Sample Questions and Answers
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.
Answer: B) It is used when products are indistinguishable from each other.
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
Answer: A) (Sales – Variable 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.
Answer: B) Predetermined overhead rates.
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
Answer: 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
Answer: A) Fixed Costs / 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
Answer: B) Absorption 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.
Answer: C) The activities required to produce 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.
Answer: B) It may not reflect current operating conditions.
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.
Answer: B) The amount by which sales can drop before the company incurs a loss.
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.
Answer: C) It treats fixed manufacturing overhead as a period cost.
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.
Answer: C) The purchase price of equipment that is no longer in use.
The high-low method is used to estimate:
A) Fixed costs.
B) Variable costs.
C) Total costs.
D) Contribution margin.
Answer: A) Fixed costs.
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.
Answer: B) It adjusts for changes in activity levels.
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.
Answer: B) Sales minus 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.
Answer: A) It may lead to overproduction.
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.
Answer: C) It assigns costs to specific jobs or batches.
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.
Answer: C) Averages the costs of beginning inventory and current period production.
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.
Answer: C) Efficient use of inventory, aiming for minimal inventory levels.
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.
Answer: B) The cost drivers related to each activity.
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.
Answer: B) To provide financial information for making decisions within the organization.
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.
Answer: B) Only those costs that differ between alternatives and affect the decision.
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.
Answer: B) For external financial reporting in accordance with GAAP.
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.
Answer: C) The cost of a machine purchased last year that cannot be resold.
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.
Answer: B) The company has a high proportion of fixed costs.
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.
Answer: A) It adjusts for changes in activity levels and reflects the actual cost structure.
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.
Answer: B) To determine the cause of a cost incurred by a particular activity.
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.
Answer: C) Fixed manufacturing overhead is treated as a period cost.
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.
Answer: A) The amount by which sales can drop before the company reaches its break-even point.
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.
Answer: B) ABC provides more accurate product cost information by allocating overhead costs more precisely.
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.
Answer: A) The optimal order size that minimizes the total inventory costs.
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.
Answer: B) To determine the impact of sales, cost, and price changes on profit.
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
Answer: B) Process 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
Answer: B) $40,000
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