Advanced Managerial Accounting Exam Questions and Answers

Sample Questions and Answers

What is the purpose of a strategic cost management system?
A. To minimize costs by cutting all expenses.
B. To align the cost structure with the company’s competitive strategy.
C. To increase labor costs to improve productivity.
D. To maximize short-term profitability at the expense of long-term goals.
Answer: B

Which of the following would be classified as an internal failure cost in the cost of quality framework?
A. Costs related to rework.
B. Costs of repairs made after product defects are identified.
C. Warranty repair costs.
D. Lost sales due to poor quality.
Answer: A

Which of the following describes a strategy used in activity-based management (ABM)?
A. Reduce production output to decrease overhead costs.
B. Focus on cutting labor costs to improve profitability.
C. Increase the focus on non-value-added activities to improve quality.
D. Analyze activities to identify and reduce non-value-added activities.
Answer: D

In activity-based costing (ABC), what is the best way to allocate the costs associated with an activity such as machine maintenance?
A. Based on the number of units produced.
B. Based on the number of machine hours used.
C. Based on the number of workers employed.
D. Based on the amount of direct labor incurred.
Answer: B

What is the key objective of lean accounting?
A. To focus on maximizing inventory levels.
B. To eliminate waste and improve efficiency in financial reporting.
C. To reduce the amount of direct labor in production.
D. To increase the volume of production.
Answer: B

What is the definition of an “emerging accounting issue”?
A. An accounting standard that has been around for a long time but is being revised.
B. A new accounting challenge that requires attention due to changes in market conditions or business practices.
C. A minor update to an existing accounting rule.
D. A tax law change that affects accounting practices.
Answer: B

What is the purpose of activity-based costing in a manufacturing company?
A. To reduce direct labor costs.
B. To allocate overhead costs more accurately based on activities that drive costs.
C. To allocate costs equally across all departments.
D. To simplify the allocation of fixed costs.
Answer: B

In activity-based costing, which of the following is most likely to be classified as a product-level activity?
A. Depreciation on equipment used across all products.
B. Design costs related to a specific product.
C. Setup costs for a production run.
D. Direct materials used for each unit produced.
Answer: B

In a balanced scorecard, which of the following perspectives focuses on customer satisfaction and retention?
A. Financial perspective.
B. Customer perspective.
C. Internal business process perspective.
D. Learning and growth perspective.
Answer: B

In target costing, what is the target cost?
A. The maximum cost that can be spent on production to meet a competitive price.
B. The minimum cost required to break even.
C. The cost of producing goods without considering market competition.
D. The total cost incurred in the first production cycle.
Answer: A

Which of the following is the main objective of activity-based management (ABM)?
A. To increase sales through price adjustments.
B. To manage activities to eliminate inefficiencies and non-value-added costs.
C. To increase direct labor costs to improve product quality.
D. To allocate all fixed costs equally across all products.
Answer: B

Which of the following is an example of an external failure cost in the cost of quality framework?
A. Costs associated with inspecting raw materials.
B. Warranty repair costs for a defective product.
C. Costs of training workers on quality standards.
D. Rework costs for products that do not meet quality standards.
Answer: B

What is the key principle behind activity-based costing (ABC)?
A. Allocating costs based solely on labor hours.
B. Allocating costs based on the specific activities that consume resources.
C. Allocating costs equally across all products.
D. Reducing fixed costs to improve profitability.
Answer: B

Which of the following would be an example of a value-added activity?
A. Inspecting products for quality defects.
B. Transporting goods from the warehouse to the store.
C. Assembling parts into finished products.
D. Storing inventory in the warehouse.
Answer: C

What is the main goal of activity-based costing (ABC) in a company that produces multiple products?
A. To allocate overhead based on direct labor hours.
B. To allocate overhead costs to products based on the activities that consume resources.
C. To treat all products the same for cost allocation purposes.
D. To eliminate the need for direct materials cost tracking.
Answer: B

What is the purpose of using a flexible budget?
A. To eliminate variances between actual and budgeted costs.
B. To adjust the budget for changes in activity levels.
C. To set fixed costs for all periods.
D. To simplify cost control by ignoring changes in activity.
Answer: B

In activity-based costing, what is an activity driver?
A. A measure that traces cost to specific activities.
B. The rate at which overhead costs are allocated.
C. The total amount of direct costs incurred.
D. A tool used to eliminate waste in production.
Answer: A

How does activity-based costing improve decision-making?
A. By allocating costs equally across all products.
B. By providing more accurate cost information based on the activities that consume resources.
C. By reducing the need for detailed cost tracking.
D. By focusing only on direct materials costs.
Answer: B

What is the difference between direct costs and indirect costs in activity-based costing?
A. Direct costs are not assigned to products, while indirect costs are.
B. Direct costs are traceable to a product, while indirect costs cannot be directly traced.
C. Direct costs are considered fixed costs, while indirect costs are variable.
D. Direct costs are always higher than indirect costs.
Answer: B

Which of the following best describes a strategic cost management system?
A. A system designed to minimize production costs in the short term.
B. A system that focuses on reducing direct labor costs without considering long-term goals.
C. A system that aligns the company’s cost structure with its overall strategy.
D. A system that eliminates all non-value-added activities.
Answer: C

What is the purpose of cost allocation in activity-based costing?
A. To allocate all fixed costs evenly across all products.
B. To assign costs to activities based on the resources they consume.
C. To reduce total costs by eliminating unnecessary activities.
D. To allocate direct costs based on volume.
Answer: B

How does activity-based costing help companies identify non-value-added activities?
A. By allocating all costs equally across activities.
B. By tracking only fixed costs associated with activities.
C. By focusing on activities that consume resources but do not add value to the product or service.
D. By ignoring activities that do not directly contribute to production.
Answer: C

What is an example of a non-value-added activity in a manufacturing process?
A. Assembling the product.
B. Performing quality inspections.
C. Storing inventory in a warehouse.
D. Developing new product designs.
Answer: C

Which of the following is an example of a prevention cost in the cost of quality framework?
A. Rework costs for defective products.
B. Training employees to ensure quality standards are met.
C. Costs of inspecting products during production.
D. Costs of warranty repairs.
Answer: B

In target costing, which of the following is true about target profit?
A. It is subtracted from the target cost to determine the target price.
B. It is added to the target cost to determine the target price.
C. It is determined after the target cost is set.
D. It is irrelevant to the target costing process.
Answer: B

What is the major challenge when implementing activity-based costing (ABC)?
A. ABC is too costly and time-consuming to implement.
B. ABC requires fewer resources than traditional costing systems.
C. ABC does not provide any benefits for companies with simple cost structures.
D. ABC can only be applied in service-based industries.
Answer: A

How does activity-based management (ABM) help reduce costs?
A. By focusing on maximizing production output.
B. By analyzing and eliminating non-value-added activities.
C. By increasing labor costs to improve efficiency.
D. By cutting all discretionary spending.
Answer: B

What is the difference between absorption costing and variable costing?
A. Absorption costing includes all costs in the cost of goods sold, while variable costing only includes variable production costs.
B. Absorption costing excludes fixed costs, while variable costing includes both fixed and variable costs.
C. Absorption costing includes only direct labor and materials, while variable costing includes all costs.
D. Absorption costing is used for external reporting, while variable costing is used for internal decision-making.
Answer: A

In the context of activity-based costing (ABC), what is a resource driver?
A. A factor used to allocate overhead costs to activities.
B. A measure of how much an activity consumes resources.
C. A rate used to allocate activity costs to cost objects.
D. A tool to determine the cost of labor.
Answer: B

Which of the following is a characteristic of target costing?
A. It is used to determine the cost of new products after they are developed.
B. It focuses on setting a price and then reducing costs to meet the target.
C. It focuses solely on increasing sales revenue.
D. It ignores competition in the pricing process.
Answer: B

What is the main focus of strategic cost management?
A. Reducing overhead costs to increase profitability.
B. Aligning cost structure with the organization’s overall strategy to achieve competitive advantage.
C. Focusing on short-term cost cutting measures.
D. Increasing revenue while ignoring cost considerations.
Answer: B

In activity-based costing, the costs of activities that do not directly contribute to production are referred to as:
A. Non-value-added costs.
B. Direct costs.
C. Variable costs.
D. Fixed costs.
Answer: A

What does an activity-based costing system help a company to achieve?
A. Simplified financial reporting.
B. A more accurate allocation of overhead costs to products.
C. Uniform allocation of all indirect costs across all products.
D. Elimination of non-manufacturing costs.
Answer: B

Which of the following is the primary advantage of using activity-based costing (ABC) over traditional costing methods?
A. It requires less data to allocate costs.
B. It provides more accurate cost information by focusing on activities.
C. It eliminates the need for cost drivers.
D. It is simpler to implement than traditional costing methods.
Answer: B

What is a cost driver in activity-based costing?
A. A factor that causes changes in the cost of an activity.
B. A factor that determines the price of a product.
C. A factor used to allocate fixed costs to products.
D. A variable that remains unchanged regardless of production levels.
Answer: A

In target costing, what is meant by the term “target price”?
A. The maximum price that a customer is willing to pay for a product.
B. The price at which a company expects to sell the product to achieve the desired profit.
C. The cost of producing a product without any profit margin.
D. The price set by competitors for a similar product.
Answer: B

What is the primary purpose of quality cost reporting?
A. To determine the price at which products should be sold.
B. To track costs associated with ensuring product quality.
C. To allocate costs based on the resources consumed.
D. To improve the organization’s pricing strategy.
Answer: B

In a cost of quality framework, what are appraisal costs?
A. Costs associated with inspecting and testing products to ensure they meet quality standards.
B. Costs incurred due to product defects after the product reaches the customer.
C. Costs of preventing defects before they occur.
D. Costs related to the disposal of defective products.
Answer: A

How does activity-based costing (ABC) improve cost management?
A. By focusing on reducing fixed costs only.
B. By allocating all overhead costs based on volume of production.
C. By identifying the activities that consume resources and assigning costs based on those activities.
D. By simplifying all cost allocation methods.
Answer: C

Which of the following best defines activity-based management (ABM)?
A. A method to allocate costs based on labor hours.
B. A system for managing activities to reduce costs and increase efficiency.
C. A tool for pricing products based on activity costs.
D. A method of financial reporting for activity-based costing systems.
Answer: B

In an activity-based costing system, which of the following is the most appropriate cost driver for machine maintenance activities?
A. Direct labor hours.
B. Number of machine hours used.
C. Number of products produced.
D. Number of workers employed.
Answer: B

What is the key difference between activity-based costing and traditional costing systems?
A. ABC allocates costs based solely on direct labor, while traditional costing allocates overhead on the basis of a single cost driver.
B. ABC assigns overhead costs more accurately based on the activities that drive costs, while traditional costing allocates overhead uniformly across products.
C. ABC assigns all fixed costs to products, while traditional costing assigns only variable costs.
D. ABC requires more data collection but is simpler to implement than traditional costing.
Answer: B

Which of the following best describes the “capacity cost rate” in activity-based management?
A. The cost per unit of output produced at full capacity.
B. The overhead rate used to allocate costs to products.
C. The rate charged to customers for using production capacity.
D. The fixed cost per unit of activity consumed.
Answer: A

What is the purpose of quality management in managerial accounting?
A. To track the financial impact of customer complaints.
B. To control costs associated with quality issues, such as rework and defects.
C. To measure the profitability of different products.
D. To allocate marketing costs for quality improvement efforts.
Answer: B

What does the concept of “emerging accounting issues” refer to?
A. New accounting standards and practices that are under development or gaining adoption.
B. Accounting issues that no longer require attention due to their resolution.
C. Established practices used for financial reporting in a stable market.
D. Techniques for reducing tax liabilities through accounting manipulation.
Answer: A

Which of the following is an example of an internal failure cost in the cost of quality framework?
A. Warranty claims.
B. Product recalls.
C. Costs associated with scrap and rework during production.
D. Repair costs for defective products sold.
Answer: C

Which of the following is an example of a non-financial performance measure used in strategic cost management?
A. Return on investment (ROI).
B. Customer satisfaction.
C. Profit margin.
D. Cost of goods sold.
Answer: B

How can emerging accounting issues influence managerial accounting?
A. By introducing new cost allocation methods that affect pricing strategies.
B. By reducing the importance of cost management in financial reporting.
C. By eliminating the need for activity-based costing systems.
D. By focusing only on the calculation of earnings per share.
Answer: A

In activity-based costing, how are costs assigned to products?
A. Based on direct labor hours worked.
B. Based on a combination of the direct material cost and the production time.
C. Based on the activities that drive costs, such as machine hours or setup times.
D. Based solely on the volume of products produced.
Answer: C