Cost Accounting: Master Cost Analysis for Informed Decision-Making

Question 1

What is a potential drawback of target costing?

Accepted Answer

Rigidity in the costing process

Answer

Enhanced profitability

Answer

Increased customer satisfaction

Answer

Greater flexibility

Question 2

What is the main purpose of cost allocation?

Accepted Answer

To assign indirect costs to specific products or services

Answer

To analyze the profitability of different products

Answer

To determine production efficiency

Answer

To reduce overhead costs

Question 3

Which costing method focuses on the relationship between activities and costs?

Accepted Answer

Activity-based costing

Answer

Job costing

Answer

Process costing

Answer

Target costing

Question 4

What is the primary objective of target costing?

Accepted Answer

To design products that meet specific cost targets

Answer

To maximize sales volume

Answer

To reduce production costs

Answer

To increase customer satisfaction

Question 5

What is the key difference between fixed and variable costs?

Accepted Answer

Fixed costs remain constant, while variable costs vary with production volume.

Answer

Variable costs are predictable, while fixed costs fluctuate.

Answer

Fixed costs are incurred in the short run, while variable costs are incurred in the long run.

Answer

Variable costs are always higher than fixed costs.

Question 6

Which method is used to allocate overhead costs based on the activities that cause them?

Accepted Answer

Activity-based costing

Answer

Simple costing

Answer

Variable costing

Answer

Direct costing

Question 7

What is the primary role of cost-volume-profit (CVP) analysis in cost accounting?

Accepted Answer

To understand how changes in volume affect costs and profits

Answer

To establish production budgets

Answer

To evaluate the feasibility of new product lines

Answer

To analyze cost behavior

Question 8

Which of the following is **not** a recognized type of cost classification?

Accepted Answer

Sunk cost

Answer

Variable cost

Answer

Fixed cost

Answer

Mixed cost

Question 9

Activity-based costing aims to allocate indirect costs based on:

Accepted Answer

The actual activities that incur the cost

Answer

The percentage of revenue generated by each product or service

Answer

The volume of production or number of units sold

Answer

The number of employees involved in the production process

Question 10

Target costing involves:

Accepted Answer

Reducing costs without sacrificing product quality or functionality

Answer

Establishing a target cost that is higher than the market price of competing products

Answer

Increasing selling prices to achieve a desired profit margin

Answer

Negotiating with suppliers to secure lower materials costs

Question 11

A limitation of traditional cost accounting systems is their:

Accepted Answer

Inability to accurately allocate indirect costs to specific products or services

Answer

Failure to provide real-time cost information for decision-making

Answer

Difficulty in capturing data related to specific activities

Answer

Over-reliance on historical data, which may not reflect current costs

Question 12

The break-even point represents the level of output at which:

Accepted Answer

Total revenue equals total cost

Answer

Fixed costs exceed variable costs

Answer

Variable costs equal fixed costs

Answer

Profit equals zero

Question 13

Job order costing is typically used in organizations that:

Accepted Answer

Manufacture unique or customized products

Answer

Mass produce standardized products

Answer

Provide services to clients

Answer

Sell goods in retail stores

Question 14

In cost accounting, ethical dilemmas can arise when using cost data for decision-making. Which principle should cost accountants prioritize to ensure ethical practices?

Accepted Answer

Maintaining confidentiality and protecting sensitive financial information

Answer

Prioritizing shareholder interests over other stakeholders

Answer

Using creative accounting methods to improve financial results

Answer

Ignoring the potential impact of decisions on employees and customers

Question 15

A primary objective of cost accounting is to:

Accepted Answer

Provide financial information for decision-making processes

Answer

Assure adherence to tax regulations

Answer

Calculate the cost of individual units produced

Answer

Assess the performance of managers

Question 16

The fundamental distinction between direct and indirect costs lies in their:

Accepted Answer

Traceability to cost objects

Answer

Variability or fixed nature

Answer

Allocation to cost objects

Answer

Classification as manufacturing or non-manufacturing costs

Question 17

Activity-based costing (ABC) is a method of cost allocation that:

Accepted Answer

Assigns costs based on resource consumption

Answer

Simplifies cost allocation using percentages

Answer

Allocates costs equally among cost objects

Answer

Focuses solely on variable costs

Question 18

Target costing aims to establish a:

Accepted Answer

Cost target below the market price for a product or service

Answer

Break-even point for a product or service

Answer

Method for allocating costs to different cost objects

Answer

Performance evaluation metric for cost centers

Question 19

A significant benefit of implementing activity-based costing includes:

Accepted Answer

All of the options provided

Answer

Enhanced cost accuracy

Answer

Streamlined operational efficiency

Answer

Improved decision-making

Question 20

Manufacturing costs are primarily categorized into:

Accepted Answer

Direct and indirect costs

Answer

Fixed and variable costs

Answer

Product and period costs

Answer

Operating and non-operating costs

Question 21

Cost accounting faces challenges, including:

Accepted Answer

All of the options mentioned

Answer

Reliance on historical data with limited relevance for future decisions

Answer

High implementation costs and time requirements

Answer

Neglect of qualitative factors influencing costs

Question 22

Cost accounting plays a crucial role in ethical decision-making by:

Accepted Answer

All of the options mentioned

Answer

Providing insights into the financial implications of ethical choices

Answer

Identifying and managing conflicts of interest

Answer

Enhancing transparency and accountability in cost management

Question 23

In addition to cost factors, which non-cost element should organizations consider when implementing target costing?

Accepted Answer

Customer demand

Answer

Direct material costs

Answer

Manufacturing overhead costs

Question 24

Which type of cost classification is NOT included in the following list?

Accepted Answer

Unavoidable costs

Answer

Variable costs

Answer

Fixed costs

Answer

Mixed costs

Question 25

Activity-based costing (ABC) is a costing method that allocates costs to products or services based on:

Accepted Answer

The resources consumed

Answer

The amount of direct labor used

Answer

The volume of production

Answer

The market demand

Question 26

The formula for calculating cost per unit using the high-low method is:

Accepted Answer

(Variable cost - Fixed cost) / Units produced

Answer

(Fixed cost - Variable cost) / Units produced

Answer

(Units produced - Fixed cost) / Variable cost

Answer

(Units produced - Variable cost) / Fixed cost

Question 27

Which of the following is considered an indirect cost?

Accepted Answer

Factory rent

Answer

Raw materials

Answer

Direct labor

Answer

Sales commissions

Question 28

The purpose of a cost allocation system is to:

Accepted Answer

Assign costs to specific cost objects

Answer

Control and reduce costs

Answer

Make pricing decisions

Answer

Evaluate product profitability

Question 29

The primary objective of cost accounting is to:

Accepted Answer

Provide information for decision-making

Answer

Ensure compliance with tax regulations

Answer

Generate financial statements

Answer

Control and reduce costs

Question 30

The difference between actual costs and budgeted costs is known as a:

Accepted Answer

Cost variance

Answer

Cost overrun

Answer

Cost underrun

Answer

Cost efficiency

Question 31

Activity-based costing allocates costs based on what primary factor?

Accepted Answer

Volume of activity

Answer

Direct labor hours

Answer

Departmental overhead

Answer

Revenue generated

Question 32

The primary purpose of target costing is to:

Accepted Answer

Set target prices for products

Answer

Minimize production costs

Answer

Maximize sales volume

Answer

Improve customer satisfaction

Question 33

Typically, the most precise method for allocating overhead costs is:

Accepted Answer

Activity-based costing

Answer

Rate-of-return method

Answer

Cost-to-cost method

Answer

Percentage-of-sales method

Question 34

The process of assigning costs to specific cost objects is known as:

Accepted Answer

Cost allocation

Answer

Cost estimation

Answer

Cost analysis

Answer

Cost reporting

Question 35

A key assumption of traditional cost accounting systems is that:

Accepted Answer

Costs are generally proportional to volume

Answer

Indirect costs can always be assigned accurately

Answer

Product costs are constant over time

Answer

Production efficiency is always optimal

Question 36

The primary purpose of a cost-volume-profit analysis is to:

Accepted Answer

Calculate break-even point

Answer

Forecast future profits

Answer

Find optimal production levels

Answer

Assess marketing strategies

Question 37

Which costing method is typically best suited for service industries?

Accepted Answer

Activity-based costing

Answer

Job costing

Answer

Process costing

Answer

Standard costing

Question 38

Activity-based costing aims to:

Accepted Answer

Improve the accuracy of indirect cost allocation

Answer

Reduce overhead expenses

Answer

Increase inventory value

Answer

Maximize profit margins

Question 39

To calculate unit cost, you divide:

Accepted Answer

Total cost by total units produced

Answer

Variable cost by total units produced

Answer

Fixed cost by total units produced

Answer

Total cost minus variable cost by total units produced

Question 40

Which of the following is considered a direct cost of production?

Accepted Answer

Raw materials used

Answer

Factory rent

Answer

Administrative salaries

Answer

Depreciation on office equipment

Question 41

Cost allocation is primarily used to:

Accepted Answer

Assign costs to specific products or departments

Answer

Reduce overall business costs

Answer

Increase profit margins

Answer

Improve customer satisfaction

Question 42

The primary purpose of a cost center is to:

Accepted Answer

Accumulate costs for a specific department or activity

Answer

Identify areas for potential cost savings

Answer

Establish target prices for products

Answer

Allocate indirect costs to products and services

Question 43

In a cost-volume-profit analysis, how does cost behavior distinguish fixed and variable costs?

Accepted Answer

Fixed costs remain constant, while variable costs fluctuate with activity levels.

Answer

Fixed costs determine the breakeven point, while variable costs affect the profit margin.

Answer

Variable costs are irrelevant in cost-volume-profit analysis.

Answer

Fixed costs fluctuate significantly with activity levels.

Question 44

Which of the following is NOT a recognized type of cost in accounting?

Accepted Answer

Insignificant costs

Answer

Direct costs

Answer

Indirect costs

Answer

Variable costs

Question 45

What is the primary purpose of cost allocation in accounting?

Accepted Answer

To assign costs to specific products or services

Answer

To identify areas for cost reduction

Answer

To control and reduce overhead expenses

Answer

To simplify the accounting process

Question 46

Which costing method is considered activity-based?

Accepted Answer

Activity-based costing

Answer

Traditional costing

Answer

Standard costing

Answer

Variable costing

Question 47

What is the primary objective of target costing?

Accepted Answer

To reduce production costs below a target price

Answer

To set prices that cover all costs and generate a desired profit

Answer

To eliminate waste and improve efficiency

Answer

To increase market share

Question 48

Which of the following is an example of a fixed cost?

Accepted Answer

Rent

Answer

Raw materials

Answer

Direct labor

Answer

Utilities

Question 49

How does an increase in direct labor costs impact the unit cost of a product?

Accepted Answer

Increases unit cost

Answer

Decreases unit cost

Answer

No impact on unit cost

Answer

Depends on other factors

Question 50

What is a key advantage of activity-based costing over traditional costing?

Accepted Answer

Improved accuracy of cost assignment

Answer

Reduced complexity

Answer

Lower data requirements

Answer

Easier to implement

Question 51

What is the primary focus of cost accounting?

Accepted Answer

Supporting internal decision-making

Answer

Providing information for external financial reporting

Answer

Controlling and reducing costs

Answer

Projecting future financial performance