Cost Management Exam 1 Review

Accounting is best defined as:
A. A method for calculating taxes
B. A system for auditing firms
C. A system for measuring and communicating financial information
D. A system for budgeting expenses

C. A system for measuring and communicating financial information

Accounting numbers are imperfect because:
A. Managers manipulate them
B. They measure things we cannot directly observe
C. GAAP prohibits accuracy
D. Audits eliminate precision

B. They measure things we cannot directly observe

According to the FASB’s balance sheet approach, net income equals:
A. Revenues minus expenses
B. Cash inflows minus cash outflows
C. Change in net assets
D. EPS × shares outstanding

C. Change in net assets

Why is EPS an imperfect measure of performance?
A. It ignores expenses
B. It is based on estimates of assets and liabilities
C. It only applies to public firms
D. It excludes depreciation

B. It is based on estimates of assets and liabilities

Which is NOT a social value of accounting?
A. Facilitating contracting
B. Improving managerial decisions
C. Eliminating all risk for investors
D. Disciplining managers

C. Eliminating all risk for investors

Which type of accounting is governed by the Internal Revenue Code (IRC)?
A. Financial accounting
B. Cost accounting
C. Managerial accounting
D. Tax accounting

D. Tax accounting

Which accounting system has no required rules or governing body?
A. Financial accounting
B. Tax accounting
C. Cost accounting
D. Auditing

C. Cost accounting

A cost object is best described as:
A. A department manager
B. Anything for which costs are measured
C. Only physical products
D. Only services

B. Anything for which costs are measured

Which cost assignment method is the MOST accurate?
A. Allocation
B. Driver tracing
C. Direct tracing
D. Estimation

C. Direct tracing

Which of the following is a product cost?
A. Advertising
B. Executive salaries
C. Factory equipment depreciation
D. Legal fees

C. Factory equipment depreciation

Prime costs consist of:
A. DM + OH
B. DL + OH
C. DM + DL
D. DM + DL + OH

C. DM + DL

Which cost is expensed immediately under GAAP?
A. Period expenses
B. Manufacturing overhead
C. Direct labor
D. Work-in-process inventory

A. Period expenses

Which cost remains constant in total as activity changes?
A. Variable cost
B. Fixed cost
C. Mixed cost
D. Step cost

B. Fixed cost

The slope of a cost function represents:
A. Fixed cost
B. Total cost
C. Variable cost per unit
D. Intercept

C. Variable cost per unit

Step costs are best described as:
A. Continuously variable
B. Fixed forever
C. Fixed within a range, then jump
D. Always mixed

C. Fixed within a range, then jump

An R² of 0.75 indicates:
A. A weak model
B. No causal relationship
C. 75% of cost variation is explained by the driver
D. The driver is insignificant

C. 75% of cost variation is explained by the driver

A p-value of 0.12 suggests the cost driver is:
A. Highly significant
B. Moderately significant
C. Statistically insignificant
D. Perfectly correlated

C. Statistically insignificant

Which costing method best measures current-period efficiency?
A. Weighted-average
B. LIFO
C. FIFO
D. Traditional costing

C. FIFO

Which costing system uses one overhead pool and one POHR?
A. ABC
B. Job-order
C. Traditional costing
D. Process costing

C. Traditional costing

Which costing method requires an overhead variance adjustment?
A. Actual costing
B. Normal costing
C. Standard costing
D. FIFO costing

B. Normal costing

Accounting involves measuring __________ constructs using imperfect numbers.
a. numerical

b. social

c. theoretical

c. theoretical

The two steps in measurement are defining the construct and __________ it numerically.

a. measuring

b. estimating

c. calculating

b. estimating

Product costs flow through inventory in the order: RM → __________ → FG → COGS.
a. WIP

b. DL

c. DM

d. COGM

a. WIP

Marketing and administrative costs are classified as __________.

a. period expenses

b. product costs

c. normal costs

d. traditional costs

a. period expenses

The intercept in a cost equation represents the __________ cost

a. step

b. fixed

c. mixed

d. variable

b. fixed

A p-value below __________ indicates statistical significance.

a. 0.10

b. 0.01

c. 0.50

d. 0.05

d. 0.05

FIFO separates __________ period costs from current-period costs.

a. prior

b. future

a. prior

A company purchases $8,000 of raw materials on account.
Journal Entry:

• Dr. __________

• Cr. __________

Dr. RM Inventory

Cr. Accounts payable

Raw materials are placed into production.
Journal Entry:

• Dr. __________

  • Cr. __________

Dr. WIP

Cr. RM inventory

Direct labor wages of $12,000 are paid.
Journal Entry:

• Dr. __________

  • Cr. _________

dr. WIP

Cr. cash

Actual factory overhead costs are incurred.
Journal Entry:

• Dr. __________

  • Cr. __________

dr. factory oh

cr. cash

Overhead is applied to production.
Journal Entry:

• Dr. __________

  • Cr. __________

dr. wip

cr. factory oh

Goods are completed and moved from WIP to FG.
Journal Entry:

• Dr. __________

  • Cr. __________

dr. fg inventory

cr. wip

Goods are sold for cash.
Journal Entries:

• Dr. __________ / Cr. __________

  • Dr. __________ / Cr. __________

dr. cash

cr. revenue

dr. cogs

cr. fg inventory

Financial accounting is for _____ users.

a. internal

b. external

b. external

Cost accounting is for _____ users.

a. external

b. internal

b. internal

_____ accounting is used for planning/control and budgeting.

a. cost

b. tax

c. financial

d. normal

a. cost

_____ is the value of resources consumer to make a product or service.

a. accounting

b. cost

c. a period expense

d. a product cost

b. cost

_____ is the most accurate cost assignment method.

a. direct tracing

b. driver tracing

c. allocation

a. direct tracing