Cost Accounting: Master Types of Costs, Behavior, and Allocation

Question 1

Compared to traditional costing methods, what is a key advantage of using activity-based costing (ABC)?

Accepted Answer

ABC provides more accurate product costs.

Answer

ABC is simpler to implement than traditional costing methods.

Answer

ABC is only beneficial for large companies.

Question 2

How do cost allocation methods directly impact business decisions regarding product profitability analysis and pricing strategies?

Accepted Answer

Cost allocation methods significantly influence both product profitability analysis and pricing decisions.

Answer

Cost allocation methods have no influence on pricing decisions.

Answer

Cost allocation methods have a limited impact on product profitability analysis.

Answer

Cost allocation methods are only relevant for internal reporting purposes.

Question 3

Variable costs are characterized by which trait?

Accepted Answer

Fluctuate with changes in production volume

Answer

Remain constant per unit of production

Answer

Are incurred regardless of production level

Answer

Can be either direct or indirect

Question 4

The process of distributing indirect costs to cost objects is referred to as:

Accepted Answer

Cost allocation

Answer

Cost estimation

Answer

Cost variance analysis

Answer

Cost-volume-profit analysis

Question 5

The relevant range is defined as:

Accepted Answer

The time range during which cost behavior assumptions remain valid

Answer

The number of units produced during the cost driver analysis

Answer

The difference between actual and budgeted production costs

Answer

The total amount of fixed and variable costs incurred

Question 6

Contribution margin is calculated by:

Accepted Answer

Deducting variable costs from sales revenue

Answer

Deducting total costs from sales revenue

Answer

Subtracting variable costs from fixed costs

Answer

Adding fixed costs to variable costs

Question 7

Which of the following is NOT a fixed overhead cost in cost accounting?

Accepted Answer

Raw materials

Answer

Rent

Answer

Equipment depreciation

Answer

Factory supervisor salary

Question 8

Which type of cost varies directly and proportionally with production output in cost accounting?

Accepted Answer

Variable cost

Answer

Fixed cost

Answer

Mixed cost

Answer

Indirect cost

Question 9

The process of assigning a fair share of indirect costs to specific cost objects is called:

Accepted Answer

Cost allocation

Answer

Cost assignment

Answer

Cost accumulation

Answer

Cost estimation

Question 10

A cost driver is a factor that:

Accepted Answer

Causes changes in costs and their behavior

Answer

Measures the amount of resources consumed

Answer

Allocates costs to cost objects

Answer

Predicts future costs

Question 11

Which method of cost allocation uses a specific physical measure, such as labor hours or machine hours, as the basis for assigning costs?

Accepted Answer

Activity-based costing

Answer

Actual cost allocation

Answer

Percentage allocation

Answer

Direct cost allocation

Question 12

The cost of inventory that is manufactured but not yet sold is classified as a(n):

Accepted Answer

Asset

Answer

Expense

Answer

Liability

Answer

Equity

Question 13

The difference between the pre-determined standard cost and actual cost incurred is known as:

Accepted Answer

Cost variance

Answer

Price variance

Answer

Efficiency variance

Answer

Usage variance

Question 14

Which of the following is a key objective of cost accounting?

Accepted Answer

Providing information for managerial decision-making

Answer

Complying with financial reporting regulations

Answer

Valuing inventory for financial statements

Answer

Calculating employee bonuses

Question 15

Which characteristic correctly describes fixed costs?

Accepted Answer

Remain constant regardless of changes in activity level

Answer

Vary in relation to changes in activity level

Answer

Incurred only during peak activity periods

Answer

Change in proportion to changes in production output

Question 16

How are direct costs distinguished from indirect costs?

Accepted Answer

Direct costs can be directly traced to a specific cost object, while indirect costs cannot

Answer

Indirect costs are more important for decision-making than direct costs

Answer

Direct costs are fixed, while indirect costs are variable

Answer

There is no meaningful distinction between direct and indirect costs

Question 17

Which costing system assigns costs based on activities rather than products or services?

Accepted Answer

Activity-based costing

Answer

Job costing

Answer

Process costing

Answer

Standard costing

Question 18

Which method of overhead cost allocation uses direct labor hours as the basis for assigning costs?

Accepted Answer

Direct labor-based allocation

Answer

Activity-based costing

Answer

Machine-hour-based allocation

Answer

Sales-based allocation

Question 19

How do standard costs contribute to cost control?

Accepted Answer

Provide a benchmark for evaluating performance and analyzing variances

Answer

Eliminate the need for actual cost accounting

Answer

Guarantee accurate financial reporting

Answer

Automatically reduce production costs

Question 20

What are the two main categories of cost variances?

Accepted Answer

Price variances and quantity variances

Answer

Fixed variances and variable variances

Answer

Overhead variances and direct labor variances

Answer

Standard variances and actual variances

Question 21

Which accounting principle requires that revenues and expenses be recorded in the period they are earned and incurred, regardless of cash flow?

Accepted Answer

Matching principle

Answer

Cost principle

Answer

Going concern principle

Answer

Monetary unit assumption

Question 22

Ethical responsibilities of cost accountants primarily include ensuring:

Accepted Answer

The accuracy and reliability of cost information.

Answer

Minimization of organizational costs.

Answer

Maximization of organizational profits.

Answer

Unquestioning adherence to superiors' directives.

Question 23

Which cost allocation method uses a thorough analysis of activities to link costs to their specific drivers, resulting in a more precise allocation of costs?

Accepted Answer

Activity-Based Costing (ABC)

Answer

Simple Allocation Method

Answer

Direct Cost Allocation Method

Answer

Percentage of Sales Allocation Method

Question 24

Which of the following is NOT a type of production cost?

Accepted Answer

Sales and marketing expenses

Answer

Direct material

Answer

Direct labor

Answer

Manufacturing overhead

Question 25

Which financial statement reports the results of operations for a specific period of time?

Accepted Answer

Income statement

Answer

Balance sheet

Answer

Statement of cash flows

Answer

Statement of retained earnings

Question 26

Direct costing is typically used for:

Accepted Answer

Determining product profitability

Answer

Inventory valuation

Answer

Budgeting and planning

Answer

Financial reporting

Question 27

The break-even point is the level of activity at which:

Accepted Answer

Total revenue equals total cost

Answer

Total fixed costs exceed total variable costs

Answer

Marginal cost equals marginal revenue

Answer

Total expenses equal total income

Question 28

Which of the following is not a primary type of cost classification?

Accepted Answer

Revenue

Answer

Variable

Answer

Direct

Answer

Indirect

Question 29

Variable costs are those that:

Accepted Answer

Change proportion to changes in activity level

Answer

Decrease as activity level increases

Answer

Remain constant regardless of activity level

Answer

Increase as activity level decreases

Question 30

Which method of cost allocation distributes costs to cost objects based on their usage of resources and activities?

Accepted Answer

Activity-based costing

Answer

Simple costing

Answer

Job-order costing

Answer

Pooled costing

Question 31

The primary objective of a cost accounting system is to:

Accepted Answer

Provide information for decision-making and internal control

Answer

Comply with tax regulations

Answer

Record financial transactions

Question 32

Which statement accurately describes fixed costs?

Accepted Answer

They represent a stable base of expenses that are planned and budgeted, with minimal variation in response to changes in activity level.

Answer

They fluctuate significantly depending on production volume.

Answer

They can be easily reduced in the short term without significant impact on operations.

Question 33

A job order costing system is typically employed by companies that:

Accepted Answer

Produce unique or customized products or services

Answer

Mass-produce standardized products in large quantities

Answer

Provide consulting or professional services

Question 34

A potential limitation of relying on cost accounting data is:

Accepted Answer

The inherent difficulty in accurately assigning and allocating indirect costs

Answer

Its guaranteed precision and reliability in all circumstances

Answer

Its universal applicability to all types of decision-making

Question 35

Which of the following is not an advantage of using a computerized cost accounting system?

Accepted Answer

Increased need for manual calculations

Answer

Reduced risk of errors

Answer

More accurate and timely data availability

Question 36

The primary goal of cost accounting is to:

Accepted Answer

Provide relevant information for internal decision-making and control within an organization

Answer

Ensure compliance with regulatory requirements

Answer

Generate financial statements for external reporting

Question 37

Variable costs:

Accepted Answer

Increase or decrease in proportion to changes in activity level.

Answer

Stay constant in total regardless of activity level.

Answer

Decrease in per unit cost but remain constant in total.

Question 38

Which of the following is a direct cost?

Accepted Answer

Raw materials used in production

Answer

Administrative salaries

Answer

Indirect labor

Answer

Factory utilities

Question 39

The main objective of cost-volume-profit analysis is to:

Accepted Answer

Determine the relationship between sales, costs, and profits at different activity levels.

Answer

Forecast future financial performance.

Answer

Allocate costs to specific products or services.

Question 40

The predetermined overhead rate is calculated by dividing:

Accepted Answer

Estimated total overhead costs by estimated activity level.

Answer

Actual total overhead costs by actual activity level.

Answer

Actual total overhead costs by estimated activity level.

Question 41

A crucial step in the cost allocation process involves:

Accepted Answer

Identifying appropriate cost drivers.

Answer

Calculating the total overhead costs for the period.

Answer

Applying the predetermined overhead rate to activity.

Question 42

Activity-based costing (ABC) differs from traditional costing systems by:

Accepted Answer

Assigning costs based on activities rather than volume-based measures.

Answer

Eliminating the need for cost allocation.

Answer

Providing highly precise product costing.

Question 43

Which of the following is NOT an advantage of cost accounting?

Accepted Answer

Improved financial reporting for external users.

Answer

Identification and reduction of operational inefficiencies.

Answer

Increased operational efficiency.

Answer

Enhanced decision-making for management.

Question 44

A furniture company manufactures chairs. Which of the following costs is directly related to the production of a single chair?

Accepted Answer

The cost of the wood used to make the chair

Answer

The cost of utilities for the factory

Answer

The depreciation expense on the factory equipment

Answer

The salary of the factory manager

Question 45

Which of the following best describes a fixed cost?

Accepted Answer

A cost that remains constant in total regardless of changes in production volume within a relevant range.

Answer

A cost that changes proportionally to fluctuations in production levels.

Answer

A cost directly tied to the materials and labor used in production.

Question 46

In a job order costing system, what is the primary function of a job cost sheet?

Accepted Answer

To track and accumulate all costs associated with a specific job or product.

Answer

To determine the overhead rate for a specific time period.

Answer

To prepare the company's financial statements.

Question 47

Which of the following is classified as a period cost?

Accepted Answer

Sales and marketing expenses

Answer

Direct materials used in production

Answer

Direct labor costs incurred in manufacturing

Answer

Factory overhead costs allocated to products

Question 48

A company uses a predetermined overhead rate to allocate overhead costs to products. What two factors are used to calculate this rate?

Accepted Answer

Estimated total overhead costs and estimated activity level.

Answer

Actual total overhead costs and actual activity level.

Answer

Actual total overhead costs and estimated activity level.

Question 49

What is the primary purpose of a cost-volume-profit (CVP) analysis?

Accepted Answer

To analyze the relationship between costs, sales volume, and profitability.

Answer

To calculate the breakeven point for a company.

Answer

To determine the optimal production level for a company.

Question 50

A company is considering purchasing new equipment. Which cost accounting method would be most helpful in evaluating this investment decision?

Accepted Answer

Differential cost analysis

Answer

Activity-based costing

Answer

Job order costing

Answer

Process costing

Question 51

What is a key advantage of using activity-based costing (ABC)?

Accepted Answer

It provides a more accurate allocation of overhead costs to products.

Answer

It eliminates the need for a predetermined overhead rate.

Answer

It is simpler to implement than traditional costing methods.

Question 52

Which of the following costs are included in a company's cost of goods sold (COGS)?

Accepted Answer

Direct materials, direct labor, and manufacturing overhead

Answer

Direct materials, direct labor, and selling expenses

Answer

Direct materials, administrative expenses, and manufacturing overhead

Question 53

Which of the following industries is most likely to use a process costing system to track production costs?

Accepted Answer

Petroleum refining

Answer

Custom furniture making

Answer

Software development

Answer

Construction