Sample Questions and Answers
Which of the following types of costs does activity-based costing (ABC) allocate to products?
Only direct materials and direct labor costs
B. All costs, including direct and indirect costs
C. Only fixed manufacturing overhead
D. Only variable manufacturing overhead
Answer: B
In cost-volume-profit (CVP) analysis, if the selling price per unit increases, what happens to the break-even point?
The break-even point decreases.
B. The break-even point increases.
C. The break-even point remains unchanged.
D. The effect on the break-even point depends on fixed costs.
Answer: A
Which of the following is a characteristic of variable costing?
It includes all costs in the cost of goods sold.
B. It treats fixed manufacturing overhead as a period cost.
C. It is primarily used for external reporting.
D. It allocates fixed manufacturing overhead to inventory.
Answer: B
In job-order costing, which of the following would be considered a direct cost for a construction project?
Equipment depreciation
B. Project manager’s salary
C. Direct labor for the construction workers
D. General administrative expenses
Answer: C
Which of the following is true about absorption costing?
It allocates fixed costs as period costs.
B. It includes both fixed and variable manufacturing costs in the cost of goods sold.
C. It is used primarily for internal reporting.
D. It is typically not accepted for external financial reporting.
Answer: B
Which of the following is NOT typically included in a flexible budget?
Estimated fixed costs
B. Estimated variable costs
C. Actual costs incurred
D. Expected revenue based on activity level
Answer: C
The primary purpose of cost-volume-profit (CVP) analysis is to:
Determine the appropriate allocation of fixed costs
B. Analyze the relationship between costs, sales, and profits
C. Allocate activity costs to various departments
D. Set target sales prices based on cost data
Answer: B
A company’s fixed costs are $500,000, and its contribution margin per unit is $50. How many units must the company sell to achieve a target profit of $200,000?
10,000 units
B. 12,000 units
C. 14,000 units
D. 20,000 units
Answer: B
In process costing, the total cost of production is divided by the:
Number of units in the beginning inventory.
B. Number of units produced in the period.
C. Number of units completed.
D. Total sales revenue for the period.
Answer: B
Job-order costing is best suited for:
Industries that produce homogeneous products in large volumes.
B. Custom-made products or specialized services.
C. Mass production of a standard product.
D. Service industries that offer standard packages.
Answer: B
A company applies overhead based on machine hours. If the predetermined overhead rate is $20 per machine hour and a job used 100 machine hours, what is the applied overhead?
$1,000
B. $2,000
C. $2,500
D. $4,000
Answer: B
If a company experiences underapplied overhead, which of the following is true at the end of the period?
The company has applied more overhead than it actually incurred.
B. The company needs to decrease its total expenses.
C. The company will need to increase its overhead rate for the next period.
D. The company has applied less overhead than it actually incurred.
Answer: D
In activity-based costing (ABC), what is the first step in assigning overhead costs to products?
Identifying the activities that consume resources
B. Determining the total fixed costs for the period
C. Calculating the contribution margin ratio
D. Estimating the future sales volume
Answer: A
In variable costing, how is fixed manufacturing overhead treated when a company produces more units than it sells?
It is included in the cost of goods sold.
B. It is prorated and allocated to each unit produced.
C. It is treated as a period cost and expensed immediately.
D. It is treated as an inventory cost and carried forward.
Answer: C
When using absorption costing, if inventory increases during a period, which of the following is true?
The cost of goods sold will be higher.
B. The income reported will be lower compared to variable costing.
C. The net income will be unaffected.
D. The cost of goods sold will be unaffected.
Answer: B
Variable costing would generally be most useful for:
External financial reporting.
B. Setting sales prices.
C. Preparing income statements for tax purposes.
D. Internal decision-making regarding pricing and product lines.
Answer: D
Which of the following best describes activity-based management (ABM)?
A cost allocation method used to distribute costs based on activities
B. A system to allocate direct costs to departments
C. A method to analyze the costs of activities and improve efficiency
D. A system to manage fixed costs
Answer: C
If a company has fixed costs of $300,000 and a contribution margin ratio of 40%, what is the break-even sales revenue?
$400,000
B. $500,000
C. $600,000
D. $750,000
Answer: C
In job-order costing, which of the following is the most appropriate method for applying overhead to a specific job?
Based on total direct labor costs
B. Based on a predetermined overhead rate
C. Based on direct materials used
D. Based on direct labor hours worked
Answer: B
If a company’s sales are $1,000,000 and the contribution margin ratio is 60%, what is the contribution margin in dollars?
$200,000
B. $400,000
C. $600,000
D. $1,600,000
Answer: C
In a flexible budget, how are costs treated?
Fixed costs are adjusted based on changes in activity levels, while variable costs remain constant.
B. Both fixed and variable costs are adjusted based on changes in activity levels.
C. Only variable costs are adjusted based on changes in activity levels.
D. Fixed costs are ignored entirely.
Answer: C
In activity-based costing (ABC), a cost driver is used to:
Allocate all direct costs to products.
B. Assign overhead costs to products based on the activities that cause the costs.
C. Determine the fixed costs for the period.
D. Set the sales prices for the product.
Answer: B
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