Interim Exam

Cost Accounting

1. In comparing financial and management accounting, which of the following more accurately describes management
accounting information?
a. historical, precise, useful
b. required, estimated, internal
c. budgeted, informative, adaptable
d. comparable, verifiable, monetary

2. One major difference between financial and management accounting is that

a. financial accounting reports are prepared primarily for users external to the company.
b. management accounting is not under the jurisdiction of the Securities and Exchange Commission.
c. government regulations do not apply to management accounting.
d. all of the above are true.

3. Broadly speaking, cost accounting can be defined as a(n)

a. external reporting system that is based on activity-based costs.
b. system used for providing the government and creditors with information about a company's
internal operations.
c. internal reporting system that provides product costing and other information used by managers in
performing their functions.
d. internal reporting system needed by manufacturers to be in compliance with Cost Accounting
Standards Board pronouncements.

4. Which of the following statements is true?

a. Management accounting is a subset of cost accounting.
b. Cost accounting is a subset of both management and financial accounting.
c. Management accounting is a subset of both cost and financial accounting.
d. Financial accounting is a subset of cost accounting.

5. Cost accounting standards

a. are legal standards set by the Institute of Management Accountants for use in all manufacturing and
professional businesses.
b. are set by the Cost Accounting Standards Board and are legally binding on all manufacturers, but
not service organizations.
c. do not exist except for those legal pronouncements for companies bidding or pricing cost-related
contracts with the government.
d. are developed by the Cost Accounting Standards Board, issued by the Institute of Management
Accountants, and are legally binding on CMAs.

6. Which of the following always has a direct cause-effect relationship to a cost?

Predictor Cost driver

a. yes yes
b yes no
.
c. no yes
d no no
.
 Wilson Company

The following information has been taken from the cost records of Wilson Company for the past year:

Raw material used in production $326

Total manufacturing costs charged to production during the year (includes direct material, 686
direct labor, and overhead equal to 60% of direct labor cost)
Cost of goods available for sale 826
Selling and Administrative expenses 25

Inventories Beginning Ending

Raw Material $75 $ 85
Work in Process 80 30
Finished Goods 90 110

7. Refer to Wilson Company. The cost of raw material purchased during the year was _________

8. Refer to Wilson Company. Direct labor cost charged to production during the year was
a. $135.
b. $216.
c. $225.
d. $360.

9. Refer to Wilson Company. Cost of Goods Manufactured was

a. $636.
b. $716.
c. $736.
d. $766.

10. Refer to Wilson Company. Cost of Goods Sold was ___________________.

11. For the most recent year, Atlantic Company's net income computed by the absorption costing method was
$7,400, and its net income computed by the variable costing method was $10,100. The company's unit product cost
was $17 under variable costing and $22 under absorption costing. If the ending inventory consisted of 1,460 units,
the beginning inventory must have been:

a. 920 units.
b. 1,460 units.
c. 2,000 units.
d. 12,700 units.

12. During the most recent year, Evans Company had a net income of $90,000 using absorption costing and $84,000
using variable costing. The fixed overhead application rate was $6 per unit. There were no beginning inventories. If
22,000 units were produced last year, then sales for last year were:
a. 15,000 units.
b. 21,000 units.
c. 23,000 units.
d. 28,000 units.
 13. During the year just ended, Roberts Company' income under absorption costing was $3,000 lower than its
income under variable costing. The company sold 9,000 units during the year, and its variable costs were $9 per
unit, of which $3 was variable selling expense. If production cost is $11 per unit under absorption costing every
year, then how many units did the company produce during the year?
a. 8,000.
b. 10,000.
c. 9,600.
d. 8,400.

14. Indiana Corporation produces a single product that it sells for $9 per unit. During the first year of operations,
100,000 units were produced and 90,000 units were sold. Manufacturing costs and selling and administrative
expenses for the year were as follows:

Fixed Costs Variable Costs

Raw materials ............ -- $1.75 per unit produced
Direct labor ............. -- 1.25 per unit produced
Factory overhead ......... $100,000 0.50 per unit produced
Selling and administrative 70,000 0.60 per unit sold

What was Indiana Corporation's net income for the year using variable costing?
a. $181,000.
b. $271,000.
c. $281,000.
d. $371,000.

15. Which of the following will decrease the break-even point?

Decrease in Increase in direct Increase in

fixed cost labor cost selling price

a. yes yes yes

b. yes no yes
c. yes no no
d. no yes no

16. Consider the equation X = Sales - [(CM/Sales)  (Sales)]. What is X?

a. net income
b. fixed costs
c. contribution margin
d. variable costs

17. A firm estimates that it will sell 100,000 units of its sole product in the coming period. It projects the sales price at $40
per unit, the CM ratio at 60 percent, and profit at $500,000. What is the firm budgeting for fixed costs in the coming
period?
a. $1,600,000
b. $2,400,000
c. $1,100,000
d. $1,900,000
 18. Sombrero Company manufactures a western-style hat that sells for $10 per unit. This is its sole product and it has
projected the break-even point at 50,000 units in the coming period. If fixed costs are projected at $100,000, what is
the projected contribution margin ratio?
a. 80 percent
b. 20 percent
c. 40 percent
d. 60 percent

19. CVP analysis requires costs to be categorized as

a. either fixed or variable.
b. fixed, mixed, or variable.
c. product or period.
d. standard or actual.

20. With respect to fixed costs, CVP analysis assumes total fixed costs
a. per unit remain constant as volume changes.
b. remain constant from one period to the next.
c. vary directly with volume.
d. remain constant across changes in volume.

21 .If a firm's net income does not change as its volume changes, the firm('s)
a. must be in the service industry.
b. must have no fixed costs.
c. sales price must equal $0.
d. sales price must equal its variable costs.

22. The method of cost accounting that lends itself to break-even analysis is
a. variable.
b. standard.
c. absolute.
d. absorption.

23. Mike is interested in entering the catfish farming business. He estimates if he enters this business, his fixed costs
would be $50,000 per year and his variable costs would equal 30 percent of sales. If each catfish sells for $2, how
many catfish would Mike need to sell to generate a profit that is equal to 10 percent of sales?
a. 40,000
b. 41,667
c. 35,000
d. No level of sales can generate a 10 percent net return on sales.

24. The following information pertains to Saturn Company’s cost-volume-profit relationships:

Break-even point in units sold 1,000

Variable costs per unit $500
Total fixed costs $150,000

How much will be contributed to profit before taxes by the 1,001st unit sold?
a. $650
b. $500
c. $150
d. $0

25. Information concerning Averie Corporation's Product A follows:

 Sales $300,000
Variable costs 240,000
Fixed costs 40,000

Assuming that Averie increased sales of Product A by 20 percent, what should the profit from Product A be?
a. $20,000
b. $24,000
c. $32,000
d. $80,000