TACC507 Midterm Test Revision (Ch1-3)

CH1: Management accounting in context 7. 'Control' involves:

A. formulating details of operations and finances for the
1. What type of accounting system is part of an next financial year
organisation's management information system for B. comparing actual performance against targets
internal use only? C. deciding whether to expand activities
A. Financial accounting D. All of the given answers
B. Management accounting
C. Governmental accounting 8. Part of the planning process involves:
D. All of the given answers A. formulating details of operations and finances for the
next financial year
2. Which of the following statement/s about B. comparing actual performance against targets
management accounting is/are true? C. making a choice between available alternatives
i. It is a part of an organisation's management D. measuring the performance of managers against
information system. preset targets
ii. It is relied on by managers to plan and control an
organisation's operations. 9. The role of management accounting is to:
iii. It is relied on by external users to make investment A. provide information to parties outside the
decisions. organisation
A. i and ii B. i, ii and iii C. iii D. ii B. provide information to managers within the
organisation.
3. Which of the following statement/s about C. provide information to government agencies.
management accounting is/are true? D. All of the given answers
i. It is concerned only with information obtained from
the accounting records. 10. Budgeting can be used in an organisation to:
ii. It is concerned with financial and non-financial A. motivate managers to achieve organisational goals.
information. B. control operations.
iii. It can provide information useful for making C. provide managers with information for making
decisions. decisions and planning.
A. i B. i and ii D. All of the given answers
C. ii and iii D. ii
11. The benefits of management accounting information
include:
4. A strategy is:
A. improved decisions.
i. another name for a long-term objective
B. more effective planning.
ii. the same as an objective
C. greater efficiency of operations.
iii. a means by which an organisation plans to meet its
D. All of the given answers
mission and achieve its objectives
A. i B. ii
C. iii D. i and ii

5. Which of the following is not an objective of

management accounting?
A. Providing information for making decisions
B. Providing information for planning
C. Providing information for control
D. Providing information for profit and loss statements

6. Planning is:
A. comparing actual performance against targets
B. setting objectives and formulating plans for future
operations
C. measuring the performance of managers against
preset targets
D. motivating managers towards achieving
organisational goals
 TACC507 Midterm Test Revision (Ch1-3)
19. Which of the following statements regarding the
12. Management accounting: competence of an accountant is true? The accountant
A. must comply with Australian accounting standards. must:
B. focuses primarily on the needs of managers internal A. strive continually to improve technical services and
to the organisation. keep knowledge up-to-date.
C. provides information for parties external to the B. not breach the trust of clients and employers.
organisation. C. not disclose information acquired in the course of
D. involves reports focusing on the enterprise in its professional work, except where there is a legal or
entirety. professional duty to disclose.
D. at all times safeguard the interest of the clients and
13. Which of the following is necessary for management employers, provided it does not conflict with their duty
accounting information to be useful? to the community.
A. It must report to external users.
B. It must develop a framework of principles and 20. Which of the following statements is an element of
guidelines. confidentiality?
C. It must adapt to accommodate changes in the i. Accountants must not disclose information acquired in
business environment. the course of their work.
D. It must focus on the enterprise in its entirety. ii. Accountants must disclose information if there is a
professional duty to do so.
14. Both financial and management accounting: iii. Accountants may not use information gained in the
A. draw on data from the organisation's basic course of their work for their own or another's personal
information system. advantage.
B. provide information for external users. A. I B. ii C. iii D. i, ii and iii
C. must comply with Australian accounting standards.
D. rely exclusively on historical data. 21. The focus of management accounting over time has
changed. Which is the correct historical order for the
15. Which of the following statements regarding following foci?
management accounting information is false? i. Cost
A. The cost of providing the information must be ii. Profitability
considered in the light of the benefits received from the iii. Resource management
information. iv. Waste reduction
B. All information derived is necessary despite the cost. A. i, ii, iii and iv B. ii, iii, i and iv
C. The information entails both costs and benefits. C. i, ii, iv and iii D. i, iii, iv and ii
D. The cost of the information includes the time spent
by the user to read, understand and use the information.

16. A management accountant should be concerned

with:
A. providing daily information on physical measures of
operational performance.
B. assisting in interdepartmental communications.
C. developing and implementing information systems.
D. All of the given answers

17. The largest professional organisation for

management accountants in Australia is the:
A. CPA Australia.
B. Australian Accounting Association.
C. Institute of Chartered Accountants in Australia.
D. Certified Institute of Management Accountants.

18. Which of the following does not represent the ethics

of professional accountants?
A. Competence and confidentiality
B. Integrity and objectivity
C. Professional scepticism and efficiency
D. Objectivity and confidentiality
 TACC507 Midterm Test Revision (Ch1-3)
22. Which of the following statement/s is/are false? 28. Which of the following statements is correct?
Management accountants should: A. Management accounting is a subset of cost
i. help in the provision of physical data to managers. accounting.
ii. be included in the management of information B. Cost accounting is a subset of management
systems. accounting.
iii. present their information in monetary terms only. C. Cost accounting is no longer required in today's
iv. help to ensure effective interdepartmental competitive environment.
communications. D. Management accounting in today's environment is
A. i and ii B. iii and iv C. iii D. iv the same as it was many years ago.

23. Which of the following are management accounting 29. Which of the following is the most logical sequence
responses to the changing business environment? for a commencing organisation?
A. Activity-based costing. B. E-commerce. A. Control, feedback, planning
C. Supplier cost analysis. D. A and C. B. Planning, control, feedback
C. Feedback (feedforward), planning, control, feedback
24. Which of the following are ethical standards for D. Control, planning, feedback
management accountants?
i. Competence 30. Choose the statement that best completes this
ii. Objectivity sentence: 'Traditional management accounting focuses
iii. Confidentiality on '
iv. Integrity A. budgets, financial performance measures and cost
A. i, ii, iii and iv B. ii, iii and iv control.
C. i, ii and iv D. i, iii and iv B. financial performance measures, external reporting
and cost elimination.
25. The costs of providing information to management C. non-financial performance measures, external
should be less than the benefits. Which of the following reporting and cost control.
are costs of management accounting information? D. external reporting, labour-related activity measures
i. Salary cost of management accounting personnel and cost elimination.
ii. Computer operating costs
iii. Managers' time in reading and acting on the 31. Which of the following would not be likely as a
information consistent focus for a firm following a product
A. i, ii and iii differentiation strategy?
B. ii and iii only A. Quality
C. i and iii only B. Delivery
D. None of the given answers C. Product innovation
D. Cost reduction
26. Which of the following statements is correct?
A. The primary objective of a firm's management is to 32. Choose the statement that best completes this
increase the firm's value. sentence: 'All management accounting information '
B. The management accounting system needs to A. has a focus on past costs.
accumulate information from both internal and external B. has a focus on future costs.
sources. C. is collected as required by internal management of
C. Managers may be faced with a conflict between the firm.
increasing customer value and increasing shareholder D. is constrained by the requirements of the Australian
value. Accounting Standards.
D. All the given statements are correct.

27. Strategies:
A. are directions that a firm intend to take in the long
term.
B. describe the way the firm competes.
C. are the same as objectives and goals.
D. are independent of the firm's mission statement.
 TACC507 Midterm Test Revision (Ch1-3)
38. Animus Ltd is a mining company. Which of the
33. Which of the following statements is correct? following is an example of 'control'?
A. A financial controller is only responsible for financial A. Awarding bonuses to Aimus Ltd's top performing
accounting. executives
B. The primary role of the finance function of an B. Setting production targets for the company's new
organisation is to liaise with banks and financial mines
intuitions to obtain finance to fund operations. C. Developing correction actions to respond to lower-
C. In some organisations, management accountants are than-expected production levels in the existing mines.
located in factories. D. Pursuing legal actions against environmental activists
D. Management accountants are responsible for external who stole mining equipment.
reporting as well as providing information to internal
managers. 39. Animus Ltd is a mining company operating in
Australia. The company has recently developed a new
34. The 'vision' of an organisation: environmental management accounting system.
A. refers to the desired future state of an organisation. According to institutional theory:
B. refers to a statement that defines the purpose of the A. the new system is likely to be the result of the
organisation. Australian culture of being environmentally conscious
C. refers to specific statements of objective, upon which and the fact that negative environmental impacts can
goals can be set. result in significant fines to the company.
D. is only useful for non profit organisations. B. the new system is likely to be the result of gaining
legitimacy and to imitate other mining companies who
35. Animus Ltd is a mining company. Which of the are 'doing the right thing'.
following is an example of a decision relating to C. the new system is likely to be the result of stringent
formulating Animus Ltd's corporate strategy? government regulations.
A. Should Animus Ltd operate in the mining industry D. the new system is likely to be the result of careful,
only, or expand to heavy machinery manufacturing and rational, cost-benefit analysis.
distribution?
B. Should Animus Ltd compete based on price or 40. Eddy Gunn is a management accountant. Which of
product differentiation? the following is most likely to be Eddy's responsibility?
C. Should Animus Ltd hire a new financial controller? A. Providing an environmental assurance report for his
D. Should Animus Ltd develop a new management company's shareholders
accounting system? B. Compiling the company tax return
C. Ensuring that the internal accounting system is
36. Animus Ltd is a mining company. Which of the compliant with generally accepted accounting standards
following is an example of a business strategy decision? D. Developing a production cost report for each of the
A. Should Animus Ltd operate in the mining industry company's three production lines
only or expand to heavy machinery manufacturing and
distribution? 41. Which of the following is not a widely recognised
B. Should Animus Ltd compete based on price or professional accounting body?
product differentiation? A. The Institute of Production Accountants
C. Should Animus Ltd hire a new financial controller? B. CPA Australia
D. Should Animus Ltd develop a new management C. The Institute of Chartered Accountants
accounting system? D. The Institute of Management Accountants

37. Animus Ltd is a mining company. Which of the 42. Which of the following changes in the business
following is an example of 'planning'? environment have led to the emergence of virtual
A. Awarding bonuses to Aimus Ltd's top performing organisations?
executives A. Rapid advances in technology
B. Setting production targets for the company's new B. Increases in outsourcing and reliance on various
mines forms of business networks
C. Developing correction actions to respond to lower- C. Increased global mobility in labour
than-expected production levels in the existing mines D. Reliance on creating mutually strategic business
D. Pursuing legal actions against environmental activists alliances
who stole mining equipment
 TACC507 Midterm Test Revision (Ch1-3)
43. Which of the following changes in the business 4. Variable costs:
environment have led to more complicated relationships A. vary indirectly with changes in activity level.
and business structures? B. vary directly with changes in activity level.
A. Rapid advances in technology C. vary on a per unit basis.
B. Increases in outsourcing and reliance on various D. vary indirectly with changes in activity level AND
forms of business networks vary on a per unit basis.
C. Increased global mobility in labour
D. Reliance on creating mutually strategic business 5. If production increases, variable cost will:
alliances A. remain constant on a per unit basis.
B. increase by a variable amount.
44. Management accounting focuses on: C. vary on a per unit basis.
A. compliance with the accounting standards. D. remain unchanged.
B. meeting the needs of external users.
C. effective and efficient management of resources. 6. As activity level decreases, unit variable cost:
D. financial data only. A. increases proportionately with activity.
B. decreases proportionately with activity.
45. Modern management accounting systems include C. remains constant.
techniques that support an organisation's: D. decreases by a fixed amount.
A. strategy. B. mission. C. goals. D. decisions.
7. As activity level increases, total variable costs:
46. If a firm's senior management decide to follow a A. increase proportionately with activity.
differentiation strategy, their focus should be to NOT B. decrease proportionately with activity.
concentrate on: C. increase by a fixed amount.
A. product quality. B. product delivery. D. decrease by a fixed amount.
C. product innovation. D. product costs.

47. The firm's primary accounting system that produces

financial data for external users is governed by:
A. accounting standards.
B. all of the choices are correct.
C. generally accepted accounting principles.
D. traditional accounting conventions.

CH2. Cost terms and concepts

1. Which of the following statements is false?
i. Qualitative information is not relevant for planning
purposes.
ii. Production costs are important for planning purposes,
but selling and administration costs are not.
iii. Information on revenues is not important for
planning purposes.
A. I B. iii C. i and iii D. i, ii and iii

2. Which of the following statements is true?

A. The word cost has the same meaning in all situations
in which it is used.
B. Cost data, once classified and recorded, can be used
for any purpose.
C. Different cost concepts and classifications are used
for different purposes.
D. None of the given answers

3. Which of the following statements is true? A cost is:

A. always an expense.
B. always an asset.
C. can be either an expense or an asset.
D. always a liability.
 TACC507 Midterm Test Revision (Ch1-3)
8. Fixed costs: 15. Costs that can be significantly influenced by a
A. vary directly with changes in activity level. particular manager are:
B. in total remain unchanged as activity levels change. A. product costs. B. period costs.
C. vary on a per unit basis. C. controllable costs. D. administrative costs.
D. B and C
16. Which of the following is not an example of a
9. Which of the following is not an example of a manufacturing overhead?
variable cost? A. Assembly line workers' wages
A. Straight-line depreciation on a machine expected to B. Factory rent
last 5 years. C. Depreciation of factory machinery
B. Wages paid to assembly line workers at a local D. Factory lighting
manufacturing plant.
C. Timber used to make outdoor furniture. 17. Product costs are:
D. Commissions paid to sales personnel. A. expended as they are incurred. B. inventoriable
costs.
10. Which of the following statements is false? C. period costs.
A. Costing is common to both traditional and modern D. expended as they are incurred AND inventoriable
management accounting. costs.
B. Activity-based costing is common to both traditional
and modern management accounting. 18. Costs that are expended during the period in which
C. Performance measurement is common to both the costs are incurred are called:
traditional and modern management accounting. A. product costs. B. inventoriable costs.
D. Modern performance measurement covers a range of C. period costs. D. indirect costs.
critical success factors.

11. Which is the correct order of cost incurrence in the

value chain?
A. R&D, Product design, Manufacturing, Marketing,
Distribution, Customer support
B. R&D, Product design, Customer support, Marketing,
Distribution, Manufacturing
C. R&D, Product design, Manufacturing, Distribution,
Customer support, Selling
D. R&D, Product design, Manufacturing, Distribution,
Marketing, Customer support

12. Costs that can be traced to a particular cost object

are called:
A. direct costs. B. indirect costs.
C. product costs. D. manufacturing costs.

13. Indirect costs:

A. cannot be traced to a particular cost object.
B. cannot be economically traced to a particular cost
object.
C. are always variable costs.
D. are always fixed costs.

14. Whether a cost is classified as direct or indirect will

depend on:
A. the nature of the cost object.
B. whether the cost can be economically traced to the
cost object.
C. whether the organisation is in a manufacturing or
service industry
D. the nature of the cost object AND whether the cost
can be economically traced to the cost object.
 TACC507 Midterm Test Revision (Ch1-3)
29. Indirect materials include:
19. Which of the following costs of a manufactured A. materials that are incorporated into the finished
product is a period cost? product.
A. Direct material B. Manufacturing overhead B. materials required for the production process, which
C. Indirect material D. Sales commission do not become an integral part of the finished product.
C. direct materials that are so insignificant in cost that it
20. Which of the following is not a period cost? becomes unimportant to trace their costs to specific
A. Marketing costs B. Administrative costs products.
C. Research and development D. Factory overheads D. materials required for the production process, which
do not become an integral part of the finished product
21. Cost of goods purchased includes the: AND direct materials that are so insignificant in cost
A. purchase cost. B. transportation inward cost. that it becomes unimportant to trace their costs to
C. storage cost. specific products.
D. purchase cost AND transportation inward cost.
30. On-costs on direct labour are classified as:
22. Product costs comprise: A. direct labour.
A. direct materials, direct labour and manufacturing B. indirect labour.
overhead. C. manufacturing overhead.
B. direct materials and manufacturing overhead. D. either direct labour or indirect labour depending on
C. direct labour and manufacturing overhead. the decision made by the firm.
D. direct materials and direct labour.

23. Refer to the following data.

The prime costs are:

A. $190 000. B. $40 000.C. $150 000. D. $142 000.

24. The conversion costs are:

A. $150 000. B. $142 000. C. $182 000. D. $190 000.

25. The product costs are:

A. $15 000 B. $182 000 C. $190 000 D. $332 000

26. The period costs are:

A. $15 000 B. $20 000 C. $190 000 D. $372 000

27. The non-manufacturing costs are:

A. $15 000 B. $70 000 C. $182 000 D. $372 000

28. Indirect material, indirect labour and other

manufacturing costs that are neither direct labour nor
direct material costs are classified as:
A. manufacturing overhead. B. product costs.
C. prime costs.
D. manufacturing overhead AND product costs.
 TACC507 Midterm Test Revision (Ch1-3)

31. Depreciation of factory equipment would be

classified as:
A. indirect material.
B. indirect labour.
C. manufacturing overhead.
D. a sundry expense.

32. Idle time is:

A. frequently an avoidable cost.
B. classified as overhead.
C. caused by events such as equipment breakdown and
new set-ups of production runs.
D. All of the given answers.

33. Unless overtime and idle time are caused by a

particular job, they are treated as:
A. a part of direct labour expense.
B. a part of manufacturing overhead.
C. associated with a particular product.
D. a part of manufacturing overhead AND associated
with a particular product.

34. The flow of manufacturing costs through the system

is:
A. raw materials inventory; work in process inventory;
finished goods inventory; cost of goods sold.
B. raw materials inventory; work in process inventory; The product costs are:
cost of goods sold; finished goods inventory. A. $90 000.
C. work in process inventory; raw materials inventory; B. $83 000.
finished goods inventory; cost of goods sold. C. $65 000.
D. raw materials inventory; finished goods inventory; D. $63 000.
work in process inventory; cost of goods sold.

35. The Casual Furniture Company manufactures

outdoor furniture and incurred the following costs
during the month of January:
 TACC507 Midterm Test Revision (Ch1-3)
43. Barrett Industries began the month of June with a
36. The period costs are: finished goods inventory of $15 000. The finished goods
A. $0. inventory at the end of June was $10 000 and the cost of
B. $7000. goods sold during the month was $20 000.
C. $25 000. The cost of goods manufactured during the month of
D. $30 500. June was:
A. $15 000
37. The prime costs are: B. $25 000
C. $20 000
A. $30 000. D. $5000
B. $50 000.
C. $65 000. 44. Fairchild Pty Ltd began April with a finished goods
D. $50 500. inventory of $25 000. The cost of goods manufactured
during the month was $40 000 and the cost of goods
38. The conversion costs are: sold during April was $50 000.
A. $34 500. The inventory remaining in finished goods at the end of
B. $29 500. April was:
C. $20 000. A. $35 000.
D. $35 000. B. $25 000.
C. $20 000.
39. The manufacturing overhead is: D. $15 000.
A. $14 500.
B. $15 000. 45. Barrister and Company began July with a finished
C. $9500. goods inventory of $10 000. The cost of goods
D. $9000. manufactured during the month was $85 000 and the
ending finished goods inventory was $20 000.
40. In the manufacturing firm, inventories consist of: The cost of goods sold during July was:
A. raw materials, cost of goods manufactured during the A. $55 000.
period and finished goods. B. $75 000.
B. raw materials, work in process and finished goods. C. $95 000.
C. raw materials, finished goods and cost of goods sold. D. $105 000.
D. cost of goods manufactured and cost of goods sold.
46. Lenco Industries has cost of goods manufactured of
41. To calculate the cost of goods sold during the period, $65 000 in May. The finished goods inventory at the end
you would use which of the following equations? of May was $20 000 and the cost of goods sold during
A. Beginning finished goods + cost of goods May was $75 000.
manufactured + ending finished goods The inventory in finished goods at the beginning of May
B. Ending finished goods + cost of goods manufactured was:
– beginning finished goods A. $5000.
C. Beginning finished goods + cost of goods B. $30 000.
manufactured – ending finished goods C. $10 000.
D. Beginning finished goods + ending finished goods – D. $20 000.
cost of goods manufactured

42. Work in process inventories are composed of:

A. direct materials.
B. direct labour.
C. manufacturing overhead.
D. All of the given answers
 TACC507 Midterm Test Revision (Ch1-3)
53. Which of the following statements is correct in
47. As manufacturing companies become more relation to determining whether a cost is direct or
automated, their cost structure will change so that: indirect?
A. variable costs increase, fixed costs decrease. A. The wider the definition of the cost object, the more
B. variable costs decrease, fixed costs decrease. costs that will be indirect costs.
C. variable costs decrease, fixed costs increase. B. The number of cost items that can be classified as
D. there is no change in the ratio of variable to fixed direct costs does not depend on the definition of cost
costs. objects.
C. The narrower the definition of the cost object, the
48. Traditional cost management systems use production more costs that will be direct costs.
volume as the measure of activity. Modern systems D. The wider the definition of the cost object, the more
might use which of the following as activity measures? costs that will be direct costs.
A. Number of batches
B. Number of customers 54. Choose the statement that best completes this
C. Number of product lines sentence: 'Traditional management accounting focuses
D. All of the given answers on '
A. budgeting systems, financial performance measures
49. Which of the following terms accurately describes and cost control.
all three manufacturing costs (i.e. direct materials, direct B. financial performance measures, external reporting
labour and manufacturing overhead)? and cost elimination.
A. Product costs C. non-financial performance measures, external
B. Variable costs reporting and cost control.
C. Direct costs D. external reporting, labour-related activity measures
D. Both direct costs and product costs and cost elimination.

50. The monthly cost of renting manufacturing 55. Eldervale Winery is a producer of premium wine.
equipment is: Which of the following is an example of an upstream
A. part of conversion cost and a period cost. cost?
B. part of prime cost and an inventoriable cost. A. The costs associated with storing wine barrels.
C. part of prime cost and a period cost. B. The costs associated with designing the labels on a
D. part of conversion cost and an inventoriable cost. wine bottle.
C. The costs associated with delivering products to
51. With respect to the flow of manufacturing costs customers.
through the accounts, what does the ending balance of D. The costs associated with quality inspection.
work in process account show?
A. The total costs for completed jobs. 56. Eldervale Winery is a producer of premium wine.
B. The total costs for incomplete jobs. Which of the following is NOT an example of an
C. The amount of costs incurred for the period. upstream cost?
D. The amount of cost to be transferred to cost of goods A. The costs associated with marketing a new range of
sold. wine in an international trade fair
B. The costs associated with researching a new variety
52. Which of the following statements correctly of grapes
completes this sentence? 'For a firm that manufactures C. The costs associated with testing a new wine barrel
floor tiles, when the tiles are completed and ready for D. The costs associated with negotiating with and
sale ' managing the farmers who supply the grapes
A. there is no change in the value of the firm's assets.
B. the firm's total assets are decreased. 57. Eldervale Winery is a producer of premium wine.
C. the firm's total cost of the goods sold is increased. Which of the following is an example of a downstream
D. the firm's work in process inventory is increased. cost?
A. The costs associated with storing wine for customers
B. The costs associated with designing the labels on a
wine bottle
C. The costs associated with researching a new variety
of grapes
D. The costs associated with quality testing
 TACC507 Midterm Test Revision (Ch1-3)
58. Eldervale Winery is a producer of premium wine. 63. Sally Strong is the production manager of Eldervale
Which of the following is NOT an example of a Winery. Her role includes overseeing the production and
downstream cost? bottling processes of Eldervale Winery's three product
A. The costs associated with random quality check lines: sparkling wine, red wine and white wine. Which
during the wine production process of the following is most likely to be an example of a
B. The costs associated with the sales team travelling to controllable cost for Sally?
a wine show to promote Eldervale wine A. The costs associated with bottling wine
C. The costs associated with delivering wine to B. The costs associated with advertising Eldervale wine
customers on national TV
D. The costs associated with answering customer C. The costs associated with liaising with distributors to
inquiries on the differences between wine varieties export wine to China
D. The costs associated with obtaining finance from
59. Mydas Ltd operates a large factory which banks
manufactures three types of motor vehicles, including
family cars, sports cars and motorcycles. If the cost 64. Production costs assist management to determine:
object is a motorcycle, which of the following is a direct A. sales revenue.
cost? B. cost of goods sold.
A. The costs of wheels on the motorcycle C. gross profit.
B. The salary of the factory general manager D. net profit.
C. The salary of the factory quality inspector
D. The windscreen wipers on a family car 65. When raw materials are purchased by a
60. Mydas Ltd operates a large factory which manufacturer, those costs will be recorded in the general
manufactures three types of motor vehicles, including ledger as:
family sedans, sports cars and motorcycles. If the cost A. cost of goods sold.
object is a family car, which of the following is an B. manufacturing costs.
indirect cost? C. inventory.
A. The costs of wheels on the motorcycle D. conversion costs.
B. The salary of the factory general manager
C. The wages of the quality inspector whose job is to 66. In the short term, which of the following costs would
inspect each family car be classified as uncontrollable?
D. The windscreen wipers on a family car A. Raw materials
B. Stationery expenses
61. A responsibility centre: C. Loan interest
A. refers to a unit of business where all the associated D. Entertainment expenses
costs are considered as 'direct costs'.
B. refers to a unit of a business where the manager is 67. Classifying responsibility centre costs as controllable
held accountable for activities and performance. or uncontrollable can enhance:
C. is another term for 'business division'. A. performance evaluation.
D. is a term applicable only to manufacturing B. cost accounting.
companies. C. budget reporting.
D. financial reporting.
62. Sally Strong is the production manager of Eldervale
Winery. Her role includes overseeing the production and 68. Resources that are surrendered to achieve a
bottling processes of Eldervale Winery's three product particular objective in business are known as:
lines: sparkling wine, red wine and white wine. Which A. resources.
of the following is most likely an example of an B. expenses.
uncontrollable cost for Sally? C. assets.
A. The costs associated with bottling wine D. costs.
B. The costs associated with advertising Eldervale wine
on national TV
C. The costs associated with moving wine from the
barrels to the bottling area
D. The costs associated with quality testing
 TACC507 Midterm Test Revision (Ch1-3)
69. Costs that are incurred to obtain future benefits Fixed cost per unit Variable cost per unit
beyond 12 months are known as:
A. assets.
B. liabilities.
C. revenue.
D. expenses.

CH3. Cost behavior, drivers and estimation

1. The relationship between cost and activity is called:

A. cost prediction.
B. cost behaviour.
C. cost analysis.
D. cost approximation.

2. Forecasting a cost at a particular level of activity is

called:
A. cost estimation.
B. cost prediction.
C. cost behaviour.
D. cost functions.

3. A cost that has both a fixed and variable component is

called a:
A. step-fixed cost.
B. step-variable cost.
C. semivariable cost.
D. discretionary cost.

4. A cost that remains unchanged in total as the activity

level (or cost driver) changes is called a:
A. fixed cost.
B. variable cost.
C. step-fixed cost.
D. step-variable cost.

5. A cost that changes in total in direct proportion to a

change in the cost driver is a:
A. variable cost.
B. fixed cost.
C. semivariable cost.
D. step-variable cost.

6. A manufacturer plans to increase production within

the relevant range of activity. What behaviour can the
company expect for each of the following?
 TACC507 Midterm Test Revision (Ch1-3)
A. No change Increase
B.
Increase No change
C.
Decrease Increase
D.
Decrease No change

7. Variable cost per unit:

A. increases in direct proportion to changes in the cost
driver.
B. decreases in direct proportion to changes in the cost
driver.
C. remains unchanged as the level of the cost driver
changes.
D. increases, but not in direct proportion to changes in
the cost driver.

8. Fixed costs per unit:

A. is unrelated to activity levels.
B. change as activity varies.
C. remain unchanged as activity level changes.
D. None of the given answers

9. Costs that remain fixed over wide ranges of activity

but jump to a different amount outside that range are
called:
A. step-fixed costs. B. step-variable costs.
C. semivariable costs. D. curvilinear costs.

10. The fixed costs per unit are $10 when a company
makes 10 000 units. What are the per unit fixed costs
when 12 500 units are produced?
A. $6.00
B. $12.00
C. $10.00
D. $ 8.00
11. The variable costs per unit are $4 when a company
makes 10 000 units. What are the per unit variable costs
when 8000 units are produced?
A. $6.00 B. $4.00 C. $4.50 D. $5.00

12. Total costs are $140 000 when 10 000 units are
made. Of this amount, variable costs are $4 per unit.
What are the total costs when 8000 units are produced?
A. $140 000 B. $136 000 C. $132 000 D. $124 000

13. Total costs are $80 000 when 8000 units are made.
Of this amount, variable costs are $48 000. What are the
total costs when 10 000 units are produced?
A. $ 92 000
B. $ 98 000
C. $100 000
D. $108 000
 TACC507 Midterm Test Revision (Ch1-3)
14. Which per unit cost does the slope of the total cost Fixed Variable
line represent?
A. Fixed
B. Variable
C. Semivariable
D. Step-variable

15. The level of activity within which fixed costs remain

unchanged is called the:
A. extreme range.
B. relevant range.
C. activity range.
D. relevant range AND activity range.

16. The relevant range is that range of activity where:

A. management may not find it important to concern
itself.
B. management does not expect the firm to operate.
C. fixed costs remain unchanged.
D. the expected costs exceed the benefits from the
activity.

17. Within the relevant range of activity, costs:

A. can be estimated with reasonable accuracy.
B. exhibit decreasing marginal cost patterns.
C. exhibit increasing marginal cost patterns.
D. None of the given answers
18. As a firm begins to operate outside the relevant
range, the accuracy of cost estimates for fixed and
variable costs:
 TACC507 Midterm Test Revision (Ch1-3)
A. Increase Increase
B.
Increase Decrease
C.
Decrease Decrease
D.
Do not change
19. Which of the following describes a cost-estimation
method that involves a careful examination of the ledger
accounts?
A. Least squares regression
B. Visual fit
C. Account classification
D. Multiple regression

20. Which of the following describes a method of cost

estimation in which a cost line is drawn through a scatter
diagram to help the analyst visualise the relationship
between cost and activity?
A. Least squares regression
B. High–low
C. Visual fit
D. Multiple regression

21. Within the relevant range, a curvilinear cost function

can be graphed as a:
A. straight line.
B. set of straight lines.
C. solid line.
D. curved line.

22. The method of cost estimation that fits a cost line

between two data points is:
A. least squares regression.
B. high–low.
C. account classification.
D. multiple regression.

23. The method of cost estimation that minimises the

sum of the squared deviations between the cost line and
the data points is:
A. least squares regression.
B. visual fit.
C. account classification.
D. None of the given answers

24. In regression analysis, the variable that is being

predicted is:
A. the independent variable.
B. the dependent variable.
C. the explanatory variable.
D. the dependent variable AND the explanatory
variable.
 TACC507 Midterm Test Revision (Ch1-3)
25. Technical Engineering presently leases a copying
machine on a monthly basis. The lease agreement
requires a fixed fee each month in addition to a charge
per copy. Technical Engineering made 2400 copies and
paid a total of $162 in rent in September and in October
they paid $195 for 3500 copies. Determine Technical
Engineering's variable cost per copy.
A. $0.06
B. $0.04
C. $0.03
D. $0.01 Using the high–low method, estimate the variable cost
per machine hour.
26. Technical Engineering presently leases a copying A. $8.38
machine on a monthly basis. The lease agreement B. $7.44
requires a fixed fee each month in addition to a charge C. $5.50
per copy. Technical Engineering made 2400 copies and D. None of the given answers
paid a total of $162 in rent in September and in October
they paid $195 for 3500 copies. Determine Technical's 31. The Longreach Toy Factory has determined
monthly fixed fee. machine hours to be the cost driver of the company's
A. $138 B. $ 90 C. $ 66 D. $ 55 electricity costs. During the first six months of the year,
the company incurred the following electricity costs:
27. Technical Engineering presently leases a copying
machine on a monthly basis. The lease agreement
requires a fixed fee each month in addition to a charge
per copy. Technical made 2400 copies and paid a total of
$162 in rent in September and in October they paid $195
for 3500 copies. Determine the total amount that would
be paid for 1800 copies.
A. $120 B. $138 C. $144 D. $163

28. Yang Manufacturing makes a product called Yin.

The relevant range of operations is between 2500 units
and 10 000 units of Yin per month. Per unit costs at two Using the high–low method, determine the cost formula
activity levels are as follows: 5000 units at $17.00 per that expresses the cost behaviour of the company's
unit; 7500 units at $13.00 per unit. Determine the cost electricity costs.
formula that expresses the behaviour of Yang's total A. Y = $3735 + $6.20X
costs:
A. Y $60 000 + $5X B. Y $20 000 + $13X B. Y = $1664 + $8.38X
C. Y $45 000 + $4X D. Y $40 000 + $9X
C. Y = $4760 + $5.00X
29. Yang Manufacturing makes a product called Yin.
The relevant range of operations is between 2500 units D. Y = $4400 + $5.50X
and 10 000 units of Yin per month. Per unit costs at two
activity levels are as follows: 5000 units at $17.00 per 32. A regression model in which more than one
unit; 7500 units at $13.00 per unit. Determine their total independent variable is used to predict the dependent
cost if Yang produces 10 000 units. variable is called a:
A. $130 000 B. $125 000 C. $110 000 D. $100 000 A. simple regression model.
B. multiple regression model.
30. The Longreach Toy Factory has determined machine C. dependent model.
hours to be the cost driver of the company's electricity D. B and C
costs. During the first six months of the year, the
company incurred the following electricity costs: 33. Which of the following are problems frequently
encountered in data collection?
A. Outliers
B. Missing data
C. Mismatched time periods
D. All of the given answers
 TACC507 Midterm Test Revision (Ch1-3)
34. Which of the following statements is true 40. In activity-based costing analysis, package design is
concerning cost estimation methods? classified as a:
A. Cost behaviour is always assumed to depend on more A. unit cost.
than one cost driver. B. batch cost.
B. Cost behaviour patterns are curvilinear. C. product cost.
C. Costs and benefits of using sophisticated and costly D. facility cost.
cost-estimation methods must be evaluated.
D. Cost behaviour is always assumed to depend on more 41. In which approach to costs estimation, is task
than one cost driver AND costs and benefits of using analysis used?
sophisticated and costly cost-estimation methods must A. Account classification
be evaluated. B. Engineering method
C. High–low method
35. If a very short time period, such as a week, is used D. Managerial judgement
for a regression study, rather than a longer period such
as a month: 42. In which approach to cost estimation, is least squares
A. coping with inflation becomes more difficult. used?
B. accounting measurement errors are more likely. A. Engineering method
C. time and motion studies will be required to B. High–low method
supplement the cost and volume data. C. Regression analysis
D. coping with inflation becomes more difficult AND D. Managerial judgement
time and motion studies will be required to supplement
the cost and volume data. 43. Which of the following statements are assumptions
underlying cost estimation?
36. In assessing the costs and benefits of using a A. Cost behaviour depends on one or a few activities.
particular cost driver, which of the following must be B. All costs are production driven.
taken into account? C. There is a strong correlation between the cost and the
i. The availability of cost data. cost driver.
ii. The time frame for analysing the cost behaviour. D. Cost behaviour depends on one or a few activities
iii. Whether it is a fixed or variable cost. AND there is a strong correlation between the cost and
A. i the cost driver.
B. ii 44. Which of the following are valid reasons for a firm
C. i and ii not using objective techniques?
D. i and iii i. Data may not be available.
ii. Cost estimates are sufficiently accurate for the firm's
37. In activity-based costing analysis, the manufacturing purposes.
manager's salary is classified as a: iii. Accountants may be ignorant of appropriate
A. unit cost. techniques.
B. batch cost. iv. The firm gives low priority to cost estimation.
C. product cost. A. i and ii
D. facility cost. B. i, ii and iii
C. ii, iii and iv
38. In activity-based costing analysis, direct materials D. i, ii and iv
are classified as a:
A. unit cost. 45. Which of the following are important in estimating
B. batch cost. the cost of machine maintenance?
C. product cost. A. The relevant range
D. facility cost. B. The time period selected
C. The cost driver selected
39. In activity-based costing analysis, set-up costs are D. All of the given answers
classified as a:
A. unit cost. 46. When using regression analysis to determine
B. batch cost. estimated costs, what criteria are necessary to evaluate a
C. product cost. particular regression line?
D. facility cost. A. Closeness to pre-analysis guess
B. Goodness of fit
C. Coefficient of determination
D. Goodness of fit AND coefficient of determination
 TACC507 Midterm Test Revision (Ch1-3)
47. In the regression formula Y = a + bX, b is: 52. For a manufacturer of kitchens, which of the
A. the slope of the line. following would you expect to be a fixed cost?
B. the cost driver. A. Hourly labour cost of employee installing kitchens
C. the intercept on the vertical axis. B. Material for kitchen benchtops
D. the dependent variable. C. Adhesive for benchtops
D. Rent of factory premises
48. Which of the following statements is most complete 53. For a manufacturer of kitchens, which of the
and correct? following would you expect to be a direct cost?
A. Activity-based costing uses non-volume-based cost A. Hourly labour cost of employees installing kitchens
drivers only. B. Material for kitchen benchtops
B. Activity-based costing uses volume-based cost C. Hourly labour cost of employees installing kitchens
drivers. AND material for kitchen benchtops
C. Activity-based costing recognises that both volume- D. Rent of factory premises
based and non-volume-based cost drivers may be
appropriate. 54. Which of the following increases as volume of
D. None of the given answers. activity decreases?
A. Fixed cost per unit
49. For a fixed cost, as volume increases: B. Variable cost per unit
A. the cost behaviour depends on the type of fixed cost C. Total fixed cost
involved. D. Total variable cost
B. total fixed costs remain constant and fixed costs per
unit increase. 55. Which of the following is not an example of a cost
C. both total fixed costs and fixed costs per unit remain driver for a delivery truck?
constant. A. Location of customers
D. total fixed costs remain constant and fixed costs per B. Depreciation
unit decrease. C. Litres of fuel used
D. Number of customers
50. Consider the following equation:
Total cost = fixed costs + (cost driver rate  cost driver 56. Which of the following is an example of an
quantity) engineered cost?
If a cost can be estimated using this equation, it is A. Direct materials
probably a: B. Advertising
A. fixed cost. C. Insurance
B. variable cost. D. Factory supervisor's salary
C. mixed or semivariable cost.
D. non-linear cost. 57. Which term describes a cost resulting from the
existence of the organisational structure and premises
51. Lawson Lumber uses the high–low method to used by the firm?
estimate electricity cost, which varies in relation to A. Discretionary
machine hours. Based on the following data, how would B. Fixed
the cost function be stated if ‘X' is the number of C. Committed
machine hours? D. Engineered

58. Which of the following would always be a mixed

(semivariable) cost for a firm?
A. Raw materials because it includes direct and indirect
materials
B. Direct labour
C. Manufacturing overhead
D. Raw materials AND manufacturing overhead
59. An example of a discretionary cost for a firm that
A. $525 + $0.35 X manufactures furniture is:
A. direct material.
B. $300 + $0.50 X B. advertising.
C. labour.
C. $500 + $0.50 X D. glue and nails.

D. $470 + $0.35 X
 TACC507 Midterm Test Revision (Ch1-3)
60. Eldervale Winery is a producer of premium wine. Which of the following statements represent a valid
Which of the following is an example of a unit level conclusion based on the above regression analysis
cost? output?
A. The cost of the labels on each bottle of wine A. 54.4% of transportation cost can be explained by the
B. The cost of designing the labels on a wine bottle number of cargos.
C. Advertising costs B. The F-statistic is considered significant; therefore, the
D. Costs of delivering wine to customers relationship in the regression is unlikely to happen by
chance.
61. Which of the following statements about the C. The p-value associated with the intercept suggests
coefficient of determination (R2) is correct? that the delivery costs are entirely variable.
D. Given the t-statistic, number of cargos is a poor cost
A. R2 is a measure of economic plausibility. driver of delivery cost.

B. The higher the R2, the more confident we are when

using a regression model to predict costs.

C. R2 is a measure of data accuracy.

D. R2 is a useful measure only for simple regressions.

62. The results of the regression analysis to estimate

delivery costs are as follows:
63. Which of the following is an appropriate cost
equation based on the above regression output?
A. Delivery costs = $366.39 + $0.58 X1, where X1 is the
number of cargos.
B. Delivery costs = $0.662 + $2.985 X1, where X1 is the
number of cargos.
C. Delivery costs = $242.51 + $1.74 X1, where X1 is the
number of cargos.
D. Delivery costs = $48861.07 + $1.74 X1, where X1 is
the number of cargos.

64. The following is an extract of a cost report for Big

Whale Car Wash for the six months from June to
November. Management considers the activities in these
six months as within the relevant range for the purpose
of cost estimation.

The car washing labour cost is a:

 TACC507 Midterm Test Revision (Ch1-3)
A. variable cost. 67. ‘Time and motion studies' refers to:
B. fixed cost. A. the process in which managers use their judgment to
C. step-fixed cost. estimate the time it takes to carry out each individual
D. Semi-variable cost. work task, in order to estimate cost.
B. the process in which employees complete timesheets
65. The following is an extract of a cost report for Big each day; the timesheets then form the basis for cost
Whale Car Wash for the six months from June to estimation.
November. Management considers the activities in these C. the process in which employees are observed when
six months as within the relevant range for the purpose they undertake work tasks; these observations are then
of cost estimation. used to estimate cost.
D. the process in which the cost of work tasks are
compared over time and across different divisions.

68. When a manager notices an outlier during the cost

estimation process, the appropriate response is to:
A. no response is required, unless multiple outliers are
observed.
B. attempt to identify the reasons for the outlier.
C. divide the outlier by the standard deviation, before
including the outlier in the regression model
T D. re-collect all the data, as an outlier indicates that the
he car washing labour cost is a: data has been corrupted.

A. variable cost.
B. fixed cost. 69. An activity or factor that causes costs to be incurred
C. step-fixed cost. is known as a
D. semi-variable. A. cost prediction.
B. cost estimation.
66. The following is an extract of a cost report for Big C. cost driver.
Whale Car Wash for the six months from June to D. cost behaviour.
November. Management considers the activities in these
six months as within the relevant range for the purpose 70. The main reason for analysing cost behaviour is to
of cost estimation. A. provide estimates of cost behaviour.
B. provide estimates for cost predictions.
C. provide a timeframe for analysing cost behaviour.
D. provide estimates of cost behaviour for cost
predictions.

71. When estimating cost behaviours, the

appropriateness of the drivers can be tested by
measuring the strength of the relationship between
A. past costs and their selected cost driver.
B. past costs and future costs.
C. past costs and predicted costs.
D. predicted costs and their selected driver.
The car washing labour cost is a:
A. variable cost. 72. To test the significance of a result using the
B. fixed cost. regression equation as a whole and to assess that the
C. step-fixed cost. result is not due to random factors, management would
D. semi-variable. consider the result of the
A. F-statistic.
B. adjusted R2.
C. p-value.
D. co-efficient.
 TACC507 Midterm Test Revision (Ch1-3)
73. Truweight Ltd has introduced a new line of weight
machines for the catering industry which has required
additional steps in the production line. During the first
two months of production the labour time for the weight
machines was as follows:

T
he learning curve percentage is

A. 10 per cent.
B. 90 per cent.
C. 100 per cent.
D. 110 per cent.

74. The average labour time per unit for February was
A. 1800 hours.
B. 100 hours.
C. 90 hours.
D. 80 hours.