Strategic Cost Management
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Course Introduction
Strategic Cost Management focuses on the integration of cost analysis with business strategy to support effective decision-making and competitive advantage. The course covers advanced cost accounting concepts, including activity-based costing, target costing, life-cycle costing, and value chain analysis. Students learn to apply quantitative and qualitative cost information to strategic planning, control, and performance evaluation. Emphasis is placed on how cost management supports long-term organizational objectives, enhances value creation, and guides resource allocation in dynamic business environments. Through case studies and real-world scenarios, students develop the analytical skills necessary to design and implement cost management systems that align with overall strategic goals.
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) For optimal planning success it is best if each business function within the value chain is performed one at a time in sequence.
A)True
B)False
Answer: False
Q2) Briefly explain the planning and control activities in management accounting. How are these two activities linked to each other?
Answer: Planning business operations relates to designing, producing, and marketing a product or service. This includes preparing budgets and determining the prices and cost of products and services. A company must know the cost of each product and service to decide which products to offer and whether to expand or discontinue product lines. Controlling business operations includes comparing actual results to the budgeted results and taking corrective action when needed. Feedback links planning and control. The control function provides information to assist in better future planning.
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Costs are accounted for in two basic stages: assignment followed by accumulation.
A)True
B)False
Answer: False
Q2) Improvements in information-gathering technologies are making it possible to trace more costs as direct.
A)True
B)False
Answer: True
Q3) If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are produced for the month, the total cost for belts is ________.
A) considered to be a direct fixed cost
B) considered to be a direct variable cost
C) considered to be an indirect fixed cost
D) considered to be an indirect variable cost
Answer: B
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Craylon Manufacturing produces a single product that sells for $130. Variable costs per unit equal $30. The company expects total fixed costs to be $60,000 for the next month at the projected sales level of 1,200 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. Suppose that management believes that a $12,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by ________ to justify this additional expenditure.
A) 93 units
B) 120 units
C) 400 units
D) 924 units
Answer: B
Q2) The contribution income statement highlights ________.
A) gross margin
B) the segregation of costs into period costs and inventoriable costs
C) different product lines
D) variable and fixed costs
Answer: D
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Chapter 4: Job Costing
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Sample Questions
Q1) The ending balance in Work-in-Process Control represents the total costs of all jobs that have NOT yet been completed.
A)True
B)False
Q2) A ________ is anything for which a measurement of costs is desired.
A) cost-allocation base
B) cost pool
C) cost object
D) cost-application base
Q3) Management wants to prepare a profitability analysis of the company's customers and therefore the most accurate choice of disposing of underallocated or overallocated manufacturing overhead at year-end is the proration based on final balances of work-in-process, finished goods, and cost of goods sold.
A)True
B)False
Q4) The actual costs of all individual overhead categories are recorded in the Manufacturing Overhead Control account.
A)True
B)False
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) ABC systems provide greater insight than traditional systems into the management of indirect costs.
A)True
B)False
Q2) Service companies, in particular, find great value from ABC because a vast majority of their cost structure is composed of ________ costs.
A) prime
B) factory
C) indirect
D) committed
Q3) Increased used of automation, computer integrated manufacturing, and utilization of robots have lead to an increase in indirect costs relative to direct costs.
A)True
B)False
Q4) 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
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) Budgeting based on cost for specific activities is a key building block of the master budget for companies that use the Kaizen approach.
A)True
B)False
Q2) In general, which of the following budgets is prepared first?
A) sales budget
B) production budget
C) direct labor budget
D) overhead budget
Q3) Which of the following departments is most likely to be a profit center?
A) the accounting department of a company that also assists in budgeting process
B) the research and development department of a company
C) the sales department of a company whose objective is to maximize the revenues
D) the consulting department of a law firm
Q4) Financing decisions deal with how to best use the limited resources of an organization.
A)True
B)False
Q5) Describe the benefits of preparing an operating budget to an organization.
Q6) Describe the concept of kaizen budgeting.
Page 8
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Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Sample Questions
Q1) A favorable variance can be automatically interpreted as "good news."
A)True
B)False
Q2) The flexible-budget variance for direct cost inputs can be further subdivided into a ________.
A) static-budget variance and a sales-volume variance
B) sales-volume variance and an efficiency variance
C) price variance and an efficiency variance
D) static-budget variance and a price variance
Q3) An unfavorable efficiency variance for direct manufacturing labor might indicate that ________.
A) there is unexpected increase in direct labor rates
B) work is scheduled inefficiently
C) lower-quality materials were purchased
D) more higher-skilled workers were scheduled than planned
Q4) For revenue items, a favorable variance means that actual revenues are less than expected.
A)True
B)False
Q5) What is benchmarking, and how is it useful to a company?
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Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
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Sample Questions
Q1) An unfavorable production-volume variance ________.
A) is not a good measure of a lost production opportunity
B) indicates that the company had reduced its per unit fixed overhead cost to improve sales
C) measures the amount of extra fixed costs planned for but not used
D) takes into account the effect of additional revenues due to maintaining higher prices
Q2) Explain why there is no efficiency variance for fixed manufacturing overhead costs.
Q3) Which of the following is not true of the 3 level variance analysis of operating income?
A) Level 1 shows the static budget variance for operating income
B) Level 2 shows the direct material price and efficiency variances
C) Level 2 shows the sales-volume variance for operating income
D) Level 3 shows the fixed overhead production volume variance as a component of the sales-volume variance for operating income
Q4) What are the arguments for prorating a production-volume variance that has been deemed to be material among work-in-process, finished goods, cost and cost of goods sold as opposed to writing it all off to cost of goods sold?
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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 is true of absorption costing?
A) It expenses marketing costs as cost of goods sold.
B) It treats direct manufacturing costs as a period cost.
C) It includes fixed manufacturing overhead as an inventoriable cost.
D) It treats indirect manufacturing costs as a period cost.
Q3) Absorption costing is a method of inventory costing in which only variable manufacturing costs are included as inventoriable costs.
A)True
B)False
Q4) Explain the three alternative approaches to dispose of the production-volume variance.
Q5) To achieve consistency in reporting, a company must use the same capacity-level concept for internal reporting and control as it uses for external reporting and tax reporting.
A)True
B)False
Q6) Discuss the three methods to dispose of production volume variance.
11
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) The coefficient of determination is important in explaining variances in estimating equations. For a certain estimating equation, the unexplained variation was given as 22,000. The total variation was given as 55,000. What is the coefficient of determination for the equation?
A) 2.50
B) 0.40
C) 0.60
D) 1.40
Q2) The account analysis method estimates cost functions by classifying various cost accounts as variable, fixed, or mixed with respect to the identified level of activity.
A)True
B)False
Q3) The larger the vertical difference between actual costs and predicted costs the better the goodness of fit.
A)True
B)False
Q4) What are the three criteria a company should use to evaluate and choose a cost driver? Briefly explain each of the three criteria.
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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) When there is an excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price if ________.
A) incremental revenues exceed incremental costs
B) additional fixed costs is incurred to accommodate the order
C) the company placing the order is in the same market segment as your current customers
D) incremental revenue equals incremental operating income
Q3) One-time-only special orders should only be accepted if ________.
A) incremental revenues exceed incremental costs
B) differential revenues exceed variable costs
C) incremental revenues exceed fixed costs
D) total revenues exceed total costs
Q4) What are opportunity costs? Explain why opportunity costs are not recorded in financial accounting systems.
Q5) Explain the five-step decision process that managers can use to make decisions.
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Chapter 12: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Sample Questions
Q1) Davis Company produced 159,000 sport jackets during 2015 and 530,000 direct manufacturing labor-hours were used at $3 per hour. The conversion costs were $1.20 per jackets produced.
What is the total factor productivity for Davis Company?
A) 0.089 units of output per dollar
B) 0.300 units of output per dollar
C) 0.298 units of output per dollar
D) 2.500 units of output per dollar
Q2) The cost leadership strategy is for products and services that are similar to a competitors products and services.
A)True
B)False
Q3) Which component of strategy measures the changes in operating income attributed solely to an increase in the quantity of output between Year 1 and Year 2?
A) the growth component
B) the price-recovery component
C) the productivity component
D) the cost leadership component
Q4) What are the four key perspectives in the balanced scorecard?
Page 14
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Chapter 13: Pricing Decisions and Cost Management
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Sample Questions
Q1) Target cost per unit is arrived at by adding the target operating income to the target price of the product.
A)True
B)False
Q2) Which of the following statements is true regarding cost-plus pricing?
A) It starts with a target price which is the estimated price for a product.
B) A company uses a markup percentage that estimates a product price that covers full product costs and earns the required return on investment.
C) It first determines product characteristics and target price on the basis of customer preferences and then computes a target cost.
D) The cost-plus price chosen has already been studied for customer reaction to the price.
Q3) Which of the following examples would have as its purpose the allocation of costs to motivate employees?
A) deciding on a selling g price for a product
B) encouraging sales representatives to emphasize high-margin products
C) to cost products a a "fair" price under a government contract
D) to cost inventories for reporting to external parties
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Chapter 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) Which of the following criteria has the presumption that the more-profitable divisions have a greater ability to absorb corporate administration costs?
A) the fairness or equity criterion
B) the ability to bear criterion
C) the cause-and-effect criterion
D) the benefits-received criterion
Q2) The sales-mix variance will be unfavorable when which of the following occurs?
A) the actual sales mix shifts toward the less profitable units
B) the contribution margin per composite unit for the actual mix is greater than the budgeted mix
C) the actual unit sales are less than the budgeted unit sales
D) the actual contribution margin is less than the static-budget contribution margin
Q3) If one of five distribution channels is discontinued, corporate-sustaining costs such as general administration costs will most likely be reduced by 20%.
A)True
B)False
Q4) Why do managers prepare cost-hierarchy-based operating incomes statements?
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Chapter 15: Allocation of Support-Department Costs, Common
Costs, and Revenues
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Sample Questions
Q1) 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
Q2) Explain three approaches to determining weights for the the stand-alone revenue-allocation. Which method do managers prefer?
Q3) Which of the following is an example of an allowable cost considered by U.S. government contract?
A) supervision costs
B) costs of lobbying activities
C) costs of alcoholic beverages
D) costs of vacation for executives
Q4) Revenue allocation based on the number of physical units is only appropriate when individual products in the bundle are of equal value.
A)True
B)False
Q5) What is a "common cost"? What are two methods that a manager can use to allocate common costs to two or more users?
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Q1) The net realizable value (NRV) method allocates joint costs to joint products produced during the accounting period on the basis of their relative NRV-final sales value plus separable costs.
A)True
B)False
Q2) In joint costing, which of the following changes may lead to a change in product classification?
A) main product sales price increases due to a new application
B) byproduct sales price decreases due to a new government regulation
C) main product becomes technologically obsolete and it's market value falls significantly
D) byproduct losses value due to a competing products
Q3) In joint costing, the constant gross-margin percentage method recognizes that the profit margin is not just attributable to the joint process but is also derived from the costs incurred after split-off.
A)True B)False
Q4) Discuss in brief how easy it is for companies to classify products as main products, joint products, and byproducts.
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Chapter 17: Process Costing
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Q1) A distinctive feature of the FIFO process costing method is that the work done on beginning inventory before the current period is kept separate from work done in the current period.
A)True
B)False
Q2) Weighted-average cost per equivalent unit is obtained by dividing the sum of costs for beginning work in process plus costs for work done in the current period by total equivalent units of work done to date.
A)True
B)False
Q3) List and describe the five steps in process costing.
Q4) A major advantage of using the FIFO process-costing method is that:
A) FIFO makes the unit cost calculations simpler
B) in contrast with the weighted-average method, FIFO is considered GAAP
C) FIFO provides managers with information about changes in the costs per unit from one period to the next
D) in the period of rising prices, it leads to lower operating income and lower tax payments, saving the company cash and increasing the company's value
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Chapter 18: Spoilage, Rework, and Scrap
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Sample Questions
Q1) Costs in beginning inventory are pooled with costs in the current period when determining the costs of good units under the weighted-average method of process costing.
A)True
B)False
Q2) Which of the following defines spoilage?
A) units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units
B) units of production whether fully or partially completed, that do not meet the specifications required by customers for good units and are discarded or sold at reduced prices
C) residual material that results from manufacturing a product
D) products of a joint production process that have low total sales values relative to the total sales value of the main product
Q3) The costs of normal spoilage are typically included as a component of the costs of good units manufactured.
A)True
B)False
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Chapter 19: Balanced Scorecard: Quality and Time
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Sample Questions
Q1) Costs of Quality (COQ) are classified into four categories: prevention costs, appraisal costs, opportunity costs, and sales costs.
A)True
B)False
Q2) Which of the following is a learning-and-growth measure to study the output during bottleneck situations?
A) manufacturing cycle efficiency for key processes
B) carrying cost of inventories
C) number of employees trained to manage bottlenecks
D) improve customer-response time during bottlenecks
Q3) Which of the following is true of a bottleneck?
A) It occurs in an operation when the work to be performed approaches or exceeds the capacity available to do it.
B) It occurs in an operation when there is excess capacity to complete the work given.
C) It is the uncertainty about when customers will order products or services.
D) It is the time taken by a manufacturing department to produce a finished product.
Q4) What are control charts and how can inferences be drawn from them?
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Chapter 20: Inventory Management, Just-in-Time, and Simplified Costing Methods
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Q1) Companies that utilize backflush costing typically prorate underallocated or overallocated conversion costs between work-in-process, finished goods, and cost of goods sold.
A)True
B)False
Q2) A costing system that omits recording some or all of the journal entries relating to the cycle from purchase of direct materials to the sale of finished goods is called
A) dependent costing
B) synchronous costing
C) sequential costing
D) backflush costing
Q3) Companies use safety stock as a buffer against unexpected decreases in demand.
A)True
B)False
Q4) What is a supply chain, and what are the benefits of a supply chain analysis? Provide an example of these benefits.
Q5) What are five features of a just-in-time manufacturing system?
Q7) Lean accounting is much simpler than traditional product costing. Why? Page 22
Q6) What are the principles of lean accounting? Are there any limitations? Discuss.
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Page 23
Chapter 21: Capital Budgeting and Cost Analysis
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Q1) An annuity is ________.
A) a noncash expense
B) a series of equal cash flows at equal time intervals
C) an investment product whose funds are invested in the stock market
D) a rate at which an investment's present value of all expected cash inflows equals the present value of project's expected cash outflows.
Q2) Comparison of the actual results for a project to the costs and benefits expected at the time the project was selected is referred to as ________.
A) the audit trail
B) management control
C) a post-investment audit
D) a cost-benefit analysis
Q3) In the net present value (NPV) method, pre-tax cash flows should be used instead of after-tax cash flows.
A)True
B)False
Q4) How is inflation related to capital budgeting? Discuss.
Q5) List the capital budgeting methods used to analyze financial information.
Q6) Explain why the term tax shield is used in conjunction with depreciation.
Page 24
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Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational Considerations
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Q1) To reduce the excessive focus of subunit managers on their own subunits, many companies compensate subunit managers on the basis of ________.
A) both the operating income earned by their respective subunits and the company as a whole
B) both the investing income earned by their respective subunits and the company as a whole
C) only the investing income earned by their respective subunits
D) both the net income and earned by their respective subunits and the company as a whole
Q2) Which of the following statements is true of decentralization?
A) A decentralized structure does not empower employees to handle customer complaints directly.
B) A decentralized structure forces top management to lose some control over the organization.
C) Decentralization slows responsiveness to local needs for decision making.
D) A decentralized structure only delegates recurring and structured decisions to lower levels.
Q3) What is decentralization and what are its benefits?
Q4) What are transfer prices and what are its criteria?
Page 25
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Chapter 23: Performance Measurement, Compensation, and Multinational Considerations
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Q1) What targets should companies use, and when should they give feedback to managers regarding their performance relative to the targets?
Q2) 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
Q3) Some companies, make environmental performance a line item on every employee's salary appraisal report.
A)True
B)False
Q4) A report that measures financial and nonfinancial performance measures for various organization units in a single report is called a(n) ________.
A) balanced scorecard
B) financial report scorecard
C) goal-congruence report
D) investment success report
Q5) Executive compensation plans are based on both financial and nonfinancial performance measures. Discuss
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