlying assumptions are likely to change
D)always use a rolling budget ensuring that a budget is always available for a specified future period
Q2) Budgetary slack results because management sets challenging but achievable levels of expected performance.
A)True
B)False
Q3) Describe some of the drawbacks of using the operating budget as a control device.
Q4) Rolling budgets help in reducing budgetary slack.
A)True
B)False
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Chapter 7: Flexible Budgets,direct-Cost Variances,and Management Control
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Sample Questions
Q1) In a flexible budget ________.
A)variable costs are calculated proportionately for the budgeted level of sales
B)fixed costs are calculated proportionately for the actual level of sales
C)fixed costs are kept at the same level of static budget
D)variable costs are kept at the same level of static budget
Q2) The price variance is the difference between the actual price and the budgeted price of the input,multiplied by the actual quantity of input.
A)True
B)False
Q3) An efficiency variance reflects the difference between ________.
A)actual input quantities used last period and current period
B)an actual input quantity and a budgeted input quantity
C)an actual input quantity used in a company and its main competitors
D)a standard input quantity in a company and its main competitors
Q4) Efficiency is the relative amount of inputs used to achieve a given output level.
A)True
B)False
Q5) Describe the purpose of variance analysis.
Q6) What is benchmarking,and how is it useful to a company?
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Chapter 8: Flexible Budgets,
Cost Variances, and Management Control
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Sample Questions
Q1) An unfavorable production-volume variance indicates an overallocation of fixed overhead costs.
A)True
B)False
Q2) The major challenge when planning fixed overhead is ________.
A)calculating total costs
B)calculating the cost-allocation rate
C)choosing the appropriate level of capacity
D)choosing the appropriate planning period
Q3) Which of the following is a component of sales-volume variance?
A)Net-income volume variance
B)Operating-income volume variance
C)Taxable-income volume variance
D)Budgeted revenue variance
Q4) A favorable production-volume variance arises when manufacturing capacity planned for is NOT used.
A)True
B)False
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Q5) Explain how fixed manufacturing overhead costs are treated under Generally Accepted Accounting Principles?
Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) Explain how using master-budget capacity utilization for setting prices can lead to a downward demand spiral.
Q2) Which of the following best describes how fixed cost are treated in a variable cost method?
A)They are part of the product cost
B)They are excluded from inventory cost and are treated as period costs
C)They are allocated to the product cost using a denominator-level capacity choice
D)They are classified as nonmanufacturing costs
Q3) Which of the following costs is inventoried when using absorption costing?
A)variable selling costs
B)fixed administrative costs
C)variable manufacturing costs
D)fixed selling costs
Q4) ________ are subtracted from sales to calculate gross margin.
A)Variable and fixed manufacturing costs
B)Fixed administrative costs
C)Variable administrative costs
D)Fixed selling costs
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) Which of the following represents cross-sectional data?
A)indirect manufacturing labor costs for the past 5 years
B)number of machine-hours used for the past 10 years
C)personnel costs of a month at 10 different organizations
D)maintenance cost of machine in a plant for the past 3 years
Q2) A linear cost function can only represent fixed cost behavior.
A)True
B)False
Q3) All cost functions are linear.
A)True
B)False
Q4) In multiple regression,when two or more independent variables are highly correlated with one another,the situation is known as ________.
A)heteroscedasticity
B)homoscedasticity
C)multicollinearity
D)autocorrelation
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) For short-run product-mix decisions,maximizing contribution margin will also result in maximizing operating income.
A)True
B)False
Q2) Under the opportunity cost approach,the cost of each alternative includes the incremental costs and the opportunity cost.
A)True
B)False
Q3) Which of the following minimizes the risks of outsourcing?
A)the use of short-term contracts that specify price
B)shifting the firm's responsibility for on-time delivery to the supplier
C)building close partnerships with the supplier
D)increasing the contract price
Q4) A decision model is an informal method for making a choice,using simpler methods like surveying.
A)True
B)False
Q5) Compare and contrast the theory of constraints and activity based costing.Which is more useful in short-run and long-run management of costs?
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Chapter 12: Strategy,balanced Scorecard,and Strategic
Profitability Analysis
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Q1) Which of the following statements is true of successfully implementing a balanced scorecard?
A)External auditors should design and implement the balanced scorecard.
B)Balanced scorecard should never be communicated to all employees.
C)Balanced scorecard should be formed exclusively by top management.
D)Management accountants should determine the balanced scorecard measures.
Q2) Which of the following statements is true of strategic analysis of operating income?
A)Management accountants compare budgeted operating performance over two different periods.
B)Management accountants compare actual and budgeted operating performance over the same time periods.
C)Management accountants compare actual operating performance of one year and budgeted operating performance of another year.
D)Management accountants compare actual operating performance over two different periods.
Q3) It is relatively easy to identify unused capacity for discretionary costs.
A)True B)False
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Chapter 13: Pricing Decisions and Cost Management
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Q1) What factors may influence the level of markups?
Q2) Bouchard Company manufactures a product that currently has a full cost of $700.Its target operating income per unit is $50 and management's budgets assume that same target operating income per unit for the foreseeable future.To stay competitive,Bouchard management believes it must cut its price by 15%.What will be its new target price?
A)$700
B)$587.50
C)$637.50
D)$50
Q3) Clark Manufacturing offers two product lines,IN2 and EL5.The demand of the IN2 product line is inelastic,while the demand of the EL5 product line is very elastic.If Clark initiates a price increase for both product lines,how will customer demand change? How will the price increase affect operating profits?
Q4) At what point are direct material costs per unit "locked in"?
A)designed
B)assembled
C)sold
D)delivered
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Chapter 14: Cost Allocation,
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Sample Questions
Q1) Which of the following classifications would be the most relevant for the costs incurred to process orders?
A)customer output unit-level cost
B)customer batch-level cost
C)customer-sustaining cost
D)corporate-sustaining cost
Q2) Homogeneous cost pool leads to which of the following?
A)more accurate costs of a given cost object
B)more resources being assigned to that cost object
C)the need for more cost drivers
D)the need for different cost allocation bases to allocate the costs
Q3) Using the fairness criterion,the costs are allocated among the beneficiaries in proportion to the benefits each receives.
A)True
B)False
Q4) Bar charts and a whale curve are some of the common ways of displaying the results of customer-profitability analysis.
A)True
B)False
16
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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 one of the methods of allocating support department costs to operating departments that partially recognizes mutual service provided among all support departments?
A)dual-cost allocation method
B)direct method
C)sequential allocation method
D)single-rate cost allocation method
Q2) The stand-alone method uses the product in the bundle with the most sale and then uses this ranking to allocate bundled revenues to individual products.
A)True
B)False
Q3) Describe and discuss the two methods of allocating revenues of a bundled package to the individual products in that package.Describe any special problems associated with the method.
Q4) Both direct and the step-down method can provide relevant information for outsourcing decisions.
A)True
B)False
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Q1) Which of the following statements is true of joint costing?
A)The costs of a production process that yields multiple products simultaneously are called joint costs.
B)Distribution costs incurred beyond the split-off point that are assignable to each of the specific products identified at the split-off point are considered as joint costs.
C)The primary purpose of joint costing is to allocate the separable costs to the individual products that are eventually sold.
D)Joint costing is less useful for companies which manufacture multiple products simultaneously from the same production process.
Q2) Outputs with a negative sales value because of disposal costs have which of the following impact on costs?
A)added to cost of goods sold
B)added to joint production costs and allocated to joint or main products
C)added to joint production costs and allocated to byproducts and scrap
D)subtracted from product revenue
Q3) Firms should be wary of using the full cost of a joint product as the basis for making pricing decisions.Why?
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Chapter 17: Process Costing
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Q1) Marv and Vicki own and operate a vegetable canning plant.In recent years,their business has grown tremendously and,at any point in time,they may have 30 to 35 different vegetables being processed.Also,during the peak summer months there are several thousand bushels of vegetables in some stage of processing at any one time.With the company's growth during the past few years,the owners decided to employ an accountant to provide cost estimations on each vegetable category and prepare monthly financial statements.Although the accountant is doing exactly as instructed,Marv and Vicki are confused about the monthly operating costs.Although they process an average of 50,000 canned units a month,the monthly production report fluctuates wildly.
Required:
Explain how the production report can fluctuate wildly if they process a constant amount of vegetables each month.
Q2) Which of the following is the costing system used for mass produced like or similar units of products?
A)inventory-costing systems
B)job-costing systems
C)process-costing systems
D)weighted-average costing systems
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Chapter 18: Spoilage, rework, and Scrap
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Q1) Normal spoilage costs are usually deducted from the costs of good units. A)True
B)False
Q2) Normal spoilage is computed on the basis of the number of ________.
A)good units that pass inspection during the current period B)units that pass the inspection point during the current period C)units that are in ending work in process D)units that started during the particular period
Q3) Firms often conduct multiple inspections to avoid instances of undetected spoiled units at later stages of the process.
A)True
B)False
Q4) Why do firms often conduct multiple inspections?
Q5) Rework is residual material that results from manufacturing a product and can have either a high or low sales value relative to the product with which it is associated.
A)True
B)False
Q6) How do job-costing systems account for spoilage?
Q7) What is the distinction between normal and abnormal spoilage?
Page 20
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Chapter 19: Balanced Scorecard: Quality and Time
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Sample Questions
Q1) In successful quality programs,companies decrease costs of quality and,in particular,internal and external failure costs as a percentage of revenues.
A)True
B)False
Q2) Spoilage,rework,scrap,and machine repairs are all examples of ________.
A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs
Q3) Nonfinancial measures are ineffective at helping managers evaluate how well they have done on goals such as improving manufacturing cycle times and customer response times.
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) What are ISO 9000 and ISO 14000?
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Chapter 20: Inventory Management, just-In-Time, and Simplified Costing Methods
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Q1) The annual relevant carrying costs of inventory consists of the sum of the ________.
A)relevant ordering costs and the relevant costs of quality
B)relevant ordering costs plus the relevant opportunity costs of capital
C)relevant incremental costs plus the relevant opportunity costs of capital
D)relevant incremental costs plus the relevant ordering costs
Q2) 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
Q3) Just-in-time systems are similar to materials requirement planning systems as both systems are demand-pull systems.
A)True
B)False
Q4) A positive aspect of backflush costing is the presence of the visible audit trail.
A)True
B)False
22
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Chapter 21: Capital Budgeting and Cost Analysis
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Q1) The payback method of capital budgeting approach to an investment decision
A)considers cash flows over the life of the investment
B)assumes that cash flows occur uniformly throughout the year
C)considers time value of money
D)ignores the initial investment
Q2) The three common discounted cash flow methods are net present value,internal rate of return,and payback.
A)True
B)False
Q3) In determining whether to keep a machine or replace it,the original cost of the machine is a sunk cost and is NOT a relevant factor.
A)True
B)False
Q4) In calculating the net initial investment cash flows,any increase in working capital required for the project should be included.
A)True
B)False
Q5) What are the relevant cash inflows and outflows for capital budgeting decisions?
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Chapter 22: Management Control Systems, transfer Pricing, and
Multinational Considerations
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Q1) Sandra's Sheet Metal Company has two divisions.The Raw Material Division prepares sheet metal at its warehouse facility.The Finishing Division prepares the cut sheet metal into finished products for the air conditioning industry.No inventories exist in either division at the beginning of 20X8.During the year,the Raw Material Division prepared 450,000 square feet of sheet metal at a cost of $1,800,000.All the sheet metal was transferred to the Finishing Division,where additional operating costs of $1.50 per square foot were incurred.The 450,000 square feet of finished fabricated sheet metal products were sold for $3,875,000.
Required:
a.Determine the operating income for each division if the transfer price from Raw Material to Finishing is at a cost of $4 per square foot.
b.Determine the operating income for each division if the transfer price is $6 per square foot.
c.Since the Raw Materials Division sells all of its sheet metal internally to the Finishing Division,does the Raw Materials manager care what price is selected? Why? Should the Raw Materials Division be a cost center or a profit center under the circumstances?
Q2) What does Section 482 of the U.S.Internal Revenue Code govern?
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Chapter 23: Performance Measurement, compensation, and Multinational Considerations
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Q1) "Cooking the books" means reporting of understated assets and overstated liabilities. A)True
B)False
Q2) An excessive focus on diagnostic control systems and critical performance variables can cause an organization to ignore emerging threats and opportunities.
A)True
B)False
Q3) Higher inflation will lead to higher prices for goods or services,which will increase a company's operating income and lead to a higher ROI.
A)True
B)False
Q4) Make a list of steps of designing an accounting based performance measure.Give an example of decisions taken under each step.
Q5) ROI,RI,or EVA measures are more appropriate than ROS to measure the performance of a company.Why?
Q6) When designing the steps in accounting-based performance measures,should the decisions in these steps be sequential?
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