PART ONE — GENERAL TERMS

1. Introduction to Management Accounting (Chapter 1)

Management Accounting supports planning, control, and decision-making. It serves
managers, not external users. It is not constrained by GAAP and focuses on future-oriented
information.
Main functions:
- Planning: defining goals, evaluating alternatives.
- Control: comparing actual vs. budget, analyzing variances.
- Decision-making: using relevant information, ignoring sunk costs.
Differences between Management Accounting (MA) and Financial Accounting (FA):

Economic information includes:

- Financial information
- Non-financial information
Users of accounting information include managers, shareholders, employees, banks,
creditors, government, and the public.
2. Introduction to Cost Terms and Concepts (Chapter 2)
Direct vs. Indirect Costs:
- Direct: traced directly to a cost object.
- Indirect: allocated via overhead.
Product vs. Period Costs:
- Product costs go to inventory.
- Period costs are expensed immediately.
Cost behavior categories:
- Variable, fixed, mixed, step costs.
Relevant cost principles:
- Relevant costs differ between choices and occur in the future.
- Irrelevant: sunk and unavoidable costs.
Opportunity cost: benefit lost by choosing another option.
PART TWO — INVENTORY VALUATION & PROFIT MANAGEMENT
3. Cost Assignment (Chapter 3)
Cost object: a product, service, project, customer, or department.
Allocation:
- Direct tracing for direct costs.
- Indirect allocation using cause-and-effect or arbitrary methods.
Two-stage allocation process:
1. Allocate overhead to cost centers.
2. Allocate cost centers to products.
Blanket overhead rate: one rate for the whole plant — less accurate.
Departmental rate: more precise.
Service department costs must be reallocated to production departments before being
assigned to products.
4. Job Costing – Accounting Entries (Chapter 4)
Flow of costs:
Raw Materials → Work in Process → Finished Goods → COGS
Key accounts:
- Raw Material Control
- WIP Control
- Factory OH Control
- Finished Goods Inventory
- COGS
5. Income Effects of Alternative Cost Systems (Chapter 7)
Absorption vs. Variable Costing:
Absorption = DM + DL + Variable OH + Fixed OH
Variable = DM + DL + Variable OH (Fixed OH is period cost)
Income difference:
- If production > sales → Absorption income increases.
- If production < sales → Absorption income decreases.
PART THREE — INFORMATION FOR DECISION-MAKING
6. CVP Analysis (Chapter 8)
Break-even (units) = Fixed Costs ÷ Contribution Margin per unit
Break-even (sales) = Fixed Costs ÷ CM Ratio
Target profit = (Fixed Costs + Target Profit) ÷ CM per unit
Includes margin of safety and operating leverage.
7. Relevant Costs for Decision-making (Chapter 9)
Used for:
- Make or buy decisions
- Special orders
- Keep/drop products
- Sell/process further
- Equipment replacement
Only future costs that differ between alternatives are relevant.
8. Pricing Decisions & Profitability Analysis (Chapter 10)
Methods include:
- Cost-plus pricing
- Target costing
- Short- and long-run pricing
PART FOUR — BUDGETING
9. The Budgeting Process (Chapter 15)
Objectives:
Planning, coordination, communication, control, responsibility accounting.
Master Budget:
a.​ oerating Budget:
- Sales, Production, Direct Material, Direct Labor, Overhead
- Selling & Admin, Ending Inventory, COGS
- Budgeted Income Statement
b.​ Financial Budget:
- Cash Budget
- Capital Budget
- Budgeted Balance Sheet
PART A — THEORY (20 QUESTIONS)

1. Which account increases with a debit?

a) Accounts Payable​
b) Common Stock​
c) Cash​
d) Sales Revenue

2. Which account increases with a credit?

a) Wages Expense​
b) Cash​
c) Cost of Goods Sold​
d) Sales Revenue

3. Direct materials are classified as…

a) Product cost​
b) Period cost​
c) Administrative cost​
d) Mixed cost

4. Factory rent is a…

a) Direct material​
b) Direct labor​
c) Manufacturing overhead​
d) Selling expense

5. Sales commissions are…

a) Manufacturing overhead​
b) Period cost​
c) Product cost​
d) Direct labor
6. Fixed cost per unit…

a) Increases when volume increases​

b) Decreases when volume increases​
c) Stays constant​
d) Depends on total cost

7. Variable cost per unit…

a) Stays constant​
b) Always decreases​
c) Always increases​
d) Depends on overhead

8. Prime cost includes…

a) DM + DL​
b) DL + OH​
c) DM + OH​
d) OH only

9. Conversion cost includes…

a) DM + DL​
b) DL + OH​
c) DM + OH​
d) DM + Admin

10. A sunk cost is…

a) Relevant​
b) Avoidable​
c) A past cost​
d) A future cost

11. Opportunity cost refers to…

a) A cost paid for materials​
b) A cost incurred last year​
c) The benefit sacrificed​
d) A depreciation expense

12. Over-applied overhead means…

a) Actual OH > applied OH​

b) Actual OH < applied OH​
c) No overhead applied​
d) Overhead ignored

13. Indirect materials should be recorded as…

a) Dr WIP, Cr RM​
b) Dr Factory OH, Cr RM​
c) Dr FG, Cr RM​
d) Dr COGS, Cr RM

14. Management accounting is mainly…

a) For external users​

b) Past-oriented​
c) Required by law​
d) Future-oriented

15. Financial accounting must follow…

a) GAAP/IFRS​
b) Internal policy​
c) Manager preference​
d) Non-financial metrics
16. Economic information includes…

a) Only financial info​

b) Only non-financial info​
c) Both​
d) Neither

17. The two-stage allocation process is…

a) Direct → cost object​

b) Indirect → cost centres → cost objects​
c) Direct + indirect → cost object​
d) OH → materials → cost object

18. A cost object is…

a) A department​
b) Anything for which cost is measured​
c) A liability​
d) A cost driver

19. A cost centre is…

a) Customer​
b) Machine operator​
c) A department where costs accumulate​
d) A product

20. Inventory valuation must follow…

a) GAAP/IFRS​
b) Manager choice​
c) Marketing needs​
d) Variable costing only
🔹 PART B — CALCULATIONS (20 QUESTIONS)
**21. A company uses the following:

DM = $40​
DL = $25​
OH rate = 120% of DL​
What is the total manufacturing cost per unit?**

a) $65​
b) $70​
c) $95​
d) $113

**22. OH rate = $300,000 estimated OH / 50,000 machine hours

Applied OH for 12,000 machine hours = ?**

a) $50,000​
b) $72,000​
c) $80,000​
d) $100,000

**23. Estimated OH = $180,000; Actual OH = $200,000; Applied OH = $170,000.

Under- or over-applied OH = ?**

a) $10,000 under​
b) $10,000 over​
c) $20,000 under​
d) $30,000 under
**24. Fixed cost = $90,000; CM/unit = $15

Break-even units = ?**

a) 3,000​
b) 4,000​
c) 5,000​
d) 6,000

**25. Sales price = $50; VC/unit = $30; FC = $100,000

Break-even sales revenue = ?**

a) $200,000​
b) $250,000​
c) $300,000​
d) $500,000

**26. DM used = $120,000; DL = $80,000; OH = $100,000

COGM if WIP opening = $20,000 and WIP closing = $30,000**

a) $270,000​
b) $290,000​
c) $300,000​
d) $320,000

27. COGS if FG opening = $50,000; FG closing = $20,000; COGM = $300,000

a) $270,000​
b) $300,000​
c) $320,000​
d) $330,000
**28. High–low method:

At 5,000 units → Cost = $40,000​

At 9,000 units → Cost = $56,000​
Variable cost per unit = ?**

a) $2​
b) $3​
c) $4​
d) $5

29. Using Q28, fixed cost = ?

a) $10,000​
b) $12,000​
c) $14,000​
d) $20,000

**30. A company uses labor hours for OH application:

Budget OH = $240,000​
Budget labor hours = 60,000​
Actual labor hours = 50,000​
Applied OH = ?**

a) $150,000​
b) $180,000​
c) $200,000​
d) $240,000

31. Relevant cost for replacing equipment includes…

a) Original purchase cost​

b) Book value​
c) Disposal value​
d) Past repairs
32. Variable costing unit cost (DM = $20, DL = $10, VC OH = $5)

a) $25​
b) $30​
c) $35​
d) $40

33. Absorption costing OH/unit if total OH = $120,000 and 10,000 units produced

a) $6​
b) $8​
c) $10​
d) $12

34. Contribution margin ratio if SP = $50, VC = $35

a) 20%​
b) 25%​
c) 30%​
d) 40%

35. New BEP units if FC increases by $20,000 and CM/unit = $10

a) +1,000 units​
b) +2,000 units​
c) +3,000 units​
d) +4,000 units

36. Step-fixed cost changes when…

a) Volume changes slightly​

b) Volume exceeds capacity​
c) Materials prices fall​
d) Machines run faster

**37. Calculate DM used:

Opening RM = $30,000​
Purchases = $90,000​
Closing RM = $20,000**

a) $70,000​
b) $90,000​
c) $100,000​
d) $110,000

38. Gross margin = Sales $500,000 – COGS $320,000 = ?

a) $120,000​
b) $150,000​
c) $170,000​
d) $180,000

39. Applied OH = Predetermined OH rate × ?

a) Actual OH​
b) Estimated activity​
c) Actual activity​
d) Total cost

**40. Total mixed cost = Fixed cost + (VC/unit × units).

If FC = $10,000, VC = $4/unit, units = 6,000**

a) $24,000​
b) $30,000​
c) $34,000​
d) $36,000
SECTION A — JOURNAL ENTRIES (8 QUESTIONS)

**1. A company buys raw materials on credit for $12,000.

Write the entry. (Multiple Choice)**​

a) Dr RM 12,000; Cr Cash 12,000​
b) Dr RM 12,000; Cr A/P 12,000​
c) Dr WIP 12,000; Cr RM 12,000​
d) Dr A/P 12,000; Cr RM 12,000

2. Issue direct materials to production for $7,500.

a) Dr WIP; Cr RM​
b) Dr RM; Cr WIP​
c) Dr OH; Cr RM​
d) Dr COGS; Cr RM

3. Issue indirect materials for $2,000.

a) Dr OH; Cr RM​
b) Dr WIP; Cr RM​
c) Dr RM; Cr OH​
d) Dr FG; Cr RM

4. Pay factory wages: DL = $6,000; IL = $2,000.

a) Dr OH 8,000; Cr Cash 8,000​

b) Dr WIP 6,000; Dr OH 2,000; Cr Cash 8,000​
c) Dr WIP 8,000; Cr Cash 8,000​
d) Dr OH 6,000; Dr WIP 2,000; Cr Cash 8,000

5. Apply OH at 150% of direct labour (DL = $12,000).

a) Dr OH 18,000; Cr WIP 18,000​

b) Dr WIP 18,000; Cr OH 18,000​
c) Dr WIP 12,000; Cr OH 12,000​
d) Dr RM 18,000; Cr OH 18,000
6. Completed goods transferred to FG for $50,000.

a) Dr COGS; Cr WIP​
b) Dr FG; Cr WIP​
c) Dr WIP; Cr FG​
d) Dr Sales; Cr FG

7. Sold goods costing $40,000 for $70,000 credit.

What are the TWO entries?

Entry 1 (record COGS):​

a) Dr FG; Cr COGS​
b) Dr COGS; Cr FG​
c) Dr Cash; Cr FG

Entry 2 (record sales):​

a) Dr Cash; Cr Sales​
b) Dr A/R; Cr Sales​
c) Dr Sales; Cr A/R

8. Actual OH incurred = $25,000; applied OH = $20,000.

Under-applied OH adjustment:​
a) Dr OH 5,000; Cr COGS 5,000​
b) Dr COGS 5,000; Cr OH 5,000​
c) Dr WIP 5,000; Cr OH 5,000​
d) Dr RM 5,000; Cr OH 5,000

SECTION B — COST CLASSIFICATION (8 QUESTIONS)

9. Factory supervisor’s salary is…

a) Direct labor​
b) Direct material​
c) Manufacturing overhead​
d) Period cost
10. Advertising expense is…

a) Product cost​
b) Manufacturing overhead​
c) Period cost​
d) Direct material

11. Electricity used in the factory is…

a) Direct cost​
b) Indirect cost​
c) Period cost​
d) Prime cost

12. Prime cost = ?

a) DM + DL​
b) DL + OH​
c) DM + OH​
d) DM + DL + OH

13. Conversion cost = ?

a) DM + DL​
b) DL + OH​
c) DM + OH​
d) DM + admin

14. Depreciation of office building is…

a) Manufacturing OH​
b) Period cost​
c) Direct cost​
d) Prime cost
15. A sunk cost is…

a) Relevant​
b) Avoidable​
c) Future cost​
d) Past cost

16. Opportunity cost is…

a) Cash paid​
b) Benefit foregone​
c) Depreciation​
d) Direct cost

SECTION C — CALCULATIONS (22 QUESTIONS)

COGM / COGS (5 QUESTIONS)

**17. DM used?

RM Opening = 20,000​
Purchases = 60,000​
RM Closing = 10,000**

a) 50,000​
b) 60,000​
c) 70,000​
d) 80,000

**18. Total manufacturing cost?

DM = $30,000​
DL = $20,000​
OH = $15,000**
a) 50,000​
b) 55,000​
c) 60,000​
d) 65,000

**19. COGM?

Total manufacturing = 100,000​

WIP open = 10,000​
WIP close = 20,000**

a) 80,000​
b) 90,000​
c) 100,000​
d) 110,000

**20. COGS?

COGM = 150,000​
FG open = 25,000​
FG close = 40,000**

a) 135,000​
b) 150,000​
c) 165,000​
d) 175,000

**21. Gross profit?

Sales = 300,000​
COGS = 180,000**

a) 100,000​
b) 110,000​
c) 120,000​
d) 130,000
OVERHEAD ALLOCATION (7 QUESTIONS)

**22. Predetermined OH rate?

Estimated OH = 240,000​
Machine hours = 80,000**

a) 2​
b) 3​
c) 4​
d) 6

23. Apply OH: rate = $4/machine hour; actual hours = 12,000

a) 24,000​
b) 36,000​
c) 40,000​
d) 48,000

24. Actual OH = 50,000; Applied OH = 40,000.

OH is…​
a) Under-applied 10,000​
b) Over-applied 10,000​
c) Under-applied 40,000​
d) Over-applied 40,000

**25. Direct materials = 12,000; direct labor = 8,000; OH rate = 200% of DL.

Total cost per job?**

a) 20,000​
b) 24,000​
c) 28,000​
d) 32,000
**26. A department uses labor hours:

OH = 180,000​
Labor hours = 30,000​
OH rate?**

a) 3​
b) 4​
c) 5​
d) 6

27. If product used 600 labor hours, apply OH at rate from Q26.

a) 1,800​
b) 2,400​
c) 3,000​
d) 3,600

28. A company uses a plantwide rate but wants department rates instead. This makes
costing…

a) Less accurate​
b) More accurate​
c) The same​
d) Arbitrary

CVP / BEP (6 QUESTIONS)

**29. BEP units?

FC = 100,000​
Price = 50​
VC/unit = 30**

a) 3,000​
b) 4,000​
c) 5,000​
d) 6,000

**30. Contribution margin ratio?

Price = 40; VC = 25**

a) 35%​
b) 37.5%​
c) 40%​
d) 45%

**31. Target profit units?

FC = 90,000​
Profit = 30,000​
CM/unit = 12**

a) 7,500​
b) 8,000​
c) 10,000​
d) 12,000

**32. If FC increases by 20,000, BEP changes by…

CM = 10**

a) +2,000 units​
b) +3,000 units​
c) +4,000 units​
d) +5,000 units

**33. Margin of safety?

Sales = 400,000​
BEP sales = 300,000**
a) 50,000​
b) 75,000​
c) 100,000​
d) 150,000

34. Operating leverage high means…

a) Small sales increase → big profit increase​

b) Cost is low​
c) Variable cost dominates​
d) No risk

HIGH–LOW / MIXED COST (3 QUESTIONS)

**35. High–Low VC/unit?

At 10,000 units → cost 50,000​

At 6,000 units → cost 34,000**

a) 3​
b) 4​
c) 5​
d) 6

36. Fixed cost from Q35?

a) 10,000​
b) 14,000​
c) 18,000​
d) 20,000

**37. Mixed cost = FC + VC×units

FC = 15,000​
VC = 2.5​
Units = 12,000**
a) 30,000​
b) 40,000​
c) 45,000​
d) 48,000

MISC / CHALLENGE (3 QUESTIONS)

38. Which is relevant for decision-making?

a) Past cost​
b) Historical depreciation​
c) Future cash flows​
d) Sunk cost

39. Which cost is ALWAYS product cost?

a) Marketing​
b) Administrative salary​
c) Factory insurance​
d) Sales commission

40. Which item is NOT included in manufacturing overhead?

a) Factory utilities​
b) Factory supervisor​
c) Depreciation of production equipment​
d) CEO salary
1. A company purchased raw materials worth $24,000; paid 30% in cash, the rest
on account. What is the correct journal entry?

a) Dr RM 24,000; Cr Cash 24,000​

b) Dr RM 24,000; Cr Cash 7,200; Cr A/P 16,800​
c) Dr RM 24,000; Cr A/P 24,000​
d) Dr RM 7,200; Cr Cash 7,200; Cr A/P 16,800

2. Which of the following is a period cost?

a) Factory rent​
b) Office administrative salaries​
c) Indirect materials​
d) Direct labor

**3. Direct materials used?

RM Open: 18,000​
Purchases: 50,000​
RM Close: 22,000**​
a) 40,000​
b) 44,000​
c) 46,000​
d) 50,000

4. Issuing direct materials to production increases which account?

a) RM​
b) WIP​
c) FG​
d) COGS

5. Manufacturing overhead is applied at 150% of DL. DL = $32,000. OH applied

=?
a) 32,000​
b) 48,000​
c) 64,000​
d) 72,000

6. Actual OH = 90,000; Applied OH = 75,000. Over/under applied?

a) Over 15,000​
b) Under 15,000​
c) Over 75,000​
d) Under 75,000

7. Which cost is always irrelevant in decision making?

a) Variable cost​
b) Opportunity cost​
c) Sunk cost​
d) Direct cost

8. Which is a product cost?

a) Advertising​
b) CEO salary​
c) Factory supervisor salary​
d) Accounting fees

9. Prime cost = ?

a) DM + DL​
b) DL + OH​
c) DM + OH​
d) DM + DL + OH
10. A company sells units for $120. The variable cost is $70. CM/unit = ?

a) 40​
b) 45​
c) 50​
d) 55

**11. Overhead allocated using plantwide rate = Estimated OH / Estimated

machine hours.

OH = 500,000; MH = 100,000. Rate = ?**​

a) 2​
b) 3​
c) 4​
d) 5

12. Applied OH using rate from Q11 and 18,000 actual MH?

a) 72,000​
b) 80,000​
c) 88,000​
d) 90,000

13. Sales = 400,000; COGS = 260,000. Gross profit = ?

a) 120,000​
b) 130,000​
c) 140,000​
d) 150,000

14. Finished goods ending = 50,000; beginning = 35,000; COGS = 210,000.

COGM?

a) 195,000​
b) 225,000​
c) 245,000​
d) 260,000

15. Debit increases which account?

a) Revenue​
b) Liability​
c) Asset​
d) Equity

16. A factory machine depreciation is classified as…

a) Direct material​
b) Indirect material​
c) Manufacturing overhead​
d) Period cost

17. For inventory valuation, companies must follow…

a) No rules at all​
b) GAAP or IFRS​
c) Only internal standards​
d) Manager’s preference

18. For decision making, which is true?

a) Follow GAAP strictly​

b) Ignore irrelevant costs​
c) Include sunk cost​
d) Never ignore fixed costs

**19. High–Low Method:

High: 12,000 units → cost 90,000​

Low: 6,000 units → cost 54,000​
VC/unit = ?**​
a) 4​
b) 5​
c) 6​
d) 7

20. Fixed cost (use Q19 values)?

a) 12,000​
b) 18,000​
c) 24,000​
d) 30,000

**21. CVP:

FC = 180,000​
CM/unit = 30​
BEP (units) = ?**​
a) 4,000​
b) 5,000​
c) 6,000​
d) 7,000

**22. Margin of safety:

Actual sales 700,000​

BEP sales 520,000**​
a) 120,000​
b) 150,000​
c) 170,000​
d) 180,000

23. Issuing indirect materials requires…

a) Dr RM; Cr OH​
b) Dr OH; Cr RM​
c) Dr WIP; Cr RM​
d) Dr OH; Cr FG
**24. Department A uses DL hours.

Estimated OH = 160,000​
DL hours = 20,000**​
Rate?​
a) 6​
b) 7​
c) 8​
d) 10

25. A job uses 30 DL hours in Dept A (rate from Q24). OH applied = ?

a) 180​
b) 210​
c) 240​
d) 300

26. Conversion cost includes…

a) DM + DL​
b) DL + OH​
c) DM + OH​
d) DM + DL + OH

27. A sunk cost is…

a) Future cost​
b) Avoidable​
c) Always relevant​
d) Cannot be changed

28. COGS is recorded when…

a) Materials purchased​
b) Materials issued​
c) Goods sold​
d) OH applied
29. Under-applied OH means…

a) Actual < Applied​

b) Actual > Applied​
c) Overstated income​
d) No adjustment needed

30. A company used 2,000 machine hours. Overhead rate is 6 per MH. Applied
OH = ?

a) 6,000​
b) 10,000​
c) 12,000​
d) 14,000

31. RM used = 88,000. DL = 55,000. OH = 60,000. Total manufacturing cost?

a) 193,000​
b) 198,000​
c) 203,000​
d) 208,000

32. WIP Open = 25,000; WIP Close = 20,000; Manufacturing cost = 200,000.
COGM = ?

a) 195,000​
b) 200,000​
c) 205,000​
d) 220,000

33. Debit to COGS is required when overhead is…

a) Under-applied​
b) Over-applied​
c) Even​
d) Zero
34. A company sells units at 150 each. VC = 90. FC = 240,000. BEP units = ?

a) 2,500​
b) 3,000​
c) 4,000​
d) 5,000

35. Production supervisor salary is…

a) Indirect labor​
b) Direct labor​
c) Selling cost​
d) Period cost

36. Which is NOT a manufacturing overhead?

a) Factory utilities​
b) Factory rent​
c) Depreciation factory machine​
d) Delivery truck fuel

37. Salary of marketing manager is…

a) Product cost​
b) Period cost​
c) Direct labor​
d) Conversion cost

38. Applied OH = 120,000. Actual OH = 130,000. Adjustment?

a) Dr OH; Cr COGS​
b) Dr COGS; Cr OH​
c) No entry​
d) Dr FG; Cr OH
39. Opportunity cost is…

a) A future outflow​
b) A past cost​
c) The value of the next best alternative​
d) A variable cost

40. Which cost changes in total but stays constant per unit?

a) Fixed cost​
b) Variable cost​
c) Mixed cost​
d) Sunk cost