Cost Accounting – Week 1

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Question 1

In order to be compliant with the Sarbanes-Oxley Act of 2002, a company’s chief executive must:

participate in the physical inventory count at year end and attest to the accuracy of the balance
Selected: attest to the effectiveness of the internal control systemThis answer is correct.
forego incentive plans and bonuses when a qualifying opinion is issued for an audit
provide exact detail of the strategic plan for the next five years in the Management Discussion and Analysis of the company’s 10K

Correct! A company’s CEO (as well as CFO) must both attest and issue a statement indicating attestation to the effectiveness of the internal control system.

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Question 2

The two primary activities of management accounting are:

recording and analyzing
calculating and compiling
auditing and attesting
Selected: planning and controllingThis answer is correct.

Correct! The two primary activities of management accounting are planning and controlling. Planning involves predicting the future by budgeting and forecasting, while controlling involves reporting the results of management’s efforts by evaluating and comparing.

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Question 3

True or False: A management accountant does not have to be concerned with ethical compliance, since cost analyses are often not audited.

True
Selected:FalseThis answer is correct.

Correct! Despite the low probability of audit of most management accounting information, ethical behaviors are still required. Specifically, management accountants must exhibit competence, confidentiality, integrity, and credibility in discharging their duties.

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Question 4

Direct materials = $50,000; Direct labor = $30,000; Factory Depreciation = $40,000; Factory Utilities = $10,000; Advertising = $15,000; Given this fact pattern, what is the total prime cost?

$120,000 ß CORRECT ANSWER
Selected: $130,000This answer is incorrect.
$80,000
$145,000

Reconsider your response. Note the components of prime cost. Refer to Module 1, Page III.

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Question 5

Which segment of the value chain includes inventoriable costs?

Research and Development
Distribution
Selected: ProductionThis answer is correct.
Marketing

Correct! The value chain is characterized by six interlocking segments, including: research and development, design, production, marketing, distribution, and customer service. The only segment which includes inventoriable costs is Production. Companies must recapture enough value through production activities to offset initial costs of research, development, and design. Marketing, distribution, and customer service costs are also not inventoriable.

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Question 6

Which is a Top Trend in Management Accounting?

downsizing of accounting departments
discontinuance of physical inventory counts
Selected: shift to predictive accountingThis answer is correct.
elimination of quarterly reviews in favor of a single, longer year-end audit

Correct! A shift to predictive accounting indicates the need for management accounting information to serve as the basis for management’s strategic decision making.

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Question 7

Direct materials = $50,000; Direct labor = $30,000; Factory Depreciation = $40,000; Factory Utilities = $10,000; Advertising = $15,000; Given this fact pattern, what is the total conversion cost?

$80,000 ß CORRECT ANSWER
$130,000
Selected: $120,000This answer is incorrect.
$145,000

Reconsider your response. Note the components of conversion cost. Refer to Module 1, Page III.

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Question 8

The relevant range is defined as:

Selected: the level of activity over which fixed costs do not change in totalThis answer is correct.
the limited scope of the management accountant’s duties
the time frame over which the management accountant reports
the cycle time required to convert raw materials into finished goods

Correct! The relevant range is the level of activity over which fixed costs do not change in total; for some companies it may even be indicated in units of time.

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Question 9

As production volume increases within the relevant range:

actual total fixed costs change due to expected changes in straight line depreciation
actual total variable costs remain the same despite increases in volume
actual unit variable costs decline due to greater economies of scale
Selected: actual unit fixed costs decline due to allocation over a larger volume of production
This answer is correct.

Correct! Changes in production volume result in changes in actual unit fixed costs within the relevant range. Variable unit costs would remain the same, and total variable costs would change. Actual total fixed costs do not change within the relevant range.

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Question 10

Cost of Goods Sold = $650,000; Beginning finished goods inventory = $60,000; and ending inventory of finished goods = $70,000; how much is cost of goods manufactured for the period?

$780,000
Selected: $660,000This answer is correct.
$720,000
$530,000

Correct! Note calculation as shown:


	Beginning inventory,Finished goods	$ 60,000
+	Cost of Goods Manufactured	$ 660,000
	Cost of Goods Available for Sale	$ 720,000
–	Ending Inventory, Finished Goods	$ (70,000)
=	Cost of Goods Sold	$ 650,000

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Question 1

The definition of the value chain:

Requires reconfiguration of external processes
Selected: Refers to internal functions of the company which optimize customer satisfactionThis answer is correct.
Was developed in the Industrial Revolution and is no longer relevant
Characterizes service and non-profit organizations only

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Question 2

Which of the following is not an example of a variable cost of production?

cost of ink for a printing company
Selected: cost of property insurance for a cell phone manufacturerThis answer is correct.
cost of steel for an automobile manufacturing company
cost of direct labor for a pharmaceutical company

Correct! The cost of property insurance does not vary according to the amount of units produced, which defines a variable cost.

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Question 3

The two primary activities of management accounting are:

recording and analyzing
calculating and compiling
auditing and attesting
Selected: planning and controllingThis answer is correct.

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Question 4

Direct materials = $50,000; Direct labor = $30,000; Factory Depreciation = $40,000; Factory Utilities = $10,000; Advertising = $15,000; Given this fact pattern, what is the total prime cost?

Selected: $120,000This answer is incorrect.
$130,000
$80,000
$145,000

Reconsider your response. Note the components of prime cost. Refer to Module 1, Page III.

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Question 5

Which segment of the value chain includes inventoriable costs?

Research and Development
Distribution
Selected: ProductionThis answer is correct.
Marketing

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Question 6

Which is a Top Trend in Management Accounting?

downsizing of accounting departments
discontinuance of physical inventory counts
Selected: shift to predictive accountingThis answer is correct.
elimination of quarterly reviews in favor of a single, longer year-end audit

Correct! A shift to predictive accounting indicates the need for management accounting information to serve as the basis for management’s strategic decision making.

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Question 7

True or False: Samuel Cohen is a controller for a publicly-held company and adheres to the IMA Statement of Ethical Professional Practice. Samuel noted that his boss, the CFO, recently made an accounting entry to reflect a decrease in the amount of overhead expensed for the period, which appeared to be questionable to Samuel. The amount was material and increased earnings for the period. Samuel is obligated to report this questionable entry to the Securities and Exchange Commission.

True
Selected:FalseThis answer is correct.

Correct! Samuel should report this to the next highest level, or the CEO, since the CFO was involved in the questionable activity. He should not discuss with an outside party initially, but limit initial communication to internal parties for resolution.

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Question 8

Management accounting has evolved over the last century primarily due to:

the emergent needs of external parties for more detailed reporting
the regulation changes instituted by the Securities Act of 1933
the increased requirements of auditors to test management accounting information for accuracy in reporting to internal parties
Selected: the focus on strategy due to increased competition and the advancements in technology which ease analysis and reportingThis answer is correct.

Correct! The greater focus on competition has resulted in more analytical requests from managers; management accounts have met this need by gaining better access to technology.

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Question 9

Direct materials = $50,000; Direct labor = $30,000; Factory Depreciation = $40,000; Factory Utilities = $10,000; Advertising = $15,000; Given this fact pattern, what is the total conversion cost?

Selected: $80,000This answer is correct.
$130,000
$120,000
$145,000

Correct! Conversion cost includes direct costs of labor and overhead.

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Question 10

Inventory accounting in manufacturing companies has greater complexity than that of merchandising companies. Which statement correctly captures this complexity?

the account transactions of a manufacturing company are not able to be tracked on a continuous basis
Selected: the accounts represent segregation by stage of completion and include direct materials, work in process, and finished goodsThis answer is correct.
the accounts are required to be closed more than once a month to calculate ending inventory balances each time a production run is complete
the account transactions must be averaged in order to determine a fair cost of the product; neither FIFO or LIFO can be chosen as a cost flow method

Correct! The inventory of a manufacturing company is segregated into three accounts, representing stage of completion for the production process.

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Question 1

Purchases of raw material = $60,000; Beginning raw material inventory = $50,000; and ending inventory of raw material = $20,000; how much is raw material usage for the period?

$30,000
$130,000
Selected: $90,000This answer is correct.
$10,000

Correct! Note calculation as shown:

	Direct materials used:
	Beginning inventory, direct materials	$ 50,000
+	Purchases of direct materials	$ 60,000
=	Cost of direct materials available for use	$ 110,000
–	Ending direct materials inventory	$ (20,000)
=	Direct materials used	$ 90,000

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Question 2

Direct materials = $50,000; Direct labor = $30,000; Factory Depreciation = $40,000; Factory Utilities = $10,000; Advertising = $15,000; Given this fact pattern, what is the total conversion cost?

Selected: $80,000This answer is correct.
$130,000
$120,000
$145,000

Correct! Conversion cost includes direct costs of labor and overhead.

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Question 3

Cost of Goods Sold = $650,000; Beginning finished goods inventory = $60,000; and ending inventory of finished goods = $70,000; how much is cost of goods manufactured for the period?

$780,000
Selected: $660,000This answer is correct.
$720,000
$530,000

Correct! Note calculation as shown:


	Beginning inventory,Finished goods	$ 60,000
+	Cost of Goods Manufactured	$ 660,000
	Cost of Goods Available for Sale	$ 720,000
–	Ending Inventory, Finished Goods	$ (70,000)
=	Cost of Goods Sold	$ 650,000

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Question 4

Inventory accounting in manufacturing companies has greater complexity than that of merchandising companies. Which statement correctly captures this complexity?

the account transactions of a manufacturing company are not able to be tracked on a continuous basis
Selected: the accounts represent segregation by stage of completion and include direct materials, work in process, and finished goodsThis answer is correct.
the accounts are required to be closed more than once a month to calculate ending inventory balances each time a production run is complete
the account transactions must be averaged in order to determine a fair cost of the product; neither FIFO or LIFO can be chosen as a cost flow method

Correct! The inventory of a manufacturing company is segregated into three accounts, representing stage of completion for the production process.

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Question 5

Which of the following is not an example of a variable cost of production?

cost of ink for a printing company
Selected: cost of property insurance for a cell phone manufacturerThis answer is correct.
cost of steel for an automobile manufacturing company
cost of direct labor for a pharmaceutical company

Correct! The cost of property insurance does not vary according to the amount of units produced, which defines a variable cost.

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Question 6

The two primary activities of management accounting are:

recording and analyzing
calculating and compiling
auditing and attesting
Selected: planning and controllingThis answer is correct.

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Question 7

Which segment of the value chain includes inventoriable costs?

Research and Development
Distribution
Selected: ProductionThis answer is correct.
Marketing

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Question 8

True or False: A management accountant does not have to be concerned with ethical compliance, since cost analyses are often not audited.

True
Selected:FalseThis answer is correct.

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Question 9

As resources are introduced into the production cycle, all direct and overhead costs are initiaIly recorded in which account?

purchases
Selected: work in processThis answer is correct.
cost of goods sold
merchandise inventory

Correct! The work in process account is established to capture the costs of production when resources are introduced into the manufacturing process.

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Question 10

The relevant range is defined as:

Selected: the level of activity over which fixed costs do not change in totalThis answer is correct.
the limited scope of the management accountant’s duties
the time frame over which the management accountant reports
the cycle time required to convert raw materials into finished goods

Correct! The relevant range is the level of activity over which fixed costs do not change in total; for some companies it may even be indicated in units of time.

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