Cost Accounting Study Guide: Practical
Examples with Correct Answers
a) Comparing the electricity costs of the current and the previous year. -
CORRECT ANSWER ✅✅✅Information’s necessary to determine if a new
electricity provider would save costs.
Track indirect costs and their development. Draw conclusions on firms activity
concerning production but also office buildings.
b) Determining the cost of manufacturing a car in the past quarter. - CORRECT
ANSWER ✅✅✅By having the information of the actual cost of
manufacturing a car in a certain period, managers can monitor the
performance of production and make comparisons with predictions they have
made for the expected costs, further refining them and making sure they stay
low. Furthermore, they can exercise control over the production chain in order
to optimize it and reduce costs.
c) Forecasting the cost of manufacturing a car in the coming quarter. -
CORRECT ANSWER ✅✅✅Manufacturing cost for the same product
changes as time goes on.
In the future, there may for example be a new manufacturing process which is
cheaper, decreasing the overall manufacturing cost.
Or as the price for different raw materials or resources change (eg. metals for
structural components or electricity for the production line), the
manufacturing cost changes accordingly.
,By taking all of the before mentioned fluctuations into account, an estimate for
the manufacturing cost in the next quarter can be calculated.
Then, the price of the Product in the next quarter is to be adjusted.
d) Determining the profit of the past year for the entire company and its
business segments. - CORRECT ANSWER ✅✅✅The managers know if the
company was successful in the past year and if they need to lower their costs
for example by firing employees or cutting material costs if the company
closed the past year with a loss. The profit determination of the different
business segments makes it easy to see which segments are less profitable and
which are more profitable. The management thus knows in which segments
they should lower their production or furthermore which products should no
longer be produced.
e) Identifying cost savings through a quality improvement program. - CORRECT
ANSWER ✅✅✅identifying cost savings makes it possible to compare the
saved costs to the costs which are created through the program. this leads to a
logic decision whether the program should be implemented. if the costs are
higher than the saved costs you don’t implement it. if the costs are lower you
implement it. basically the identification of the costs makes it possible for the
manager to decide what should be done
F) Predicting the cost of using two different types of printers. - CORRECT
ANSWER ✅✅✅The cost of 2 printers can be expressed as a one-time cost
stemming from purchasing, a fixed cost stemming from electricity and a
variable cost that is dependent on the amount of printing done and the
amount of toner and electricity required. The costs of 2 differing printers are
therefore subject to a budget constraint which must be considered if a
manager wants to maximise profits. If a manager does not do this, he/she may
end up with a printer that is too expensive to maintain or one which is
inadequate for the requirements that it must fulfil. Therefore it can be said
that a balance between cost and performance must be considered.
,Which of the following statements is not true?
Cost accounting provides information for documentation.
Cost accounting provides information for the assessment of long-term
investment decisions.
Cost accounting provides information for planning.
Cost accounting provides information for monitoring. - CORRECT ANSWER
✅✅✅Cost accounting only provides information for-short term decisions
up to one year. Capital budgeting provides information for the assessment of
long term investment decisions.
Which of the following statements is not true?
While the frequency of reporting in management accounting depends on the
individual needs of the managers, the frequency of reporting in financial
accounting is fixed.
While management accounting is past- and future oriented, financial
accounting is only past-oriented.
, While there are almost no limiting principles for the design of management
accounting, there are externally specified accounting principles for financial
accounting,
While management accounting provides information for external stakeholders,
financial accounting provides information for members of the company. -
CORRECT ANSWER ✅✅✅It is exactly the other way round. Management
accounting provides information for members of the company, while financial
accounting provides information for external stakeholders.
In which of the following business activities does a company incur costs? You
can select multiple options.
Buying material for the production of a good
Acquiring a machine for the production of a good
Paying rent for the production hall
Depreciating a machine
A plant was destructed by fire
Using material during the production of a good
Selling a machine below its book value
Examples with Correct Answers
a) Comparing the electricity costs of the current and the previous year. -
CORRECT ANSWER ✅✅✅Information’s necessary to determine if a new
electricity provider would save costs.
Track indirect costs and their development. Draw conclusions on firms activity
concerning production but also office buildings.
b) Determining the cost of manufacturing a car in the past quarter. - CORRECT
ANSWER ✅✅✅By having the information of the actual cost of
manufacturing a car in a certain period, managers can monitor the
performance of production and make comparisons with predictions they have
made for the expected costs, further refining them and making sure they stay
low. Furthermore, they can exercise control over the production chain in order
to optimize it and reduce costs.
c) Forecasting the cost of manufacturing a car in the coming quarter. -
CORRECT ANSWER ✅✅✅Manufacturing cost for the same product
changes as time goes on.
In the future, there may for example be a new manufacturing process which is
cheaper, decreasing the overall manufacturing cost.
Or as the price for different raw materials or resources change (eg. metals for
structural components or electricity for the production line), the
manufacturing cost changes accordingly.
,By taking all of the before mentioned fluctuations into account, an estimate for
the manufacturing cost in the next quarter can be calculated.
Then, the price of the Product in the next quarter is to be adjusted.
d) Determining the profit of the past year for the entire company and its
business segments. - CORRECT ANSWER ✅✅✅The managers know if the
company was successful in the past year and if they need to lower their costs
for example by firing employees or cutting material costs if the company
closed the past year with a loss. The profit determination of the different
business segments makes it easy to see which segments are less profitable and
which are more profitable. The management thus knows in which segments
they should lower their production or furthermore which products should no
longer be produced.
e) Identifying cost savings through a quality improvement program. - CORRECT
ANSWER ✅✅✅identifying cost savings makes it possible to compare the
saved costs to the costs which are created through the program. this leads to a
logic decision whether the program should be implemented. if the costs are
higher than the saved costs you don’t implement it. if the costs are lower you
implement it. basically the identification of the costs makes it possible for the
manager to decide what should be done
F) Predicting the cost of using two different types of printers. - CORRECT
ANSWER ✅✅✅The cost of 2 printers can be expressed as a one-time cost
stemming from purchasing, a fixed cost stemming from electricity and a
variable cost that is dependent on the amount of printing done and the
amount of toner and electricity required. The costs of 2 differing printers are
therefore subject to a budget constraint which must be considered if a
manager wants to maximise profits. If a manager does not do this, he/she may
end up with a printer that is too expensive to maintain or one which is
inadequate for the requirements that it must fulfil. Therefore it can be said
that a balance between cost and performance must be considered.
,Which of the following statements is not true?
Cost accounting provides information for documentation.
Cost accounting provides information for the assessment of long-term
investment decisions.
Cost accounting provides information for planning.
Cost accounting provides information for monitoring. - CORRECT ANSWER
✅✅✅Cost accounting only provides information for-short term decisions
up to one year. Capital budgeting provides information for the assessment of
long term investment decisions.
Which of the following statements is not true?
While the frequency of reporting in management accounting depends on the
individual needs of the managers, the frequency of reporting in financial
accounting is fixed.
While management accounting is past- and future oriented, financial
accounting is only past-oriented.
, While there are almost no limiting principles for the design of management
accounting, there are externally specified accounting principles for financial
accounting,
While management accounting provides information for external stakeholders,
financial accounting provides information for members of the company. -
CORRECT ANSWER ✅✅✅It is exactly the other way round. Management
accounting provides information for members of the company, while financial
accounting provides information for external stakeholders.
In which of the following business activities does a company incur costs? You
can select multiple options.
Buying material for the production of a good
Acquiring a machine for the production of a good
Paying rent for the production hall
Depreciating a machine
A plant was destructed by fire
Using material during the production of a good
Selling a machine below its book value
