Cost Accounting and Budgeting Flashcards

Under absorption costing, when production exceeds sales, net income is:

Answer: Higher than variable costing net income

When production exceeds sales, fixed manufacturing overhead is deferred in ending inventory under absorption costing, resulting in higher net income compared to variable costing.

The weighted-average method of process costing differs from the FIFO method in that it:

Answer: Blends beginning inventory costs with current period costs

The weighted-average method combines beginning inventory costs with current period costs to compute a single average cost per equivalent unit.

A company's margin of safety is $80,000 and its actual sales are $200,000. What is the margin of safety percentage?

Answer: 40%

Margin of safety percentage = Margin of safety ÷ Actual sales = $80,000 ÷ $200,000 = 40%.

Which of the following best describes a 'sunk cost'?

Answer: A past cost that cannot be recovered and is irrelevant to future decisions

A sunk cost is a historical cost already incurred and unrecoverable, making it irrelevant to future business decisions.

In zero-based budgeting (ZBB), each budget period requires managers to:

Answer: Justify all expenditures from scratch rather than from a prior base

Zero-based budgeting requires every expense to be justified for each new period, starting from a zero base rather than the previous budget.

Which of the following is an assumption underlying cost-volume-profit (CVP) analysis?

Answer: Selling price per unit remains constant across all volume levels

CVP analysis assumes that the selling price per unit is constant, along with constant variable costs per unit and total fixed costs within the relevant range.

Which term describes the range of activity within which cost behavior assumptions remain valid?

Answer: Relevant range

The relevant range is the span of activity over which cost behavior patterns (fixed and variable) are assumed to hold true.