Sample Questions and Answers
Which of the following statements is true regarding cost behavior?
A) Variable costs remain constant regardless of the level of production
B) Fixed costs change with changes in the production level
C) Mixed costs have both fixed and variable components
D) Variable costs per unit change as production increases
Answer: C
A company’s break-even point in units can be found by dividing:
A) Total variable costs by the contribution margin
B) Total fixed costs by the unit contribution margin
C) Fixed costs plus variable costs by total sales
D) Total contribution margin by total sales
Answer: B
If a company has total revenue of $300,000 and variable costs of $180,000, what is the contribution margin?
A) $180,000
B) $120,000
C) $300,000
D) $500,000
Answer: B
In a manufacturing company, the cost of goods sold includes:
A) Only the direct materials used in production
B) Direct materials, direct labor, and manufacturing overhead
C) Only the selling expenses related to finished goods
D) Only the direct labor used in production
Answer: B
In job order costing, the journal entry to record the transfer of materials from raw materials inventory to work in process inventory is:
A) Debit Work in Process, Credit Raw Materials
B) Debit Raw Materials, Credit Work in Process
C) Debit Work in Process, Credit Manufacturing Overhead
D) Debit Raw Materials, Credit Accounts Payable
Answer: A
A company produces 1,000 units of a product with a fixed cost of $50,000 and variable costs of $25 per unit. What is the total cost of producing 1,000 units?
A) $75,000
B) $50,000
C) $275,000
D) $275,000 plus $50,000
Answer: A
What is the impact on operating income if a company increases its contribution margin ratio?
A) Operating income will decrease
B) Operating income will remain unchanged
C) Operating income will increase
D) Operating income will become zero
Answer: C
Which of the following is an example of a discretionary fixed cost?
A) Rent on a factory building
B) Depreciation on factory equipment
C) Advertising expenses
D) Salaries of production workers
Answer: C
Which of the following is true about the statement of cash flows prepared using the indirect method?
A) It starts with net income and adjusts for changes in working capital accounts
B) It starts with total revenue and adjusts for operating expenses
C) It starts with cash flows from operating activities and adjusts for investments
D) It does not require any adjustments for non-cash items
Answer: A
Which of the following is NOT a characteristic of managerial accounting?
A) It focuses on future planning and decision-making
B) It provides information to internal managers
C) It follows external reporting standards like GAAP
D) It is used for budgeting and performance evaluation
Answer: C
Which of the following best describes a fixed cost?
A) Costs that increase with production volume
B) Costs that remain constant regardless of production volume
C) Costs that vary based on sales volume
D) Costs that are directly tied to labor expenses
Answer: B
The direct materials cost for a company is $100,000. The direct labor cost is $200,000, and the manufacturing overhead is $50,000. What is the total manufacturing cost?
A) $350,000
B) $100,000
C) $450,000
D) $500,000
Answer: A
A company’s operating income can be calculated by subtracting:
A) Variable costs from total revenue
B) Fixed costs from total revenue
C) Cost of goods sold from gross profit
D) Total costs from gross profit
Answer: D
A company produces 5,000 units of product with a selling price of $50 per unit. The variable cost is $30 per unit, and the fixed costs are $60,000. What is the break-even sales volume in units?
A) 2,000 units
B) 3,000 units
C) 4,000 units
D) 5,000 units
Answer: B
In the context of cost accounting, which of the following best describes a cost driver?
A) An expense that is unrelated to production
B) A factor that causes a change in the cost of an activity
C) A cost that remains the same regardless of activity levels
D) A cost that can be easily traced to a specific product
Answer: B
The formula for calculating the margin of safety is:
A) Sales revenue minus break-even sales
B) Total fixed costs divided by contribution margin
C) Total variable costs divided by total revenue
D) Contribution margin divided by total sales
Answer: A
Which of the following would be considered a period cost in a manufacturing company?
A) Direct labor
B) Depreciation on factory equipment
C) Factory supervisor’s salary
D) Sales commission
Answer: D
The total cost of producing 1,000 units includes $50,000 in fixed costs and $30 per unit in variable costs. What is the total variable cost for 1,000 units?
A) $50,000
B) $30,000
C) $30,000 plus $50,000
D) $80,000
Answer: B
A company uses absorption costing, which includes both fixed and variable costs in the cost of goods sold. The primary purpose of absorption costing is:
A) To assign only variable costs to the product
B) To match all costs with revenues in the period they are incurred
C) To allocate fixed costs to the units produced during a period
D) To focus on the marginal cost of production
Answer: C
Which of the following is a common method of allocating overhead costs in a job order costing system?
A) Direct material costs
B) Direct labor hours
C) Activity-based costing
D) Total revenue
Answer: B
In the context of accounting, what is the primary purpose of the statement of cash flows?
A) To show the profitability of the company
B) To report the changes in the equity of the company
C) To provide information about the cash inflows and outflows during a period
D) To provide a detailed report of the company’s liabilities
Answer: C
A company has the following information for the year:
Sales revenue = $500,000
Cost of goods sold = $300,000
Fixed costs = $100,000
What is the company’s contribution margin?
A) $100,000
B) $200,000
C) $300,000
D) $500,000
Answer: B
If a company uses the direct method to prepare the statement of cash flows, which of the following is included in the operating activities section?
A) Depreciation
B) Proceeds from issuing stock
C) Payments to suppliers
D) Interest paid on bonds
Answer: C
Which of the following is true about activity-based costing (ABC)?
A) ABC assigns overhead costs based on the number of units produced
B) ABC assigns overhead costs based on activities that drive costs
C) ABC only considers variable costs for allocation
D) ABC does not use cost drivers
Answer: B
A company incurs $120,000 in fixed costs, and the unit selling price is $30 with variable costs of $15 per unit. What is the break-even point in units?
A) 4,000 units
B) 8,000 units
C) 12,000 units
D) 16,000 units
Answer: B
What type of cost is depreciation on office equipment?
A) Variable cost
B) Fixed cost
C) Mixed cost
D) Step cost
Answer: B
Which of the following is NOT a factor in the calculation of contribution margin?
A) Selling price per unit
B) Variable costs per unit
C) Fixed costs per unit
D) Contribution margin per unit
Answer: C
The term “operating income” refers to:
A) The revenue from all activities of the business
B) The income generated from regular operations before considering non-operating revenues and expenses
C) The income after deducting non-operating income and expenses
D) The total net income after all expenses and taxes
Answer: B
In job order costing, which of the following accounts is debited when the company incurs direct labor costs?
A) Work in Process
B) Manufacturing Overhead
C) Finished Goods
D) Raw Materials
Answer: A
Which of the following financial statements is used to assess a company’s ability to pay its short-term debts?
A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Statement of retained earnings
Answer: B
Which of the following would increase the cash flow from operating activities?
A) Decrease in accounts payable
B) Increase in accounts receivable
C) Depreciation expense
D) Decrease in inventory
Answer: C
A company applies overhead using a predetermined overhead rate based on machine hours. If actual machine hours worked are higher than estimated, what would happen to the applied overhead?
A) Applied overhead would be higher than actual overhead
B) Applied overhead would be lower than actual overhead
C) Applied overhead would be equal to actual overhead
D) Applied overhead would remain unaffected
Answer: A
What is the primary purpose of managerial accounting?
A) To provide financial information to external stakeholders
B) To ensure compliance with regulatory requirements
C) To assist management in planning, controlling, and decision-making
D) To prepare financial statements according to GAAP
Answer: C
A company is calculating its weighted average cost of capital (WACC). Which of the following is included in the WACC calculation?
A) The cost of equity
B) The average tax rate for the industry
C) The rate of return on inventory
D) The cost of government grants
Answer: A
In a flexible budget, how is the variance for sales revenue calculated?
A) By comparing actual sales revenue to the budgeted sales revenue
B) By comparing budgeted costs to actual costs
C) By comparing actual production to standard production
D) By comparing variable costs to fixed costs
Answer: A
What is the main advantage of using a master budget?
A) It provides detailed financial statements
B) It helps the company in tracking stock prices
C) It helps management plan and control the company’s financial activities
D) It eliminates the need for financial reporting
Answer: C
A company uses the high-low method to estimate variable costs. If the highest level of activity was 5,000 units at $10,000, and the lowest level was 1,000 units at $4,000, what is the variable cost per unit?
A) $1.00
B) $2.00
C) $1.50
D) $3.00
Answer: B
The direct labor cost variance can be calculated by comparing:
A) Actual labor costs to the standard labor costs for actual production
B) Actual labor hours worked to standard labor hours
C) Total labor costs to the variable labor costs
D) Standard labor rate to actual labor rate
Answer: A
Which of the following is an example of a sunk cost?
A) The cost of raw materials used in production
B) The cost of a machine purchased last year that cannot be recovered
C) The future cost of labor
D) The variable cost of selling an additional unit
Answer: B
If a company decides to discontinue a product line, which of the following should be considered when evaluating the decision?
A) The fixed costs that are directly associated with the product line
B) The fixed costs that will remain unaffected by discontinuation
C) The variable costs that will increase when the product line is discontinued
D) The opportunity cost of keeping the product line active
Answer: A
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