CHAPTER 1—INTRODUCTION TO COST ACCOUNTING
MULTIPLE CHOICE
1. The business entity that converts purchased raw materials into finished goods by using labor,
technology, and facilities is a:
a. Manufacturer.
b. Merchandiser.
c. Service business.
d. Not-for-profit service agency.
ANS: A
The business entity that converts purchased raw materials into finished goods by using labor,
technology, and facilities is a manufacturer.
PTS: 1 DIF: Easy REF: P. OBJ: Introduction
NAT: IMA 4 - Business Applications TOP: AACSB - Analytic
2. The business entity that purchases finished goods for resale is a:
a. Manufacturer.
b. Merchandiser.
c. Service business.
d. For-profit service business.
ANS: B
The business entity that purchases finished goods for resale is a merchandiser.
PTS: 1 DIF: Easy REF: P. OBJ: Introduction
NAT: IMA 4 - Business Applications TOP: AACSB - Analytic
3. The type of merchandiser who purchases goods from the producer and sells to stores who sell to the
consumer is a:
a. Manufacturer.
b. Retailer.
c. Wholesaler.
d. Service business.
ANS: C
The type of merchandiser that purchases goods from the producer and sells to the retailer is a
wholesaler.
PTS: 1 DIF: Easy REF: P. OBJ: Introduction
NAT: IMA 4 - Business Applications TOP: AACSB - Analytic
4. Examples of service businesses include:
a. Airlines, architects, and hair stylists.
b. Department stores, poster shops, and wholesalers.
c. Aircraft producers, home builders, and machine tool makers.
d. None of these are correct.
ANS: A
Examples of service businesses include airlines, architects, and hair stylists.
PTS: 1 DIF: Moderate REF: P. OBJ: Introduction
, NAT: IMA 4 - Business Applications TOP: AACSB - Reflective
5. ISO 9000 is a set of international standards for:
a. determining the selling price of a product.
b. cost control.
c. quality management.
d. planning,
ANS: C
ISO 9000 is a set of international standards for quality management.
PTS: 1 DIF: Easy REF: P. OBJ: Introduction
NAT: IMA 3A - Strategic Planning TOP: AACSB - Analytic
6. Unit cost information is important for making all of the following marketing decisions except:
a. Determining the selling price of a product.
b. Bidding on contracts.
c. Determining the amount of advertising needed to promote the product.
d. Determining the amount of profit that each product earns.
ANS: C
Unit cost information is used in determining selling price, bidding on contracts and determining
product profitability, but would not have a bearing on determining how much the product would need
to be advertised.
PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 3B - Strategic Marketing TOP: AACSB - Analytic
7. The process of establishing objectives or goals for the firm and determining the means by which they
will be met is:
a. controlling.
b. analyzing profitability.
c. planning.
d. assigning responsibility.
ANS: C
The process of establishing goals and objectives for a firm is planning. Controlling, analyzing
profitability and assigning responsibility are functions that take place after the planning process to
determine whether or how successfully goals have been obtained.
PTS: 1 DIF: Easy REF: P. OBJ: 1
NAT: IMA 2A - Budget Preparation TOP: AACSB - Analytic
8. Control is the process of monitoring the company’s operations to determine whether the company’s
objectives are being achieved. Effective control is achieved through all of the following except:
a. periodically measuring and comparing company results.
b. assigning responsibility for costs to employees responsible for those costs.
c. constantly monitoring employees to ensure they do exactly as they are told.
d. taking necessary corrective action when variances warrant doing so.
ANS: C
While periodically measuring and comparing company results, assigning responsibility for those
results to employees and taking necessary corrective action are all part of control; it does not include
constantly monitoring employees to make sure they are following directions.
, PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Analytic
9. Aaron Smith is the supervisor of the Machining Department of Bennett Corporation. He has control
over and is responsible for manufacturing costs traced to the department. The Machining Department
is an example of a(n):
a. cost center.
b. inventory center.
c. supervised work center.
d. worker’s center.
ANS: A
The criteria for a cost center are 1) a reasonable basis on which manufacturing costs may be traced and
2) a person who has control over and is accountable for many of the costs charged to that center.
PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Reflective
10. Which of the following items of cost would be least likely to appear on a performance report based on
responsibility accounting for the supervisor of an assembly line in a large manufacturing situation?
a. Direct labor
b. Indirect materials
c. Selling expenses
d. Repairs and maintenance
ANS: C
Selling expenses would be least likely to appear on a performance report, because the supervisor
would not have responsibility for the sales function.
PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Reflective
11. Which of the following items of cost would be least likely to appear on a performance report based on
responsibility accounting for the supervisor of an assembly line in a large manufacturing situation?
a. Direct labor
b. Supervisor's salary
c. Materials
d. Repairs and maintenance
ANS: B
A supervisor's salary would be least likely to appear on a performance report, because that person's
salary is determined by the company and is not controllable by the supervisor.
PTS: 1 DIF: Hard REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Reflective
12. Responsibility accounting would most likely hold a manager of a manufacturing unit responsible for:
a. cost of raw materials.
b. quantity of raw materials used.
c. the number of units ordered.
d. amount of taxes incurred.
ANS: B
, In responsibility accounting the manager of a cost center is only responsible for those costs and
activities that manager controls. A manufacturing manager would not likely be responsible for the
cost of the materials (the purchasing manager would have that responsibility), the number of units
ordered (that would be driven by demand) or the taxes incurred.
PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Reflective
13. Which of the following statements best describes a characteristic of a performance report prepared for
use by a production line department head?
a. The costs in the report should include only those controllable by the department head.
b. The report should be stated in dollars rather than in physical units so the department head
knows the financial magnitude of any variances.
c. The report should include information on all costs chargeable to the department, regardless
of their origin or control.
d. It is more important that the report be precise than timely.
ANS: A
The performance report should include only those costs controllable by the department head. It should
also be timely and should include production data as well as dollar amounts.
PTS: 1 DIF: Easy REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Analytic
14. Joshua Company prepares monthly performance reports for each department. The budgeted amounts
of wages for the Finishing Department for the month of August and for the eight-month period ended
August 31 were $12,000 and $100,000, respectively. Actual wages paid through July were $91,500,
and wages for the month of August were $11,800. The month and year-to-date variances, respectively,
for wages on the August performance report would be:
a. $200 F; $8,500 F
b. $200 F; $3,300 U
c. $200 U; $3,300 U
d. $200 U; $8,500 F
ANS: B
Calculation of monthly variance:
Budgeted wages for August $12,000
Actual wages for August 11,800
Variance for August $ 200 F
Calculation of year-to-date variance:
Budgeted wages for the eight-month period ended August 31 $100,000
Actual wages for the eight-month period ended August 31 (91,500 + 11,800) 103,300
Variance for eight-month period ended August 31 $ 3,300 U
PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Analytic
15. As a result of recent accounting scandals involving companies such as Enron and World Com, the
Sarbanes-Oxley Act of 2002 was written to protect shareholders of public companies by improving
a. management accounting.
b. corporate governance.
c. professional competence.
d. the corporate legal process.
MULTIPLE CHOICE
1. The business entity that converts purchased raw materials into finished goods by using labor,
technology, and facilities is a:
a. Manufacturer.
b. Merchandiser.
c. Service business.
d. Not-for-profit service agency.
ANS: A
The business entity that converts purchased raw materials into finished goods by using labor,
technology, and facilities is a manufacturer.
PTS: 1 DIF: Easy REF: P. OBJ: Introduction
NAT: IMA 4 - Business Applications TOP: AACSB - Analytic
2. The business entity that purchases finished goods for resale is a:
a. Manufacturer.
b. Merchandiser.
c. Service business.
d. For-profit service business.
ANS: B
The business entity that purchases finished goods for resale is a merchandiser.
PTS: 1 DIF: Easy REF: P. OBJ: Introduction
NAT: IMA 4 - Business Applications TOP: AACSB - Analytic
3. The type of merchandiser who purchases goods from the producer and sells to stores who sell to the
consumer is a:
a. Manufacturer.
b. Retailer.
c. Wholesaler.
d. Service business.
ANS: C
The type of merchandiser that purchases goods from the producer and sells to the retailer is a
wholesaler.
PTS: 1 DIF: Easy REF: P. OBJ: Introduction
NAT: IMA 4 - Business Applications TOP: AACSB - Analytic
4. Examples of service businesses include:
a. Airlines, architects, and hair stylists.
b. Department stores, poster shops, and wholesalers.
c. Aircraft producers, home builders, and machine tool makers.
d. None of these are correct.
ANS: A
Examples of service businesses include airlines, architects, and hair stylists.
PTS: 1 DIF: Moderate REF: P. OBJ: Introduction
, NAT: IMA 4 - Business Applications TOP: AACSB - Reflective
5. ISO 9000 is a set of international standards for:
a. determining the selling price of a product.
b. cost control.
c. quality management.
d. planning,
ANS: C
ISO 9000 is a set of international standards for quality management.
PTS: 1 DIF: Easy REF: P. OBJ: Introduction
NAT: IMA 3A - Strategic Planning TOP: AACSB - Analytic
6. Unit cost information is important for making all of the following marketing decisions except:
a. Determining the selling price of a product.
b. Bidding on contracts.
c. Determining the amount of advertising needed to promote the product.
d. Determining the amount of profit that each product earns.
ANS: C
Unit cost information is used in determining selling price, bidding on contracts and determining
product profitability, but would not have a bearing on determining how much the product would need
to be advertised.
PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 3B - Strategic Marketing TOP: AACSB - Analytic
7. The process of establishing objectives or goals for the firm and determining the means by which they
will be met is:
a. controlling.
b. analyzing profitability.
c. planning.
d. assigning responsibility.
ANS: C
The process of establishing goals and objectives for a firm is planning. Controlling, analyzing
profitability and assigning responsibility are functions that take place after the planning process to
determine whether or how successfully goals have been obtained.
PTS: 1 DIF: Easy REF: P. OBJ: 1
NAT: IMA 2A - Budget Preparation TOP: AACSB - Analytic
8. Control is the process of monitoring the company’s operations to determine whether the company’s
objectives are being achieved. Effective control is achieved through all of the following except:
a. periodically measuring and comparing company results.
b. assigning responsibility for costs to employees responsible for those costs.
c. constantly monitoring employees to ensure they do exactly as they are told.
d. taking necessary corrective action when variances warrant doing so.
ANS: C
While periodically measuring and comparing company results, assigning responsibility for those
results to employees and taking necessary corrective action are all part of control; it does not include
constantly monitoring employees to make sure they are following directions.
, PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Analytic
9. Aaron Smith is the supervisor of the Machining Department of Bennett Corporation. He has control
over and is responsible for manufacturing costs traced to the department. The Machining Department
is an example of a(n):
a. cost center.
b. inventory center.
c. supervised work center.
d. worker’s center.
ANS: A
The criteria for a cost center are 1) a reasonable basis on which manufacturing costs may be traced and
2) a person who has control over and is accountable for many of the costs charged to that center.
PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Reflective
10. Which of the following items of cost would be least likely to appear on a performance report based on
responsibility accounting for the supervisor of an assembly line in a large manufacturing situation?
a. Direct labor
b. Indirect materials
c. Selling expenses
d. Repairs and maintenance
ANS: C
Selling expenses would be least likely to appear on a performance report, because the supervisor
would not have responsibility for the sales function.
PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Reflective
11. Which of the following items of cost would be least likely to appear on a performance report based on
responsibility accounting for the supervisor of an assembly line in a large manufacturing situation?
a. Direct labor
b. Supervisor's salary
c. Materials
d. Repairs and maintenance
ANS: B
A supervisor's salary would be least likely to appear on a performance report, because that person's
salary is determined by the company and is not controllable by the supervisor.
PTS: 1 DIF: Hard REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Reflective
12. Responsibility accounting would most likely hold a manager of a manufacturing unit responsible for:
a. cost of raw materials.
b. quantity of raw materials used.
c. the number of units ordered.
d. amount of taxes incurred.
ANS: B
, In responsibility accounting the manager of a cost center is only responsible for those costs and
activities that manager controls. A manufacturing manager would not likely be responsible for the
cost of the materials (the purchasing manager would have that responsibility), the number of units
ordered (that would be driven by demand) or the taxes incurred.
PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Reflective
13. Which of the following statements best describes a characteristic of a performance report prepared for
use by a production line department head?
a. The costs in the report should include only those controllable by the department head.
b. The report should be stated in dollars rather than in physical units so the department head
knows the financial magnitude of any variances.
c. The report should include information on all costs chargeable to the department, regardless
of their origin or control.
d. It is more important that the report be precise than timely.
ANS: A
The performance report should include only those costs controllable by the department head. It should
also be timely and should include production data as well as dollar amounts.
PTS: 1 DIF: Easy REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Analytic
14. Joshua Company prepares monthly performance reports for each department. The budgeted amounts
of wages for the Finishing Department for the month of August and for the eight-month period ended
August 31 were $12,000 and $100,000, respectively. Actual wages paid through July were $91,500,
and wages for the month of August were $11,800. The month and year-to-date variances, respectively,
for wages on the August performance report would be:
a. $200 F; $8,500 F
b. $200 F; $3,300 U
c. $200 U; $3,300 U
d. $200 U; $8,500 F
ANS: B
Calculation of monthly variance:
Budgeted wages for August $12,000
Actual wages for August 11,800
Variance for August $ 200 F
Calculation of year-to-date variance:
Budgeted wages for the eight-month period ended August 31 $100,000
Actual wages for the eight-month period ended August 31 (91,500 + 11,800) 103,300
Variance for eight-month period ended August 31 $ 3,300 U
PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 2D - Performance Measurement TOP: AACSB - Analytic
15. As a result of recent accounting scandals involving companies such as Enron and World Com, the
Sarbanes-Oxley Act of 2002 was written to protect shareholders of public companies by improving
a. management accounting.
b. corporate governance.
c. professional competence.
d. the corporate legal process.
