Sample Questions and Answers
Which of the following best defines a variable cost?
a) A cost that remains constant per unit but varies in total with changes in activity level.
b) A cost that remains constant in total but varies per unit with changes in activity level.
c) A cost that does not change with changes in the level of activity.
d) A cost that is incurred only once.
Answer: a) A cost that remains constant per unit but varies in total with changes in activity level.
The contribution margin is calculated as:
a) Sales – Variable costs
b) Sales – Fixed costs
c) Sales – Total costs
d) Sales – Depreciation
Answer: a) Sales – Variable costs
A company is using absorption costing. Which of the following costs is included in the cost of goods manufactured?
a) Direct materials used
b) Advertising expenses
c) Sales commissions
d) Rent on office space
Answer: a) Direct materials used
Under which costing method is fixed manufacturing overhead treated as a period cost?
a) Absorption costing
b) Variable costing
c) Job order costing
d) Process costing
Answer: b) Variable costing
Which of the following is an example of a non-financial performance measure?
a) Return on investment (ROI)
b) Net income
c) Customer satisfaction
d) Earnings per share
Answer: c) Customer satisfaction
A company has the following sales and costs: Sales = $500,000, Variable Costs = $300,000, and Fixed Costs = $120,000. What is the contribution margin ratio?
a) 60%
b) 40%
c) 24%
d) 10%
Answer: a) 60%
Which inventory method results in the highest net income when prices are rising?
a) FIFO
b) LIFO
c) Weighted average
d) Specific identification
Answer: a) FIFO
In flexible budgeting, what does the term “activity level” refer to?
a) The number of units produced
b) The level of sales
c) The range of production activity
d) The production time per unit
Answer: c) The range of production activity
If actual production is greater than expected production, what is likely to happen to the fixed overhead variance?
a) It will be favorable
b) It will be unfavorable
c) It will have no effect
d) It will be zero
Answer: a) It will be favorable
Which of the following is true about a static budget?
a) It is prepared for a specific level of activity
b) It adjusts for changes in activity levels during the period
c) It includes both fixed and variable costs in a flexible way
d) It is only useful for manufacturing companies
Answer: a) It is prepared for a specific level of activity
Which of the following is a limitation of using financial measures alone to evaluate performance?
a) They do not reflect long-term goals.
b) They are always easy to measure.
c) They always correlate directly with productivity.
d) They are more accurate than non-financial measures.
Answer: a) They do not reflect long-term goals.
A company’s budgeted fixed costs are $150,000, and it expects to produce 100,000 units. The actual fixed costs were $160,000, and 90,000 units were produced. What is the fixed cost variance?
a) $10,000 favorable
b) $10,000 unfavorable
c) $20,000 favorable
d) $20,000 unfavorable
Answer: b) $10,000 unfavorable
The break-even point is calculated as:
a) Fixed costs / Contribution margin ratio
b) Contribution margin / Fixed costs
c) Sales price per unit / Contribution margin per unit
d) Fixed costs / Contribution margin per unit
Answer: d) Fixed costs / Contribution margin per unit
Which of the following best describes a sunk cost?
a) A cost that will be incurred in the future.
b) A cost that has already been incurred and cannot be recovered.
c) A cost that can be avoided if a decision is made.
d) A variable cost that changes with the level of production.
Answer: b) A cost that has already been incurred and cannot be recovered.
The direct materials cost is calculated by:
a) Adding the direct materials used to the opening inventory.
b) Subtracting the cost of materials purchased from the ending inventory.
c) Adding the cost of materials purchased to the opening inventory.
d) Adding the cost of materials purchased to the closing inventory.
Answer: c) Adding the cost of materials purchased to the opening inventory.
Which of the following is not a component of total cost in a cost-volume-profit analysis?
a) Fixed costs
b) Variable costs
c) Product price
d) Contribution margin
Answer: d) Contribution margin
Which of the following is a budgeting technique that involves reviewing each budget item in detail from scratch?
a) Incremental budgeting
b) Zero-based budgeting
c) Flexible budgeting
d) Historical budgeting
Answer: b) Zero-based budgeting
The cost of goods manufactured is determined by:
a) Adding beginning raw materials inventory to purchases
b) Adding total manufacturing costs to beginning finished goods inventory
c) Adding beginning finished goods inventory to total manufacturing costs
d) Adding raw materials costs to beginning work-in-process inventory
Answer: b) Adding total manufacturing costs to beginning finished goods inventory
A performance measure that compares actual performance against a benchmark is called:
a) Variance analysis
b) Profitability ratio
c) Efficiency ratio
d) Activity ratio
Answer: a) Variance analysis
Which of the following is most likely to be a variable cost?
a) Rent for office space
b) Direct labor for assembly workers
c) Property taxes
d) Insurance premiums
Answer: b) Direct labor for assembly workers
Which of the following is true about job order costing?
a) It is used when products are indistinguishable.
b) It is used when each unit or batch of products is unique.
c) It is used for continuous production.
d) It does not require the tracking of costs per job.
Answer: b) It is used when each unit or batch of products is unique.
Which of the following methods assumes that the oldest inventory is sold first?
a) FIFO
b) LIFO
c) Weighted average
d) Specific identification
Answer: a) FIFO
A company is considering a special order for 1,000 units at a price lower than the regular selling price. Which of the following costs should be considered when making the decision?
a) Fixed costs
b) Sunk costs
c) Variable costs
d) Depreciation on equipment
Answer: c) Variable costs
The margin of safety is calculated as:
a) Sales – Break-even sales
b) Break-even sales – Variable costs
c) Fixed costs – Contribution margin
d) Total sales / Contribution margin ratio
Answer: a) Sales – Break-even sales
What is the primary purpose of a master budget?
a) To plan the organization’s financial performance
b) To compare actual performance to expected performance
c) To allocate funds for each department
d) To record actual financial data
Answer: a) To plan the organization’s financial performance
Which of the following is an example of a discretionary fixed cost?
a) Depreciation on machinery
b) Rent on factory space
c) Advertising expenses
d) Salaries of permanent staff
Answer: c) Advertising expenses
A company produces 10,000 units of a product. The variable costs are $5 per unit, and the fixed costs are $50,000. What is the total cost for producing 10,000 units?
a) $50,000
b) $100,000
c) $150,000
d) $200,000
Answer: c) $150,000
The cost of inventory is calculated using which method?
a) FIFO
b) LIFO
c) Weighted average
d) All of the above
Answer: d) All of the above
In variance analysis, a favorable variance occurs when:
a) Actual costs are greater than budgeted costs
b) Actual revenues are less than budgeted revenues
c) Actual revenues are greater than budgeted revenues
d) Actual costs are less than budgeted costs
Answer: d) Actual costs are less than budgeted costs
Which of the following is most likely to use a process costing system?
a) Custom furniture manufacturer
b) Electronics manufacturer
c) Petroleum refinery
d) Software development company
Answer: c) Petroleum refinery
Which of the following best describes an indirect cost?
a) A cost that can be traced directly to a specific product or service.
b) A cost that cannot be traced directly to a specific product or service.
c) A cost that changes in total with changes in activity level.
d) A cost that remains fixed per unit of activity.
Answer: b) A cost that cannot be traced directly to a specific product or service.
What is the purpose of a flexible budget?
a) To calculate total expenses at various activity levels.
b) To set a fixed budget for the year.
c) To track actual expenses.
d) To allocate fixed costs across departments.
Answer: a) To calculate total expenses at various activity levels.
In a cost-volume-profit analysis, the contribution margin per unit is used to:
a) Determine the selling price per unit.
b) Calculate the break-even point in units.
c) Set the desired profit margin.
d) Calculate the total fixed costs.
Answer: b) Calculate the break-even point in units.
Which of the following is an example of a period cost?
a) Direct materials
b) Direct labor
c) Selling and administrative expenses
d) Factory rent
Answer: c) Selling and administrative expenses
The standard cost of direct materials is $5 per unit, and the company used 1,000 units for production. The actual cost was $4.50 per unit. What is the direct materials price variance?
a) $500 favorable
b) $500 unfavorable
c) $450 favorable
d) $450 unfavorable
Answer: a) $500 favorable
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