Q.1 What is the primary focus of strategic cost management?
Minimizing taxes
Maximizing production
Aligning costs with business strategy
Increasing sales only
Explanation - Strategic cost management emphasizes aligning cost structures with long-term business strategies, not just reducing expenses.
Correct answer is: Aligning costs with business strategy
Q.2 Which of the following is a key tool in strategic cost management?
Variance Analysis
Value Chain Analysis
Trial Balance
Bank Reconciliation
Explanation - Value chain analysis helps identify cost drivers and competitive advantages along business processes.
Correct answer is: Value Chain Analysis
Q.3 Activity-Based Costing (ABC) is often used in strategic cost management because it:
Eliminates fixed costs
Assigns costs based on activities
Focuses only on direct labor
Ignores overheads
Explanation - ABC traces costs to activities and then to products, improving cost accuracy and decision-making.
Correct answer is: Assigns costs based on activities
Q.4 Which strategy focuses on achieving cost leadership?
Offering premium services
Charging higher than competitors
Producing at lower costs than competitors
Focusing only on niche markets
Explanation - Cost leadership strategy is about sustaining the lowest cost structure in the industry to gain advantage.
Correct answer is: Producing at lower costs than competitors
Q.5 Target costing is best described as:
Setting price based on production cost
Determining cost based on market price and profit margin
Adding a markup to total costs
Using historical costs to set prices
Explanation - Target costing starts with a competitive market price and desired profit, then works backward to allowable cost.
Correct answer is: Determining cost based on market price and profit margin
Q.6 Benchmarking in cost management refers to:
Copying competitor’s costs
Comparing practices with best-in-class companies
Only reducing labor costs
Ignoring competitors
Explanation - Benchmarking compares processes and costs against industry leaders to identify improvement opportunities.
Correct answer is: Comparing practices with best-in-class companies
Q.7 The Balanced Scorecard is used in strategic cost management to:
Track only financial performance
Measure both financial and non-financial performance
Eliminate non-financial data
Focus solely on shareholder wealth
Explanation - The Balanced Scorecard balances financial measures with customer, process, and learning perspectives.
Correct answer is: Measure both financial and non-financial performance
Q.8 Which cost management approach emphasizes continuous improvement?
Kaizen costing
Standard costing
Absorption costing
Historical costing
Explanation - Kaizen costing focuses on incremental cost reductions through continuous improvements.
Correct answer is: Kaizen costing
Q.9 Life cycle costing considers:
Only production costs
Only post-sales costs
All costs from design to disposal
Only administrative costs
Explanation - Life cycle costing includes costs incurred over a product’s entire life span.
Correct answer is: All costs from design to disposal
Q.10 Which is NOT a feature of strategic cost management?
Future orientation
Focus on competitive advantage
Only historical reporting
Integration with strategy
Explanation - Strategic cost management is forward-looking and strategic, unlike purely historical cost reporting.
Correct answer is: Only historical reporting
Q.11 Customer profitability analysis in cost management focuses on:
Finding the cheapest supplier
Determining profit from individual customers
Analyzing production overheads
Ignoring customer-based costs
Explanation - Customer profitability analysis identifies which customers are most profitable by linking revenues to associated costs.
Correct answer is: Determining profit from individual customers
Q.12 In Porter’s competitive strategies, differentiation means:
Competing only on cost
Offering unique features valued by customers
Standardizing all products
Reducing customer service costs
Explanation - Differentiation focuses on providing unique value that justifies premium pricing.
Correct answer is: Offering unique features valued by customers
Q.13 Which type of cost is crucial for value chain analysis?
Sunk cost
Opportunity cost
Activity cost
Depreciation cost
Explanation - Value chain analysis examines activity costs to identify sources of value creation or waste.
Correct answer is: Activity cost
Q.14 Strategic cost drivers are factors that:
Change financial reporting standards
Influence cost behavior and structure
Only apply to fixed costs
Are unrelated to strategy
Explanation - Cost drivers determine how costs are incurred and are crucial in aligning with strategy.
Correct answer is: Influence cost behavior and structure
Q.15 Backflush costing is mostly associated with:
Traditional manufacturing
Just-In-Time (JIT) systems
Service industry
Government projects
Explanation - Backflush costing simplifies costing in JIT environments by recording costs at completion rather than at each stage.
Correct answer is: Just-In-Time (JIT) systems
Q.16 A key feature of Just-in-Time (JIT) cost management is:
High inventory levels
Elimination of waste
Focus on batch production
Heavy reliance on forecasting
Explanation - JIT emphasizes reducing inventory and eliminating non-value-adding activities.
Correct answer is: Elimination of waste
Q.17 Which approach sets cost reduction targets annually?
Standard costing
Kaizen costing
Target costing
Marginal costing
Explanation - Kaizen costing continuously sets annual cost reduction goals to encourage improvement.
Correct answer is: Kaizen costing
Q.18 In strategic cost management, opportunity cost is:
The cost already incurred
The potential benefit lost when choosing an alternative
Always equal to fixed cost
A book-keeping entry
Explanation - Opportunity cost reflects the value of the next best alternative forgone.
Correct answer is: The potential benefit lost when choosing an alternative
Q.19 Which of the following is a limitation of traditional cost accounting?
Focuses on direct costs
Provides accurate product costing
Aligns with strategic goals
Emphasizes customer value
Explanation - Traditional cost systems often ignore indirect and strategic costs, limiting decision usefulness.
Correct answer is: Focuses on direct costs
Q.20 Which costing technique focuses on the environmental impact of costs?
Green costing
Standard costing
Absorption costing
Marginal costing
Explanation - Green costing incorporates environmental considerations in cost management strategies.
Correct answer is: Green costing
Q.21 Strategic position analysis includes examining:
Internal and external factors affecting cost strategy
Only fixed cost reports
Bank statements
Annual budgets
Explanation - Strategic position analysis helps determine how costs fit into the firm’s competitive environment.
Correct answer is: Internal and external factors affecting cost strategy
Q.22 A limitation of Activity-Based Costing (ABC) is:
Increased accuracy of costing
Complexity and high implementation cost
Focus on activities
Helps identify cost drivers
Explanation - Though accurate, ABC can be expensive and complex to implement.
Correct answer is: Complexity and high implementation cost
Q.23 In value chain analysis, support activities include:
Inbound logistics
Operations
Procurement
Outbound logistics
Explanation - Support activities such as procurement, HR, and technology development enable primary activities.
Correct answer is: Procurement
Q.24 Which is an example of a non-financial performance measure in strategic cost management?
Net Profit Margin
Inventory Turnover
Customer Satisfaction
Return on Investment
Explanation - Non-financial metrics like customer satisfaction support strategic performance beyond pure financials.
Correct answer is: Customer Satisfaction
Q.25 Strategic cost management primarily aims to:
Maximize short-term profits
Support long-term business strategy
Focus only on reducing labor costs
Ignore competition
Explanation - Its main goal is aligning cost practices with the long-term vision and competitive advantage of the business.
Correct answer is: Support long-term business strategy