COMPREHENSIVE EXAMINATION IN COST ACCOUNTING AND CONTROL

Part I - Theory

MULTIPLE CHOICE

1. An accounting system that collects financial and operating data on the basis of the underlying
nature and extent of the cost drivers is
a. Activity-based costing
b. Target costing
c. Cycle-time costing
d. Variable costing

2. Conversion costs do not include

a. Depreciation
b. Direct materials
c. Indirect labor
d. Indirect materials

3. Joint costs are those costs

a. Of products requiring the services of two or more processing departments,
b. Of a product from a common process that has relatively little sales value and only a small
effect on profit.
c. Of production that are combined in overhead account.
d. Of two or more products produced from a common process.

4. What is a nature of the work-in-process account?

a. Inventory
b. Cost of Goods Sold
c. Productivity
d. Nominal

5. The difference between the sales price and total variable costs is
a. Gross operating profit
b. Net profit
c. The breakeven point
d. The contribution margin.

6. Depreciation based on the number of units produced is classified as what type of cost?
a. Out-of-pocket
b. Marginal
c. Variable
d. Fixed

7. Which of the following categories of cost is most likely not considered a component of fixed
factory overhead?
a. Rent
b. Property taxes
c. Supervisory salaries
 d. Power

8. Costs that increase as the volume of activity decreases within the relevant range are
a. Average costs per unit
b. Average variable costs per unit
c. Total fixed costs
d. Total variable costs.

9. Which of the following best describes direct labor?

a. A prime cost
b. A period cost
c. A product cost
d. Both a product costs and a prime cost.

10. Period costs

a. Are always expensed in the same period in which they are incurred.
b. Vary from one period to the next.
c. Remain unchanged over a given period of time.
d. Are associated with the periodic inventory method.

11. The wages of the factory janitorial staff should be classified as

a. Factory overhead cost.
b. Direct labor cost.
c. Period cost.
d. Prime cost.

12. Activities, their drivers and their costs may be classified as unit-level, batch level, product-
level, and facility level. If activity-based costing information is prepared for internal purposes,
which costs are most likely to be treated as period costs?
a. Unit-level
b. Batch-level
c. Product-level
d. Facility-level

13. Which method of measuring the costs to be assigned to products or services uses budgeted
rates for direct costs but applies those rates to the actual quantities of the inputs?
a. Actual costing
b. Normal costing
c. Extended costing
d. Standard costing

14. In a job-order cost system, the use of direct materials previously purchased usually is recorded
as an increase in
a. Work-in-process control
b. Factory overhead control
c. Factory overhead applied
d. Stores control
15. A direct labor overtime premium should be charged to a specific job when the overtime is
caused by the
a. Increased overall level of activity.
b. Customer’s requirement for early completion of the job.
c. Management’s failure to include the job in the production schedule.
d. Management’s requirement that the job be completed before the annual factory vacation
closure.

16. In a capital-intensive industry, which is most likely to be an appropriate basis for applying
overhead?
a. Direct labor hours
b. Direct labor cost
c. Machine hours
d. Sales value of product produced

17. There are several alternative denominator measures for applying overhead. Which is not
commonly used?
a. Direct labor hours
b. Direct labor cost
c. Machine hours
d. Sales value of product produced

18. Many firms use two overhead accounts: factory overhead control and factory overhead
applied. During the period, which account receives numerous debits and credits?
a. Factory overhead applied
b. Factory overhead control
c. Both
d. Neither

19. When the amount of overapplied factory overhead is significant, the entry to close
overapplied factory overhead will most likely require
a. A debit to cost of goods sold
b. Debits to cost of goods sold, finished goods inventory and work in process inventory
c. A credit to cost of goods sold
d. Credits to cost of goods sold, finished goods inventory and work in process inventory

20. Operation costing is appropriate for products that are

a. Unique
b. Produced in batches or production run
c. Homogeneous
d. Related to food and beverage industries

21. In a process costing system, the application of factory overhead usually is recorded as an
increase in
a. Cost of goods sold
b. Work-in-process inventory control
c. Factory overhead control
d. Finished goods control
22. In a production cost report using process costing, transferred-in costs are similar to
a. Direct materials added at a point during the process.
b. Conversion costs added during the process.
c. Costs transferred to the next process
d. Costs included in the beginning inventory

23. EUP analysis is usually applied to

a. Direct materials and conversion costs
b. Direct materials costs only
c. Conversion costs only
d. Overhead costs.

24. Separate equivalent units calculations are often not made for
a. Conversion costs
b. Transferred-in costs
c. Direct materials costs
d. Direct labor costs

25. Assuming no beginning work-in-process inventory, and that the ending work-in-process
inventory is 100% complete as to materials costs, the number of equivalent units as to
material costs is
a. The same as the units placed in process.
b. The same as the units completed.
c. Less than the units placed in process.
d. Less than the units completed.

26. Costs are allocated to cost objects in many ways and for many reasons. Which one of the
following is a purpose of cost allocation?
a. Evaluating revenue center performance
b. Measuring income and assets for external reporting
c. Budgeting cash and controlling expenditures
d. Implementing activity-based costing.

27. Allocation of support department costs to the production departments is necessary to

a. Control costs
b. Determine overhead rates
c. Maximize efficiency
d. Measure use of plant capacity.

28. Which of the following overhead allocation methods does not charge support department
costs to a support department after its costs have been allocated?
a. The reciprocal and direct methods
b. The step-down and reciprocal methods
c. The direct and step-down methods
d. The simultaneous solution method.
29. In allocating factory overhead support department costs to producing departments, which
one of the following items would likely be used as an activity base?
a. Units of product sold
b. Salary of support department employees
c. Units of electric power consumed
d. Direct material usage.

30. If a company obtains two salable products from the refining of one ore, the refining process
should be accounted for as a(an)
a. Mixed cost process
b. Joint process
c. Extractive process
d. Reduction process

31. Which of the following is not a method to allocate joint costs?

a. Estimated net realizable value
b. Physical units
c. Relative profitability
d. Sales value at split-off.

32. The principal disadvantage of using the physical quantity method of allocating joint costs is
that
a. Costs assigned to inventories may have no relationship to value
b. Physical quantities may be difficult to measure
c. Additional processing costs affect the allocation base
d. Joint costs, by definition, should not be separated on a unit basis.

33. In accounting for by-products, their value may be recognized at the time of
Production Sale
a. Yes Yes
b. Yes No
c. No No
d. No Yes

34. By-products may have which of the following characteristics?

Zero Costs Beyond Split-off Additional Costs Beyond Split-off
e. Yes Yes
f. Yes No
g. No No
h. No Yes

35. The main issues concerning recognition of by-products in the accounts are similar to those for
a. Joint products
b. Scrap
c. Product costs
d. Main products.
36. There is a market for both product X and product Y. Which of the following costs and revenues
would be most relevant in deciding whether to sell product X or process it further to make
product Y?
a. Total costs of making X and the revenue from sale of X and Y.
b. Total cost of making Y and the revenue from sale of Y.
c. Additional cost of making Y, given the cost of making X, and additional revenue from Y.
d. Additional cost of making X, given the cost of making Y, and additional revenue from Y.

37. Copeland Inc. produces X-547 in a joint manufacturing process. The Company is studying
whether to sell X-547 at the split-off point or upgrade the product to become Xylene. The
following information has been gathered:
I. Selling price per pound of X-547
II. Variable manufacturing costs of upgrade process
III. Avoidable fixed costs of upgrade process
IV. Selling price per pound of Xylene
V. Joint manufacturing costs to produce X-547

Which items should be reviewed when making the upgrade decision?

a. I,II and IV
b. I,II,III and IV
c. I,II,IV and V
d. II and III

38. Which of the following is a purpose of standard costing?

a. Determine breakeven production level.
b. Control costs.
c. Eliminate the need for subjective decisions by management.
d. Allocate cost with more accuracy.

39. Companies in what type of industry may use a standard cost system for cost control?
Mass production industry Service industry
a. Yes Yes
b. Yes No
c. No No
d. No Yes

40. The best basis upon which cost standards should be set to measure controllable production
inefficiencies is
a. Engineering standards based on ideal performance
b. Normal capacity
c. Engineering standards based on attainable performance
d. Practical capacity

41. Which department is customarily held responsible for an unfavorable materials usage
variance?
a. Quality control
b. Purchasing
c. Engineering
 d. Production

42. What is the normal year-end treatment of immaterial variances recognized in a cost
accounting system using standard costs?
a. Reclassified to deferred charges until all related production is sold.
b. Allocated among cost of goods manufactured and ending work-in-process inventory
c. Closed to cost of goods sold in the period in which they arose
d. Capitalized as a cost of ending finished goods inventory.

43. A favorable materials price variance coupled with unfavorable materials usage variance would
most likely result from
a. Machine efficiency problems
b. Product mix production changes
c. Labor efficiency problems
d. The purchase of lower than standard quality materials.

44. The efficiency variance for either labor or materials can be divided into a
a. Yield variance and a price variance
b. Volume variance and a mix variance
c. Mix variance and a price variance
d. Yield variance and mix variance

45. Excess direct labor wages resulting from overtime premium will be disclosed in which type of
variance?
a. Yield
b. Quantity
c. Labor efficiency
d. Labor rate

46. Listed below are four names for different kinds of standards associated with a standard cost
system. Which one describes the labor costs that should be incurred under efficient operating
condition?
a. Ideal
b. Basic
c. Maximum-efficiency
d. Currently attainable

47. Which of the following standard costing variances would be least controllable by a production
supervisor?
a. Overhead volume
b. Overhead efficiency
c. Labor efficiency
d. Materials usage

48. Under the three-variance method for analyzing factory overhead, the difference between the
actual factory overhead and the budget allowance based on the actual input is the
a. Efficiency variance
b. Spending variance
 c. Volume variance
d. Idle capacity variance

49. A product that does not meet quality control standards and needs to be reworked to be
salable as either an irregular or a good product is classified as
a. Spoiled goods
b. Defective goods
c. Scrap material
d. Waste material

50. Which one of the following is least likely to be an objective of a cost accounting system?
a. Product costing and inventory valuation.
b. Department efficiency
c. Sales commission determination
d. Income determination