Below is a set of sample revision test questions along with detailed rationales.
These questions are designed to reinforce key concepts covered in Horngren's
Cost Accounting: A Managerial Emphasis (10th Canadian Edition) and can be
adapted for study or classroom discussion.
Question 1: Cost Behavior Analysis
Question:
A company produces a product whose total fixed costs are $100,000 per month. The variable cost per
unit is $20, and the selling price is $50 per unit. What is the break-even point in units?
Options:
A. 2,500 units
B. 3,334 units
C. 4,000 units
D. 5,000 units
Answer Rationale:
The break-even point in units is calculated by dividing the total fixed costs by the contribution margin
per unit (selling price minus variable cost).
Contribution Margin = $50 - $20 = $30
Break-even units = $100,000 ÷ $30 ≈ 3,334 units
Thus, the correct answer is B. 3,334 units.
Question 2: Cost Allocation and Overhead
Question:
Which of the following is a key disadvantage of using a traditional volume-based overhead allocation
system?
Options:
A. It simplifies cost assignments.
B. It over-allocates overhead to high-volume products and under-allocates to low-volume products.
C. It is highly accurate when production levels are stable.
D. It encourages continuous improvement.
Answer Rationale:
Traditional volume-based systems allocate overhead based solely on a single cost driver (like machine
hours or labour hours). This can lead to distortions, particularly when products consume overhead
resources at different rates. High-volume products may receive a disproportionate share of overhead,
while low-volume products may be under-allocated. The correct answer is B.
Question 3: Job-Order vs. Process Costing
, Question:
A manufacturing firm that produces unique, custom orders is most likely to use which of the following
costing systems?
Options:
A. Process costing
B. Activity-based costing
C. Job-order costing
D. Standard costing
Answer Rationale:
Job-order costing is best suited for companies that produce distinct, customized orders. Each job is
treated as a unique cost object, and costs are accumulated separately for each job. Therefore, the
answer is C. Job-order costing.
Question 4: Differential and Opportunity Costs
Question:
When making a decision to accept a special order, which of the following costs should be ignored?
Options:
A. Differential costs
B. Incremental costs
C. Sunk costs
D. Opportunity costs
Answer Rationale:
Sunk costs are costs that have already been incurred and cannot be recovered. In decision making, only
future (differential or incremental) costs should be considered, while sunk costs are ignored. The correct
answer is C. Sunk costs.
Question 5: Absorption vs. Variable Costing
Question:
One major difference between absorption costing and variable costing is that absorption costing:
Options:
A. Treats fixed manufacturing overhead as a period cost.
B. Excludes fixed manufacturing overhead from product cost.
C. Assigns fixed manufacturing overhead to each unit produced.
D. Is more appropriate for internal decision making.
Answer Rationale:
Under absorption costing, fixed manufacturing overhead is allocated to each unit produced and is
included in the product cost. In contrast, variable costing treats fixed overhead as a period cost.
Therefore, the answer is C.
These questions are designed to reinforce key concepts covered in Horngren's
Cost Accounting: A Managerial Emphasis (10th Canadian Edition) and can be
adapted for study or classroom discussion.
Question 1: Cost Behavior Analysis
Question:
A company produces a product whose total fixed costs are $100,000 per month. The variable cost per
unit is $20, and the selling price is $50 per unit. What is the break-even point in units?
Options:
A. 2,500 units
B. 3,334 units
C. 4,000 units
D. 5,000 units
Answer Rationale:
The break-even point in units is calculated by dividing the total fixed costs by the contribution margin
per unit (selling price minus variable cost).
Contribution Margin = $50 - $20 = $30
Break-even units = $100,000 ÷ $30 ≈ 3,334 units
Thus, the correct answer is B. 3,334 units.
Question 2: Cost Allocation and Overhead
Question:
Which of the following is a key disadvantage of using a traditional volume-based overhead allocation
system?
Options:
A. It simplifies cost assignments.
B. It over-allocates overhead to high-volume products and under-allocates to low-volume products.
C. It is highly accurate when production levels are stable.
D. It encourages continuous improvement.
Answer Rationale:
Traditional volume-based systems allocate overhead based solely on a single cost driver (like machine
hours or labour hours). This can lead to distortions, particularly when products consume overhead
resources at different rates. High-volume products may receive a disproportionate share of overhead,
while low-volume products may be under-allocated. The correct answer is B.
Question 3: Job-Order vs. Process Costing
, Question:
A manufacturing firm that produces unique, custom orders is most likely to use which of the following
costing systems?
Options:
A. Process costing
B. Activity-based costing
C. Job-order costing
D. Standard costing
Answer Rationale:
Job-order costing is best suited for companies that produce distinct, customized orders. Each job is
treated as a unique cost object, and costs are accumulated separately for each job. Therefore, the
answer is C. Job-order costing.
Question 4: Differential and Opportunity Costs
Question:
When making a decision to accept a special order, which of the following costs should be ignored?
Options:
A. Differential costs
B. Incremental costs
C. Sunk costs
D. Opportunity costs
Answer Rationale:
Sunk costs are costs that have already been incurred and cannot be recovered. In decision making, only
future (differential or incremental) costs should be considered, while sunk costs are ignored. The correct
answer is C. Sunk costs.
Question 5: Absorption vs. Variable Costing
Question:
One major difference between absorption costing and variable costing is that absorption costing:
Options:
A. Treats fixed manufacturing overhead as a period cost.
B. Excludes fixed manufacturing overhead from product cost.
C. Assigns fixed manufacturing overhead to each unit produced.
D. Is more appropriate for internal decision making.
Answer Rationale:
Under absorption costing, fixed manufacturing overhead is allocated to each unit produced and is
included in the product cost. In contrast, variable costing treats fixed overhead as a period cost.
Therefore, the answer is C.
