1.

Which one of the following costs would not be classified as a production overhead cost in
a food processing company?
A) The cost of renting the factory building
B) The salary of the factory manager
C) De depreciation of equipment located in the materials store
D) The cost of ingredients

2. Cost assignment
A) includes tracing indirect costs and allocating direct costs
B) includes tracing variable costs and allocating fixed costs
C) includes tracing fixed costs and allocating variable costs
D) includes tracing direct costs and allocating indirect costs

3. Cost accounting is mainly concerned with

A) making a financial plan for implementing management decisions
B) cost accumulation for inventory valuation to meet the requirements of external reporting
and internal profit measurement
C) the provision of information to parties that are external to the organization
D) the provision of information to people within the organization to aid decision-making and
improve the efficiency and effectiveness of existing operations

4. Wescream produces two types of ice cream: vanilla and chocolate. Separate production
lines are used for each type of ice cream. What is the correct classification for the wages
paid to temporary workers who are hired in summer when demand for ice cream is high
(paid on hourly basis). The cost object is the total amount of ice cream produced.
A) Direct and variable
B) Direct and fixed
C) Indirect and variable
D) Indirect and fixed

5. Within the relevant range, fixed costs depend on:

A) the amount of resources used
B) the amount of resources acquired
C) the volume of production
D) the volume of sales
6. If actual output is lower than budgeted output, which of the following costs would you
expect to be lower than the original budget?
A) total variable costs
B) total fixed costs
C) variable costs per unit
D) fixed costs per unit

7. A semi-variable cost would be

A) a fixed amount when output was zero and would not increase in direct proportion to
output
B) zero when output is zero and would increase in direct proportion to output
C) more than zero if no products were made and would then increase in direct proportion to
output
D) zero if output is zero and would change erratically as output increased

8. Classifying a cost as either direct or indirect depends on:

A) whether the cost can be easily identified with the cost object
B) the behavior of the cost in response to volume changes
C) whether an expenditure is avoidable or not in the future
D) whether the cost is expensed in the period in which it is incurred

9. Which of the following is the best description of an opportunity cost in a course of

action?
A) The expected benefit of the next best alternative course of action not undertaken
B) The replacement cost of the assets used in the course of action
C) The selling price of the assets used in the course of action
D) The incremental cost in a course of action

10. A manufacturing company has four types of costs (identified as T1, T2, T3, T4). The total
cost for each type at two different production levels is
Cost type Total cost for 125 units Total cost for 180 units
T1 $1,000 $1,440
T2 $1,750 $2,520
T3 $2,475 $2,826
T4 $3,225 $4,644
Which cost type would be classified as being semi-variable?
A) T1
B) T2
C) T3
D) T4

11. A company has over-absorbed fixed production overheads for the period by €6,000. The
fixed production overhead absorption rate was €8 per unit and is based on the normal
level of activity of 5,000 units. Actual production was 4,500 units. What was the actual
fixed production overheads incurred for the period?
A) €30,000
B) €36,000
C) €40,000
D) €42,000

12. Absorption costing refers to the process of

A) absorbing direct costs of production into products
B) absorbing the overhead costs of departments into products
C) absorbing service department costs into production department costs
D) absorbing the direct costs of production and service departments into products

13. A large audit firm has two support departments (Legal Services and General Support),
which it regards as cost pools. The total hours worked by the audit firm during 2017 were
153,000. The total costs amounted to £42,280,364.

What is the cost rate that will be used to allocate the total support department costs to audits?
A) £276
B) £153
C) £76
D) £138

14.
Data: Cyber co’s overheads look like follows:
Production Department 1: $870,000
Production Department 2: $690,000
Service Department 1: $160,000
Service Department 2: $82,000
Service Department 1 provides 60% of its services to Production Department 1, 30% to
Production Department 2, and 10% to Service Department 2.
Service Department 2 provides 55% of its services to Production Department 1, 40% to
Production Department 2, and 5% to Service Department 1.

Question: How much is allocated from Service Department 1 to Production Department 1

using the direct allocation method?
A) $106,667
B) $96,000
C) $976,667
D) $41,000

15. Using the same data as the previous question

Question: How much is allocated from Service Department 1 to the Production Departments
using the Specified order of closing method (also called sequential or step allocation
method)?
A) $160,000
B) $152,000
C) $144,000
D) $164,100

16. In a job-costing system, a manufacturing firm typically uses an indirect-cost rate to

estimate the ___________ allocated to a job.
A) total costs
B) direct materials
C) direct labor
D) manufacturing overhead costs

17. The following data relate to material J for last month:

Purchases:
4th 400kg for €4,800
th
18 500kg for €6,500

Issues:
13th 600kg
25th 300kg

The opening stock of 300 kg is valued at €3300. Using the LIFO valuation method, what was
the value of the closing stock for last month?
A) €3,300
B) €3,500
C) €3,700
D) €3,900

18. Which of the following is NOT a characteristic of process costing?

A) Total costs will be divided by output to ascertain cost per unit
B) Products can go through several processes
C) There will be a large number of units produced
D) There will be a wide range of products

19. ___________ is a unit-costing method that mergers prior-period work and costs with
current-period work and costs
A) FIFO-costing method
B) Transferred-in costing
C) Weighted average method
D) Operating costing

20. Data: A company operates a process costing system using the FIFO method of valuation.
All materials are added at the start of the process. Conversion costs are incurred evenly
throughout the process. The following data relates to last period:

Opening work in progress: 2,000 units, 60% completed

Total number of units completed: 14,000 units
Closing work in progress: 3,000 units, 30% completed
Material costs: €51,000
Conversion costs: €193,170
Question: What was the total number of units started during last period?
A) 12,000
B) 13,000
C) 15,000
D) 17,000

21. Using the same data as the previous question, what is the number of equivalent units for
material?
A) €15,000
B) €17,000
C) €19,000
D) €14,000
22. Using the information in the following table, what are the equivalent units for conversion,
using the weighted average method?
% completed
Units Materials Conversion
Work in Progress, 1st January 400 89% 20%
Units started into production in January 5,000
st
Work in Progress, 31 of January 600 70% 30%

A) 4,660
B) 4,900
C) 4,980
D) 5,500

23. A by product is a product that

A) has a small monetary value relative to total sales revenue
B) should not be further processed as the costs of further processing would be a sunk cost
C) has a small number of units produced relative to total units produced
D) has no monetary value

24. If using the physical units method of joint cost apportionment which of the following is
true?
A) Individual products may show a loss at split off in certain cases
B) The apportionment of joint costs will relate to the selling price of each product.
C) Specific product losses will never arise if the products are sold at split off
D) The apportionment of joint costs relates to the physical inputs that go into the process

25. Two products (W and A) are created from a joint process. Both products can be sold
immediately after split-off. There are no opening inventories or work in progress. The
following information is available for last period:
Total joint production cost: $776,160
Product W: 12,000 units produced, 10,000 units sold at selling price of $10 per unit
Product A: 10,000 units produced, 8,000 units sold at selling price of $12 per unit
Using the sales value method of apportioning joint production costs, what was the value of
the closing inventory of product A for last period?
A) $68,992
B) $70,560
C) $76,032
D) $77,616
26. Data:
Diva Ltd has the following costs per unit:
£
Direct materials 27
Indirect materials (variable) 3
Direct labour 12
Indirect labour (variable) 6
Other variable manufacturing overhead 8
Fixed manufacturing overhead 10
Variable selling expenses 5
Fixed selling expenses 4

Last month the production was 500 units (as budgeted) but sales were only 450 units.

Question: What is the cost of goods manufactured using absorption costing?

A) £33,000
B) £37,500
C) £28,000
D) £29,700

27. Using the same data as the previous question, what is the cost of goods sold using
absorption costing?
A) £33,750
B) £33,000
C) £25,200
D) £29,700

28. A company has the following budgeted costs and revenues:

Sales price: $50 per unit
Variable production cost: $18 per unit
Fixed production cost: $10 per unit

In the most recent period, 2,000 units were produced and 1,000 units were sold. Actual sales
price, variable production cost per unit and total fixed production costs were all as budgeted.
Fixed production costs were over-absorbed by $4,000. There was no opening inventory for
the period.
What would be the reduction in profit for the period if the company had used marginal
costing (also known as variable or direct costing) rather than absorption costing (also known
as full costing).
A) $4,000
B) $6,000
C) $10,000
D) $14,000

29. Marginal costing means:

A) a system where only variable manufacturing costs are allocated to products
B) looking at the marginal increase in costs as the business produces extra units of output
C) looking at the change in unit variable costs as output changes
D) taking account of all of the direct costs in ascertaining a product's cost

30. In a period, opening stocks were 12 600 units and closing stocks 14 100 units. The profit
based on marginal costing was £50 400 and profit using absorption costing was £60 150.
The fixed overhead absorption rate per unit is
A) £4.00
B) £4.27
C) £4.77
D) £6.50

31. Data: Bhimani Inc. sells a single product. The company's most recent income statement is
given below. To stay within the relevant range, the company can sell up to 10,000 units.

Sales (4,000 units) $120,000

Variable costs (64,000)
Fixed costs (40,000)
Net income $ 12,000

Question: What is the contribution margin per unit?

A) $12
B) $30
C) $13
D) $14

32. Using the same data as the previous question: What is the breakeven point in units?
A) 2,857
B) 3,077
C) 10,000
D) 3,000
33. A company’s budget for the next period shows that it would break even at sales revenue
of $800,000 and fixed costs of $320,000.
The sales revenue needed to achieve a profit of $200,000 in the next period would be
A) $1,000,000
B) $1,300,000
C) $1,320,000
D) $866,667

34. An organization manufactures a single product which has a variable cost of £36 per unit.
The organization’s total weekly fixed costs are £81,000 and it has a contribution to sales
ratio of 40 per cent. This week it plans to manufacture and sell 5,000 units. What is the
organization’s margin of safety this week?
A) 1,625 units
B) 2,750 units
C) 3,375 units
D) 3,500 units

35. Sold Inc., which produces and sells a single product, recently experienced an increase in
fixed costs relating to depreciation on new equipment. If variable costs and sales price
remain unchanged, what will happen to contribution margin and the break-even point?
A) Contribution margin will be unchanged and the break-even point will decrease.
B) Contribution margin will be unchanged and the break-even point will increase.
C) Contribution margin will increase and the break-even point will decrease.
D) Contribution margin will decrease and the break-even point will increase.

36. Operating leverage is

A) A measure of the sensitivity of profits to changes in sales
B) The excess of budgeted revenues over breakeven revenues
C) The total variable costs divided by revenues
D) The liabilities that are related to your operations

37. Data: A company has just secured a new contract which requires 500 hours of labour.
There are 400 hours of spare labour capacity. The remaining hours could be worked as
overtime at a rate of 1.5 times the normal labour cost, or labour could be diverted from
the production of product X. Product X currently earns a contribution of $4 in two labours
hours and direct labour is currently paid at a rate of $12 per normal hour.
Question: What is the relevant cost of labour for the contract in case the company chooses
to work overtime rather than diverting production from product X?
A) $7,800
B) $9,000
C) $4,000
D) $1,800

38. Using the same data as in the previous question, what is the relevant cost of labour for the
contract in case the company chooses to divert production from product X rather than
working overtime?
A) $1,200
B) $1,400
C) $6,000
D) $4,800

39. A production manager finds that she can improve the return on a machine by running it
for a longer time. In this case the cost of the initial investment will be:
A) An incremental cost
B) A sunk cost
C) An opportunity cost
D) An avoidable cost

40. Data: In the following, price, revenue and cost functions, which have been established by
an organization for one of its products, Q, represent the number of units produced and
sold per week:
Price (£ per unit) = 50-0.025Q
Marginal revenue (£ per unit) = 50-0.05Q
Total weekly cost= 1,000+15Q
Question: What price per unit should be set in order to maximize weekly profit?
A) £15.00
B) £17.50
C) £25.00
D) £32.50

41. Using the same data as the previous question: What would the weekly total contribution
be if the price of the product was set at £20 per unit?
A) £2,000
B) £3,000
C) £5,000
D) £6,000
42. SleepWell produces two types of pillows, a standard and a premium version. Sales price
for the standard version is £10 with variable costs of £6 per unit. The premium pillow
sells for £30 with variable costs of £15 per unit. The standard version requires one
machine hour, while the premium version requires three machine hours. Total fixed costs
are £20 000 and the yearly machine hour capacity is 30 000 hours. Assuming that there
are no selling constraints, what is the optimal product mix?
A) 0 standard pillows and 30,000 premium pillows
B) 0 standard pillows and 10,000 premium pillows
C) 30,000 standard pillows and 0 premium pillows
D) 15,000 standard pillows and 15,000 premium pillows

43. Couch sells home furnishings, such as furniture, lamps and lighting and wall art. The
company is considering whether to discontinue wall art because of slowing sales. Wall art
accounted for total sales of €3,900,000 during the most recent year. Cost of goods sold
related to wall art included variable costs of €3,495,000 and fixed costs of €53,500.
Operating expenses related to wall art included variable expenses of €320,000 and fixed
expenses of €47,800. None of the fixed costs or fixed expenses will be eliminated if wall
art is discontinued. If the company’s current total income from operations is €310,000,
what will the company’s total income from operations be if wall art is discontinued?
A) €85,000
B) €320,000
C) €310,000
D) €225,000

44. Antonia produces a single product that sells for €80. Variable costs per unit equal €32.
The company expects total fixed costs to be €72,000 for the next month at the projected
sales level of 2,000 units. In an attempt to improve performance, management is
considering to reduce the selling price. Suppose that management believes that a 10%
reduction in the selling price will result in a 10% increase in sales. If this proposed
reduction in selling price is implemented:
A) operating income will decrease by €8,000
B) operating income will increase by €8,000
C) operating income will decrease by €16,000
D) operating income will increase by €16,000

45. Target costing involves

A) making sure that costs are in line with the target level for a specific department
B) designing the production method so that costs can be reduced if the market deteriorates
C) producing a product at the lowest cost possible
D) setting a selling price that will secure a specific market share and then setting costs
accordingly

46. A company uses standard absorption costing. The following information was recorded by
the company for October
Budget Actual
Output and sales (units) 8,700 8,200
Selling price per unit €26 €31
Variable cost per unit €10 €10
Total fixed overhead €34,800 €37,000

The sales volume profit variance for October was

A) €6,000 adverse
B) €6,000 favourable
C) €8,000 adverse
D) €8,000 favourable

47. Which one of the following is normally the most appropriate sequence of events in the
preparation of the indicated budgets?
A) Sales budget, production budget, budgeted balance sheet
B) Production budget, budgeted balance sheet, sales budget
C) Sales budget, budgeted balance sheet, production budget
D) Production budget, sales budget, budgeted balance sheet

48. The standard cost of a product is

A) the average cost per unit over a period
B) the cost per unit of the initial products that are produced during a period
C) the total cost of products produced in a period divided by the expected output during that
period
D) the planned unit cost of products produced in a period

49. A budgeted amount of a product is manufactured in less than the budgeted hours. If no
further output is made what will be the effect on the fixed overhead capacity and
efficiency variances?
A) An adverse capacity variance and an adverse efficiency variance
B) A favourable capacity variance and an adverse efficiency variance
C) An adverse capacity variance and a favourable efficiency variance
D) A favourable capacity variance and a favourable efficiency variance
50. Under a ______ budgeting process a 12-month budget is always available by adding a
quarter in the future as the quarter just ended is dropped.
A) Rolling
B) Feedback
C) Quarterly
D) Controlling

51. Data: Marguerite, In(C), expects to sell 20,000 pool cues for €12.00 each. Direct
materials costs are €2.00, direct manufacturing labor is €4.00, and manufacturing
overhead is €0.80 per pool cue. The following inventory levels are expected in 2020:
Beginning inventory Targeted Ending inventory
Direct materials 24,000 units 24,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 2,000 units 2,500 units
How many pool cues need to be produced in 2020?
A) 22,500 cues
B) 22,000 cues
C) 20,500 cues
D) 19,500 cues

52. Using the same data as the previous question: What are the 2021 budgeted costs for direct
materials, direct manufacturing labor, and manufacturing overhead, respectively?
A) €0; €96,000; €19,200
B) €39,000; €78,000; €15,600
C) €80,000; €40,000; €16,000
D) €41,000; €82,000; €16,400

53. Which term matches the following description? “Describes, in general terms, the purpose
and reason for an organization’s existence, the nature of the business and the customers it
seeks to serve and satisfy”
A) Mission
B) Strategy
C) Budget
D) Unit objectives

54. An unfavorable variance indicates that:

A) actual costs are less than budgeted costs.
B) actual revenues exceed budgeted revenues.
C) the actual amount decreased operating income relative to the budgeted amount.
D) it is impossible to answer this question without additional information

55. The relevant range is the output range

A) at which an organization expects to be operating with a short-term planning horizon
B) at which activities are value adding
C) at which marginal costs do not exceed marginal profits
D) at which sales exceed fixed costs