Advanced Managerial and Cost Accounting Practice Exam Quiz
Which of the following is a characteristic of process costing?
A) Costs are assigned to specific jobs or batches.
B) It is used when products are indistinguishable from each other.
C) It is suitable for custom-made products.
D) It assigns costs based on the number of units produced.
The contribution margin ratio is calculated as:
A) (Sales – Variable Costs) / Sales
B) (Sales – Fixed Costs) / Sales
C) Variable Costs / Sales
D) Fixed Costs / Sales
In a job order costing system, overhead is applied to jobs based on:
A) Actual overhead costs incurred.
B) Predetermined overhead rates.
C) The number of units produced.
D) The direct labor hours worked.
Which of the following is NOT a component of the balanced scorecard?
A) Financial perspective
B) Customer perspective
C) Internal business processes perspective
D) Market share perspective
The break-even point in units is calculated by:
A) Fixed Costs / Contribution Margin per Unit
B) Fixed Costs / Sales Price per Unit
C) Contribution Margin per Unit / Fixed Costs
D) Sales Price per Unit / Contribution Margin per Unit
Which costing method assigns all manufacturing costs to the product, regardless of whether they are variable or fixed?
A) Variable costing
B) Absorption costing
C) Activity-based costing
D) Job order costing
In activity-based costing, overhead costs are assigned to products based on:
A) The number of units produced.
B) The direct labor hours worked.
C) The activities required to produce the product.
D) The sales price of the product.
Which of the following is a limitation of using standard costing?
A) It provides a benchmark for performance evaluation.
B) It may not reflect current operating conditions.
C) It simplifies cost allocation.
D) It enhances decision-making.
The margin of safety represents:
A) The difference between actual sales and break-even sales.
B) The amount by which sales can drop before the company incurs a loss.
C) The fixed costs of the company.
D) The contribution margin per unit.
Which of the following is a feature of variable costing?
A) Fixed manufacturing overhead is treated as a product cost.
B) It is required for external financial reporting.
C) It treats fixed manufacturing overhead as a period cost.
D) It includes all manufacturing costs in the cost of goods sold.
Which of the following is an example of a sunk cost?
A) The cost of raw materials used in production.
B) The salary of a factory supervisor.
C) The purchase price of equipment that is no longer in use.
D) The cost of electricity used in manufacturing.
The high-low method is used to estimate:
A) Fixed costs.
B) Variable costs.
C) Total costs.
D) Contribution margin.
Which of the following is a characteristic of a flexible budget?
A) It is based on a single level of activity.
B) It adjusts for changes in activity levels.
C) It is used only for external reporting.
D) It does not consider variable costs.
In cost-volume-profit analysis, the contribution margin is:
A) Sales minus fixed costs.
B) Sales minus variable costs.
C) Sales minus total costs.
D) Sales minus fixed and variable costs.
Which of the following is a limitation of using absorption costing?
A) It may lead to overproduction.
B) It treats fixed manufacturing overhead as a period cost.
C) It is not accepted under GAAP.
D) It does not allocate fixed manufacturing overhead to products.
Which of the following is a characteristic of job order costing?
A) Costs are accumulated by department.
B) It is used when products are homogeneous.
C) It assigns costs to specific jobs or batches.
D) It is suitable for continuous production processes.
The weighted average method in process costing:
A) Assigns costs based on the number of units started during the period.
B) Considers only the costs of units started and completed during the period.
C) Averages the costs of beginning inventory and current period production.
D) Assigns costs based on the number of units completed during the period.
Which of the following is a feature of a just-in-time (JIT) inventory system?
A) Large inventory levels to meet production needs.
B) High carrying costs for inventory.
C) Efficient use of inventory, aiming for minimal inventory levels.
D) Emphasis on maximizing batch production sizes.
Which of the following methods is used to allocate indirect costs in activity-based costing (ABC)?
A) The total number of units produced.
B) The cost drivers related to each activity.
C) The total sales revenue.
D) The machine hours used by each department.
What is the primary purpose of managerial accounting?
A) To prepare financial statements for external users.
B) To provide financial information for making decisions within the organization.
C) To ensure compliance with tax laws.
D) To calculate gross profit margin for external reporting.
The concept of relevant costs involves:
A) All costs that are incurred in the production process.
B) Only those costs that differ between alternatives and affect the decision.
C) Only fixed costs that are common across all alternatives.
D) All costs, whether or not they will be incurred.
In which situation would you apply absorption costing?
A) When preparing internal performance reports.
B) For external financial reporting in accordance with GAAP.
C) For making short-term pricing decisions.
D) When analyzing the impact of variable costs on profitability.
Which of the following is an example of a sunk cost?
A) The salary of a newly hired factory worker.
B) A payment made for raw materials used in production.
C) The cost of a machine purchased last year that cannot be resold.
D) The cost of electricity for a factory running in the current month.
The operating leverage effect is strongest when:
A) The company has a high proportion of variable costs.
B) The company has a high proportion of fixed costs.
C) The company’s sales are near the break-even point.
D) The company has a large amount of liquid assets.
Which of the following is a characteristic of a flexible budget?
A) It adjusts for changes in activity levels and reflects the actual cost structure.
B) It is used only to evaluate variances at the end of the period.
C) It remains static regardless of changes in production levels.
D) It is useful for preparing financial statements for external reporting.
What is the primary purpose of a cost driver in activity-based costing?
A) To allocate fixed costs evenly across all products.
B) To determine the cause of a cost incurred by a particular activity.
C) To calculate the break-even point for each product.
D) To assess the profitability of a single product line.
Which of the following is a characteristic of variable costing?
A) Fixed manufacturing overhead is treated as a product cost.
B) It includes both variable and fixed manufacturing costs in the cost of goods sold.
C) Fixed manufacturing overhead is treated as a period cost.
D) It requires more complex cost allocations compared to absorption costing.
In cost-volume-profit (CVP) analysis, the margin of safety is:
A) The amount by which sales can drop before the company reaches its break-even point.
B) The total sales revenue minus fixed costs.
C) The level of sales needed to cover both fixed and variable costs.
D) The difference between actual sales and projected sales.
Which of the following is a key advantage of using activity-based costing (ABC) over traditional costing methods?
A) ABC is simpler to implement than traditional costing methods.
B) ABC provides more accurate product cost information by allocating overhead costs more precisely.
C) ABC uses a single cost driver for all activities, simplifying cost allocation.
D) ABC only focuses on direct costs, excluding indirect costs.
Which of the following best describes the concept of “economic order quantity” (EOQ)?
A) The optimal order size that minimizes the total inventory costs.
B) The amount of inventory to be produced in a single run.
C) The amount of inventory a company should carry in anticipation of a stock-out.
D) The cost of storing inventory over a fixed period.
What is the purpose of a cost-volume-profit (CVP) analysis?
A) To determine the profitability of a business based on current sales.
B) To determine the impact of sales, cost, and price changes on profit.
C) To measure the company’s sales relative to industry benchmarks.
D) To allocate fixed costs to each product line.
Which of the following is most commonly used in a manufacturing environment to assign costs to products?
A) Job order costing
B) Process costing
C) Activity-based costing
D) Standard costing
The following costs are incurred in a factory during a month: direct materials used $15,000; direct labor $10,000; variable manufacturing overhead $5,000; fixed manufacturing overhead $8,000; and selling expenses $6,000. What is the total manufacturing cost for the month?
A) $38,000
B) $40,000
C) $45,000
D) $44,000
Which of the following statements about absorption costing is TRUE?
A) Absorption costing excludes fixed manufacturing overhead from the cost of goods sold.
B) Absorption costing assigns all manufacturing costs to products, including fixed manufacturing overhead.
C) Absorption costing treats variable selling and administrative expenses as product costs.
D) Absorption costing is less complex than variable costing.
Which of the following formulas is used to calculate the contribution margin ratio?
A) Contribution Margin / Sales Price per Unit
B) (Sales – Fixed Costs) / Total Sales
C) Contribution Margin / Variable Costs
D) (Sales – Variable Costs) / Sales
What is the effect of an increase in fixed costs on a company’s break-even point?
A) It will decrease the break-even point.
B) It will have no effect on the break-even point.
C) It will increase the break-even point.
D) It will make the break-even point negative.
In a process costing system, when the work-in-process inventory consists of both completed and partially completed units, the costs are allocated using:
A) The number of units produced.
B) The weighted-average method or FIFO method.
C) The number of direct labor hours.
D) The total direct materials cost.
A company is considering discontinuing a product. Which of the following costs should NOT be considered in the decision?
A) Fixed manufacturing overhead allocated to the product.
B) Direct materials and direct labor costs.
C) Variable costs associated with producing the product.
D) Sunk costs related to prior investments in the product.
What is the purpose of using flexible budgets?
A) To allocate fixed costs evenly across all products.
B) To adjust for changes in volume and reflect the actual cost structure at various levels of activity.
C) To predict the impact of future economic conditions on profitability.
D) To prepare budgets that do not change based on actual results.
In activity-based costing (ABC), which of the following is most likely to be a cost driver for a product assembly activity?
A) The number of machine hours used in the production.
B) The number of units sold to customers.
C) The number of purchase orders placed.
D) The number of customers served.
Which of the following is an advantage of using activity-based costing (ABC) over traditional costing methods?
A) ABC is more time-consuming and complex.
B) ABC is typically used for external financial reporting.
C) ABC provides a more accurate allocation of overhead costs to products.
D) ABC eliminates the need for cost drivers.
Which of the following best defines “incremental cost”?
A) The total cost of production at a given level of output.
B) The cost of producing one additional unit of a product or service.
C) The average cost of producing all units in a batch.
D) The cost that does not change regardless of production levels.
What is the purpose of a variance analysis in cost accounting?
A) To calculate the selling price of a product.
B) To compare actual costs with expected or standard costs and determine the reasons for differences.
C) To determine the number of units produced during a given period.
D) To establish cost behavior patterns for the company.
A company is considering whether to accept a special order at a lower price. Which of the following costs should be considered when making the decision?
A) Sunk costs.
B) Fixed costs that will not change with the special order.
C) Variable costs that will be incurred for the special order.
D) Depreciation on assets already purchased.
What is the primary difference between job order costing and process costing?
A) Job order costing is used for mass production, while process costing is used for customized products.
B) Job order costing assigns costs to each job or batch, while process costing assigns costs to processes or departments.
C) Job order costing allocates indirect costs evenly, while process costing uses a single cost driver.
D) Job order costing is used only for service industries, while process costing is used for manufacturing industries.
In a break-even analysis, what does the contribution margin represent?
A) The amount of revenue that exceeds variable costs and contributes to covering fixed costs.
B) The total revenue generated from the sale of a product.
C) The portion of fixed costs that is covered by variable costs.
D) The profit margin on each unit sold.
Which of the following is a key feature of standard costing?
A) It involves comparing actual costs with budgeted costs to determine variances.
B) It uses variable costing to assign direct and indirect costs.
C) It is applied primarily for external financial reporting.
D) It eliminates the need for budgeting in management accounting.
A company sells a product for $100 per unit. The variable costs per unit are $40, and fixed costs are $200,000. What is the break-even point in units?
A) 2,000 units
B) 1,500 units
C) 3,000 units
D) 4,000 units
Which of the following would most likely be considered a period cost under variable costing?
A) Depreciation on factory machinery.
B) Direct materials used in production.
C) Administrative expenses.
D) Manufacturing labor.
Which of the following is considered a relevant cost in decision-making?
A) Sunk costs
B) Fixed manufacturing overhead allocated to a product
C) Variable costs for additional units produced
D) Depreciation on past investments
Which of the following is NOT an example of a fixed cost?
A) Rent expense for factory space
B) Salaries of supervisory staff
C) Direct materials used in production
D) Insurance premiums
A company manufactures two products using the same production process. If the company uses joint cost allocation, which method should it apply to allocate joint costs?
A) Contribution margin method
B) Sales value at split-off method
C) Activity-based costing
D) Direct labor hours method
Which of the following best describes the concept of “contribution margin per unit”?
A) Total revenue minus total fixed costs.
B) The amount by which sales revenue exceeds variable costs.
C) The total contribution margin for a given period.
D) The break-even point in sales dollars.
What is the primary purpose of using a flexible budget?
A) To predict future sales based on current conditions.
B) To adjust budgeted figures for actual levels of activity.
C) To determine fixed costs for financial statements.
D) To allocate overhead costs based on actual production.
In a make-or-buy decision, which of the following would be considered a relevant cost?
A) Depreciation on existing machinery.
B) Fixed costs that will remain the same regardless of the decision.
C) Additional costs for outsourcing the product.
D) Historical costs of the product.
Which of the following statements about process costing is true?
A) Process costing is used when a company manufactures unique products.
B) Process costing assigns costs to individual units of a product.
C) Process costing is typically used in industries where products are mass-produced and homogeneous.
D) Process costing is used only for external financial reporting.
What is the primary purpose of the high-low method?
A) To predict sales using historical data.
B) To estimate fixed and variable costs based on the highest and lowest levels of activity.
C) To calculate the break-even point.
D) To allocate overhead costs to different departments.
In a job order costing system, when goods are finished and transferred to the warehouse, which of the following accounts is credited?
A) Work in Process Inventory
B) Finished Goods Inventory
C) Cost of Goods Sold
D) Manufacturing Overhead
Which of the following is the most appropriate way to treat costs associated with unused capacity in absorption costing?
A) Allocate them to finished goods.
B) Include them as part of fixed overhead in the period incurred.
C) Ignore them, as they are irrelevant.
D) Treat them as variable manufacturing costs.
Which of the following is a characteristic of a decentralized organization?
A) The decision-making authority is concentrated at the top level.
B) Managers at lower levels have the authority to make decisions.
C) Centralized decision-making leads to greater flexibility.
D) It is less responsive to customer needs.
What is the main difference between direct and indirect costs?
A) Direct costs can be traced directly to a cost object, while indirect costs cannot.
B) Direct costs are incurred in the production process, while indirect costs are not.
C) Direct costs are variable, while indirect costs are fixed.
D) Direct costs are expensed immediately, while indirect costs are capitalized.
Which of the following is considered a period cost under absorption costing?
A) Direct materials
B) Direct labor
C) Administrative expenses
D) Manufacturing overhead
In which of the following scenarios would a company most likely use an activity-based costing (ABC) system?
A) When producing a few high-volume products.
B) When the company operates in a competitive industry with many low-cost products.
C) When manufacturing complex products with diverse cost drivers.
D) When a company has standardized and uniform processes.
What does the term “cost of goods sold” (COGS) refer to?
A) The total expenses incurred in producing goods.
B) The cost of raw materials used in production.
C) The cost of goods that were sold during a period.
D) The fixed costs incurred in a production period.
What is the primary objective of job order costing?
A) To assign costs to similar products in large quantities.
B) To determine the cost of a specific job or order.
C) To compute the break-even point for each unit sold.
D) To allocate indirect costs evenly across all products.
Which of the following costs would NOT be classified as a direct cost?
A) Direct labor
B) Direct materials
C) Factory supervisor’s salary
D) Direct production supplies
Which of the following is the best example of a variable cost?
A) Rent for factory space
B) Depreciation on machinery
C) Direct labor costs per unit
D) Fixed monthly salaries
In an activity-based costing system, which of the following is used to assign overhead costs to cost objects?
A) Direct labor hours
B) Activity drivers
C) Total cost pools
D) Fixed costs
A company with a high degree of operating leverage will experience:
A) A low impact on profits from changes in sales.
B) A high risk but higher potential reward due to fixed costs.
C) Minimal effects from changes in fixed costs.
D) A decrease in profits due to low fixed costs.
Which of the following is NOT a step in preparing a flexible budget?
A) Identify relevant activity levels for the budget.
B) Calculate variable costs based on the cost per unit.
C) Adjust fixed costs based on changes in activity levels.
D) Prepare a budget for a specific level of activity.
What is the effect of a decrease in variable costs per unit on the break-even point?
A) The break-even point increases.
B) The break-even point remains unchanged.
C) The break-even point decreases.
D) The break-even point fluctuates unpredictably.
What is the main objective of a cost allocation system?
A) To assign overhead costs evenly across all products.
B) To match costs with the revenue generated from specific products.
C) To determine the most efficient method of production.
D) To identify costs that should be avoided.
What does the term “margin of safety” refer to in cost accounting?
A) The percentage of sales that can decrease before a business reaches its break-even point.
B) The difference between total revenue and fixed costs.
C) The amount of contribution margin required to cover fixed costs.
D) The amount of revenue generated by selling excess inventory.
Which of the following is NOT a typical use of managerial accounting information?
A) Planning future activities and budgets
B) Evaluating the company’s performance
C) Preparing external financial statements
D) Making cost control decisions
Which of the following methods allocates overhead costs based on the activities that drive costs?
A) Activity-based costing
B) Job order costing
C) Process costing
D) Absorption costing
In a decision involving multiple alternatives, the relevant cost is defined as:
A) The cost that will be incurred regardless of the decision.
B) The cost that differs between the alternatives.
C) The sunk cost from past decisions.
D) The cost of financing future investments.
Which of the following is a key characteristic of a sunk cost?
A) It can be avoided if a specific decision is made.
B) It is relevant for future decision-making.
C) It has already been incurred and cannot be changed.
D) It varies with the level of production.
A company produces two products, A and B, with the following costs and sales prices:
Product A: Sales price = $50, Variable cost = $30, Contribution margin = $20
Product B: Sales price = $60, Variable cost = $40, Contribution margin = $20
If the company sells 200 units of each product, what is the total contribution margin?
A) $4,000
B) $6,000
C) $8,000
D) $10,000
Which of the following is a major disadvantage of using standard costing?
A) It ignores fixed costs.
B) It is too complex for large organizations.
C) It can create conflicts between management and employees if variances are not explained.
D) It is more expensive than other costing systems.
In a flexible budget, how are fixed costs treated?
A) Fixed costs are adjusted based on activity levels.
B) Fixed costs remain the same regardless of activity levels.
C) Fixed costs are allocated based on production units.
D) Fixed costs are excluded from the flexible budget.
A company is using an activity-based costing system. Which of the following is the most appropriate activity driver for allocating assembly costs?
A) Direct labor hours
B) Number of units produced
C) Machine hours
D) Direct materials costs
When allocating overhead costs in an activity-based costing system, what is the first step?
A) Identify the activity centers.
B) Assign costs to the activity centers.
C) Determine the activity drivers.
D) Compute the overhead rate.
In a make-or-buy decision, the relevant costs for making a product include:
A) Fixed overhead that will remain the same regardless of the decision.
B) Sunk costs related to equipment purchase.
C) Variable costs associated with production.
D) Depreciation on factory machinery.
If the contribution margin ratio is 40%, how much in sales would be needed to achieve a target profit of $10,000, if fixed costs are $30,000?
A) $25,000
B) $100,000
C) $75,000
D) $50,000
Which of the following is an example of a discretionary cost?
A) Depreciation on factory equipment.
B) Advertising expenses.
C) Direct labor wages.
D) Rent on production facilities.
Which of the following is NOT a method for allocating joint costs in joint product costing?
A) Physical units method
B) Sales value at split-off method
C) Average cost method
D) Net realizable value method
The primary benefit of using activity-based costing is that it:
A) Provides more accurate product costing by identifying cost drivers.
B) Simplifies cost allocation for fixed costs.
C) Reduces the need for cost control measures.
D) Provides more information on fixed overhead costs.
In a job order costing system, when raw materials are issued to the production process, which account is debited?
A) Work in Process Inventory
B) Finished Goods Inventory
C) Raw Materials Inventory
D) Manufacturing Overhead
The break-even point in units can be calculated using the formula:
A) Fixed Costs ÷ Contribution Margin per unit
B) Fixed Costs ÷ Sales Price per unit
C) Contribution Margin per unit ÷ Variable Costs per unit
D) Fixed Costs ÷ Variable Costs per unit
In a cost-volume-profit (CVP) analysis, which of the following is considered a “non-variable” factor?
A) Sales volume
B) Selling price per unit
C) Fixed costs
D) Variable cost per unit
Which of the following is the correct formula for the contribution margin ratio?
A) (Sales – Variable Costs) ÷ Sales
B) (Sales – Fixed Costs) ÷ Sales
C) (Fixed Costs – Variable Costs) ÷ Sales
D) Sales ÷ Contribution Margin per unit
What is the main disadvantage of using absorption costing?
A) It does not assign any fixed costs to products.
B) It requires a more complicated system for cost allocation.
C) It can result in overproduction to absorb fixed costs.
D) It ignores variable costs in determining the cost per unit.
In an activity-based costing system, costs are assigned to:
A) Cost objects based on the activities required to produce them.
B) Departments that produce the goods.
C) Products based on direct labor hours used.
D) The production process directly.
What is the purpose of a cost-volume-profit (CVP) graph?
A) To determine the profit levels at different sales volumes.
B) To calculate the contribution margin ratio.
C) To estimate the effect of price changes on profitability.
D) To calculate the break-even point in terms of revenue.
In a manufacturing environment, a company should allocate overhead costs using a method that is based on:
A) The cost of raw materials.
B) The method of labor hours used.
C) The production activities that consume overhead resources.
D) The total sales volume of the company.
A company is considering replacing an old machine with a new one. Which of the following is a relevant factor in this decision?
A) The depreciation on the old machine.
B) The salvage value of the old machine.
C) The historical cost of the old machine.
D) The original purchase price of the old machine.
What does a cost driver represent in activity-based costing?
A) A cost that is affected by changes in production levels.
B) An activity that causes a cost to be incurred.
C) The allocation base for fixed costs.
D) A factor that reduces variable costs.
What is the main goal of target costing?
A) To determine the maximum cost that can be incurred while still achieving the desired profit margin.
B) To minimize fixed and variable costs in the production process.
C) To calculate the cost of producing each unit of product.
D) To allocate overhead costs to production departments.
Which of the following is an example of a committed fixed cost?
A) Salaries of employees in the marketing department
B) Rent for factory space
C) Advertising budget
D) Sales commissions
Which of the following methods is typically used to allocate costs when the product is mass-produced in a continuous flow?
A) Job order costing
B) Process costing
C) Activity-based costing
D) Direct costing
A company produces two products. The direct costs are as follows:
Product A: Direct materials = $20, Direct labor = $15
Product B: Direct materials = $30, Direct labor = $25
If the company wants to allocate a $10,000 overhead cost between the two products based on direct labor costs, how much overhead will be allocated to Product A?
A) $4,000
B) $5,000
C) $6,000
D) $7,000
What is the break-even point in sales dollars calculated by?
A) Contribution margin per unit × Units sold
B) Fixed costs ÷ Contribution margin ratio
C) Total sales ÷ Variable cost per unit
D) Total fixed costs ÷ Contribution margin per unit
In a process costing system, if equivalent units are calculated for direct materials, what does it represent?
A) The number of units of direct materials in the process.
B) The number of partially completed units that could have been completed given the amount of direct materials used.
C) The total cost of direct materials used in production.
D) The total number of units produced during a period.
In job order costing, which of the following accounts is debited when factory overhead is applied to production?
A) Factory Overhead
B) Work in Process Inventory
C) Finished Goods Inventory
D) Manufacturing Overhead Control
A company has fixed costs of $40,000, variable costs of $10 per unit, and a selling price of $20 per unit. How many units must be sold to break even?
A) 2,000 units
B) 4,000 units
C) 6,000 units
D) 8,000 units
The contribution margin is best used to:
A) Determine the break-even point.
B) Allocate overhead costs to products.
C) Calculate the tax impact of profits.
D) Track the sales revenue of a company.
Which of the following is a limitation of traditional costing systems?
A) They allocate all costs, including fixed costs, based on a single activity driver.
B) They are highly detailed and difficult to implement.
C) They tend to focus too much on variable costs.
D) They do not allocate any indirect costs to products.
In which situation would a company most likely use job order costing?
A) When producing large quantities of identical products.
B) When producing customized products based on specific orders.
C) When manufacturing products in a continuous flow process.
D) When the products are mass-produced with little customization.
In a flexible budget, which of the following costs is adjusted as the level of activity changes?
A) Depreciation on machinery
B) Salaries of employees in the accounting department
C) Variable manufacturing costs
D) Rent for factory space
The main objective of variance analysis is to:
A) Control costs by identifying deviations from budgeted costs.
B) Determine the break-even point of a company.
C) Allocate fixed costs to each department.
D) Calculate the cost of capital.
What is the first step in preparing a master budget?
A) Prepare the capital expenditure budget.
B) Prepare the sales budget.
C) Prepare the cash budget.
D) Prepare the direct materials budget.
Which of the following is a characteristic of activity-based costing (ABC)?
A) It allocates indirect costs using a single cost driver.
B) It assigns costs based on resource consumption by activities.
C) It is suitable for only manufacturing companies.
D) It simplifies cost allocation by using broad averages.
If the actual sales are $250,000, variable costs are $150,000, and fixed costs are $50,000, what is the contribution margin ratio?
A) 40%
B) 60%
C) 50%
D) 25%
Which of the following is a characteristic of a process costing system?
A) It is used for large, homogeneous products.
B) It is used for custom jobs with unique specifications.
C) It tracks costs for each individual job.
D) It focuses on direct labor costs.
In a cost-volume-profit (CVP) analysis, a higher contribution margin ratio will result in:
A) A lower break-even point.
B) A higher break-even point.
C) A lower required sales volume to break even.
D) A higher total cost structure.
In activity-based costing (ABC), which of the following would most likely be an example of an activity driver for a “machining” activity?
A) Number of units produced
B) Machine hours used
C) Direct labor hours
D) Number of purchase orders
Which of the following is NOT typically a fixed cost?
A) Rent on office space
B) Depreciation of factory equipment
C) Direct labor costs
D) Insurance premiums
The direct materials price variance is computed by:
A) (Actual quantity × Standard price) – (Actual cost)
B) (Actual cost) – (Standard quantity × Standard price)
C) (Actual price × Actual quantity) – (Standard cost)
D) (Actual price – Standard price) × Actual quantity
Which of the following is an example of a semi-variable cost?
A) Rent on factory space
B) Sales commission
C) Electricity cost that has both a fixed monthly fee and a variable usage charge
D) Direct materials costs
In absorption costing, which of the following costs is included in the cost of goods sold?
A) Only variable manufacturing costs
B) Only fixed manufacturing costs
C) Both variable and fixed manufacturing costs
D) Only direct materials costs
Which of the following is the correct formula for calculating the margin of safety in units?
A) Actual sales – Break-even sales
B) Break-even sales ÷ Actual sales
C) Contribution margin ÷ Fixed costs
D) Total sales ÷ Contribution margin
In an absorption costing system, which of the following will NOT be included in the calculation of the cost of goods manufactured?
A) Direct materials used
B) Direct labor
C) Variable selling expenses
D) Factory overhead
When using a flexible budget, how is the budget adjusted for a change in activity level?
A) Only fixed costs are adjusted.
B) Only variable costs are adjusted.
C) Both fixed and variable costs are adjusted.
D) No adjustments are made to the budget.
What is the purpose of the high-low method?
A) To determine the fixed and variable components of a mixed cost.
B) To determine the break-even point of a business.
C) To allocate costs among different departments.
D) To calculate the profit margin.
Which of the following is an example of a sunk cost?
A) The purchase price of machinery that is no longer in use.
B) The cost of raw materials currently in inventory.
C) The cost of repairs for machinery in use.
D) The cost of labor incurred during the production process.
In a job order costing system, what account is credited when a company records the purchase of raw materials?
A) Work in Process Inventory
B) Finished Goods Inventory
C) Raw Materials Inventory
D) Accounts Payable
The cost of goods manufactured can be determined by which of the following formulas?
A) Beginning finished goods + Cost of goods sold – Ending finished goods
B) Beginning work in process + Total manufacturing costs – Ending work in process
C) Beginning raw materials + Purchases – Ending raw materials
D) Total fixed costs + Total variable costs
Which of the following is a limitation of using the traditional costing system?
A) It assigns overhead costs based on multiple cost drivers.
B) It may not accurately allocate overhead costs for diverse products.
C) It is more complicated than activity-based costing.
D) It eliminates the need for cost allocation.
In target costing, the target cost is determined by:
A) Subtracting the desired profit margin from the target price.
B) Adding the fixed costs to the target price.
C) Adding the variable costs to the target price.
D) Subtracting the total costs from the target revenue.
A company produces 10,000 units with a unit cost of $15. If fixed costs total $50,000, how much does the company need to sell to break even?
A) 3,334 units
B) 5,000 units
C) 7,000 units
D) 10,000 units
In a make-or-buy decision, which of the following should be considered relevant?
A) Sunk costs
B) Depreciation on current equipment
C) The variable cost of making the product
D) The historical cost of labor
A company has a contribution margin of $250,000 and fixed costs of $200,000. What is the margin of safety in sales dollars?
A) $50,000
B) $200,000
C) $500,000
D) $450,000
What does the degree of operating leverage measure?
A) The percentage change in profit relative to the percentage change in sales.
B) The amount of debt used in financing a company’s operations.
C) The sensitivity of sales to changes in variable costs.
D) The fixed cost burden on a company.
When using the weighted average method in process costing, how is the cost of units transferred out calculated?
A) The cost of the units started and completed during the period.
B) The cost of all units in process at the beginning of the period.
C) The sum of the cost of units in beginning inventory and the cost of units started during the period.
D) The cost of completed units divided by the number of units in process.
In an absorption costing system, which of the following costs is NOT assigned to products?
A) Fixed selling expenses
B) Variable manufacturing overhead
C) Direct labor costs
D) Direct materials costs
In process costing, which of the following is NOT an essential element?
A) The calculation of equivalent units.
B) The calculation of unit costs.
C) The allocation of fixed costs.
D) The identification of work in process inventory.
When direct materials are issued to production under job order costing, which of the following accounts is debited?
A) Work in Process Inventory
B) Finished Goods Inventory
C) Raw Materials Inventory
D) Cost of Goods Sold
Which of the following statements is true regarding the cost of capital?
A) The cost of capital is irrelevant to investment decisions.
B) The cost of capital represents the return required by investors.
C) The cost of capital is only applicable to equity financing.
D) The cost of capital is the same for all types of investments.
The contribution margin per unit can be calculated by:
A) Sales price per unit – Total fixed costs
B) Sales price per unit – Variable cost per unit
C) Variable cost per unit – Sales price per unit
D) Total sales – Total costs
Which of the following is the main focus of differential analysis?
A) Comparing actual costs to budgeted costs.
B) Deciding between alternative courses of action based on relevant costs.
C) Allocating fixed overhead to various departments.
D) Analyzing financial statements for investors.
In job order costing, how are costs assigned to specific jobs?
A) Using predetermined rates.
B) Based on the cost of raw materials used.
C) By tracking labor and overhead directly to the job.
D) By estimating total overhead costs.
Which of the following is NOT a typical example of an indirect cost in manufacturing?
A) Factory rent
B) Direct labor wages
C) Depreciation of factory equipment
D) Utilities for the factory
The break-even point in units can be calculated using the formula:
A) Fixed costs ÷ Contribution margin ratio
B) Fixed costs ÷ (Sales price per unit – Variable cost per unit)
C) Fixed costs ÷ Variable cost per unit
D) Contribution margin ÷ Fixed costs
Which of the following statements is true regarding variable costs?
A) Variable costs remain constant per unit as production volume changes.
B) Variable costs change in total as production volume changes.
C) Variable costs include both fixed and semi-variable costs.
D) Variable costs are unaffected by production levels.
Which of the following is an example of a cost that would be included in the cost of goods sold under absorption costing?
A) Variable selling expenses
B) Fixed selling expenses
C) Direct materials costs
D) Administrative expenses
Which of the following methods of costing is best suited for continuous production of homogeneous products?
A) Process costing
B) Job order costing
C) Activity-based costing
D) Direct costing
A company is considering two alternative courses of action. What information should be considered in the decision?
A) Sunk costs and fixed costs.
B) Relevant costs and fixed costs.
C) Relevant costs and revenues.
D) Only the variable costs.
A company’s margin of safety is:
A) The difference between total sales and the break-even point.
B) The amount by which sales can drop before the company begins to lose money.
C) The ratio of contribution margin to sales.
D) The fixed costs in the company’s cost structure.
Which of the following is a feature of an absorption costing system?
A) It includes only variable costs in the cost of goods sold.
B) It allocates both fixed and variable manufacturing costs to products.
C) It ignores fixed manufacturing overhead in product costs.
D) It assigns all costs to inventory until the goods are sold.
Which of the following would be considered a relevant cost in a make-or-buy decision?
A) Sunk costs
B) Historical costs
C) Fixed manufacturing costs
D) Future costs that differ between alternatives
Which of the following is a characteristic of standard costing?
A) It involves allocating costs based on actual production.
B) It uses predetermined rates to assign costs to products.
C) It ignores variances between actual and expected costs.
D) It focuses on past production data to improve future performance.
The formula for calculating the contribution margin ratio is:
A) Contribution margin ÷ Sales price per unit
B) Contribution margin ÷ Total fixed costs
C) Total sales ÷ Contribution margin
D) Sales revenue ÷ Variable costs
Which of the following is an example of a non-financial performance measure?
A) Return on investment (ROI)
B) Customer satisfaction index
C) Net profit margin
D) Return on assets (ROA)
The cost of goods manufactured includes which of the following?
A) All fixed costs associated with manufacturing.
B) Only direct costs such as materials and labor.
C) Direct materials, direct labor, and factory overhead costs.
D) Only direct materials and labor costs.
Which of the following is a key characteristic of a just-in-time (JIT) inventory system?
A) Large inventories are maintained to ensure production continuity.
B) Materials are ordered and received only when needed for production.
C) Finished goods are stored until customer demand increases.
D) The system focuses on reducing direct labor costs.
The term “cost driver” refers to:
A) A factor that causes a cost to be incurred.
B) The level of output that leads to the lowest cost.
C) The proportion of fixed costs in total costs.
D) A tool used to allocate overhead costs.
In a variable costing system, which of the following is included in the cost of goods sold?
A) Only variable production costs
B) Both fixed and variable production costs
C) Fixed selling expenses
D) Administrative expenses
A company is using a flexible budget. The budget variance is:
A) The difference between actual results and the flexible budget.
B) The difference between the original and flexible budgets.
C) The difference between actual results and the original budget.
D) The variance due to fixed costs.
Which of the following is an advantage of using activity-based costing (ABC)?
A) ABC simplifies cost allocation by using broad averages.
B) ABC provides more accurate cost information for decision-making.
C) ABC ignores overhead costs that cannot be directly traced.
D) ABC is less costly to implement than traditional costing methods.
The formula for calculating return on investment (ROI) is:
A) Net income ÷ Total assets
B) Net income ÷ Equity
C) Net income ÷ Revenue
D) Net income ÷ Investment
Which of the following would be considered a fixed cost in the short term?
A) Direct labor costs
B) Direct materials costs
C) Factory rent
D) Utility costs that vary with production
The purpose of a balanced scorecard is to:
A) Provide a single metric for evaluating company performance.
B) Align financial and non-financial measures to assess overall company performance.
C) Focus solely on financial outcomes and profitability.
D) Measure only internal operations performance.
In which of the following cases would a company most likely use process costing?
A) Custom-built machinery production.
B) Mass production of consumer electronics.
C) Construction of commercial buildings.
D) Specialized medical equipment manufacturing.
The relevant range is defined as:
A) The range of production levels at which fixed costs vary.
B) The range of sales levels that a company can achieve.
C) The range of output where variable costs remain constant.
D) The range of activity within which a company’s cost assumptions are valid.
If the contribution margin per unit is $20 and the fixed costs are $100,000, the break-even point in units is:
A) 5,000 units
B) 4,000 units
C) 3,000 units
D) 2,000 units
In cost-plus pricing, the price is determined by:
A) Adding a markup to the cost of production.
B) Subtracting production costs from the target price.
C) Using the competition’s pricing strategy.
D) Adjusting the price for inflation.
What does the high-low method help to estimate?
A) The total fixed and variable costs in a mixed cost.
B) The break-even point for a company.
C) The total overhead costs.
D) The contribution margin ratio.
In job order costing, what is the purpose of a predetermined overhead rate?
A) To allocate actual overhead costs to jobs.
B) To apply overhead based on estimated costs.
C) To calculate variable overhead costs.
D) To determine the break-even point.
Which of the following statements is true about a company’s cost structure?
A) A high proportion of fixed costs results in lower financial risk.
B) A company with a higher fixed cost structure has more sensitivity to changes in sales volume.
C) Variable costs are the same at all levels of production.
D) Variable costs decrease as production increases.