SET 1

1. In which of the following ways should plastic that is used in the manufacture of dolls be
classified?

Prime cost Product cost Direct cost Fixed cost

a) No Yes Yes No
b) Yes No Yes No
c) Yes Yes Yes No
d) Yes Yes No Yes

2. Financial accounting provides a historical perspective, whereas management accounting:

a) Emphasizes the future in addition to historical reports

b) Enables only managers to make decisions
c) Emphasizes a current perspective
d) Allows the use of a budget

3. The following information was extracted from the records of James Inc.:

Cost of goods sold $107 000

Ending balance of finished goods inventory $20 000
Cost of goods manufactured $57 000

The beginning balance of finished goods inventory for the period was:

a) $70 000
b) $77 000
c) $127 000
d) $157 000

4. What is the source document that records the amount of raw material that has been requested
for use in production?

a) Bill of lading
b) Job order cost sheet
c) Inter-office memo
d) Material requisition

5. Which inventory cost flow method assumes that ALL stock units are the same?

a) Average cost
b) Last-in, first-out
c) First-in, first-out
d) Retail inventory
6. Which of the following statements relating to cost and management accounting is
ACCURATE?

a) It requires an entirely separate group of accounts than financial accounting.

b) It focuses solely on determining how much it costs to manufacture a product or provide a
service.
c) It provides product or service cost information for internal decision making.
d) It is required for business record-keeping as are financial and tax accounting.

7. If the cost of goods manufactured is LESS than the cost of goods sold, then:

a) Finished goods inventory has decreased during the period.

b) Total manufacturing costs exceed cost of goods manufactured.
c) Finished goods inventory has increased during the period.
d) Work-in-progress inventory has decreased during the period.

8. Keystone Ltd produces a product under licence from Xango Ltd. At the end of each year,
Keystone Ltd has to pay Xango Ltd the licence fee as follows:

For the first 60 000 litres, $30 000 and for every litre THEREAFTER the company pays
$0.30. How is the licence fee classified?

a) Fixed
b) Variable
c) Step
d) Mixed

9. In March 2010, the beginning balance of the raw materials inventory account for Kyla Inc.
was $46 000. The ending inventory balance for July was $47 000. Raw materials used during
the month totalled $127 120. The cost of raw materials purchased during the month was:

a) $125 320
b) $126 120
c) $128 120
d) $174 120

10. Gibson Manufacturing used machine hours to allocate manufacturing overhead to ALL jobs.
The budgeted manufacturing overhead cost is $30 000 and the budgeted labour hours and
machine hours were 60 000 and 100 000 respectively. The pre-determined overhead rate is:

a) $0.30 per machine hour

b) $0.50 per machine hour
c) $0.60 per machine hour
d) $3.33 per machine hour
11. Susan Inc is paid 10% of gross sales of her department as her compensation per month.
Susan received $15 000 each month for the last three months. Which of the following
methods BEST describes how Susan is paid?

a) Commission on sales
b) Fixed salary
c) Hourly rate
d) Piece rate

12. Conversion cost consists of which of the following?

a) Direct labour cost

b) Manufacturing overhead cost
c) Direct materials and direct labour cost
d) Direct labour and manufacturing overhead cost

13. Which of the following support department allocation methods is the MOST widely used
because of its simplicity?

a) Direct allocation
b) Reciprocal allocation
c) Sequential allocation
d) Step down

14. A firm estimates that its annual carrying cost for material ABC is $0.30 per kg, demand is 50
000 kg and ordering cost is $100 per order. The economic order quantity (EOQ) rounded to
the nearest kilogram is:

a) 1 125
b) 1 732
c) 4 082
d) 5 774

Items 15-16 refer to the following information.

Trincity Co. manufactures wooden file cabinets. The following information is available for June
2008:

Beginning Ending
Raw material inventory $6 000 $7 500
Work-in-process inventory $17 300 $11 700

Direct labour is $9.60 per hour and overhead for the month is $9 600. The company uses 1 500
direct labour hours and purchases $21 000 worth of raw material.

15. The total manufacturing cost for June is:

a) $43 100
b) $43 500
c) $46 500
d) $58 500

16. The prime cost for June is:

a) $33 900
b) $35 400
c) $45 000
d) $50 000

Items 17-18 refer to the following information for Preysal Company on an item of inventory for
the month of April.

Beginning inventory 500 units at $6 each. Purchases during the month:

April 7 600 units at $6.10 each

April 12 800 units at $5.80 each
April 17 500 units at $6.25 each
April 22 250 units at $6 each
April 28 100 units at $5.50 each

Sales during the month totalled 2 000 units.

17. If Preysal uses the FIFO (first-in, first-out) method of stock valuation, the value assigned to
ending inventory is:

a) $3 000
b) $4 525
c) $4 530
d) $4 550

18. If Preysal uses the LIFO (last-in, first-out) method of stock valuation, the value assigned to
ending inventory is:

a) $3 000
b) $4 525
c) $4 530
d) $4 550

19. Which of the following is a similarity between job-order costing and process costing?
a) Costs are accumulated by individual jobs.
b) Costs are accumulated by departments.
c) Both are used to collect the cost of production.
d) Both utilize the job cost sheet.

20. Which of the following distinguishes activity-based costing from traditional costing?

a) Each department is a different activity in activity-based costing.

b) A single cost driver is utilized in every department in activity based costing.
c) Overhead application rates can be based on direct labour in traditional costing systems.
d) Multiple cost drivers may be utilized within a department in activity-based costing.

21. Which of the following statements about activity-based costing is FALSE?

a) It promotes cost control

b) Indirect cost allocation bases are likely to be cost drivers
c) It provides more accurate product cost
d) It provides less information than cost systems used before.

22. Peter wants to identify the total cost for computing the personal tax return he prepared for his
client. Labour is the only direct cost at $150 per hour. Indirect costs are $80 per labour hour.
What is the total direct cost, indirect cost and job cost respectively, if 8 hours are spent
preparing the tax return?

Direct cost Indirect cost Job cost

a) $640 $1 200 $1 840
b) $1 100 $900 $2 000
c) $1 200 $640 $1 840
d) $1 240 $1 200 $2 480

Items 23-25 refer to the following information.

Adams Company uses a job order costing system. The company has 3 jobs in process: Job
numbers 5, 8, and 12.

Raw material used $120 000

Direct labour per hour $8.50
Overhead applied based on direct labour cost 120%

Direct material was requisitioned as follows:

Job number % Direct labour hours

5 30 2 500
8 25 3 100
12 25 4 200
The balance of the requisitions were considered indirect. Indirect labour was $44 000. Other
actual overhead costs totalled $36 000.

23. What is the total amount of overhead applied to Job number 8?

a) $18 250
b) $26 350
c) $30 000
d) $31 620

24. If Job number 12 is completed and transferred and overhead is applied at the end of the
period, what is the balance in work-in-process inventory at the end of the period?

a) $96 700
b) $99 020
c) $139 540
d) $170 720

25. If the actual overhead cost for the period is $104 000, what is the amount of under-applied
overhead?

a) $4 040
b) $16 000
c) $23 300
d) $66 000

26. Ashley Company uses a job order costing system. Overheads are applied to jobs on the basis
of direct labour hours at a rate of $20 per direct labour hour.

Job No. 1:

Direct materials cost $4 000

Direct labour cost 150 hours at $12 per hour

What is the value of the ending work in progress?

a) $4 800
b) $5 000
c) $7 000
d) $8 800
Items 27-28 refer to the following information.

Chaderton Corporation uses a job costing system.

Chaderton Corporation’s schedule of cost of goods manufactured showed the following amounts
for the month ended 31 August 2011.

Cost of goods manufactured $98 000

Cost of direct materials used $36 000
Cost of direct labour ($20 per hour) $70 000
Work in process inventory, August 1 2011 $10 000

Manufacturing overhead cost is allocated at the rate of $8 per direct labour hour.

27. What is the amount of allocated manufacturing overhead costs for August 2011?

a) $3 500
b) $28 000
c) $34 000
d) $35 000

28. Actual manufacturing overhead costs for August 2011 amount to $30 000. What is the
amount of work-in-process inventory on 31 August 2011?

a) $6 000
b) $16 000
c) $46 000
d) $48 000

Item 29 refers to the following information.

Travis Inc. has two products, A and B. the company uses an activity-based costing system. The
estimated total cost and expected activity for EACH of the company’s THREE activity cost
pools are as follows:

Activity cost pool Estimated Cost Expected activity

Product A Product B Total
Moulding $17 600 800 300 1 100
Waxing $12 000 500 200 700
Finishing $26 000 800 400 1 200

29. What cost is allocated to Product B for finishing?

a) $1 600
b) $4 800
c) $8 667
d) $12 800

30. Young Corporation has the following costs associated with the manufacture of one of its
products:

Variable manufacturing cost $7.30 per unit

Fixed manufacturing overhead $4 per unit
Variable selling expenses $0.25 per unit
Fixed sales, general and administrative expenses $75 000 per year

During 2010, Young manufactured 50 000 units and sold 48 000. Under absorption costing,
the standard production cost per unit for 2010 was:

a) $7. 30
b) $11.30
c) $11.55
d) $13.05

Items 31-33 refer to the following information.

Castries Inc. uses and activity based costing system. The company’s Purchasing Department
incurs costs of $550 000 per year. Information relating to the THREE major activities are as
follows:

Activity Allocation measure Total cost $

Issuing purchase orders Number of purchase orders 150 000
Reviewing and receiving Number of receiving reports 175 000
reports
Making phone calls Number of phone calls 225 000

During the year in the department, 50 000 phone calls were made, 15 000 purchase orders were
issued and 10 000 shipments were received. Product A required 2 000 phone calls, 1 500
receiving reports and 500 purchase orders.

31. The total cost for purchase orders allocated to product A is:

a) $1 000
b) $5 000
c) $6 000
d) $9 000

32. The cost of receiving reports allocated to product A is:

a) $26 250
b) $61 250
c) $70 000
d) $175 000

33. The total cost assigned to product A is:

a) $40 250
b) $95 750
c) $136 000
d) $225 000

Items 34-35 refer to the following information.

Pegasus Manufacturing Inc. uses a process costing system. The company started 30 000 units
into production during the current month. Pegasus Manufacturing Inc. has 12 000 units that were
20% completed as to conversion costs in beginning work-in-process inventory and 3 000 units
that were 40% completed as to conversion costs in ending work-in-process inventory.

34. What are the equivalent units for conversion costs if the company uses a weighted average
process costing system?

a) 37 800
b) 40 200
c) 40 800
d) 42 000

35. What are the equivalent units for conversion costs if the company uses a FIFO process
costing system?
a) 37 800
b) 40 200
c) 40 800
d) 42 000

36. The basic difference between marginal and absorption costing is the treatment of:

a) Direct labour cost

b) Direct material cost
c) Fixed selling and administration cost
d) Fixed manufacturing overhead cost

Items 37-39 refer to the following information.

Nash Sports Ltd sells football kits. Ten percent of its sales are cash transactions and the
remainder is on one month’s credit. Nash Sports Ltd gets one month’s credit on ALL purchases
made. Sales for December 2009, January 2010 and February 2010 are as follows:
 Sales $ Purchases $
December 2009 30 000 16 000
January 2010 25 000 14 000
February 2010 18 000 20 000

37. How much cash was collected in the month of January 2010?

a) $1 800
b) $2 500
c) $25 000
d) $29 500

38. How much cash was paid to suppliers in the month of February 2010?

a) $14 000
b) $16 000
c) $20 000
d) $25 000

39. How much cash was collected from credit sales in the month of February 2010?

a) $16 200
b) $22 500
c) $24 000
d) $27 000

40. Which of the following statements about standard cost is TRUE?

a) It is used to reduce tax liability
b) It is always greater than the actual cost
c) It refers to the average cost of production in the cost period
d) It is a target for the period ahead

Items 41-42 refer to the following information.

Baxter’s Motor Spares Company manufactures THREE products, A, B and C. the company
expects to have 6 000 labour-hours available for use in the next period. The following per unit
data was collected by Baxter’s accountant.
 Products
A B C
Demand 2 000 units 3 000 units 1 000 units
Selling price $100 $120 $140
Direct materials cost $12 $12 $12
Direct labour cost ($24 per hour) $24 $24 $48
Variable support costs ($8 per machine-hour) $8 $16 $16
Fixed support costs $20 $20 $20

41. Which product(s) has/have the HIGHEST contribution margin per hour of direct labour?
a) Product A only
b) Product B only
c) Product C only
d) Products A and C

42. How many units of Product C should be manufactured during the next period if the company
seeks to maximize its net income?
a) 500
b) 1 000
c) 2 000
d) 3 000

43. The Net Present Value and Internal Rate of Return methods of decision making in capital
budgeting are superior to the payback method. This is because they:
a) Are easier to implement
b) Consider the time value of money
c) Require less input
d) Reflect the effects of sensitivity analysis

44. A product has a selling price of $150 and variable costs of $30. The company has fixed costs
of $30 000 and targets an operating income of $12 000. What is the break-even in units?
a) 250
b) 750
c) 1 000
d) 1 250

45. A primary purpose of using a standard cost system is to:

a) Make things easier for managers in the production facility
b) Provide a distinct measure of cost control
c) Minimize the cost per unit of production
d) Provide more information to managers

46. Which of the following is the MOST reliable method of making capital budgeting decisions?
a) Incremental
b) Payback period
c) Net present value
d) Accounting rate of return

47. Overhead volume variances MOST likely indicate:

a) Efficient performance
b) Inefficient performance
c) Inadequate budgeting
d) Fluctuations in the level of production from period to period

48. The ABC Company makes collections on credit sales according to the following schedule:
25% in the month of the sales; 70% in the month following the sale; 4% in second month
following the sale and 1% uncollectible. If the company makes sales in April, May and June
of $100 000, $120 000 and $110 000 respectively, then the cash collections is June would be:
a) $110 000
b) $111 000
c) $113 400
d) $115 500

Items 49-50 refer to the following information from Arnos Vale Company for the month of
August:

Standards:
Material: 6.0 feet per unit at $2.10 per foot

Actual:
Production 2 750 units produced during the month
Material 17 400 feet used; 18 000 feet purchased at $2.25 per foot

49. The material price variance (calculated at point of purchase) is:

a) $2 610 F
b) $2 610 U
c) $2 700 F
d) $2 700 U

50. The material quantity variance is:

a) $1 050 F
b) $1 890 U
c) $3 105 F
d) $3 105 U

51. The net present value of a project is positive. However, the company did not accept this
project. The MOST likely reason for the rejection is that:
a) The qualitative factors outweigh the benefit of the investment
b) A positive net present value is unacceptable
c) The net initial investment cannot be recovered
d) The return is greater than that required by the company
 52. A service costing system can BEST be defined as a method of establishing the costs of:
a) Production and services rendered
b) Production per unit
c) Manufacturing products and services
d) Services rendered

Item 53 refers to the following annual projected costs and revenues associated with three
products A, B and C.

Products
A B C
Maximum demand 5 000 12 000 10 000
(units)
Unit contribution $8 $6 $5
Margin (C.M)
The total fixed cost for all THREE products together is $8 000

53. Assuming that the company can attain maximum demand, what will be its net income for
the forthcoming year?
a) $54 000
b) $82 000
c) $154 000
d) $162 000

54. Which of the following statements are drawbacks of the Payback Period method of
evaluating investing projects?
I. It does not take account of inflows after the payback period
II. It is not suitable for short-term projects
III. It does not consider the time value of money

a) I and II only
b) I and III only
c) II and III only
d) I, II and III

SET 2
1. The Webster Company required 140 000 units of product XYZ for the year. The cost of
placing an order is $80. Its carrying cost is $15 per unit. The economic order quantity
(EOQ) rounded to the nearest whole unit is:
a) 229
b) 374
c) 864
d) 1 222

2. In comparing financial and manufacturing accounting, which of the following is the MORE
accurate description of management accounting information?
a) Budgeted, informative, adaptable
b) Required, estimated, internal
c) Historical, precise, useful
d) Comparable, verifiable, monetary

3. Rampaul Inc. applies overhead to jobs in the basis of direct labour at the rate of 80% of
direct labour cost. Rampaul’s records revealed the following data for 2005:
Direct labour $111 600
Direct material $84 200
Actual overhead $98 700

The amount of over-or under-applied overhead for the year is:

a) Over-applied by $12 900
b) Under-applied by $12 900
c) Under-applied by $9 420
d) Over-applied by $9 420

4. The wages of factory maintenance personnel would usually be considered to be:

Indirect labour Manufacturing overhead
a) No Yes
b) Yes No
c) Yes Yes
d) No No

Items 5-6 refer to the following inventory details of Kareen Alzere Inc.

Beginning inventory 1 200 barrels at $9.0

Purchases August 5 1 900 barrels at $9.5
Purchases August 15 400 barrels at $9.7
Ending inventory 1 120 barrels

5. Assuming that issues were made after August 15, the value assigned to the ending inventory
if Kareen Alzere Inc. uses LIFO is:
a) $8 960
b) $10 080
c) $10 720
d) $10 864

6. The value assigned to the ending inventory if Kareen Alzere Inc. uses FIFO is:
a) $8 960
b) $10 080
c) $10 720
d) $10 864

7. If the cost of goods manufactured is LESS than the cost of goods sold, then
a) Finished goods inventory has decreased during the period
b) Total manufacturing costs exceed cost of goods manufactured
c) Finished goods inventory has increased during the period
d) Work-in-progress inventory has decreased during the period

8. Keystone Ltd produces a product under licence from Xango Ltd. At the end of each year,
Keystone Ltd has to pay Xango Ltd the licence fee as follows:

For the first 60 000 litres, $30 000 and for every litre THEREAFTER the company pays
$0.30. How is the licence fee classified?

a) Fixed
b) Variable
c) Step
d) Semi-Mixed

9. In March 2008, the beginning balance of the raw materials inventory account for Kyla Inc.
was $46 000. The ending inventory balance for July was $47 000. Raw materials used during
the month totalled $127 120. The cost of raw materials purchased during the month was:
a) $125 320
b) $126 120
c) $128 120
d) $174 120

10. Gibson Manufacturing used machine hours to allocate manufacturing overhead to ALL jobs.
The budgeted manufacturing overhead cost is $30 000 and the budgeted labour hours and
machine hours were 60 000 and 100 000 respectively. The pre-determined overhead rate is:

a) $0.30 per machine hour

b) $0.50 per machine hour
c) $0.60 per machine hour
d) $3.33 per machine hour

11. Susan Inc is paid 10% of gross sales of her department as her compensation per month.
Susan received $15 000 each month for the last three months. Which of the following
methods BEST describes how Susan is paid?

a) Commission on sales
b) Fixed salary
c) Hourly rate
d) Piece rate

12. Conversion cost consists of which of the following?

a) Direct labour cost
b) Manufacturing overhead cost
c) Direct materials and direct labour cost
d) Direct labour and manufacturing overhead cost
13. The indirect costs of converting raw materials into finished goods are called:
a) Period cost
b) Prime costs
c) Conversion costs
d) Overhead costs

14. A machinist normally works a 40-hour week and is paid $50 per hour. The machinist was
idle for 5 hours of a given work week due to breakdowns. The direct labour cost to be
allocated for that week is:
a) $0
b) $1 750
c) $2 000
d) $2 250

Items 15-16 refer to the following information. Trincity Co. manufactures wooden file cabinets.
The following information is available for June 2008:

Beginning Ending
Raw material inventory $6 000 $7 500
Work-in-process inventory $17 300 $11 700

Direct labour is $9.60 per hour and overhead for the month is $9 600. The company uses 1 500
direct labour hours and purchases $21 000 of raw material.

15. The total manufacturing costs for June are

a) $43 100
b) $43 500
c) $46 500
d) $58 500

16. The prime costs for June are:

a) $33 900
b) $35 400
c) $45 000
d) $50 000

Items 17-18 refer to the following information. Gladstone Ltd operates the following differential
piece work scheme.

0-100 units $5 per unit

101-200 units $5.50 per unit

The employees below have produced the following units:

Larry 140 units Roland 155 units
James 165 units Clyde 180 units
17. Larry earned
a) $500
b) $720
c) $770
d) $1 270

18. James and Clyde together earned:

a) $1 000
b) $1 247.50
c) $1 797.50
d) $1897.50

19. Mary worked 9 hours on Job ABX. Her regular rate is $7 per hour. Job ABX required 7
hours of regular time and 2 hours overtime at the premium of 50% above the regular rate.
What was the cost of labour applied to Job ABX?
a) $56
b) $63
c) $70
d) $94.50

20. Which of the following distinguishes activity-based costing from traditional costing?
a) Each department is a different activity in activity based costing
b) A single cost driver is utilized in every department in activity-based costing
c) Overhead application rates can be based on direct labour in traditional costing systems
d) Multiple cost drivers may be utilized within a department in activity-based costing

21. Which of the following statements about activity-based costing is FALSE?

a) It promotes cost control
b) Indirect cost allocation bases are likely to be cost drivers
c) It provides more accurate product costs
d) It provides less information than cost systems used before

22. Peter wants to identify the total cost for computing the personal tax return he prepared for his
client. Labour is the only direct cost at $150 per hour. Indirect costs are $80 per labour hour.
What is the total direct cost, indirect cost and job cost respectively, if 8 hours are spent
preparing the tax return?

Direct cost Indirect cost Job cost

a) $640 $1 200 $1 840
b) $1 100 $900 $2 000
c) $1 200 $640 $1 840
d) $1 240 $1 200 $2 480

23. Costs that would be included in product costs under both absorption costing and variable
costing are:
a) Supervisor’s salaries
b) Machinery depreciation
c) Variable selling expenses
d) Variable manufacturing costs

24. Which of the following BEST defines the cost per service unit?
a) Total costs per period______
Number of service units per period

b) Number of service units per period

Total costs per period

c) Total cost period______

Number of manufactured units

d) Total costs per period_________

Average number of service units per period

25. Which type of costing system will LIKELY be used by a bakery producing wedding cakes?
a) Batch
b) Process
c) Job
d) Accrual

26. Ashley Company uses a job order costing system. Overheads are applied to jobs on the basis
of direct labour hours at a rate of $20 per direct labour hour.

Job No. 1:

Direct materials cost $4 000

Direct labour cost 150 hours at $12 per hour

What is the value of the ending work in progress?

a) $4 800
b) $5 000
c) $7 000
d) $8 800

Items 27-28 refer to the following information.

Wright Inc. manufactures telephones using a weighted –average process costing system. The
equivalent units produced in April were 1 000 with respect to direct materials and 900 with
respect to conversion costs.

The beginning work-in-process inventory consisted of direct materials $180 000 and conversion
costs $270 000. The costs added during April consisted of $1 000 000 in direct materials and $1
000 000 in conversion costs.
27. What is the direct materials cost per equivalent unit during April?
a) $180
b) $1 000
c) $1 180
d) $2 450

28. What is the conversion cost per equivalent unit in April?

a) $300
b) $1 111.1
c) $1 411.11
d) $2 722.22

29. GuyCo Disk Co. has beginning work-in-process of 100 000 units that is 90% complete as to
conversion costs. The company started production of 300 000 units during the current period
and completed and transferred out 350 000 units. The ending work-in-process inventory
consisted of 50 000 units which were 65% complete as to conversion costs. The equivalent
units of production for conversion cost using the FIFO method are:
a) 292 500 units
b) 300 000 units
c) 350 000 units
d) 401 500 units

30. Young Corporation has the following costs associated with the manufacture of one of its
products:

Variable manufacturing cost 7.30 per unit

Fixed manufacturing overhead 4 per unit
Variable selling expenses 0.25 per unit
Fixed SG&A expense $75 000 per year

During 2006, Young manufactured 50 000 units and sold 48 000. Under absorption costing,
the standard production cost per unit for 2006 was:
a) $7.30
b) $11.30
c) $11.55
d) $13.05

Items 31-33 refer to the following information.

Castries Inc. uses and activity based costing system. The company’s Purchasing Department
incurs costs of $550 000 per year. Information relating to the THREE major activities are as
follows:
 Activity Allocation measure Total cost $
Issuing purchase orders Number of purchase orders 150 000
Reviewing and receiving Number of receiving reports 175 000
reports
Making phone calls Number of phone calls 225 000

During the year in the department, 50 000 phone calls were made, 15 000 purchase orders were
issued and 10 000 shipments were received. Product A required 2 000 phone calls, 1 500
receiving reports and 500 purchase orders.

31. The total cost for purchase orders allocated to product A is:

a) $1 000
b) $5 000
c) $6 000
d) $9 000

32. The cost of receiving reports allocated to product A is:

a) $26 250
b) $61 250
c) $70 000
d) $175 000

33. The total cost assigned to product A is:

a) $40 250
b) $95 750
c) $136 000
d) $225 000

Items 34-36 refer to the following information.

Panday Inc. uses a job order costing system and the following information is available from its
records. The company has the following jobs in process: Numbers 5, 8 and 12. The raw materials
used cost $120 000, direct labour costs $8.50 per hour, and factory overhead is applied at a rate
of $10.20 per direct labour hour. Direct labour hours per job are 2 500, 3 100 and 4 200
respectively.

34. What is the total amount of overhead applied to Job number 8?

a) $18 250
b) $26 350
c) $30 000
d) $31 620
35. The direct material was requisitioned for each job (Numbers 5, 8 and 12) at 30%, 25% and
25% respectively. The balance of the requisitions were considered indirect. What is the value
of the work in process?
a) $183 260
b) $279 260
c) $303 260
d) $444 000

36. At the end of the accounting period, the actual overhead costs total $93 000. The amount of
over-or-under applied overhead is:
a) $6 960 under-applied
b) $6 960 over-applied
c) $63 960 over-applied
d) $63 960 under-applied

37. The net present value method of evaluating proposed investments:

a) Measures a project’s internal rate of return
b) Ignores cash flows beyond the payback period
c) Applies only to mutually exclusive investment proposals
d) Discounts cash flows at a minimum desired rate of return

Items 38-39 refer to the following information.

Nash Sports Ltd sells football kits. 10% of the sales are cash transactions and the remainder is on
one month’s credit. Nash Sports Ltd receives one month’s credit on all purchases made. Sales
and purchases are as follows:

Sales Purchases
Dec 2007 30 000 16 000
Jan 2008 25 000 14 000
Feb 2008 18 000 20 000

38. How much was paid to suppliers during the month of February 2008?
a) $14 000
b) $16 000
c) $20 000
d) $25 000

39. How much cash was collected from credit sales in the month of February 2008?
a) $16 200
b) $22 500
c) $24 000
d) $27 000

40. An investment project with an initial investment of $10 000 will produce cash flows as
follows: $5 100 in year 1; $3 600 in year 2; $1 300 in year 3 and $2 800 in year 4. What is
the payback period for this project?
a) 1 year
b) 2 years
c) 3 years
d) 4 years

41. A primary purpose if using a standard-cost system is to:

a) Make things easier for managers in the production facility
b) Provide a distinct measure of cost control
c) Minimize the cost per unit of production
d) Provide more information to managers

42. The net present value and the internal rate of return are MORE effective methods of capital
budgeting than the payback period method because they:
a) Are easier to implement
b) Consider the time value of money
c) Require less input
d) Reflect the effects of depreciation and taxes

43. James purchases tyres at $300 each and sells them for $400 each. his fixed costs are $8 000.
How many tyres will James need to sell in order to break even?
a) 40
b) 60
c) 80
d) 100

Items 44-45 refer to the following information.

Red Co. uses a standard cost system and applies overhead based in direct labour hours (DLH).
The following information is available for August when Red produced 4 500 units.

Standard:
DLH per unit 2.50
Variable overhead per DLH $1.75
Budgeted variable overhead $21 875

Actual:
Direct labour hours 10 000
Variable overhead $26 250

44. What is the variable overhead spending variance?

a) $4 375 U
b) $4 375 F
c) $6 562.50 U
d) $8 750 U
45. What is the variable overhead efficiency variance?
a) $2 187.50 U
b) $2 187.50 F
c) $2 937.50 F
d) $9 937.50 F

46. The margin of safety is a key concept of CVP analysis. The margin of safety is the
a) Contribution margin rate
b) Difference between budgeted contribution margin and actual contribution margin
c) Difference between budgeted contribution margin and breakeven contribution
d) Difference between budgeted sales and break even sales

47. The ABC Company makes collections on credit sales according to the following schedule:
25% in the month of the sales; 70% in the month following the sale; 4% in second month
following the sale and 1% uncollectible. If the company makes sales in April, May and June
of $100 000, $120 000 and $110 000 respectively, then the cash collections is June would
be:
a) $110 000
b) $111 000
c) $113 400
d) $115 500

Items 48-49 refer to the following information from Arnos Vale Company for the month of
August:

Standards:
Material: 6.0 feet per unit at $2.10 per foot

Actual:
Production 2 750 units produced during the month
Material 17 400 feet used; 18 000 feet purchased at $2.25 per foot

48. The material price variance (calculated at point of purchase) is:

a) $2 610 F
b) $2 610 U
c) $2 700 F
d) $2 700 U

49. The material quantity variance is:

a) $1 050 F
b) $1 890 U
c) $3 105 F
d) $3 105 U

50. The net present value of a project is positive. However, the company did not accept this
project. The MOST likely reason for the rejection is that:
a) The qualitative factors outweigh the benefit of the investment
b) A positive net present value is unacceptable
c) The net initial investment cannot be recovered
d) The return is greater than that required by the company

51. A service costing system can BEST be defined as a method of establishing the costs of:
a) Production and services rendered
b) Production per unit
c) Manufacturing products and services
d) Services rendered

Item 52 refers to the following annual projected costs and revenues associated with three
products A, B and C
A B C
Maximum demand (units) 5 000 12 000 10 000
Unit C.M $8 $6 $5
Total fixed costs $80 000

52. Assuming that the company can attain maximum demand, what will be its net income for
the forthcoming year?
a) $54 000
b) $82 000
c) $134 000
d) $162 000

Item 53 refers to the following data on a proposed investment project:

Initial investment $141 550
Annual cash inflows $30 000
Life of the investments 8 years
Required rate of return 12%

The present value interest factor (PVIFA) of annuity of $1 for 8 years is given as follows:
Per cent 10 12 12.5 13 13.5 14 14.4
PVIFA 5.335 4.968 4.882 4.799 4.718 4.639 4.562

53. The internal percentage rate of return, to the nearest tenth of a percent will be:
a) 10
b) 12.5
c) 13.5
d) 14.5

SET 3
1. In comparing financial and management accounting, which of the following MOST
accurately describes management accounting information?
a) Historical, precise, useful
b) Required, estimated, internal
c) Budgeted, informative, adaptable
d) Comparable, verifiable, monetary

2. Which of the following statements relating to cost and management accounting is

ACCURATE?
a) It requires an entirely separate group of accounts than financial accounting
b) It focuses solely on determining how much it costs to manufacture a product or provide a
service
c) It provides product or service cost information for internal decision making
d) It is required for business record-keeping as are financial and tax accounting

3. The following information was extracted from the records of James Inc.
Cost of goods sold $107 000
Ending balance of finished goods inventory $20 000
Cost of goods manufactured $57 000

The beginning balance of finished goods inventory for the period was:
a) $70 000
b) $77 000
c) $127 000
d) $157 000

4. One MAJOR difference between financial accounting and management accounting is that
a) Financial accounting reports are prepared primarily for internal users
b) Generally accepted accounting principles do not apply to management accounting
c) Management accounting is mandatory for companies trading on the stock exchange
d) Financial accounting uses only current and future information

5. Accounting information is cost effective when the

a) Information helps management to control costs
b) Value of the information exceeds the cost of providing it
c) Information is generated by a computer-based accounting system
d) Information is based on historical costs, rather than on estimated market values

6. A firm estimates that its annual carrying cost for material ABC is $0.30 per kg, demand is
50 000 kg and ordering cost is $100 per order. The EOQ rounded to the nearest kilogram is
a) 1 125
b) 1 732
c) 4 082
d) 5 774

7. In which of the following ways should plastic that is used in the manufacture of dolls be
classified?
 Prime cost Product cost Direct cost Fixed cost

a) No Yes Yes No
b) Yes No Yes No
c) Yes Yes Yes No
d) Yes Yes No Yes

8. When a decision is made among a number of alternatives, the benefit that is lost by
choosing one alternative over another is the:
a) accrued cost
b) realized cost
c) conversion cost
d) opportunity cost

9. How are wages of factory maintenance personnel USUALLY classified?

Indirect labour cost Manufacturing overhead cost
a) No Yes
b) Yes No
c) Yes Yes
d) No No

10. Conversion cost consist of

a) Direct labour costs only
b) Manufacturing overhead costs only
c) Direct materials and direct labour cost
d) Direct labour and manufacturing overhead costs

11. The Aron Co. requires 40 000 units of Product Q for the year. The units will be used evenly
throughout the year. It costs $60 to place an order and $10 to carry a unit in inventory for
the year. The economic order quantity (EOQ) rounded to the nearest whole unit is
a) 400
b) 490
c) 600
d) 693

12. Susan is paid 10% of the gross sales of her department as salary per month. Which of the
following methods BEST describes how Susan is paid?
a) Commission on sales
b) Fixed salary
c) Hourly rate
d) Piece rate

13. What is the name of the source document that records the amount of raw material that ahs
been requested for use in production?
a) Bill of lading
b) Inter-office memo
c) Job order cost sheet
d) Material requisition

14. The support department allocation method that is the MOST widely used because of its
simplicity is the
a) Direct allocation method
b) Reciprocal allocation method
c) Sequential allocation method
d) Step-down method

15. Wages paid to machine operators on an assembly line are classified as a

a) Direct material cost
b) Direct manufacturing labour cost
c) Manufacturing overhead cost
d) Period cost

16. The Remo Grill Corporation had the following balances in its records:
$
Beginning work-in-process inventory 50 000
Ending work-in-process inventory 48 000
Beginning finished goods inventory 180 000
Ending finished goods inventory 195 000
Cost of goods manufactured 1 220 000

What was the cost of goods sold?

a) $1 205 000
b) $1 218 000
c) $1 222 000
d) $1 235 000

Items 17-18 refer to the following information from Preysal company on an item of inventory
for the month of April.

Beginning inventory 500 units at $6 each

Purchases during the month:

April 7 600 units at $6.10 each

April 12 800 units at $5.80 each
April 17 500 units at $6.25 each
April 22 250 units at $6 each
April 28 100 units at $5.50 each

Sales during the month totalled 2 000 units.

17. If Preysal uses the FIFO method of stock valuation, the value assigned to ending inventory is
a) $3 000
b) $4 525
c) $4 530
d) $4 550

18. If Preysal uses the LIFO method of stock valuation, the value assigned to ending inventory is
a) $3 000
b) $4 525
c) $4 530
d) $4 550

19. Rampaul Inc. applies overhead to jobs on the basis of direct labour at the rate of 80% of
direct labour. Rampaul’s records revealed the following data for 2008:
$
Direct labour 111 600
Direct material 84 000
Actual overhead 98 700

The amount of over-or under – applied overhead for the year is

a) Over-applied by $9 420
b) Over-applied by $12 900
c) Under-applied by $9 420
d) Under-applied by $12 900

20. Green Enterprises uses a job order costing system. The job cost sheet for Job Number 329
shows the following data for the month of March:

Direct material $5 000

Direct labour (100 hours at $7.25) $725
Machine hours incurred 40
Predetermined overhead rate per machine hour $26

The total cost that should appear on the job cost sheet for job number 329 is
a) $5 725
b) $5 765
c) $6 765
d) $8 325

Items 21-22 refer to the following information.

Adams Company uses a job order costing system. The company has 3 jobs in [process: 5, 8 and
12.

Raw materials used $120 000

Direct labour per hour $8.50
Overhead applied based on labour cost 120%

Direct material was requisitioned as follows:

 Job number % Direct labour hours
5 30 2 500
8 25 3 100
12 25 4 200

The balance of the requisitions were considered indirect. Indirect labour was $44 000. Other
actual overhead costs totalled $36 000.

21. What is the total amount of overhead applied to job number 8?

a) $18 250
b) $26 350
c) $30 000
d) $31 620

22. If job number 12 is completed and transferred and overhead is applied at the end of the
period, what is the balance in work in process inventory at the end of the period?
a) $96 700
b) $99 020
c) $170 720
d) $139 540

23. Imran worked 9 hours on Job E. his regular rate is $7 per hour. Job E required 7 hours of
regular time and 2 hours overtime at the premium rate of 50% above the regular rate. What
was the cost of labour applied to Job E?
a) $56
b) $63
c) $70
d) $94.50

Items 24-25 refer to the following information.

Pegasus Manufacturing Inc. uses a process costing system. The company started 30 000 units
into production during the current month. Pegasus Manufacturing Inc. has 12 000 units that were
20% completed as to conversion costs in beginning work-in-process inventory and 3 000 units
that were 40% completed as to conversion costs in ending work-in-process inventory.

24. What are the equivalent units for conversion costs if the company uses a weighted-average
process costing system.?
a) 37 800
b) 40 200
c) 40 800
d) 42 000

25. What are the equivalent units for conversion costs if the company uses FIFO process costing
system?
a) 37 800
b) 40 200
c) 40 800
d) 42 000

26. In which of the following ways is absorption costing similar to variable costing?
a) Acceptability for external reporting
b) Arrangement of the Income Statement
c) Treatment of fixed manufacturing overhead
d) Treatment of variable production costs

27. A five-star hotel uses the service costing method. Which of the following would be MOST
suitable for deriving its service cost per unit?
a) Guests per day
b) Meals served
c) Occupied bed-nights
d) Full time employees

28. Tony Persad applies overheads to jobs at the rate of 40% of direct labour cost. Direct
material of $1 250 and direct labour of $1 400 wee expanded on Job number 44 during the
month of June. At May 31, the balance of Job number 44 was $2 800. What was the June 30
balance of Job number 44?
a) $3 210
b) $4 760
c) $5 450
d) $6 010

Items 29-30 refer to the following information.

Travis Inc. has two products, A and B. the company uses an activity-based costing system. The
estimated total cost and expected activity for EACH of the company’s THREE activity cost
pools are as follows:
Activity cost pool Estimated cost Expected activity
Product A Product B Total
Moulding $17 600 800 300 1 100
Waxing $12 000 500 200 700
Finishing $26 000 800 400 1 200

29. The activity rate under the activity-based costing system for finishing is
a) $18.53
b) $21.67
c) $46.33
d) $65

30. What cost is to be allocated to Product A for moulding?

a) $1 600
b) $4 800
c) $7 600
d) $12 800
31. Lyte and Wiggins Co. uses job costing. The records at Lyte and Wiggins Co. show job
number 110 charged with $11 000 of direct materials and $12 500 of direct labour. Lyte and
Wiggins Co. allocates manufacturing overhead at 85% of direct labour cost. What is the total
cost of job number 110?
a) $20 625
b) $21 625
c) $22 500
d) $34 125

32. Alex Co. makes small metal containers. In December the company began with 250
containers in its work-in-process inventory that were 30% completed ad to material and 40%
completed as to conversion costs. During the month, 5 000 containers were started. At month
end, 700 containers were still in it work-in-process inventory (45% completed as to material
and 89% completed as to conversion costs). The company uses the weighted-average
method. The equivalent units for material costs for the month of December are
a) 3 450
b) 4 560
c) 4 865
d) 4 910

33. Which of the following distinguishes activity-based costing from traditional costing?
a) Each department is a different activity in activity-based costing
b) Multiple cost drivers may be utilized within a department in activity-based costing
c) A single sot driver is utilized in every department in activity-based costing
d) Overhead application rates can be based on direct labour in traditional costing systems

34. Peter wants to identify the total cost for computing the personal tax return he prepared for his
client. Labour is the only direct cost at $150 per hour. Indirect costs are $80 per labour hour.
What is the total direct cost, indirect cost and job cost respectively, if 8 hours are spent
preparing the tax return?
Direct cost Indirect cost Job cost
a) $640 $1 200 $1 840
b) $1 100 $900 $2 000
c) $1 200 $640 $1 840
d) $1 240 $1 200 $2 480

35. A costing system can BEST be defined as a method of establishing the costs of
a) Designing products and/or services
b) Production per unit
c) Manufacturing products and/or services
d) Services rendered

36. The basic difference between marginal and absorption costing is the treatment of:
a) Direct labour cost
b) Direct materials cost
c) Fixed selling and administrative cost
d) Fixed manufacturing overhead cost

Items 37-40 refer to the following information from the accounts of DeSouza co. for October. In
the month of October, 3 500 units were produced.

Standards:
Material 3.5 pounds per unit at $4.50 per pound
Labour 5 hours per unit at $10.25 per hour

Actual:
Materials purchased 12 300 pounds at $4.25 per pound
Materials used 11 750 pounds
Direct labour hours 17 300 at $10.20 per hour

37. What is the labour rate variance for October?

a) $865F
b) $865U
c) $875F
d) $875U

38. What is the labour efficiency variance for October?

a) $2 040 F
b) $2 040U
c) $2 050 F
d) $2 050 U

39. What is the material price variance (based on quantity purchased) for October?
a) $2 938 F
b) $2 938 U
c) $3 075 F
d) $3 075 U

40. What is the material quantity variance for October?

a) $2 250 F
b) $2 250 U
c) $2 475 F
d) $2 475 U

41. A primary purpose of using a standard-cost system is to

a) Provide a distinct measure of cost control
b) Minimize the cost per unit of production
c) Provide more information to managers
d) Make things easier for managers in the production facility
Items 42-43 refer to the following information extracted from the Income Statement of Cipriani
Co. for 2008.
Sales $400 000
Variable costs (125 000)
Contribution margin 275 000
Fixed costs (200 000)
Profit before taxes 75 000

The company produced and sold 25 000 units.

42. What is the break-even point in dollars, for Cipriani Co.?

a) $200 000
b) $290 909
c) $300 000
d) $325 000

43. If Cipriani Co. had a break-even sales figure of $250 000, the margin of safety for 2008
would be
a) $75 000
b) $109 091
c) $150 000
d) $250 000

44. The net present value and internal rate of return methods of decision making in capital
budgeting are superior to the payback method. This is because they
a) Are easier to implement
b) Consider the time value of money
c) Require less input
d) Reflect the effects of sensitivity analysis

45. Which of the following is NOT a benefit of budgeting?

a) It uncovers potential bottleneck before they occur
b) It provides benchmarks for evaluating subsequent performance
c) It ensures that accounting records comply with generally accepted accounting principles
d) It coordinates the activities of the entire organization by integrating the plans and objectives
of the various parts

46. A large unanticipated reduction in property taxes on a company’s factory would, all other
things being equal, MOST likely cause
a) A favourable overhead spending variance
b) An unfavourable overhead spending variance
c) A favourable overhead volume variance
d) An unfavourable overhead volume variance

47. Overhead volume variances MOST likely indicate

a) Efficient performance
b) Inefficient performance
c) Inadequate budgeting
d) Fluctuations in the level of production from period to period

48. Pardee Co. plans to sell 12 000 units during the month of August. The company has 2 500
units on hand at the start of the month and plans to have 2 000 units on hand at the end of the
month. How many units must be produced during the month?
a) 11 500
b) 12 000
c) 12 500
d) 14 000

49. Which of the following approaches to setting budget amounts assumes the complete
examination of inefficiencies?
a) Behavioural approach
b) Flexible budgeting approach
c) Total quality management approach
d) Activity-based management approach

50. Which of the following statements is TRUE regarding net present value method of evaluating
proposed investments?
a) Measures a project’s internal rate of return
b) Ignores cash flows beyond the payback period
c) Applies only to mutually exclusive investment proposals
d) Discounts cash flows at a minimum desired rate of return

51. A product has a selling price of $150 and variable costs of $30. The company has fixed costs
of $30 000 and targets an operating income of $12 000. What is the break-even point units?
a) 250
b) 750
c) 1 000
d) 1 250

52. Company A uses the net present value method to evaluate capital projects. An increase in the
company’s cost of capital will
a) Make potential projects more attractive
b) Make the potential projects less attractive
c) Not affect the attractiveness of potential project
d) Not be a consideration once the financial benefits of potential projects remain unchanged

Item 53 refer to the following annual projected costs and revenues associated with three products
A, B and C.

A B C
Maximum demand (units) 5 000 12 000 10 000
 Cost of material (per unit) $8 $6 $5
Total fixed costs $80 000

53. Assuming that the company can attain maximum demand, what will be its net income for
the forthcoming year?
a) $54 000
b) $82 000
c) $134 000
d) $162 000

54. The Cleaning Co. had actual sales of $750 000. Its break-even sales level is $480 000. The
margin of safety ratio is
a) 25%
b) 33%
c) 36%
d) 43%